UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment
No. )
Filed
by the Registrant x
Filed
by a Party other than the Registrant o
Check
the appropriate box:
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Preliminary Proxy Statement |
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Cofidential, for Use of the Commission Only
(as
permitted by Rule
14a-6(5)(2))
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
ADVANCE
AUTO PARTS, INC.
(Name
of Registrant as Specified in its Charter)
(Name
of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange
Act
Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction
applies: |
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Aggregate number of securities to which transaction
applies: |
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(3) |
Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which
the filing fee is calculated and state how it was determined): |
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(4) |
Proposed maximum aggregate value of
transaction: |
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(5) |
Total fee paid: |
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Fee paid previously with preliminary
materials. |
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Check box if any part of the fee is offset
as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing for
which
the offsetting fee was paid previously. Identify the previous filing
by
registration number, or the Form or Schedule and the date of its
filing. |
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(1) |
Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
ADVANCE
AUTO PARTS, INC.
5673
AIRPORT ROAD
ROANOKE,
VIRGINIA 24012
______________
NOTICE
OF 2006 ANNUAL MEETING OF STOCKHOLDERS
May 17,
2006
______________
The
2006
annual meeting of the stockholders of Advance Auto Parts, Inc., a Delaware
corporation, will be held on May 17, 2006, at 8:30 a.m., local time (EDT),
at The Hotel Roanoke and Conference Center, 110 Shenandoah Avenue, NW, Roanoke,
Virginia 24016. As further described in the accompanying proxy statement, at
this meeting our stockholders will consider and vote on the following
matters:
1. |
Election
of 10 directors to serve until the 2007 annual meeting of stockholders
and
until their successors are duly elected and
qualified.
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2. |
Ratification
of the appointment by our Audit Committee of Deloitte & Touche LLP as
our independent registered public accounting firm for
2006.
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3. |
Any
such other business that may properly come before the meeting or
any
meetings held upon adjournment thereof.
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Our
Board
of Directors set March 29, 2006 as the record date for determining
stockholders entitled to vote at the meeting or any meetings held upon
adjournment of the meeting. Only record holders of our common stock at the
close
of business on that day are entitled to vote.
We
invite
you to attend the meeting and vote. We
urge you, after reading this proxy statement, to sign and return the enclosed
proxy card as promptly as possible in the enclosed postage prepaid envelope
or
vote your proxy by Internet or telephone by following the instructions on the
form of proxy.
If you
attend the meeting, you may vote in person, even if you previously voted by
proxy.
By
order of the Board
of Directors,
Eric
M.
Margolin
Senior
Vice
President
General
Counsel and
Secretary
Roanoke,
Virginia
April 12,
2006
INTRODUCTION |
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OUTSTANDING
SECURITIES AND VOTING RIGHTS |
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PROPOSAL
NO. 1 ELECTION OF DIRECTORS
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Nominees for Election
to Our
Board |
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Board
Meetings and Committees
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Corporate
Governance
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Non-Management
Director Compensation
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Compensation
Committee Interlocks and Insider Participation
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PROPOSAL
NO. 2 RATIFICATION OF APPOINTMENT BY THE AUDIT
COMMITTEE OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR 2006
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10
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2005 and 2004 Audit
Fees |
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INFORMATION
CONCERNING OUR EXECUTIVE OFFICERS
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
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STOCK
PRICE PERFORMANCE
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AUDIT
COMMITTEE REPORT
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REPORT
OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
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Compensation
Philosophy
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Evaluation and Approval
of
Annual and Long-Term Incentive Compensation |
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Annual
Compensation
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Long-Term Incentive
Compensation |
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Chief Executive Officer
Compensation for 2005 |
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Internal Revenue Code
Section
162(m) |
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EXECUTIVE
COMPENSATION
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Summary
Compensation Table
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Option
Grants in Last Fiscal Year
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Aggregated Option Exercises
in
Last Fiscal Year and Fiscal Year End Option Values |
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Executive
Employment Agreements
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RELATED-PARTY
TRANSACTIONS
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STOCKHOLDER
PROPOSALS FOR 2007 ANNUAL MEETING
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OTHER
MATTERS
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APPENDIX
A: AUDIT COMMITTEE CHARTER
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A-1
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_______________
PROXY
STATEMENT
________________
INTRODUCTION
We
are
sending you this proxy statement on or about April 12, 2006, in connection
with the solicitation of proxies by our Board of Directors. The proxies are
for
use at our 2006 annual meeting of stockholders, which we will hold at 8:30
a.m.,
local time (EDT), on May 17, 2006, at The Hotel Roanoke and Conference
Center, 110 Shenandoah Avenue, NW, Roanoke, Virginia 24016. The proxies will
remain valid for use at any meetings held upon adjournment of that meeting.
Our
address of record is 5673 Airport Road, Roanoke, Virginia 24012, and our
telephone number is (540) 362-4911. Unless the context otherwise requires,
“Advance,” “we,” “us,” “our,” “Company” and similar terms refer to Advance Auto
Parts, Inc., its predecessor, its subsidiaries and their respective
operations.
The
record date for the meeting is March 29, 2006. All holders of record of our
common stock on the record date are entitled to notice of the meeting and to
vote at the meeting and any adjournment thereof.
A
proxy
card is enclosed. Whether or not you plan to attend the meeting in person,
please date, sign and return the enclosed card as promptly as possible in the
postage prepaid envelope provided, or vote your proxy by Internet or telephone
by following the instructions on the proxy card to ensure that your shares
will
be voted at the meeting. You may revoke your proxy at any time prior to its
use
by filing with our corporate secretary an instrument revoking it or a duly
executed proxy card bearing a later date or by attending the meeting and voting
in person.
Unless
you instruct otherwise in the proxy, any proxy, if not revoked, will be voted
at
the meeting:
· |
for
our Board of Directors’ slate of
nominees;
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· |
to
ratify the appointment by our Audit Committee of Deloitte & Touche LLP
as our independent registered public accounting firm for 2006;
and
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to
transact such other business as may properly come before the meeting
or
any adjournment thereof.
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OUTSTANDING
SECURITIES AND VOTING RIGHTS
Our
only
voting securities are the outstanding shares of our common stock. On the record
date, we had 107,919,752 shares of common stock outstanding and 425 stockholders
of record. If the stockholders of record present in person or represented by
their proxies at the meeting hold at least a majority of our outstanding shares
of common stock, or 53,959,877 shares, a quorum will exist to transact business
at the meeting. Stockholders of record, who abstain from voting, including
brokers holding their customers’ shares who cause abstentions to be recorded,
are counted as present for quorum purposes.
For
each
share of common stock you hold on the record date, you are entitled to one
vote
on each matter that we will consider at this meeting. You are not entitled
to
cumulate your votes.
If
you
hold shares through a broker, you should follow the instructions for voting
that
you receive from your broker. If you want to vote in person, you must obtain
a
legal proxy from your broker and bring it to the meeting. If you do not submit
voting instructions to your broker, your broker may vote on the following
matters in its discretion: (1) the election of directors and (2) the
ratification of appointment by our Audit Committee of Deloitte & Touche LLP.
The
voting requirements for the proposals we will consider at the meeting
are:
·
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Election
of directors. Directors
are elected by a plurality, and the 10 candidates who receive the
most
votes will be elected to our Board of Directors. Votes withheld will
have
no effect on the election of any
director.
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·
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Ratification
of appointment by our Audit Committee of Deloitte & Touche LLP as our
independent registered public accounting firm for 2006.
An
affirmative vote of the holders of a majority of the shares, or
represented by proxy, and entitled to vote at the annual meeting
will be
required to ratify the appointment by our Audit Committee of Deloitte
& Touche LLP as our independent registered public accounting firm for
2006. Abstentions count as votes cast and have the effect of a vote
against the proposal.
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We
will
pay for the cost of preparing, assembling, printing and mailing this proxy
statement and the accompanying form of proxy to our stockholders, as well as
the
cost of soliciting proxies relating to the meeting. We may request banks and
brokers to solicit their customers who beneficially own our common stock in
the
names of nominees. We will reimburse these banks and brokers for their
reasonable out-of-pocket expenses for these solicitations. Our officers,
directors and employees may supplement these solicitations of proxies by
telephone, facsimile, e-mail and personal solicitation. We will pay no
additional compensation to our officers, directors or employees for these
activities.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
At
the
meeting, you will elect 10 members of our Board of Directors to serve until
our
2007 annual meeting of stockholders and until their respective successors are
elected and qualified. Our Board has nominated Lawrence P. Castellani, Michael
N. Coppola, John C. Brouillard, Darren R. Jackson, Nicholas J. LaHowchic,
William S. Oglesby, Gilbert T. Ray, Carlos A. Saladrigas, William L. Salter
and Francesca M. Spinelli for election as directors. All of the nominees except
Mr. LaHowchic are current members of our Board. Each nominee has consented
to
being named in this proxy statement as a nominee and has agreed to serve as
a
director if elected.
