Advance Auto Parts 2004 Annual Report Download - page 49

Advance฀Auto฀Parts,฀Inc.฀and฀Subsidiaries
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incurred฀but฀not฀ reported฀in฀order฀to฀assess฀the฀adequacy฀฀
of฀the฀Company’s฀insurance฀reserves.฀On฀a฀periodic฀basis,฀
the฀ Company฀ also฀ reviews฀ its฀ assumptions฀ with฀ the฀
Company’s฀third-party฀actuaries.฀While฀the฀Company฀does฀
not฀ expect฀ the฀ amounts฀ ultimately฀ paid฀ to฀ differ฀ signifi-
cantly฀from฀its฀estimates,฀the฀self-insurance฀reserves฀could฀฀
be฀affected฀if฀future฀claim฀experience฀differs฀significantly฀
from฀the฀historical฀trends฀and฀the฀actuarial฀assumptions.
฀ The฀ Company฀accrues฀ for฀tax฀ contingencies฀when฀ it฀is฀
probable฀ that฀ a฀ liability฀ to฀ a฀ taxing฀ authority฀ has฀ been฀
incurred฀and฀the฀amount฀of฀the฀contingency฀can฀be฀reason-
ably฀estimated,฀based฀on฀past฀experience.฀The฀Company’s฀
tax฀contingency฀reserve฀is฀adjusted฀for฀changes฀in฀circum-
stances฀ and฀ additional฀ uncertainties,฀ such฀ as฀ significant฀
amendments฀to฀ existing฀tax฀ law,฀ both฀ legislated฀ and฀con-
cluded฀through฀the฀various฀jurisdictions’฀tax฀court฀systems.฀
At฀ January฀ 1,฀ 2005,฀ the฀ Company฀ had฀ a฀ tax฀ contingency฀
reserve฀ of฀ $7,576.฀ It฀ is฀ the฀ opinion฀ of฀ the฀ Company’s฀฀
management฀ that฀ the฀ possibility฀ is฀ remote฀ that฀ costs฀ in฀
excess฀ of฀ those฀ reserved฀ for฀ will฀ have฀ a฀ material฀ adverse฀
impact฀ on฀ the฀ Company’s฀ financial฀ position฀ or฀ results฀ of฀
operations.
฀ The฀Company฀has฀entered฀into฀employment฀agreements฀
with฀ certain฀ team฀ members฀ that฀ provide฀ severance฀ pay฀
benefits฀ under฀ certain฀ circumstances฀ after฀ a฀ change฀ in฀฀
control฀ of฀ the฀ Company฀ or฀ upon฀ termination฀ of฀ the฀ team฀
member฀by฀the฀Company.฀The฀maximum฀contingent฀liabil-
ity฀ under฀ these฀ employment฀ agreements฀ is฀ approximately฀
$2,491฀and฀$2,408฀at฀January฀1,฀2005฀and฀January฀3,฀2004฀
of฀which฀nothing฀has฀been฀accrued,฀respectively.
18.฀Benefit฀Plans
401(k)฀Plan
฀ The฀ Company฀ maintains฀ a฀ defined฀ contribution฀ team฀
member฀benefit฀plan,฀ which฀ covers฀ substantially฀all฀ team฀
members฀ after฀ one฀ year฀ of฀ service฀ and฀ have฀ attained฀ the฀
age฀of฀twenty-one.฀The฀plan฀allows฀for฀team฀member฀salary฀
deferrals,฀which฀are฀matched฀at฀the฀Company’s฀discretion.฀
Company฀contributions฀were฀$6,752,฀$6,398฀and฀$6,930฀in฀
fiscal฀2004,฀fiscal฀2003฀and฀fiscal฀2002,฀respectively.
฀ The฀Company฀also฀maintains฀a฀profit฀sharing฀plan฀cov-
ering฀Western฀team฀members฀that฀was฀frozen฀prior฀to฀the฀
Western฀ merger฀on฀November฀2,฀1998.฀This฀ plan฀covered฀
all฀ full-time฀ team฀ members฀ who฀ had฀ completed฀ one฀ year฀
of฀service฀and฀had฀attained฀the฀age฀of฀twenty-one.
