Advance Auto Parts 2004 Annual Report Download - page 25

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Advance฀Auto฀Parts,฀Inc.฀and฀Subsidiaries
23
payment฀ at฀ an฀ agreed฀ upon฀ discount฀ rate.฀ At฀ January฀ 1,฀
2005,฀ $56.9฀million฀was฀payable฀to฀the฀ bank฀ by฀us฀under฀฀
this฀program.฀This฀program฀will฀allow฀us฀to฀further฀reduce฀
our฀ working฀ capital฀ invested฀ in฀ current฀ inventory฀ levels฀
and฀finance฀future฀inventory฀growth.฀Additionally,฀our฀new฀
senior฀ credit฀ facility฀ allows฀ us฀ to฀ increase฀ our฀ capacity฀
under฀ this฀ program฀ from฀ $100฀ million฀ to฀ $150฀ million฀
during฀2005.
Stock฀Repurchase฀Program
฀ During฀ the฀ third฀ quarter฀ of฀ fiscal฀ 2004,฀ our฀ Board฀ of฀
Directors฀authorized฀a฀stock฀repurchase฀program฀of฀up฀to฀
$200.0฀million฀of฀our฀common฀stock฀plus฀related฀expenses.฀
The฀ program฀ will฀ allow฀ us฀ to฀ repurchase฀ our฀ common฀
stock฀on฀the฀open฀market฀or฀in฀privately฀negotiated฀trans-
actions฀from฀time฀to฀time฀in฀accordance฀with฀the฀require-
ments฀of฀the฀Securities฀and฀Exchange฀Commission.฀As฀of฀
January฀1,฀2005,฀we฀had฀repurchased฀a฀total฀of฀3.7฀million฀
shares฀ of฀ common฀ stock฀ at฀ an฀ aggregate฀ cost฀ of฀ $146.2฀
million,฀or฀ $39.52฀per฀share.฀At฀ January฀1,฀2005,฀ we฀had฀
$53.8฀ million,฀ excluding฀ related฀ expenses,฀ available฀ for฀
future฀ stock฀ repurchases฀ under฀ the฀ stock฀ repurchase฀ pro-
gram.฀As฀of฀March฀9,฀2005,฀we฀had฀repurchased฀an฀addi-
tional฀1.0฀million฀shares฀of฀common฀stock฀at฀an฀aggregate฀
cost฀of฀$43.0฀million.
Deferred฀Compensation฀and฀Postretirement฀Plans
฀ We฀ maintain฀ two฀ deferred฀ compensation฀ plans.฀ Our฀
ongoing฀ plan฀ was฀ established฀ in฀ 2003฀ as฀ an฀ unqualified฀
deferred฀compensation฀plan฀established฀for฀certain฀of฀our฀
key฀team฀members.฀This฀plan฀provides฀for฀a฀minimum฀and฀
maximum฀ deferral฀ percentage฀ of฀ the฀ team฀ member฀ base฀
salary฀ and฀ bonus,฀ as฀ determined฀ by฀ our฀ Retirement฀ Plan฀
Committee.฀ We฀ fund฀ the฀ plan฀ liability฀ by฀ remitting฀ the฀
team฀member’s฀deferral฀to฀a฀Rabbi฀Trust฀where฀these฀defer-
rals฀ are฀ invested฀ in฀ trading฀ securities.฀ Accordingly,฀ all฀
gains฀and฀losses฀on฀these฀underlying฀investments฀are฀held฀
in฀the฀Rabbi฀Trust฀to฀fund฀the฀deferred฀compensation฀lia-
bility.฀At฀January฀1,฀2005,฀the฀liability฀related฀to฀this฀plan฀
was฀$1.8฀million,฀all฀of฀which฀is฀current.฀We฀also฀maintain฀
an฀unfunded฀deferred฀compensation฀plan฀established฀prior฀
to฀the฀1998฀Western฀merger฀for฀certain฀key฀team฀members฀
of฀Western.฀The฀plan฀was฀frozen฀at฀the฀date฀of฀the฀Western฀
merger.฀ At฀ January฀ 1,฀ 2005,฀ the฀ total฀ liability฀ for฀ the฀
Western฀ plan฀ was฀ $1.6฀ million,฀ of฀ which฀ $0.3฀ million฀ is฀
recorded฀ as฀ a฀ current฀ liability.฀ The฀ classification฀ for฀ the฀
Western฀deferred฀compensation฀plan฀is฀determined฀by฀pay-
ment฀ terms฀ elected฀ by฀ plan฀ participants,฀ which฀ can฀ be฀
changed฀upon฀12฀months’฀notice.
