Advance Auto Parts 2005 Annual Report Download - page 25

acquired and the liabilities assumed based on the fair
values at the date of acquisition. This allocation
resulted in the recognition of $50.4 million in good-
will and identifiable intangible assets. Furthermore,
an additional $12.5 million is contingently payable
based upon the achievement of certain synergies, as
defined in the Purchase Agreement, through fiscal
2008, which will be reflected in the statement of
operations when earned. In July 2005, we also com-
pleted the acquisition of substantially all the assets
of Lappen Auto Supply, including 19 stores in the
greater Boston metro area.
Stock Repurchase Program
During the third quarter of fiscal 2005, our Board
of Directors authorized a new stock repurchase pro-
gram of up to $300 million of our common stock
plus related expenses. The program, which became
effective August 15, 2005, replaced the remaining
portion of a $200 million stock repurchase program
that had been authorized by our Board of Directors
during third quarter of fiscal 2004. The program
allows us to repurchase our common stock on the
open market or in privately negotiated transactions
from time to time in accordance with the require-
ments of the Securities and Exchange Commission.
Stock Split
On August 10, 2005, our Board of Directors
declared a 3-for-2 stock split of our common stock,
effected as a 50% stock dividend. The dividend was
distributed on September 23, 2005 to holders of
record as of September 9, 2005, and our stock began
trading on a post-split basis on September 26, 2005.
Our results reflect the effect of the stock split for all
years represented.
Hurricane and Fire Impact
During the second half of fiscal 2005, Hurricanes
Katrina, Rita and Wilma impacted our operations
throughout the states of Alabama, Florida, Louisiana,
Mississippi and Texas. At the time these storms hit,
we operated approximately 750 stores throughout
these states. Over 70% of these locations experienced
some kind of physical damage and even more suf-
fered sales disruptions. Additionally, we believe we
experienced sales disruptions resulting from the
economic impact of increased fuel prices on our
customer base throughout all of our markets immedi-
ately following these hurricanes. We also incurred
and recognized incremental expenses associated with
compensating our Team Members for scheduled work
hours for which stores were closed, and food and
supplies provided to our Team Members and their
families. While these sales disruptions and related
incremental expenses are not recoverable from our
insurance carrier, the insurance coverage provides for
the recovery of physical damage at cost, damaged
merchandise at retail values and damaged capital
assets at replacement cost. Additionally, during fiscal
2005 we lost two store locations due to fire.
For the year ended December 31, 2005, we estimat-
ed and reflected in earnings the fixed costs of all
damage offset by the realizable insurance recoveries,
net of deductibles. Accordingly, earnings for 2005
reflect the recovery of substantially all of these fixed
costs. A portion of these recoveries includes the
settlement with our insurance carrier for the retail
value of certain damaged inventory. Moreover, we
may receive additional recoveries beyond our record-
ed receivable as we settle additional claims for
damaged inventory at retail value and for damaged
capital assets at replacement value.
COMMERCIAL PROGRAM
As indicated in the operating results table above,
our commercial program produced strong revenues
during fiscal 2005. We attribute this performance to the
execution of our commercial plan, which consists of:
• Targeting commercial customers with a hard parts
focus;
• Targeting commercial customers who need access
to a wide selection of inventory;
• Targeting customers within a tight delivery radius
of our stores;
• Moving inventory closer to our commercial
customers to ensure quicker deliveries;
• Growing our market share of the commercial
market through internal growth and selected
acquisitions;
• Providing trained parts experts to assist commercial
customers’ merchandise selections; and
• Providing credit solutions to our commercial
customers through our commercial credit program.
Commercial sales represented approximately 22%
of our consolidated total sales for the fiscal year
compared to almost 18% in fiscal 2004. At
December 31, 2005, we operated commercial pro-
grams in 78% of our stores, including the 62 AI
stores, up from approximately 73% at the end of the
prior fiscal year. We anticipate growing our number
of commercial programs to approximately 85% of
our total store base over time. We believe we have
the potential to grow our share of the commercial
business in each of our markets.
We believe the continued execution of our com-
mercial plan and growth in our commercial pro-
grams will result in double-digit comparable store
net sales growth in our commercial business for the
foreseeable future. We believe the acquisition of AI
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