Advance Auto Parts 2004 Annual Report Download - page 23

Advance฀Auto฀Parts,฀Inc.฀and฀Subsidiaries
21
฀ Interest฀expense฀for฀2004฀was฀$20.1฀million,฀or฀0.5%฀of฀
net฀ sales,฀ as฀ compared฀ to฀ $37.6฀ million,฀ or฀ 1.1%฀ of฀ net฀
sales,฀in฀2003.฀The฀decrease฀in฀interest฀expense฀is฀a฀result฀
of฀lower฀overall฀interest฀rates฀resulting฀primarily฀from฀our฀
redemption฀ of฀ our฀ outstanding฀ senior฀ subordinated฀ notes฀
and฀senior฀discount฀debentures฀in฀the฀first฀quarter฀of฀fiscal฀
2003.฀Additionally,฀the฀decrease฀is฀a฀ result฀of฀lower฀aver-
age฀ outstanding฀ debt฀ levels฀ on฀ our฀ senior฀ credit฀ facility฀
throughout฀fiscal฀2004฀as฀compared฀to฀fiscal฀2003.
฀ Income฀ tax฀ expense฀ for฀ 2004฀ was฀ $117.7฀ million,฀ as฀
compared฀ to฀ $78.4฀ million฀ for฀ 2003.฀ This฀ increase฀ in฀
income฀tax฀expense฀primarily฀reflects฀our฀higher฀earnings.฀
Our฀ effective฀ income฀ tax฀ rate฀ was฀ 38.5%฀ for฀ both฀ 2004฀
and฀2003.
฀ We฀recorded฀net฀income฀of฀$188.0฀million,฀or฀$2.49฀per฀
diluted฀share฀for฀2004,฀as฀compared฀to฀$124.9฀million,฀or฀
$1.67฀per฀diluted฀share฀for฀2003.฀As฀a฀percentage฀of฀sales,฀
net฀income฀ for฀2004฀was฀ 5.0%,฀ as฀ compared฀to฀3.6%฀for฀
2003.฀ Our฀ net฀ income฀ for฀ 2003฀ included฀ the฀ effect฀ of฀
expenses฀associated฀with฀ merger฀and฀integration฀and฀loss฀
on฀ extinguishment฀ of฀ debt฀ of฀ $35.5฀ million,฀ or฀ $0.47฀ per฀
diluted฀share.
Fiscal฀2003฀Compared฀to฀Fiscal฀2002
฀ Net฀sales฀for฀2003฀were฀$3,493.7฀million,฀an฀increase฀of฀
$289.6฀million,฀or฀9.0%,฀over฀net฀sales฀for฀2002.฀Excluding฀
the฀effect฀of฀the฀53rd฀week฀our฀net฀sales฀increased฀$226.6฀
million,฀ or฀ 7.1%,฀ over฀ net฀ sales฀ for฀ 2002.฀ The฀ net฀ sales฀
increase฀ was฀ due฀ to฀ an฀ increase฀ in฀ the฀ comparable฀ store฀
sales฀of฀3.1%,฀driven฀by฀increases฀in฀both฀customer฀traffic฀
and฀ average฀ ticket฀ sales,฀ and฀ contributions฀ from฀ the฀ 125฀
new฀stores฀ opened฀within฀ the฀last฀year.฀Increases฀ in฀both฀
our฀DIY฀and฀DIFM฀businesses฀contributed฀to฀the฀compa-
rable฀store฀sales฀increase.
฀ Gross฀profit฀for฀2003฀was฀$1,604.5฀million,฀or฀45.9%฀of฀
net฀sales,฀as฀compared฀to฀$1,434.4฀million,฀or฀44.8%฀of฀net฀
sales,฀in฀2002.฀The฀increase฀in฀gross฀profit฀as฀a฀percentage฀
of฀sales฀reflects฀continued฀benefits฀realized฀from฀our฀cate-
gory฀ management฀initiatives฀and฀ improved฀efficiencies฀in฀
our฀logistics฀network.