The
persons named as proxies in the accompanying form of proxy have advised us
that
at the meeting, unless otherwise directed, they intend to vote the shares
covered by the proxies for the election of the nominees named above. If one
or
more of the nominees are unable to serve, or for good cause will not serve,
the
persons named as proxies may vote for any election of the substitute nominees
that our Board may propose. The persons named as proxies may not vote for a
greater number of persons than the number of nominees named above.
Nominees
for Election to Our Board
The
following table provides information about our nominees for director at March
29, 2006.
Name
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Age
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Position
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Lawrence
P. Castellani(3)
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60
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Chairman
of the Board
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Michael
N. Coppola
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57
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President
and Chief Executive Officer and Director
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John
C. Brouillard(1)(2)
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57
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Director
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Darren
R. Jackson(1)(3)
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41
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Director
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Nicholas
J. LaHowchic
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58
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Nominee
for Director
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William
S. Oglesby(3)(4)
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46
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Director
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Gilbert
T. Ray(2)(4)
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61
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Director
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Carlos
A. Saladrigas(1)
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57
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Director
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William
L. Salter(2)(4)
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62
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Lead
Director
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Francesca
M. Spinelli(2)
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52
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Director
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_______________
(1)
Member
of
Audit Committee
(2)
Member
of Compensation Committee
(3)
Member
of Finance Committee
(4)
Member
of Nominating and Corporate Governance
Committee
Mr. Castellani,
Chairman
of the Board and retired Chief Executive Officer of Advance Auto Parts, Inc.,
joined us in February 2000 as Chief Executive Officer. Mr. Castellani has
served as our Chairman since February 2003. Mr. Castellani retired as Chief
Executive Officer in May 2005. Prior to joining us, Mr. Castellani served
as President and Chief Executive Officer of Ahold Support Services in Latin
America (a division of Royal Ahold, a supermarket company) from
February 1998 to February 2000, as Executive Vice President of Ahold
USA from September 1997 through February 1998, and as President and Chief
Executive Officer of Tops Friendly Markets from 1991 through September 1997.
Mr.
Castellani serves as a director of Gregg Appliances, Inc.
Mr.
Coppola, President
and Chief Executive Officer and Director,
joined us in February 2001 and has held his current position since May 2005.
From August 2003 to May 2005, Mr. Coppola served as our Executive Vice
President, Chief Operating Officer. Mr. Coppola previously served as Senior
Vice
President, Merchandising from February 2001 to August 2003. Prior to joining
us,
Mr. Coppola operated his own retail company for two years. Prior to December
1997, he held various positions with Tops Friendly Markets, a division of Ahold
USA, ultimately serving as Executive Vice President of Marketing.
Mr.
Brouillard, Director,
became a member of our Board of Directors in May 2004. Mr. Brouillard retired
as
Chief Administrative and Financial Officer of H.E. Butt Grocery Company in
2005,
a position that he had held since
February
1991. From 1977 to 1991, Mr. Brouillard held various positions with Hills
Department Stores, including serving as President of the company. Mr. Brouillard
serves as a director of Eddie Bauer Holdings, Inc. and H.E. Butt Grocery
Company.
Mr.
Jackson, Director,
became a member of our Board of Directors in July 2004. Mr. Jackson joined
Best
Buy Co., Inc. a specialty retailer of consumer electronics, in 2000 and was
appointed its Executive Vice President-Finance and Chief Financial Officer
in
February of 2001. Prior to 2000, he served as Vice President and Chief Financial
Officer of Nordstrom, Inc., Full-line Stores and held various senior positions
including Chief Financial Officer of Carson Pirie Scott & Company. He began
his career at KPMG Peat Marwick.
Mr.
LaHowchic,
Nominee
for Director, has served as Executive Vice President for Limited Brands, Inc.,
a
retail consumer packaged goods company, since April 2004. From October 1997,
he
has also served as the President and Chief Executive Officer of Limited
Logistics Services, Inc., which provides supply chain, compliance and
procurement services to Limited Brands, Inc. and other retailers. Prior to
October 1997, he served as President of Becton Dickinson Supply Chain Services,
a medical technology company. Mr. LaHowchic serves as a director of Express
Scripts, Inc.
Mr.
Oglesby, Director,
became a member of our Board of Directors in December 2004. Mr. Oglesby is
currently Senior Managing Director for The Blackstone Group, L.P., a global
investment and advisory firm, and has held this position since April 2004.
Mr.
Oglesby has over 20 years of investment experience as a result of holding
managing director positions with Credit Suisse First Boston; Donaldson Lufkin
& Jenrette and Kidder, Peabody & Co.
Mr. Ray,
Director, became a member of our Board of Directors in December 2002.
Mr. Ray was a partner of the law firm of O’Melveny & Myers LLP
until his retirement in February 2000. Mr. Ray is a member of the boards of
Watson Wyatt Worldwide, Inc.; IHOP Corp.; Automobile Club of Southern
California; Sierra Monolithics, Inc. and Diamond Rock Hospitality Company.
Mr. Ray is also a trustee of SunAmerica Series Trust; Seasons Series Trust;
The John Randolph Haynes and Dora Haynes Foundation and St. John’s Health Center
Foundation.
Mr.
Saladrigas,
Director, became a member of our Board of Directors in May 2003. Mr. Saladrigas
has been the Chairman of Premier American Bank in Miami, Florida since September
2001. From November 1984 to May 2002, he was the Chief Executive Officer of
ADP
TotalSource (previously The Vincam Group, Inc.), a human resources outsourcing
company that provides human resource functions to small and mid-sized
businesses. Mr. Saladrigas serves as a director of Progress Energy, Inc.;
Carolina Power & Light Company and Florida Progress
Corporation.
Mr. Salter,
Lead
Director, became a member of our Board of Directors in April 1999 and was
appointed Lead Director in May 2004. Mr. Salter is the retired President of
the Specialty Retail division of Sears, Roebuck and Co., a position he held
from
March 1999 to December 1999. From November 1996 to
March 1999, Mr. Salter served as President of the Home Stores division
of Sears. From October 1995 to November 1996, he served as President
of the Hardlines division of Sears, and from April 1993 to
October 1995, he served as the Vice President and General Manager of the
Home Appliances and Electronics division of Sears.
Ms. Spinelli,
Director, became a member of our Board of Directors in November 2002. Ms.
Spinelli has been the Senior Vice President, People for PetSmart, Inc., a retail
supplier of pet products and services, since September 2003. Previously,
Ms. Spinelli served as the Senior Vice President of People of RadioShack
Corporation, a position she held from December 1999 to June 2003. From
July 1998 to December 1999, she served as Vice President of People of
RadioShack Corporation. From February 1997 to July 1998,
Ms. Spinelli served as Corporate Vice President of Organizational
Development of Wal-Mart Stores, Inc. From March 1993 to February 1997,
Ms. Spinelli served as Vice President of Human Resources of McLane Company,
Inc., a division of Wal-Mart Stores, Inc.
None
of
the nominees to our Board of Directors has any family relationship with any
other nominee or with any of our executive officers.
Board
Meetings and Committees
Our
Board
of Directors met five times during 2005. Each director attended 75% or more
of
the total number
of
meetings of the Board and meetings of the committees of the Board on which
he or
she served. We currently have an Audit Committee, a Compensation Committee
and a
Nominating and Corporate Governance Committee, each of which is comprised of
independent directors in accordance with the listing standards of the New York
Stock Exchange (“NYSE”). In addition, we have a Finance Committee that was
established during 2005. The following table sets forth the names of each
committee member, the primary responsibilities of each committee and the number
of times each committee met in 2005:
Name
of Committee and Members
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Primary
Responsibilities
|
#
of Meetings
in
2005
|
Audit
Carlos
A. Saladrigas (Chair)
John
C. Brouillard
Darren
R. Jackson
|
· monitors
the integrity of our financial statements, reporting processes, internal
controls, risk management and legal and regulatory
compliance;
· selects,
determines the compensation of, evaluates and, when appropriate,
replaces
our independent registered public accounting firm; pre-approves all
audit
and permitted non-audit services;
· monitors
the qualifications, independence and performance of our independent
registered public accounting firm; and
· oversees
our internal audit function.
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15
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Compensation
Francesca
M. Spinelli (Chair)
John
C. Brouillard
Gilbert
T. Ray
William
L. Salter
|
· reviews
and approves our executive compensation philosophy;
· annually
reviews and approves corporate goals and objectives relevant to the
compensation of the CEO and evaluates the CEO’s performance in light of
these goals;
· determines
the compensation of our executive officers and key members of management;
and
· administers
our incentive and equity-based compensation plans.
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6
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Finance
William
S. Oglesby (Chair)
Lawrence
P. Castellani
Darren
R. Jackson
|
· reviews
and makes recommendations to the Board regarding our financial policies,
including investment guidelines and deployment of capital and short-term
and long-term financing;
· reviews
significant relationships with commercial banks and investment
banks;
· reviews
all aspects of financial planning, strategic planning, cash uses
and our
expansion program; and
· reviews
and recommends the annual budget to the Board.