฀ We฀provide฀certain฀health฀care฀and฀life฀insurance฀bene-
fits฀for฀eligible฀retired฀team฀members฀through฀our฀post-
retirement฀ plan.฀ At฀ January฀ 1,฀ 2005,฀ our฀ accrued฀ benefit฀
cost฀related฀to฀this฀plan฀was฀$17.4฀million.฀The฀plan฀has฀no฀
assets฀and฀is฀funded฀on฀a฀cash฀basis฀as฀benefits฀are฀paid/
incurred.฀The฀discount฀rate฀that฀we฀utilize฀for฀determining฀
our฀ postretirement฀ benefit฀ obligation฀ is฀ actuarially฀ deter-
mined.฀ The฀discount฀rate฀ utilized฀ at฀ January฀1,฀2005฀ and฀
January฀ 4,฀ 2004฀ was฀ 5.75%฀ and฀ 6.25%,฀ respectively.฀ We฀
reserve฀ the฀ right฀ to฀ change฀ or฀ terminate฀ the฀ benefits฀ or฀
contributions฀ at฀ any฀ time.฀ We฀ also฀ continue฀ to฀ evaluate฀
ways฀ in฀ which฀ we฀ can฀ better฀ manage฀ these฀ benefits฀ and฀
control฀ costs.฀ Any฀ changes฀ in฀ the฀ plan฀ or฀ revisions฀ to฀
assumptions฀ that฀ affect฀ the฀ amount฀ of฀ expected฀ future฀฀
benefits฀ may฀ have฀ a฀ significant฀ impact฀ on฀ the฀ amount฀ of฀
the฀reported฀obligation฀and฀annual฀expense.฀Effective฀sec-
ond฀quarter฀of฀fiscal฀2004,฀we฀amended฀the฀Plan฀to฀exclude฀
outpatient฀ prescription฀ drug฀ benefits฀ to฀ Medicare-eligible฀
retirees฀ effective฀ January฀ 1,฀ 2006.฀ Due฀ to฀ this฀ negative฀
plan฀ amendment,฀ our฀ accumulated฀ postretirement฀ benefit฀
obligation฀ was฀ reduced฀ by฀ $7.6฀ million,฀ resulting฀ in฀ an฀
unrecognized฀ negative฀ prior฀ service฀ cost฀ in฀ the฀ same฀
amount.฀ The฀ unrecognized฀ negative฀ prior฀ service฀ cost฀ is฀
being฀amortized฀over฀the฀estimated฀remaining฀life฀expec-
tancy฀of฀the฀plan฀participants฀of฀13฀years.
Analysis฀of฀Cash฀Flows
Fiscal฀Year
2004 2003 2002
(in฀millions)
Cash฀flows฀from฀operating฀฀
activities฀..................................... $฀ 263.7 $฀ 355.9 $฀243.0
Cash฀flows฀from฀investing฀฀
activities฀..................................... (166.8) (85.5) (78.0)
Cash฀flows฀from฀financing฀฀
activities฀..................................... (52.1) (272.8) (169.2)
Net฀increase฀(decrease)฀in฀cash฀
and฀cash฀equivalents฀.................. $฀ 44.8 $฀ (2.4) $฀ (4.2)
Operating฀Activities
฀ For฀fiscal฀ 2004,฀ net฀ cash฀provided฀by฀operating฀activi-
ties฀decreased฀$92.2฀million฀to฀$263.7฀million.฀Significant฀
components฀of฀this฀decrease฀consisted฀of:
•฀ ฀a฀$63.1฀million฀increase฀in฀earnings฀from฀fiscal฀2003;
•฀ ฀a฀ $47.2฀ million฀ reduction฀ in฀ deferred฀ income฀ tax฀ pro-
vision,฀primarily฀reflective฀of฀(1)฀the฀reduction฀in฀oper-
ating฀ loss฀ carryforwards฀ from฀ prior฀ years฀ and฀ (2)฀ the฀
impact฀of฀the฀loss฀on฀extinguishment฀of฀debt฀from฀฀
fiscal฀2003;