Advance Auto Parts 2005 Annual Report Download - page 31

program allows us to reduce further our working cap-
ital invested in current inventory levels and finance
future inventory growth. Our capacity under this pro-
gram increased $50 million to $150 million during
fiscal 2005. At December 31, 2005, $119.4 million
was payable to the bank by us under this program.
Stock Repurchase Program
During the third quarter of fiscal 2005, our Board
of Directors authorized a program to repurchase 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 authorized by
our Board of Directors in 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.
As of December 31, 2005, we had repurchased a total
of 1.5 million shares of common stock under the new
program, at an aggregate cost of $59.5 million, or an
average price of $38.84 per share, excluding related
expenses. Under our previous stock repurchase pro-
gram, we repurchased 7.0 million shares of common
stock at an aggregate cost of $189.2 million, or an
average price of $26.91 per share, excluding related
expenses. At December 31, 2005, $0.9 million of
stock repurchases remained unsettled.
During the third quarter of fiscal 2005, we also
retired 7.1 million shares of common stock, of which
0.1 million shares were repurchased under the $300
million stock repurchase plan, and 7.0 million shares
were repurchased under our previous $200 million
stock repurchase program.
At December 31, 2005, we had $240.5 million,
excluding related expenses, available for future stock
repurchases under the stock repurchase program. As
of March 13, 2006, we had repurchased an additional
0.4 million shares of common stock at an aggregate
cost of $18.7 million.
Deferred Compensation
and Postretirement Plans
We maintain a non-qualified deferred compen-
sation 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 Members’ deferrals to
a Rabbi Trust where these deferrals are invested in
certain life insurance contracts. Accordingly, the
cash surrender value on these contracts is held in the
Rabbi Trust to fund the deferred compensation lia-
bility. At December 31, 2005, the liability related to
this plan was $2.7 million, all of which is current.
We provide certain health care and life insurance
benefits for eligible retired Team Members through
our postretirement plan. At December 31, 2005, our
accrued benefit cost related to this plan was $16.3
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 determined. The
discount rate utilized at December 31, 2005 and
January 1, 2005 was 5.5% and 5.75%, respectively.
We reserve the right to change or terminate the bene-
fits 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 second quarter of 2004, we
amended the plan to exclude outpatient prescription
drug benefits to Medicare eligible retirees effective
January 1, 2006. Due to this negative plan amend-
ment, our accumulated postretirement benefit obliga-
tion 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 13-year estimated
remaining life expectancy of the plan participants.
Analysis of Cash Flows
Fiscal Year
(in millions) 2005 2004 2003
Cash flows from operating activities.... $325.2 $263.7 $355.9
Cash flows from investing activities..... (302.8) (166.8) (85.5)
Cash flows from financing activities .... (37.9) (52.1) (272.8)
Net (decrease) increase in cash and
cash equivalents................................ $ (15.5) $ 44.8 $ (2.4)
Operating Activities
For fiscal 2005, net cash provided by operating
activities increased $61.5 million to $325.2 million.
Significant components of this increase consisted of:
• $61.8 million increase from higher net income
before the non-cash impact of depreciation and
amortization over fiscal 2004;
• $37.8 million increase in cash flow, primarily
resulting from the reduction in trade receivables
upon the sale of our private label credit card port-
folio;
• $42.8 million decrease as a result of higher inven-
tory levels needed for our Northeast distribution
center and expansion of the number of stores
which carry an extended mix of parts;
• $25.7 million increase in other assets primarily
due to timing in the payment of our monthly rent;
• $15.9 million increase in accounts payable reflective
of the increase in inventory discussed above; and
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