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6
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Nominating
and Corporate Governance
Gilbert
T. Ray (Chair)
William
S. Oglesby
William
L. Salter
|
· assists
the Board in identifying, evaluating and recommending candidates
for
election to the Board;
· establishes
procedures and provides oversight for evaluating the Board and
management;
· develops,
recommends and reassesses our corporate governance guidelines;
and
· evaluates
the size, structure and composition of the Board and its
committees.
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3
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Our
Board
has adopted written charters for each committee setting forth the roles and
responsibilities of each committee. Each of the charters is available on our
web
site at www.AdvanceAutoParts.com.
Corporate
Governance
Majority
of Independent Directors
Our
Board
of Directors, after consultation with and the recommendation of the Nominating
and Corporate Governance Committee, determined that Messrs. Brouillard, Jackson,
Oglesby, Ray, Saladrigas, Salter and Ms. Spinelli are each “independent”
directors and that Mr. LaHowchic will be an “independent” director under the
listing standards of the NYSE, because each of these directors or nominees:
(1)
has no material relationship with us or our subsidiaries, either directly or
indirectly as a partner, stockholder or officer of an organization that has
a
relationship with us or our subsidiaries, and (2) satisfies the “bright line
independence” criteria set forth in Section 303A.02(b) of the NYSE’s listing
standards. The Board of Directors made this determination, after assessing
the
issue of materiality of any relationship not merely from the standpoint of
each
director or nominee, but also from that of persons or organizations with which
the director or nominee may have an affiliation, based upon all facts and
circumstances known to the Board of Directors, including, among other things,
a
review of questionnaires submitted by these directors and Mr. LaHowchic, an
interview with each director or nominee and a review of a recent resume or
biography of each director or nominee.
Our
Board
of Directors reviews each director’s status under this definition annually with
the assistance of the Nominating and Corporate Governance Committee. Each
director is required to keep the Nominating and Corporate Governance Committee
fully and promptly informed as to any developments that might affect his or
her
independence.
Meetings
of Non-Management Directors
During
2005, the non-management directors on our Board of Directors met a total of
five
times. In addition, the independent directors met separately one time during
2005. Mr. Salter has served as lead director since May 2004. The lead director
was the presiding director at these meetings. For 2006, our non-management
directors are scheduled to meet separately in conjunction with each of the
five
scheduled meetings of the Board of Directors.
Stockholder
and Interested Party Communications with our Board of
Directors
Communications
with our Board of Directors Generally. Stockholders
who desire to communicate with our Board of Directors, or with a specific
director, including on an anonymous or confidential basis, may do so by
delivering a written communication to our Board of Directors, c/o Advance Auto
Parts, Inc., 5673 Airport Road, Roanoke, Virginia 24012, Attention: General
Counsel. The general counsel will not edit or modify any such communication
received and will forward each such communication to the appropriate director
or
directors, as specified in the communication. If the envelope containing a
communication that a stockholder wishes to be confidential is conspicuously
marked “Confidential,” the general counsel will not open the communication.
Communications will be forwarded by the general counsel to our Board of
Directors or any specified directors on a bi-monthly basis. The general counsel
will ensure the timely delivery of time sensitive communications to the extent
such communication indicates time sensitivity. In addition, we have a policy
that each of our directors should make every reasonable effort to attend each
annual meeting of stockholders. At our 2005 annual meeting of stockholders,
all
directors were in attendance.
Interested
Party Communications with our Independent Directors. Any
interested party, including stockholders, who desire to communicate directly
with one or more of the independent directors, including on an anonymous or
confidential basis, may do so by delivering a written communication to the
independent directors, c/o Advance Auto Parts, Inc., 5673 Airport Road, Roanoke,
Virginia 24012, Attention: General Counsel. The general counsel will not open
any such communication received and will forward each such communication to
the
appropriate independent director or directors, as specified in the
communication. Such communications will not be disclosed to the non-independent
members of our Board of Directors or management unless so instructed by the
independent directors. Communications will be forwarded by the general counsel
to the independent director or directors, as the case may be, on a bi-monthly
basis. The general counsel will ensure the timely delivery of time
sensitive
communications
to the extent such communication indicates time sensitivity.
Stockholder
Recommendations for Director Candidates.
The
Nominating and Corporate Governance Committee will consider stockholder
suggestions for nominees for directors. Any stockholder who desires to recommend
a director candidate must submit the recommendation in writing and follow the
procedures set forth in our by-laws. The committee does not evaluate any
candidate for nomination as a director any differently solely because the
candidate was recommended by a stockholder. You may obtain a copy of our by-laws
by requesting a copy from our corporate secretary at Advance Auto Parts, Inc.,
5673 Airport Road, Roanoke, Virginia 24012. Our by-laws also are available
on
our web site at www.AdvanceAutoParts.com.
The
committee evaluates each candidate for director within the context of the needs
of the Board in its composition as a whole. The committee considers such factors
as the candidate’s business experience, skills, independence, judgment and
ability and willingness to commit sufficient time and attention to the
activities of the Board. At a minimum, committee-recommended candidates for
nomination must posses the highest personal and professional ethics, integrity
and values and commit to representing the long-term interests of our
stockholders.
Guidelines
on Significant Governance Issues
The
responsibility of our Board of Directors is to review, approve and regularly
monitor the effectiveness of our fundamental operating, financial and other
business plans, policies and decisions, including the execution of our
strategies and objectives. Accordingly, our Board of Directors has adopted
guidelines on the following significant governance issues:
· |
the
structure of our Board of Directors including, among other things,
the
size, mix of independent and non-independent members, membership
criteria,
term of service, compensation and assessment of performance of our
Board
of Directors;
|
· |
Board
procedural matters, including among other things, selection of chairman
of
the Board of Directors, Board meetings, Board communications, retention
of
counsel and advisors and our expectations regarding the performance
of our
directors;
|
· |
committee
matters including, among other things, the types of committees, charters
of committees, independence of committee members, chair of committees,
service of committee members, committee agendas and committee minutes
and
reports;
|
· |
chief
executive officer evaluation, management development and succession
planning;
|
· |
other
matters, including our policy prohibiting Company loans, charitable
contributions, use of the corporate airplane, auditor services, Board
access to management and interaction with third parties, directors
and
officers insurance and the indemnification/limitation of liability
of
directors and confidential stockholder
voting.
|
A
complete copy of our guidelines on significant governance issues is available
on
our web site at www.AdvanceAutoParts.com
or you
may obtain a print copy by request to our corporate secretary at 5673 Airport
Road, Roanoke, Virginia 24012.
Code
of Ethics and Business Conduct
We
expect
and require all of our employees, who we refer to as our Team Members, our
officers and our directors, and any parties with whom we do business to conduct
themselves in accordance with the highest ethical standards. Accordingly, we
have adopted a code of ethics and business conduct, which outlines our
commitment to and expectations for honest and ethical conduct by all of these
persons and parties in their business dealings. A complete copy of the code
of
ethics and business conduct is available on our web site at www.AdvanceAutoParts.com
or you
may obtain a print copy by request to our corporate secretary at 5673 Airport
Road, Roanoke, Virginia 24012.
Code
of Ethics for Finance Professionals
We
also
have adopted a code of ethics for finance professionals to promote and provide
for the ethical conduct by our finance professionals, as well as for full,
fair
and accurate financial management and reporting. Our finance professionals
include our chief executive officer, chief financial officer, controller and
any
other person performing similar functions. We expect all of these finance
professionals to act in accordance with the highest standards of professional
integrity, to provide full and accurate disclosure in reports and other
documents filed with the U.S. Securities and Exchange Commission (“SEC”) and
other regulators or in any public communications and to comply with all
applicable laws, rules and regulations, to deter wrongdoing. Our code of ethics
for finance professionals is intended to supplement our code of ethics and
business conduct. A complete copy of the code of ethics for finance
professionals is available on our web site at www.AdvanceAutoParts.com
or you
may obtain a print copy by request to our corporate secretary at 5673 Airport
Road, Roanoke, Virginia 24012.
Non-Management
Director Compensation
Under
our
compensation program, each non-management director receives an annual retainer
of $25,000. Non-management directors receive additional retainers or fees as
set
forth in the following table:
Board
Participation
|
|
Retainer/Fee
|
|
Chairman
|
|
$125,000
|
|
Lead
Director
|
|
$
25,000
|
|
Audit
Committee Chair
|
|
$
15,000
|
|
Committee
Chair (Non-Audit)
|
|
$
10,000
|
|
Attendance
at each Board Meeting
|
|
$
2,000
|
|
If
Attendance is Telephonic
|
|
$
1,000
|
|
Attendance
at each Committee Meeting
|
|
$
1,000
|
|
If
Attendance is Telephonic
|
|
$
750
|
|
Each
non-management director may elect to receive all or a portion of their annual
retainers and fees on a deferred basis in the form of deferred stock units.