฀ Selling,฀ general฀and฀administrative฀ expenses,฀including฀
merger฀ and฀ integration฀ costs฀ of฀ $10.4฀ million฀ in฀ 2003,฀
increased฀ to฀ $1,316.3฀ million,฀ or฀ 37.6%฀ of฀ net฀ sales,฀ for฀
2003,฀ from฀ $1,238.1฀ million,฀ or฀ 38.7%฀ of฀ net฀ sales,฀ for฀
2002.฀ In฀ 2002,฀ merger฀ and฀ integration฀ costs฀ were฀ $35.5฀
million.฀ The฀ decrease฀ in฀ selling,฀ general฀ and฀ administra-
tive฀ expenses฀ as฀ a฀ percentage฀ of฀ net฀ sales฀ is฀ primarily฀ a฀฀
result฀ of฀ a฀ decrease฀ in฀ merger฀ and฀ integration฀ expenses฀
related฀ to฀ the฀ integration฀ of฀ Discount.฀ These฀ integration฀
expenses฀ are฀ related฀ to,฀ among฀ other฀ things,฀ overlapping฀
administrative฀ functions฀ and฀ store฀ conversion฀ expenses.฀
The฀decline฀in฀merger฀and฀integration฀costs฀was฀anticipated฀
as฀we฀approached฀the฀completion฀of฀the฀Discount฀integra-
tion.฀ Excluding฀ the฀ impact฀ of฀ the฀ merger฀ and฀ integration฀
costs,฀ the฀ decline฀ in฀ selling,฀ general฀ and฀ administrative฀
expenses฀as฀a฀percentage฀of฀net฀sales฀is฀a฀result฀of฀leverag-
ing฀ our฀ fixed฀ costs฀ as฀ a฀ result฀ of฀ the฀ impact฀ of฀ the฀ 53rd฀
week฀of฀operations฀in฀the฀fourth฀quarter฀of฀2003.
฀ Interest฀expense฀for฀2003฀was฀$37.6฀million,฀or฀1.1%฀of฀
net฀ sales,฀ as฀ compared฀ to฀ $77.1฀ million,฀ or฀ 2.4%฀ of฀ net฀
sales,฀in฀2002.฀The฀decrease฀in฀interest฀expense฀is฀a฀result฀
of฀lower฀overall฀interest฀rates฀resulting฀primarily฀from฀our฀
redemption฀ of฀ our฀ outstanding฀ senior฀ subordinated฀ notes฀
and฀ senior฀ discount฀ debentures฀ in฀ first฀ quarter฀ 2003.฀
Additionally,฀the฀decrease฀is฀a฀result฀of฀overall฀lower฀debt฀
levels฀in฀2003฀as฀compared฀to฀2002.
฀ Income฀tax฀expense฀for฀2003฀was฀$78.4฀million,฀as฀com-
pared฀to฀$39.5฀million฀for฀2002.฀Our฀effective฀income฀tax฀
rate฀ decreased฀to฀ 38.5%฀for฀2003,฀as฀compared฀ to฀38.8%฀
for฀ 2002.฀ The฀ decrease฀ in฀ our฀ effective฀ tax฀ rate฀ was฀ pri-
marily฀due฀to฀increases฀in฀pre-tax฀income,฀which฀reduced฀
the฀impact฀of฀certain฀permanent฀differences฀on฀the฀ effec-
tive฀rate.
฀ During฀ 2003,฀ we฀ recorded฀ $47.3฀ million฀ in฀ a฀ loss฀ on฀
extinguishment฀of฀debt.฀This฀loss฀reflects฀the฀write-off฀of฀
deferred฀ loan฀ costs฀ and฀ premiums฀ paid฀ to฀ redeem฀ our฀
senior฀ subordinated฀ notes฀ and฀ senior฀ discount฀ debentures฀
during฀ the฀ first฀ quarter฀ of฀ fiscal฀ 2003,฀ and฀ also฀ includes฀
the฀ related฀ financing฀ costs฀ associated฀ with฀ amending฀ our฀
senior฀credit฀facility฀to฀finance฀this฀redemption.฀Addition-
ally,฀this฀loss฀includes฀the฀ratable฀portion฀of฀deferred฀loan฀
costs฀ associated฀ with฀ the฀ partial฀ repayment฀ of฀ our฀ term฀
loans฀during฀fiscal฀2003.
฀ We฀recorded฀net฀income฀of฀$124.9฀million,฀or฀$1.67฀per฀
diluted฀ share฀ for฀ 2003,฀ as฀ compared฀ to฀ $65.0฀ million,฀ or฀
$0.90฀per฀diluted฀share฀for฀2002.฀As฀a฀percentage฀of฀sales,฀
net฀income฀for฀2003฀ was฀3.6%,฀ as฀ compared฀to฀2.0%฀ for฀
2002.฀ The฀ effect฀ of฀ the฀ expenses฀ associated฀ with฀ merger฀
and฀integration฀and฀loss฀on฀extinguishment฀of฀debt฀on฀net฀
income฀ was฀ $35.5฀ million,฀ or฀ $0.47฀ per฀ diluted฀ share฀ for฀
2003฀ and฀ $32.0฀ million,฀ or฀ $0.44฀ per฀ diluted฀ share฀ for฀
2002.฀ These฀ per฀ share฀ amounts฀ reflect฀ the฀ two-for-one฀
stock฀split฀declared฀in฀2003.