Advance Auto Parts 2004 Annual Report Download - page 28

26
Credit฀Ratings
฀ At฀January฀1,฀2005,฀we฀had฀a฀credit฀rating฀on฀our฀senior฀
credit฀facility฀from฀Standard฀&฀Poor’s฀of฀BB+฀and฀a฀credit฀
rating฀of฀Ba2฀from฀Moody’s฀Investor฀Service.฀The฀current฀
pricing฀grid฀used฀to฀determine฀our฀borrowing฀rates฀under฀
our฀ senior฀ credit฀ facility฀ is฀ based฀ on฀ such฀ credit฀ ratings.฀฀
If฀ these฀ credit฀ ratings฀ decline,฀ our฀ interest฀ expense฀ may฀
increase.฀ Conversely,฀ if฀ these฀ credit฀ ratings฀ increase,฀ our฀
interest฀expense฀may฀decrease.
Seasonality
฀ Our฀ business฀ is฀ somewhat฀ seasonal฀ in฀ nature,฀ with฀ the฀
highest฀sales฀occurring฀in฀the฀spring฀and฀summer฀months.฀
In฀addition,฀our฀business฀can฀be฀affected฀by฀weather฀฀
conditions.฀ While฀ unusually฀ heavy฀ precipitation฀ tends฀ to฀฀
soften฀ sales฀ as฀ elective฀ maintenance฀ is฀ deferred฀ during฀
such฀ periods,฀ extremely฀ hot฀ or฀ cold฀ weather฀ tends฀ to฀
enhance฀sales฀by฀causing฀automotive฀parts฀to฀fail.
Recent฀Accounting฀Pronouncements
฀ In฀ April฀ 2002,฀ the฀ FASB฀ issued฀ SFAS฀ No.฀ 145,฀
“Rescission฀ of฀ FASB฀ Statements฀ No.฀ 4,฀ 44฀ and฀ 64,฀
Amendment฀ of฀ FASB฀ Statement฀ No.฀ 13฀ and฀ Technical฀
Corrections.”฀ As฀ a฀ result฀ of฀ rescinding฀ FASB฀ Statement฀
No.฀ 4,฀ “Reporting฀ Gains฀ Losses฀ from฀ Extinguishment฀ of฀
Debt,”฀gains฀and฀losses฀from฀extinguishment฀of฀debt฀should฀
be฀classified฀as฀extraordinary฀ items฀only฀if฀they฀meet฀the฀
criteria฀ in฀ APB฀ Opinion฀ No.฀ 30,฀ “Reporting฀ the฀ Results฀฀
of฀ Operations—Reporting฀ the฀ Effects฀ of฀ Disposal฀ of฀ a฀
Segment฀ of฀ a฀ Business,฀ and฀ Extraordinary,฀ Unusual฀ and฀
Infrequently฀ Occurring฀ Events฀ and฀ Transactions.”฀ This฀
statement฀also฀amends฀FASB฀Statement฀No.฀13,฀“Accounting฀
for฀ Leases,”฀ to฀ eliminate฀ an฀ inconsistency฀ between฀ the฀
required฀accounting฀for฀sale-leaseback฀transactions฀and฀the฀
required฀ accounting฀ for฀ certain฀ lease฀ modifications฀ that฀
have฀ economic฀ effects฀ that฀ are฀ similar฀ to฀ sale-leaseback฀
transactions.฀ Additional฀ amendments฀ include฀ changes฀ to฀
other฀existing฀authoritative฀pronouncements฀to฀make฀vari-
ous฀ technical฀ corrections,฀ clarify฀ meanings฀ or฀ describe฀
their฀ applicability฀ under฀ changed฀ conditions.฀ We฀ adopted฀
SFAS฀No.฀145฀during฀the฀first฀quarter฀of฀fiscal฀2003.฀For฀
the฀fiscal฀years฀ended฀2004,฀2003฀and฀2002,฀we฀recorded฀
losses฀ on฀ the฀ extinguishment฀ of฀ debt฀ of฀ $3,230,฀ $47,288฀
and฀$16,822,฀respectively.