Each
deferred stock unit is equivalent to one share of our common stock. Deferred
stock units are payable in the form of common stock to participating directors
at a future date or over a specified period of time as elected by the
participating director.
In
addition, each non-management director receives the
following equity based compensation, which has been adjusted to reflect the
3-for-2 stock split in September 2005.
· |
upon
appointment to the Board, an
initial grant of 7,500 options (such
options
vest over three years and expire after seven years) and 825 deferred
stock
units (such deferred stock units are fully vested upon grant but
are not
available for distribution until the director’s service on the Board of
Directors ends); and
|
· |
an
annual grant of 7,500 options and 825 deferred stock units (such
grants
vest and expire or become payable upon the same terms as the initial
grant). Each director’s first annual grant is prorated based upon the
number of days served as a director during the year preceding the
first
annual grant.
|
In
2005,
the Company provided holiday gifts and complimentary hotel accommodation to
non-management directors. The value of these personal benefits to any individual
director did not exceed $1,300. In addition, the Company presented a gift valued
at approximately $6,900 to Mr. Nicholas F. Taubman (see “Related-Party
Transactions”) upon his departure from the Board in November 2005.
As
discussed in the "Executive Employment Agreement"
section of the proxy statement, upon Mr. Castellani's retirement as chief
executive officer, he continued to serve as chairman of the Board with a
retainer of $125,000 in addition to normal director fees for service as
non-executive chairman until the May 2006 meeting of the Board.
Compensation
Committee Interlocks and Insider Participation
None
of
our executive officers currently serves on the compensation committee of any
other company or board of directors of any other company of which any member
of
our Compensation Committee is an executive officer.
OUR
BOARD OF DIRECTORS RECOMMENDS
A
VOTE FOR
EACH OF OUR BOARD’S NOMINEES.
PROPOSAL
NO. 2
RATIFICATION
OF APPOINTMENT BY THE AUDIT COMMITTEE OF
DELOITTE
& TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING
FIRM FOR 2006
Our
Audit
Committee has selected Deloitte & Touche LLP as our independent registered
public accounting firm for 2006. Deloitte & Touche LLP also served as our
independent registered public accounting firm for fiscal 2005. You are being
asked to ratify the appointment by our Audit Committee of Deloitte & Touche
LLP as our independent registered public accounting firm for 2006.
Members
of Deloitte & Touche LLP will be present at the meeting, will have an
opportunity to make a statement if they desire to do so and will be available
to
respond to appropriate questions. If Deloitte & Touche LLP should decline to
act or otherwise become incapable of acting, or if Deloitte & Touche LLP’s
engagement is discontinued for any reason, our Audit Committee will appoint
another accounting firm to serve as our independent registered public accounting
firm for 2006.
2005
and 2004 Audit Fees
The
following table summarizes the aggregate fees billed by Deloitte & Touche
LLP for 2005 and 2004 for the following professional services:
|
2005
|
|
2004
|
|
|
($
in thousands)
|
|
($
in thousands)
|
|
Audit
Fees (a)
|
$1,247
|
|
$1,511
|
|
Audit-Related
Fees (b)
|
81
|
|
-
|
|
Tax
Fees (c)
|
32
|
|
36
|
|
All
Other Fees
|
-
|
|
-
|
|
Total
|
$1,360
|
|
$1,547
|
|
|
|
|
|
|
(a) |
Fees
for audit services billed in 2005 and 2004 consisted of: |
|
|
|
|
· |
audit of our annual financial
statements |
|
|
|
|
· |
reviews of our quarterly
financial
statements |
|
|
|
|
· |
attestation
of
management’s assessment and effectiveness of internal controls as required
by the Sarbanes-Oxley Act of 2002, Section 404 |
|
|
|
· |
statutory
and regulatory audits, consents and other services related to SEC
matters |
|
(b) |
2005
audit-related fees consist of due diligence services associated with
mergers and acquisitions. |
|
(c) |
Fees
for tax services related to property taxes and an annual license fee
for
tax preparation software. Professional service firms other than Deloitte
& Touche LLP provide other tax consulting and preparation services.
These fees are not included in the table above. |
|
The
Audit
Committee of the Board of Directors is required by its charter to pre-approve
audit services and permitted non-audit services to be performed by our
independent registered public accounting firm. The Audit Committee approved
all
services provided by Deloitte & Touche LLP during 2005.
In
considering the nature of the services provided by Deloitte & Touche LLP,
the Audit Committee determined that such services are compatible with the
provision of independent audit services. The Audit Committee
discussed
these services with Deloitte & Touche LLP and management to determine that
they are permitted under the rules and regulations concerning auditor
independence promulgated by the SEC to implement the Sarbanes-Oxley Act of
2002,
as well as the American Institute of Certified Public Accountants.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF
DELOITTE
& TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING
FIRM FOR 2006.
INFORMATION
CONCERNING OUR EXECUTIVE OFFICERS
The
following table provides information about our executive officers at March
29,
2006.
Name
|
|
Age
|
|
Position
|
|
Michael
N. Coppola
|
|
57
|
|
President
and Chief Executive Officer and Director
|
|
Paul
W. Klasing
|
|
46
|
|
Executive
Vice President, Stores
|
|
Michael
O. Moore
|
|
55
|
|
Executive
Vice President, Chief Financial Officer
|
|
David
B. Mueller
|
|
47
|
|
Executive
Vice President, Merchandising and Marketing
|
|
Elwyn
G. Murray III
|
|
39
|
|
Executive
Vice President, Administration
|
|
Jimmie
L. Wade
|
|
51
|
|
Executive
Vice President, Business Development
|
|
Eric
M. Margolin
|
|
52
|
|
Senior
Vice President, General Counsel and Secretary
|
|
|
|
|
|
|
|
Keith
A. Oreson
|
|
49
|
|
Senior
Vice President, Human Resources
|
|
Our
executive officers are elected by and serve at the discretion of our Board
of
Directors. Set forth below is a brief description of the business experience
of
all executive officers other than Mr. Coppola, who is also a Director and whose
business experience is set forth in the “Information Concerning Members of Our
Board of Directors” section of this proxy statement.
Mr. Klasing,
Executive Vice President, Stores, joined us in April 1995 and has held his
current position since August 2003. From October 1999 to August 2003, Mr.
Klasing served as Executive Vice President, Merchandising and Marketing. From
July 1997 to October 1999, Mr. Klasing served as our Senior Vice
President, Purchasing. Prior to July 1997, Mr. Klasing held various
other positions with us.
Mr.
Moore,
Executive Vice President, Chief Financial Officer, joined us in December 2005.
Prior to joining Advance, Mr. Moore worked for Cato Corporation from 1998 to
December 2005, where he served as Executive Vice President, Chief Financial
Officer and Secretary. Mr. Moore also served on Cato’s Board of Directors. Prior
to Cato, Mr. Moore served as Vice President and Chief Financial Officer for
the
Party Experience, a privately held specialty party goods retailer, from 1997
to
1998. From 1994 to 1997, he worked for David’s Bridal where he held the
positions of Executive Vice President and Chief Operating Officer from 1994
to
1995, and Executive Vice President and Chief Financial Officer from 1995 to
1997. Prior to 1994, Mr. Moore worked for Bloomingdale’s, where he held a
variety of positions and ultimately served as Senior Vice President and Chief
Financial Officer.
Mr.
Mueller,
Executive Vice President, Merchandising and Marketing, joined us in March 2003
and has held his current position since November 2004. From October 2003 to
November 2004, Mr. Mueller served as Senior Vice President, Merchandising and
Marketing. From March 2003 to October 2003, he served as Vice President,
Merchandising Support. Before joining Advance, Mr. Mueller served as Director
of
Operations for Nutrition Warehouse, a vitamin supplements company, from December
2000 to March 2003. From February 1999 to December 2000, he served as a partner
in a privately held retail company. From January 1997 to January 1999, he served
as Director of Natural and Organic Marketing with Tops Friendly Markets, a
division of Ahold USA, and served as Director of Category Management for Ahold
USA from January 1995 to December 1996. Prior to 1995, Mr. Mueller served as
Vice President of Merchandising for Fresh Fields, a privately owned supermarket
chain.
Mr.
Murray,
Executive Vice President, Administration, joined us in April 2005. Before
joining Advance, Mr. Murray served in a variety of positions for Food Lion,
LLC.
From May 2002 to January 2005, he served as Senior Vice President of Store
Operations. From January 2001 to April 2002, he served as Senior Vice President
of Procurement, Distribution and Quality Assurance. From July 1999 to December
2000, he served as Vice President of Procurement and Pricing, and from December
1998 to June 1999, he held the position of Vice President of Marketing. Prior
to
1998, Mr. Murray held a number of other positions with Food Lion, LLC in a
variety of functional areas including category management, information
technology and purchasing.