Deferred฀Compensation
฀ During฀ the฀ third฀ quarter฀ of฀ fiscal฀ 2003,฀ the฀ Company฀
established฀an฀unqualified฀deferred฀compensation฀plan฀for฀฀
certain฀ team฀ members.฀ The฀ Company฀ has฀ accounted฀ for฀฀
the฀unqualified฀deferred฀compensation฀plan฀in฀accordance฀฀
with฀EITF฀97-14,฀“Accounting฀for฀Deferred฀Compensation฀
Arrangements฀Where฀Amounts฀Earned฀Are฀Held฀in฀a฀Rabbi฀
Trust฀ and฀ Invested.”฀ The฀ liability฀ related฀ to฀ the฀ former฀
Discount฀ deferred฀ compensation฀ plan,฀ which฀ was฀ termi-
nated฀ in฀ May฀ 2002,฀ was฀ merged฀ into฀ the฀ new฀ plan.฀ This฀
plan฀ provides฀ for฀ a฀ minimum฀ and฀ maximum฀ deferral฀฀
percentage฀ of฀ the฀ team฀ members฀ base฀ salary฀ and฀ bonus,฀฀
as฀ determined฀ by฀ the฀ Retirement฀ Plan฀ Committee.฀ The฀
Company฀ establishes฀ and฀ maintains฀ a฀ deferred฀ compen-
sation฀liability฀for฀this฀plan.฀The฀Company฀funds฀this฀lia-
bility฀by฀remitting฀the฀team฀member’s฀deferral฀to฀a฀Rabbi฀
Trust฀where฀these฀deferrals฀are฀invested฀in฀trading฀securi-
ties.฀Accordingly,฀all฀gains฀and฀losses฀on฀these฀underlying฀
investments,฀ which฀ are฀ held฀ in฀ the฀ Rabbi฀ Trust฀ to฀ fund฀฀
the฀ deferred฀compensation฀liability,฀are฀recognized฀in฀the฀
Company’s฀ consolidated฀ statements฀ of฀ operations.฀ At฀
January฀1,฀2005฀and฀January฀3,฀2004฀these฀liabilities฀were฀
$1,840฀and฀$1,011,฀respectively.
฀ The฀Company฀maintains฀an฀unfunded฀deferred฀compen-
sation฀ plan฀ established฀ for฀ certain฀ key฀ team฀ members฀ of฀
Western฀ prior฀ to฀ the฀ fiscal฀ 1998฀ Western฀ merger.฀ The฀
Company฀ assumed฀ the฀ plan฀ liability฀ of฀ $15,253฀ through฀
the฀ Western฀ merger.฀ The฀ plan฀ was฀ frozen฀ at฀ the฀ date฀ of฀฀
the฀Western฀merger.฀As฀of฀January฀1,฀2005฀and฀January฀3,฀
2004,฀ $1,598฀ and฀ $2,409,฀ respectively,฀ was฀ accrued฀ for฀
these฀ plans฀ with฀ the฀ current฀ portion฀ included฀ in฀ accrued฀
expenses฀and฀the฀long-term฀portion฀in฀other฀long-term฀lia-
bilities฀in฀the฀accompanying฀consolidated฀balance฀sheets.
Postretirement฀Plan
฀ The฀Company฀provides฀certain฀health฀care฀and฀life฀insur-
ance฀benefits฀for฀eligible฀retired฀team฀members฀through฀a฀
postretirement฀plan,฀or฀the฀Plan.฀These฀benefits฀are฀subject฀
to฀ deductibles,฀ co-payment฀ provisions฀ and฀ other฀ limita-
tions.฀The฀Plan฀has฀no฀assets฀and฀is฀funded฀on฀a฀cash฀basis฀
as฀ benefits฀ are฀ paid.฀ During฀ the฀ second฀ quarter฀ of฀ fiscal฀
2004,฀the฀Company฀amended฀the฀Plan฀to฀exclude฀outpatient฀
prescription฀ drug฀ benefits฀ to฀ Medicare-eligible฀ retirees฀
effective฀January฀1,฀2006.฀Due฀to฀this฀negative฀plan฀amend-
ment,฀ the฀ Company’s฀ accumulated฀ postretirement฀ benefit฀
obligation฀ was฀ reduced฀ by฀ $7,557,฀ resulting฀ in฀ an฀ unrec-
ognized฀ negative฀ prior฀ service฀ cost฀ in฀ the฀ same฀ amount.฀
The฀ unrecognized฀ negative฀ prior฀ service฀ cost฀ is฀ being฀
amortized฀over฀the฀estimated฀remaining฀life฀expectancy฀of฀
the฀ plan฀ participants฀ of฀ 13฀ years฀ as฀ allowed฀ under฀ SFAS฀
No.฀ 106,฀ “Employers฀ Accounting฀ for฀ Postretirement฀
Benefits฀Other฀Than฀Pensions.”