฀ In฀ July฀ 2003฀ (as฀ subsequently฀ updated฀ in฀ November฀
2003),฀the฀FASB฀released฀Emerging฀Issues฀Task฀Force,฀or฀
EITF,฀Issue฀No.฀03-10,฀“Application฀of฀Issue฀No.฀02-16฀by฀
Resellers฀ to฀ Sales฀ Incentives฀ Offered฀ to฀ Customers฀ by฀
Manufacturers.”฀ This฀ EITF฀ addresses฀ whether฀ a฀ reseller฀
should฀ account฀ for฀ consideration฀ received฀ from฀ a฀ vendor฀฀
that฀ is฀ a฀ reimbursement฀ by฀ the฀ vendor฀ for฀ honoring฀ the฀
vendor’s฀ sales฀incentives฀offered฀directly฀to฀consumers฀ in฀
accordance฀with฀the฀guidance฀in฀EITF฀Issue฀No.฀02-16.฀For฀
purposes฀of฀this฀Issue,฀the฀“vendor’s฀sales฀incentive฀offered฀
directly฀ to฀ consumers”฀ is฀ limited฀ to฀ a฀ vendor’s฀ incentive฀฀
(i)฀ that฀ can฀ be฀ tendered฀ by฀ a฀ consumer฀ at฀ resellers฀ that฀
accept฀ manufacturer’s฀ incentives฀ in฀ partial฀ (or฀ full)฀ of฀฀
the฀price฀charged฀by฀the฀reseller฀for฀the฀vendor’s฀product,฀
(ii)฀for฀which฀the฀reseller฀receives฀a฀direct฀reimbursement฀
from฀ the฀ vendor฀ (or฀ a฀ clearinghouse฀ authorized฀ by฀ the฀฀
vendor)฀based฀on฀the฀face฀amount฀of฀the฀incentive,฀(iii)฀for฀
which฀ the฀ terms฀ of฀ reimbursement฀ to฀ the฀ reseller฀ for฀ the฀
vendor’s฀sales฀incentive฀offered฀to฀the฀consumer฀must฀not฀
be฀ influenced฀ by฀ or฀ negotiated฀ in฀ conjunction฀ with฀ any฀
other฀ incentive฀arrangements฀between฀the฀vendor฀and฀the฀
reseller฀but,฀rather฀may฀only฀be฀determined฀by฀the฀terms฀of฀
the฀ incentive฀ offered฀ to฀ consumers฀ and฀ (iv)฀ whereby฀ the฀
reseller฀is฀subject฀to฀an฀agency฀relationship฀with฀ the฀ven-
dor,฀ whether฀ expressed฀ or฀ implied,฀ in฀ the฀ sales฀ incentive฀
transaction฀ between฀ the฀ vendor฀ and฀ the฀ consumer.฀ The฀
consensus฀ is฀ that฀ sales฀ incentives฀ that฀ meet฀ all฀ of฀ such฀฀
criteria฀are฀not฀subject฀to฀the฀guidance฀in฀Issue฀No.฀02-16.฀
The฀ release฀ is฀ effective฀for฀fiscal฀ periods฀ beginning฀after฀
November฀ 25,฀ 2003.฀ We฀ adopted฀ this฀ release฀ during฀ the฀
first฀quarter฀of฀fiscal฀2004฀with฀no฀impact฀on฀our฀financial฀
position฀or฀results฀of฀operations.
฀ In฀May฀2004,฀the฀FASB฀issued฀FASB฀Staff฀Position,฀or฀
FSP,฀ 106-2,฀ “Accounting฀ and฀ Disclosure฀ Requirements฀
Related฀ to฀ the฀ Medicare฀ Prescription฀ Drug,฀ Improvement฀
and฀ Modernization฀ Act฀ of฀ 2003.”฀ FSP฀ 106-2฀ addresses฀฀
the฀ appropriate฀ accounting฀ and฀ disclosure฀ requirements฀฀
for฀ companies฀ that฀ sponsor฀ a฀ postretirement฀ health฀ care฀
plan฀ that฀ provides฀ prescription฀ drug฀ benefits.฀ The฀ new฀
guidance฀ was฀ deemed฀ necessary฀ as฀ a฀ result฀ of฀ the฀ 2003฀
Medicare฀ prescription฀ law฀ which฀ includes฀ a฀ federal฀ sub-
sidy฀ for฀ qualifying฀ companies.฀ The฀ effective฀ date฀ of฀ FSP฀
106-2฀is฀the฀first฀interim฀or฀annual฀period฀beginning฀after฀
June฀15,฀2004.฀We฀completed฀a฀negative฀plan฀amendment฀
to฀eliminate฀outpatient฀prescription฀drug฀benefits฀from฀our฀
postretirement฀plan฀effective฀in฀the฀second฀quarter฀of฀fiscal฀
2004;฀therefore,฀the฀adoption฀of฀FSP฀106-2฀had฀no฀impact฀
on฀ our฀ financial฀ position,฀ results฀ of฀ operations฀ or฀ related฀
footnote฀disclosure.
Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations฀(continued)