Mr. Wade,
Executive Vice President, Business Development, joined us in February 1994
and has held his current position since May 2005. Mr. Wade was named
President in October 1999 and was named Chief Financial Officer in
March 2000. He served as President and Chief Financial Officer through
August 2003 and served as President until May 2005. Mr. Wade also served as
our Secretary from March 2000 until April 2001. Prior to 1993,
Mr. Wade was Vice President, Finance and Operations, for S.H. Heironimus, a
regional department store company. Mr. Wade is a certified public
accountant.
Mr. Margolin,
Senior
Vice President, General Counsel and Secretary, joined us in April 2001.
From 1993 to June 2000, Mr. Margolin was Vice President, General
Counsel and Secretary of Tire Kingdom, Inc., a retailer of tires and provider
of
automotive services, which now operates as TBC Corporation, a
subsidiary of Sumitomo
Corporation of America. Prior to 1993, Mr. Margolin served as the general
counsel for several companies in the apparel manufacturing and retail
field.
Mr.
Oreson,
Senior
Vice President, Human Resources, joined us in May 2005. Before
joining
Advance, Mr. Oreson served as Vice President of Human Resources for Frank’s
Nursery & Crafts, Inc. from 1998 to 2005. From 1993 to 1997, he served as
Senior Vice President, Human Resources for ARAMARK Uniform Services. Prior
to
1993, Mr. Oreson worked for Pizza Hut, a division of PepsiCo where he held
a
variety of positions, ultimately serving as Division Director, Human Resources.
There
are
no family relationships among any of our executive officers.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information known to us regarding the ownership
of
our common stock at March 29, 2006 by:
· |
each
person or entity known to us that beneficially owns more than 5%
of our
common stock;
|
· |
each
member of our Board of Directors;
|
· |
each
of our executive officers named in the “Summary Compensation Table”
included in the “Executive Compensation” section of this proxy statement;
and
|
· |
all
directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage of
ownership held by that person, shares of common stock subject to options and
warrants held by that person that are currently exercisable or will become
exercisable within 60 days after March 29, 2006 are deemed outstanding, while
these shares are not deemed outstanding for computing percentage ownership
of
any other person. The address of each beneficial owner for which an address
is
not otherwise indicated is: c/o Advance Auto Parts, Inc., 5673 Airport Road,
Roanoke, Virginia 24012. Unless otherwise indicated in the footnotes below
the
persons and entities named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable. We know of no agreements among our stockholders which
relate to voting or investment power over our common stock or any arrangement
that may at a subsequent date result in a change of control of us.
The
percentages of common stock beneficially owned are based on 107,919,752 shares
of our common stock outstanding at March 29, 2006.
|
|
Shares
Beneficially Owned
|
|
Name
of Beneficial
Owner
|
|
Number
|
|
Percentage
|
|
Federated
Investors, Inc.(1)
Federated
Investors Tower
Pittsburgh, Pennsylvania
15222-3770
|
|
11,211,500
|
|
10.4%
|
|
|
|
|
|
|
|
Lone
Pine Capital, LLC(2)
Two
Greenwich Plaza
Greenwich,
Connecticut 06830
|
|
6,946,447
|
|
6.4%
|
|
|
|
|
|
|
|
Lawrence
P. Castellani(3)
|
|
583,629
|
|
*
|
|
|
|
|
|
|
|
Michael
N. Coppola(4)
|
|
415,468
|
|
*
|
|
|
|
|
|
|
|
John
C. Brouillard(5)
|
|
9,911
|
|
*
|
|
|
|
|
|
|
|
Darren
R. Jackson(6)
|
|
6,096
|
|
*
|
|
|
|
|
|
|
|
William
S. Oglesby(7)
|
|
8,257
|
|
*
|
|
|
|
|
|
|
|
Gilbert
T. Ray(8)
|
|
20,082
|
|
*
|
|
|
|
|
|
|
|
Carlos
A. Saladrigas(9)
|
|
31,650
|
|
*
|
|
|
|
|
|
|
|
William
L. Salter(10)
|
|
33,453
|
|
*
|
|
|
|
|
|
|
|
Francesca
M. Spinelli(11)
|
|
33,563
|
|
*
|
|
|
|
|
|
|
|
Paul
W. Klasing(4)(12)
|
|
409,000
|
|
*
|
|
|
|
|
|
|
|
Michael
O. Moore
|
|
-
|
|
*
|
|
|
|
|
|
|
|
David
B. Mueller(4)
|
|
60,000
|
|
*
|
|
|
|
|
|
|
|
Elwyn
G. Murray III(4)
|
|
30,000
|
|
*
|
|
|
|
|
|
|
|
Jimmie
L. Wade(4)
|
|
344,999
|
|
*
|
|
|
|
|
|
|
|
Jeffrey
T. Gray(13)
|
|
30,000
|
|
*
|
|
|
|
|
|
|
|
All
executive officers and directors as a group (17 persons)(14)
|
2,099,018
|
|
1.9%
|
|
*
|
Less
than 1% of the outstanding shares of common
stock
|
(1)
|
According
to Amendment No. 4 to a Schedule 13G filed with the SEC on February
14,
2006 by Federated Investors, Inc., Voting Shares Irrevocable Trust,
John
F. Donahue, Rhodora J. Donahue and J. Christopher Donahue. Federated
Investors, Inc. is the parent holding company of Federated Equity
Management Company of Pennsylvania and Federated Global Investment
Management Corp., which are investment advisors to registered investment
companies and separate accounts that beneficially own 11,211,500
shares.
|
|
All
shares of Federated Investors, Inc. are held in the Voting Shares
Irrevocable Trust, for which John F. Donahue, Rhodora J. Donahue
and J.
Christopher Donahue act as
trustees.
|
(2)
|
According
to a Schedule 13G filed with the SEC on February 14, 2006 by Lone
Spruce,
L.P., Lone Balsam, L.P., Lone Sequoia, L.P., Lone Cascade, L.P.,
Lone
Sierra, L.P., Lone Pine Associates LLC, Lone Pine Members LLC, Lone
Pine
Capital LLC and Stephen F. Mandel, Jr. Lone Pine Associates LLC is
the
general partner of Lone Spruce, Lone Sequoia and Lone Balsam. Lone
Pine
Members LLC is the general partner of Lone Cascade and Lone Sierra.
|
(3)
|
Includes
555,000 shares of our common stock subject to options exercisable
within
60 days of March 29, 2006.
|
(4)
|
Includes
shares of our common stock subject to options beneficially owned
by the
following persons and exercisable within 60 days of March 29, 2006:
Mr. Coppola-358,000 options; Mr. Klasing-355,000 options; Mr.
Mueller-60,000 options; Mr. Murray-30,000 options; and Mr.
Wade-314,999 options.
|
(5)
|
Includes
2,411 shares of our common stock issuable with respect to deferred
stock
units and 7,500 shares of our common stock subject to options exercisable
within 60 days of March 29, 2006.
|
(6)
|
Includes
1,512 shares of our common stock issuable with respect to deferred
stock
units and 4,584 shares of our common stock subject to options exercisable
within 60 days of March 29, 2006.
|
(7)
|
Includes
1,799 shares of our common stock issuable with respect to deferred
stock
units and 3,959 shares of our common stock subject to options exercisable
within 60 days of March 29, 2006.
|
(8)
|
Includes
1,857 shares of our common stock issuable with respect to deferred
stock
units and 13,125 shares of our common stock subject to options exercisable
within 60 days of March 29, 2006.
|
(9)
|
Includes
1,650 shares of our common stock issuable with respect to deferred
stock
units and 30,000 shares of our common stock subject to options exercisable
within 60 days of March 29, 2006.
|
(10)
|
Includes
1,995 shares of our common stock issuable with respect to deferred
stock
units and 29,583 shares subject to options beneficially owned and
exercisable within 60 days of March 29,
2006.
|
(11)
|
Includes
2,063 shares of our common stock issuable with respect to deferred
stock
units and 30,000 shares subject to options and exercisable within
60 days
of March 29, 2006.
|
(12)
|
Includes
indirect ownership of 54,000 shares held by Mr. Klasing’s
wife.
|
(13)
|
Mr.
Gray resigned his position in December
2005.
|
(14)
|
Includes
15,546 shares of our common stock issuable with respect to deferred
stock
units and 1,840,750 shares of our common stock subject to options
beneficially owned and exercisable within 60 days of March 29, 2006
by our
executive officers and directors.
|
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of
the Exchange Act requires “insiders,” including our executive officers,
directors and beneficial owners of more than 10% of our common stock, to file
reports of ownership and changes in ownership of our common stock with the
SEC
and the NYSE, and to furnish us with copies of all Section 16(a) forms
they file. Based solely on our review of copies of such forms received by us,
or
written representations from reporting persons that no Forms 5 were
required for those persons, we believe that our insiders complied with all
applicable Section 16(a) filing requirements
during fiscal 2005, with the following exceptions: the exercise of 8,000
employee stock options and the related sale of stock on June 6, 2005, by Mr.
