Advance Auto Parts 2003 Annual Report Download - page 41

The provision (benefit) for income taxes from continuing
operations differed from the amount computed by applying
the federal statutory income tax rate due to:
2003 2002 2001
Income from continuing operations
before cumulative effect of a
change in accounting principle
at statutory U.S. federal income
tax rate............................................ $71,298 $35,587 $ 6,424
State income taxes, net of federal
income tax benefit.......................... 6,399 4,386 (1,481)
Non-deductible interest and
other expenses................................ 1,263 914 1,067
Valuation allowance ........................... (1,002) 241 44
Other, net............................................ 466 (1,598) 1,230
$78,424 $39,530 $ 7,284
During the years ended January 3, 2004, December 28,
2002, and December 29, 2001, the Company had a (loss)
income from operations of the discontinued Wholesale
Dealer Network of $(572), $4,691, and $4,040, respectively.
The Company recorded an income tax (benefit) expense of
$(220), $1,820 and $1,604 related to these discontinued oper-
ations for the years ended January 3, 2004, December 28,
2002, and December 29, 2001, respectively. During the year
ended December 29, 2001, the Company recorded the
cumulative effect of a change in accounting principle of
$3,425. The Company recorded an income tax benefit of
$1,360 related to this cumulative effect for the year ended
December 29, 2001.
Deferred income taxes are recognized for the tax conse-
quences in future years of differences between the tax bases
of assets and liabilities and their financial reporting
amounts at each period-end, based on enacted tax laws and
statutory income tax rates applicable to the periods in which
the differences are expected to affect taxable income.
Deferred income taxes reflect the net income tax effect
of temporary differences between the bases of assets and
liabilities for financial reporting purposes and for income
tax reporting purposes. Net deferred income tax balances
are comprised of the following:
January 3, December 28,
2004 2002
Deferred income tax assets........................ $ 38,441 $ 82,555
Valuation allowance................................... (793) (1,795)
Deferred income tax liabilities .................. (100,989) (90,363)
Net deferred income tax (liabilities).......... $ (63,341) $ (9,603)
The Company incurred financial reporting and tax losses
in 1999 primarily due to integration and interest costs
incurred as a result of the fiscal 1998 Western merger and the
1998 recapitalization. At January 3, 2004 and December 28,
2002, the Company has cumulative net deferred income tax
liabilities of $63,341 and $9,603, respectively. The gross
deferred income tax assets also include state net operating
loss carryforwards, or NOLs, and state tax credit carryfor-
wards of approximately $6,695 and $594, respectively.
These NOLs and state tax credit carryforwards may be used
to reduce future taxable income and expire periodically
through fiscal year 2022. The Company believes it will
realize these tax benefits through a combination of the
reversal of temporary differences, projected future taxable
income during the NOL carryforward periods and available
tax planning strategies. Due to uncertainties related to the
realization of certain deferred tax assets for NOLs in various
jurisdictions, the Company recorded a valuation allowance
of $793 as of January 3, 2004 and $1,795 as of December 28,
2002. The amount of deferred income tax assets realizable,
however, could change in the near future if estimates of
future taxable income are changed.
Temporary differences which give rise to significant
deferred income tax assets (liabilities) are as follows:
January 3, December 28,
2004 2002
Current deferred income tax assets
(liabilities):
Inventory differences.......................... $(51,604) $(53,372)
Accrued medical and workers’
compensation.................................. 6,755 8,355
Accrued expenses not currently
deductible for tax............................ 17,466 21,490
Net operating loss carryforwards ....... 3,567 16,426
Minimum tax credit carryforward
(no expiration)................................ —7,611
Total current deferred income tax
assets (liabilities)............................ $(23,816) $ 510
Long-term deferred income tax
assets (liabilities):
Property and equipment ..................... $(47,318) $(36,991)
Postretirement benefit obligation ....... 6,931 7,393
Unamortized bond discount ............... —12,980
Net operating loss carryforwards ....... 3,128 7,312
Tax credit carryforwards .................... 594 594
Valuation allowance ........................... (793) (1,795)
Other, net............................................ (2,067) 394
Total long-term deferred income
tax assets (liabilities)...................... $(39,525) $(10,113)
Page 39
Advance Auto Parts, Inc. and Subsidiaries