Advance Auto Parts 2005 Annual Report Download - page 57

Advance Auto Parts I Annual Report 2005 I 55
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 reasonably estimated, based on past experience.
The Company’s tax contingency reserve is adjusted
for changes in circumstances and additional uncer-
tainties, such as significant amendments to existing
tax law, both legislated and concluded through the
various jurisdictions’ tax court systems. The
Company had a tax contingency reserve of $7,588
and $7,576 at December 31, 2005 and January 1,
2005, respectively. 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,
results of operations or liquidity.
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 liability under these
employment agreements is approximately $1,617
and $2,491 at December 31, 2005 and January 1,
2005, respectively, of which nothing has been accrued.
19. 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 $6,779, $6,752 and $6,398 in fiscal 2005, fiscal
2004, and fiscal 2003, respectively.
The Company also maintains a profit sharing plan
covering 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 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
terminated in May 2002, was merged into the new
plan. This plan provides for a minimum and maxi-
mum deferral percentage of the Team Member base
salary and bonus, as determined by the Retirement
Plan Committee. The Company establishes and main-
tains a deferred compensation liability for this plan.
The Company funds this liability by remitting the
Team Member’s deferrals to a Rabbi Trust where these
deferrals are invested in certain life insurance con-
tracts. Accordingly, any change in the cash surrender
value on these contracts, which are held in the Rabbi
Trust to fund the deferred compensation liability,
is recognized in the Company’s consolidated state-
ment of operations. At December 31, 2005 and
January 1, 2005 these liabilities were $2,693 and
$1,840, respectively.
The Company maintains an unfunded deferred
compensation 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
December 31, 2005 and January 1, 2005, $1,321 and
$1,598, respectively, was accrued for these plans with
the current portion included in accrued expenses and
the long-term portion in other long-term liabilities in
the accompanying consolidated balance sheets.
Postretirement Plan
The Company provides certain health care and life
insurance benefits for eligible retired Team Members
through a postretirement plan, or the Plan. These ben-
efits are subject to deductibles, co-payment provisions
and other limitations. 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 nega-
tive plan amendment, the Company’s accumulated
postretirement benefit obligation was reduced by
$7,557, 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 as allowed under SFAS No. 106,
“Employers Accounting for Postretirement Benefits
Other Than Pensions.”
Other financial information related to the plans
was determined by the Company’s independent actu-
aries. The measurement date used by the actuaries
was October 31 of each fiscal year. The following
provides a reconciliation of the accrued benefit