Margolin was reported on a late-filed Form 4 on June 14, 2005; the acquisitions
on December 2, 2005 of 19 deferred stock units by Mr. Margolin and 20 deferred
stock units by Mr. Oreson were reported on late-filed Forms 4 on December 7,
2005; and the gift of shares of stock by Mr. Klasing to his wife on January
30,
2004, which shares continued to be attributed to his ownership, was reported
on
a late-filed Form 4 on November 23, 2005.
STOCK
PRICE PERFORMANCE
The
following graph shows a comparison of our cumulative total return on our common
stock, Standard & Poor’s 500 Index and the Standard & Poor’s 500
Specialty Retail Index. The graph assumes that the value of an investment in
our
common stock and in each such index was $100 on November 29, 2001, the date
our common stock first became publicly traded, and that any dividends have
been
reinvested. The comparison in the graph below is based solely on historical
data
and is not intended to forecast the possible future performance of our common
stock.
COMPARISON
OF CUMULATIVE TOTAL RETURN AMONG
ADVANCE
AUTO PARTS, INC., S&P 500 INDEX
AND
S&P 500 SPECIALTY RETAIL INDEX
|
Nov
29
2001
|
Dec
29
2001
|
Dec
28
2002
|
Jan
3
2004
|
Jan
1
2005
|
Dec
31
2005
|
Advance
Auto Parts, Inc.
|
$100
|
$117.04
|
$122.24
|
$202.54
|
$217.31
|
$324.33
|
S&P
500 Index
|
$100
|
$101.95
|
$78.14
|
$100.75
|
$112.06
|
$117.56
|
S&P
500 Specialty Retail Index
|
$100
|
$112.21
|
$72.76
|
$105.54
|
$120.98
|
$124.44
|
The
information contained under the captions “Stock Price Performance” and “Report
of the Compensation Committee on Executive Compensation” (which follows the
Report of the Audit Committee) shall not be considered “soliciting material” or
to be “filed” with the SEC, nor will that information be incorporated by
reference into any future filing under the Securities Act or the Exchange Act,
except to the extent that we specifically incorporate it by reference into
a
filing.
AUDIT
COMMITTEE REPORT
We
are
responsible for providing independent, objective oversight of Advance’s
accounting functions and internal controls and operate pursuant to a written
charter approved by Advance’s Board of Directors. We are comprised entirely of
three independent directors who meet independence, experience and other
qualification requirements of the NYSE listing standards, Section 10A(m)(3)
of
the Securities Exchange Act of 1934 and the rules and regulations of the SEC.
Advance’s Board of Directors has determined the committee’s current chair, Mr.
Saladrigas, is the Audit Committee “financial expert,” as defined by SEC
rules.
Management
is responsible for Advance’s financial reporting process, including Advance’s
system of internal control, and for the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the
United States. Advance’s independent registered public accounting firm, or
“independent accountants,” are responsible for auditing its consolidated
financial statements and providing an opinion as to its conformity with
accounting principles generally accepted in the United States as well as
attesting and reporting on management’s assertion regarding the effectiveness of
its internal controls over financial reporting. Our responsibility is to monitor
and review these processes. It is not our duty or responsibility to conduct
auditing or accounting reviews or procedures. Consequently, in carrying out
our
oversight responsibilities, we shall not be charged with, and are not providing,
any expert or special assurance as to Advance’s financial statements, or any
professional certification as to the independent accountants’ work. In addition,
we have relied on management’s representation that the financial statements have
been prepared with integrity and objectively in conformity with accounting
principles generally accepted in the United States, and on the representations
of independent accountants included in their report on Advance’s financial
statements.
During
2005 we met 15 times, including 10 times via conference call. We schedule our
meetings to ensure we have sufficient time to devote attention to all of our
tasks. During 2005 and subsequent to the end of the year, we:
· |
appointed
Deloitte & Touche LLP as the independent registered public accounting
firm for fiscal year 2005;
|
· |
met
with management and the independent accountants to review and discuss
Advance’s critical accounting policies and significant
estimates;
|
· |
met
with management and the independent accountants to review and approve
the
fiscal year 2005 audit plan;
|
· |
met
regularly with both the independent accountants and internal audit
outside
the presence of management;
|
· |
met
with management and the independent accountants to review the audited
financial statements for the year ended December 31, 2005, and internal
controls over financial reporting as of December 31,
2005;
|
· |
reviewed
and approved the quarterly and annual reports prior to filing with
the
SEC;
|
· |
reviewed
and approved the quarterly earnings press releases and other financial
press releases;
|
· |
met
with the Chief Internal Audit Executive to review, among other things,
the
audit plan, test work, findings and recommendations, and staffing;
|
· |
reviewed
the processes by which risk is assessed and mitigated;
and
|
· |
completed
all other responsibilities under the audit committee
charter.
|
We
have
discussed with the independent accountants the matters required by Statement
on
Auditing Standards No. 61 (Communication with Audit Committee), which includes
a
review of significant accounting estimates and Advance’s accounting practices.
We also discussed the effectiveness of internal controls. In addition, we have
received written disclosures from the independent accountants required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit
Committees), and discussed with independent accountants their firm’s
independence.
Based
upon our discussion with management and the independent accountants, and our
review of the representations of management and the independent accountants,
we
recommended to the Board of Directors that the audited consolidated financial
statements be included in Advance’s annual report on Form 10-K for the year
ended December 31, 2005.
We
considered whether the independent accountants’ provision of non-audit services
to Advance is compatible with maintaining the independent accountants’
independence, and have determined the provision of the non-audit services are
compatible with the independent accountants’ independence. Accordingly, we have
approved retention of Deloitte & Touche LLP as Advance’s independent
registered public accounting firm for fiscal year 2006.
We
reviewed and reassessed the adequacy of the Audit Committee Charter and
recommended changes, which were approved by the Board of Directors.
|
THE AUDIT COMMITTEE |
|
Carlos A. Saladrigas,
Chair |
|
John C. Brouillard |
|
Darren R.
Jackson |
REPORT
OF THE COMPENSATION COMMITTEE
ON
EXECUTIVE COMPENSATION
We
are
responsible for the review and determination of compensation awarded to
Advance’s executive officers (including the named executive officers) and key
members of management, including authorizing awards under Advance’s long-term
incentive plan. We operate under a written Compensation Committee charter
adopted by the Board. We met six times during 2005.
Compensation
Philosophy
Our
general compensation philosophy is to ensure that:
· |
compensation
for executive officers is tied to annual and long-term Company performance
goals that are structured to align the interests of executive officers
with those of Advance’s
stockholders;
|
· |
a
significant portion of total compensation is equity-based, thereby
further
aligning the interests of executive officers and Advance’s stockholders;
and
|
· |
executive
compensation is comparable with compensation levels at major competitors
so that Advance can attract, retain and motivate superior management
talent who are essential to Advance’s long-term
success.
|
There
are
two primary elements of compensation provided to Advance’s executive
officers:
· |
annual
compensation, which includes (1) base salary intended to provide
a salary
at a level consistent with individual contributions, and (2) annual
incentive bonuses intended to link annual compensation to Advance’s
performance; and
|
· |
long-term
incentive compensation, which includes stock options or other equity-based
compensation, intended to encourage the maximization of stockholder
value.
|
Evaluation
and Approval of Annual and Long-Term Incentive
Compensation
Each
year
we review and evaluate the compensation programs for executive officers and
key
members of management. We review information provided by leading executive
compensation consultants to establish the appropriate level and basis of base
salary, annual bonus opportunity and long-term incentive opportunities for
executive officers and other key members of management. We conduct this review
near the beginning of each fiscal year, at which time we also approve annual
base salaries, criteria for bonus incentive plans and long-term incentive
compensation.
We
attempt to link executive compensation for each executive officer to those
variables over which the executive generally has control. Included in our
criteria for making salary adjustments, bonus payments and stock option awards,
are achievements against the following targets:
· |
financial
targets, which include growth in the Company’s operating income,
improvement in operating income margin, revenue growth, comparable
store
sales growth, and achievement of specified inventory goals;
and
|
· |
non-financial
targets, which include building organizational talent, development
and
implementation of key operating and strategic business initiatives,
and
enhancement of management performance throughout the
Company.
|
Annual
Compensation
Base
Salary.
When
establishing base salary for each executive officer, we consider Advance’s
performance, each executive’s individual performance and the executive’s level
of experience, responsibilities and tenure, particularly in relation to other
executive officers and key members of management. We aim to position base
salaries annually for Advance’s executive officers at levels consistent with the
median of the retail market.
Annual
Incentive Bonus.
Advance’s bonus plan provides for the payment of cash bonuses based upon
Advance’s performance in relation to the predetermined financial targets
established at the beginning of the year. We aim to establish bonus targets
annually at industry median levels, with opportunity above median for
corresponding higher performance. The overall bonus potential, calculated as
a
percentage of base salary, varies depending upon the level of the executive
position. For 2005, our named executives’ bonus potential ranged from zero to
114% of individuals’ bonus targets. The maximum payout required the Company to
exceed all predetermined financial targets.
We
met in
November 2004 and established financial performance targets for 2005, which
consisted of operating income, sales growth and achievement of specified
inventory goals. These targets are weighted based on the significance of the
key
performance indicators in driving stockholder value. Excluding the incentive
bonuses paid to Mr. Castellani for 2005 and 2004 and to Mr. Coppola for 2005,
we
approved the payment of incentive bonuses to Advance’s named executive
officers equal
to
an aggregate of $1,457,768 in 2005, compared to incentive bonuses of $864,650
for 2004. The magnitude of change between 2004 and 2005 is attributable to
changes in size of the executive officer group and improved performance against
targets in 2005. We approved the payment of these incentive bonuses based on
the
level of achievement toward the above pre-established targets.
Long-Term
Incentive Compensation
To
be
competitive in attracting and retaining qualified executive officers and to
provide them with performance incentives, we also grant employee stock options
to Advance’s executive officers under the Advance Long-Term Incentive Plan,
approved by shareholders in May 2004. Guidelines for stock option awards are
established for positions within the Company based on the expected impact the
position has on increasing stockholder value. Individual executives’ stock
option grants are determined based on recent performance toward specific goals
to impact shareholder value. Such specific goals differ among executives, but
all measures are related to the enhancement of stockholder value. In 2005,
we
approved the grant of options to Advance’s named executive officers (excluding
Messrs. Castellani and Coppola) to purchase 502,500 shares of common stock
(post
stock-split) compared to the grant in 2004 of options to the named executive
officers (excluding Mr. Castellani) to purchase 592,500 shares of common stock
(post stock-split).
Chief
Executive Officer Compensation for 2005
Our
committee is responsible for reviewing the chief executive officer’s
compensation each year, consistent with the philosophies and goals set forth
above. The transition from Mr. Castellani to Mr. Coppola as chief executive
officer occurred as planned in May 2005. Mr. Coppola’s salary was $450,000 at
the beginning of 2005 until he assumed the position of chief executive officer
in May 2005, at which time his salary was increased to $750,000. Based on his
performance in 2005, Mr. Coppola’s salary will be increased to $780,000
effective at the same time of other Team Member salary changes in April
2006.
The
chief
executive officer’s salary is based upon achievement of quantitative and
qualitative factors for the fiscal year along with data and expert advice
provided by external compensation consultants to the committee. Mr. Coppola’s
compensation reflects his individual leadership displayed throughout the year
and his pay relative to that of chief executive officers of comparable retail
companies.
Mr.
Coppola and Mr. Castellani had a target bonus opportunity equal to 100% of
base
salary, with a maximum payout of just over 114% of base salary, based on full
year 2005 results. Mr. Coppola was paid $770,849 in 2006 based on the results
of
fiscal 2005 in accordance with the provisions of the bonus plan and measures
approved by us in the beginning of 2005. Mr. Castellani was paid a $275,250
incentive bonus in 2006 for his contribution to our 2005 results during his
time
as chief executive officer in 2005. This payment was pro-rated for
his
tenure in position and was based on the bonus plan approved for the position
of
chief executive officer. Mr. Coppola’s bonus opportunity for 2006 provides a
maximum 200% of base salary under the provisions of the 2006 bonus plan. Payout
of maximum bonus requires that all performance measures be far
exceeded.
In
recognition of his contribution to the Company’s success during his tenure as
chief executive officer and his commitment to continue providing leadership
as
chairman of the Board of Directors, Mr. Castellani received a grant of options
to purchase 180,000 shares of common stock in February 2005, at an exercise
price of $33.37 per share, as adjusted for the September 2005 stock split.
In
February 2005, Mr. Coppola received a grant of options to purchase 300,000
shares of common stock, at an exercise price of $33.37 per share, as adjusted
for the September 2005 stock split, in anticipation of his assumption of the
chief executive officer role in May 2005, and in recognition of his
accomplishments of improving organizational effectiveness and operating results
as we finished 2004. Mr. Coppola received no other grants in 2005. Mr. Coppola’s
and Mr. Castellani’s option grants vest equally over a three-year period and
expire in 2012.
Internal
Revenue Code Section 162(m)
We
consider the potential impact of Section 162(m) of the Internal Revenue Code.
Section 162(m) disallows a tax deduction for any publicly held corporation
for
individual compensation exceeding $1 million in any taxable year for the
corporation’s named executive officers, other than compensation that is
performance-based under a plan that is approved by stockholders and that meets
certain other technical requirements. In 2004, Advance’s long-term incentive
plan was approved by its stockholders in order to exclude from the $1 million
limit any performance based compensation resulting from options or other awards
granted under the plan to its “named executive officers.”
We
consider the anticipated tax treatment to Advance and the executive officers
in
our review and establishment of compensation programs and payments. We intend
to
structure all compensation payments to meet the requirements of Section 162(m),
but may approve compensation payments that may not be tax deductible if we
determine that such compensation would be in Advance’s best interests and those
of its stockholders.
|
COMPENSATION COMMITTEE |
|
Francesca M. Spinelli (Chair) |
|
John
C. Brouillard |
|
Gilbert
T. Ray |
|
William
L. Salter |
EXECUTIVE
COMPENSATION
The
following table sets forth the compensation earned by the two individuals who
served in the role of chief executive officer during 2005. Compensation
information is also provided for the other four most highly compensated
executive officers at the end of our last completed year. We refer to these
persons, along with our chief financial officer, as our named executive
officers. Additionally, compensation information is provided for our former
chief financial officer.
Summary
Compensation Table
|
|
|
|
|
Annual
Compensation
|
|
Long
Term Compensation Awards
Securities
Underlying
Options(#)(2)
|
|
|
Name
and
Principal
Position
|
|
|
Fiscal
Year
|
|
Salary($)
|
|
Bonus($)
|
|
Other
Annual($)
(1)
|
|
All
Other
Compensation($)(3)
|
|
Michael
N. Coppola (4)
President
and
Chief
Executive Officer
|
|
|
2005
2004
2003
|
|
$634,622
361,414
259,869
|
|
$770,849
222,784
173,910
|
|
$
5,713
3,266
-
|
|
300,000
255,000
87,000
|
|
$
11,466
10,716
10,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
P. Castellani (5)
Chairman
of the Board and
Retired
Chief Executive
Officer
|
|
|
2005
2004
2003
|
|
267,808
690,414
679,566
|
|
275,250
522,226
482,130
|
|
45,559
29,232
23,476
|
|
180,000
180,000
180,000
|
|
9,700
13,210
12,750
|
|
Paul
W. Klasing
Executive
Vice President,
Stores
|
|
|
2005
2004
2003
|
|
275,787
266,825
253,249
|
|
285,739
160,048
181,809
|
|
1,969
-
-
|
|
90,000
90,000
105,000
|
|
8,695
8,650
9,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
O. Moore (6)
Executive
Vice President,
Chief
Financial Officer
|
|
|
2005
2004
2003
|
|
24,519
-
-
|
|
-
-
-
|
|
-
-
-
|
|
45,000
-
-
|
|
269,750
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
B. Mueller
Executive
Vice President,
Merchandising
and Marketing
|
|
|
2005
2004
2003
|
|
256,006
202,836
115,002
|
|
264,595
116,602
68,443
|
|
1,071
841
15,086
|
|
90,000
60,000
-
|
|
375
527
22,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elwyn
G. Murray III (7)
Executive
Vice President,
Administration
|
|
|
2005
2004
2003
|
|
213,460
-
-
|
|
228,228
-
-
|
|
11,672
-
-
|
|
90,000
-
-
|
|
17,702
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jimmie
L. Wade
Executive
Vice President,
Business
Development
|
|
|
2005
2004
2003
|
|
399,955
436,160
367,014
|
|
422,092
261,609
275,464
|
|
280
-
-
|
|
135,000
135,000
165,000
|
|
9,355
9,693
9,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
T. Gray (8)
Former
Executive Vice
President,
Chief Financial
Officer
|
|
|
2005
2004
2003
|
|
250,016
232,873
192,099
|
|
257,114
103,607
105,439
|
|
-
2,776
-
|
|
52,500
52,500
63,000
|
|
216,763
8,396
9,065
|
|
(1) |
This
column includes tax reimbursements in conjunction with relocation
expenses
for Mr. Mueller in 2003 and for Mr. Murray in 2005. This column also
includes the value of personal use of the Company aircraft calculated
as
the incremental cost to the Company and tax reimbursements related
to
personal use of the Company aircraft. The incremental cost to the
Company
for personal use of Company aircraft is calculated based on the primary
variable operating costs to the Company, including fuel costs, maintenance
costs and other miscellaneous variable costs. The amounts reported
for
2003 and 2004 have been restated to reflect a change in valuation
methodology from prior years in which the cost of the personal use
of the
Company
|
|
aircraft had been calculated using the
Standard Industrial Fare Level (SIFL) tables found in the Internal
Revenue
Service regulations. |
(2) |
All stock option grants are reported
on a
“post-split” basis, to reflect the 3-for-2 stock split effective September
26, 2005. No stock appreciation rights have been granted in any of
the
past three fiscal years. |
(3) |
Detail of all other compensation for
each of
our named executive officers is shown in the Summary of All Other
Compensation table below. |
(4) |
Mr. Coppola became the chief executive
officer in May 2005, after serving as executive vice president in his
prior position. |
(5) |
Mr. Castellani transitioned from his
position
as chief executive officer and chairman of the Board to become the
chairman of the Board in May 2005. Mr. Castellani’s compensation as a
non-executive member of the Board of Directors is reflected in the
portion
of this proxy statement captioned “Non-Management Director
Compensation”. |
(6) |
Mr. Moore joined us in December 2005.
Mr.
Moore’s employment offer included a commitment to pay a signing bonus of
$266,000 in 2006 which is reported as all other compensation. Mr. Moore’s
base annual salary upon commencement of his employment was
$375,000. |
(7) |
Mr. Murray began his employment with
us in
April 2005 with an annual base salary of $300,000, which was increased
to
$375,000 effective January 1, 2006. |
(8) |
Mr. Gray, our former chief financial
officer,
resigned his position December 8, 2005. “All Other Compensation” for 2005
includes $208,347 to be paid to Mr. Gray under his severance and
non-competition agreement entered into upon his
resignation. |
Summary
of All Other Compensation
|
Fiscal
Year
|
|
401(k) ($)
|
|
Life
Insurance(a)($)
|
Relocation($)
|
|
Other($)
|
Total
All
Other($)
|
Mr.
Coppola
|
2005
|
|
$8,444
|
|
3,022
|
-
|
|
-
|
$
11,466
|
|
2004
|
|
7,886
|
|
2,830
|
-
|
|
-
|
10,716
|
|
2003
|
|
8,426
|
|
2,105
|
-
|
|
-
|
10,531
|
|
|
|
|
|
|
|
|
|
|
Mr.
Castellani
|
2005
|
|
7,828
|
|
1,872
|
-
|
|
-
|
9,700
|
|
2004
|
|
7,342
|
|
5,868
|
-
|
|
-
|
13,210
|
|
2003
|
|
7,849
|
|
4,901
|
-
|
|
-
|
12,750
|
|
|
|
|
|
|
|
|
|
|
Mr.
Klasing
|
2005
|
|
8,285
|
|
410
|
-
|
|
-
|
8,695
|
|
2004
|
|
7,918
|
|
732
|
-
|
|
-
|
8,650
|
|
2003
|
|
8,596
|
|
467
|
-
|
|
-
|
9,063
|
|
|
|
|
|
|
|
|
|
|
Mr.
Moore
|
2005
|
|
-
|
|
-
|
3,750
|
|
266,000
|
269,750
|
|
2004
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
2003
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Mr.
Mueller
|
2005
|
|
-
|
|
375
|
-
|
|
-
|
375
|
|
2004
|
|
-
|
|
527
|
-
|
|
-
|
527
|
|
2003
|
|
-
|
|
330
|
22,096
|
|
-
|
22,426
|
|
|
|
|
|
|
|
|
|
|
Mr.
Murray
|
2005
|
|
-
|
|
169
|
17,533
|
|
-
|
17,702
|
|
2004
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
2003
|
|
-
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Mr.
Wade
|
2005
|
|
8,386
|
|
969
|
-
|
|
-
|
9,355
|
|
2004
|
|
7,772
|
|
1,921
|
-
|
|
-
|
9,693
|
|
2003
|
|
8,412
|
|
1,000
|
-
|
|
-
|
9,412
|
|
|
|
|
|
|
|
|
|
|
Mr.
Gray(b)
|
2005
|
|
8,175
|
|
241
|
-
|
|
208,347
|
216,763
|
|
2004
|
|
8,021
|
|
375
|
-
|
|
-
|
8,396
|
|
2003
|
|
8,730
|
|
335
|
-
|
|
-
|
9,065
|
(a)
|
Represents
the portion of premiums paid by us for group term life insurance
exceeding
$50,000.
|
(b)
|
Severance
payments will be made to Mr. Gray during 2006 in conjunction with
his
severance agreement.
|
Option
Grants in Last Fiscal Year
Under
the
2004 Long Term Incentive Plan, each executive officer was granted non-qualified
stock options during 2005. The following table sets forth information concerning
options granted in 2005 to each of our named executive officers:
|
|
Individual
Grants
|
|
Potential
Realizable Value at
Assumed
Annual Rates of Price Appreciation for Option Term(2)
|
Name
|
|
Number
of
Securities
Underlying
Options
Granted(#)
|
|
Percent
of
Total
Options
Granted
to
Employees
In
2005
|
|
Exercise
or
Base
Price
Per
Share($)(1)
|
|
Expiration
Date
|
|
5%($)
|
|
10%($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael N. Coppola |
|
300,000
|
|
13.8%
|
|
$33.37
|
|
2/22/2012
|
|
$4,075,482
|
|
$9,497,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence P. Castellani |
|
180,000
|
|
8.3%
|
|
33.37
|
|
2/22/2012
|
|
2,445,289
|
|
5,698,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul W. Klasing |
|
90,000
|
|
4.1%
|
|
33.37
|
|
2/22/2012
|
|
1,222,645
|
|
2,849,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael O. Moore |
|
45,000
|
|
2.1%
|
|
42.10
|
|
12/19/2012
|
|
771,252
|
|
1,797,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Mueller |
|
90,000
|
|
4.1%
|
|
33.37
|
|
2/22/2012
|
|
1,222,645
|
|
2,849,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elwyn G. Murray III |
|
90,000
|
|
4.1%
|
|
33.57
|
|
4/20/2012
|
|
1,229,973
|
|
2,866,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jimmie L. Wade |
|
135,000
|
|
6.2%
|
|
33.37
|
|
2/22/2012
|
|
1,833,967
|
|
4,273,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey T. Gray |
|
52,500
|
|
2.4%
|
|
33.37
|
|
2/22/2012
|
|
713,209
|
|
1,662,081
|
(1) |
Represents the fair market value of
the
underlying shares of common stock at the time of the
grant. |
(2) |
The
potential realizable value is calculated assuming that the fair
market
value of our common stock appreciates at the indicated annual rate
compounded annually for the entire seven-year term of the option,
and that
the option is exercised and the underlying shares of our common
stock sold
on the last day of its seven-year term for the appreciated stock
price.
The assumed 5% and 10% rates of appreciation do not represent our
estimate
of the future prices or market value of our common
stock.
|
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The
following table sets forth information with respect to our named executive
officers concerning option exercises for 2005 and exercisable and unexercisable
stock options held as of December 31, 2005:
|
|
|
|
|
|
Number
of Underlying Unexercised Options at
December
31, 2005(#)
|
|
Value
of Unexercised
In-the-Money
Options at
December
31, 2005($)
(1)
|
Name
|
|
Shares
Acquired on Exercise(#)
|
|
Value
Realized($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Michael
N. Coppola
|
|
-
|
|
-
|
|
209,000
|
|
499,000
|
|
$5,150,815
|
|
$6,898,610
|
|
Lawrence
P. Castellani
|
|
1,380,000
|
|
$44,379,584
|
|
375,000
|
|
360,000
|
|
10,379,880
|
|
5,686,020
|
|
Paul
W. Klasing
|
|
99,000
|
|
3,422,432
|
|
265,000
|
|
185,000
|
|
7,894,690
|
|
2,938,610
|
|
Michael
O. Moore
|
|
-
|
|
-
|
|
-
|
|
45,000
|
|
-
|
|
61,200
|
|
David
B. Mueller
|
|
-
|
|
-
|
|
20,000
|
|
130,000
|
|
332,000
|
|
1,571,830
|
|
Elwyn
G. Murray III
|
|
-
|
|
-
|
|
-
|
|
90,000
|
|
-
|
|
890,370
|
|
Jimmie
L. Wade
|
|
111,000
|
|
2,423,367
|
|
184,999
|
|
280,000
|
|
4,590,556
|
|
4,401,315
|
|
Jeffrey
T. Gray
|
|
42,000
|
|
1,267,000
|
|
74,500
|
|
108,500
|
|
1,786,228
|
|
1,654,623
|
|
_______________
(1) |
Values
for “in-the-money” outstanding options represent the positive spread
between the respective exercise prices of the outstanding options
and
$43.46 per share, the closing price for our common stock on December
30,
2005 as reported by the NYSE.
|
Executive
Employment Agreements
Mr. Castellani
was appointed our Chief Executive Officer and began employment on
February 1, 2000, at which time he signed an employment and non-competition
agreement. Mr. Castellani’s employment agreement had an initial term of two
years, and renewed automatically each year thereafter unless his employment
was
terminated by Mr. Castellani or by us. The agreement provided for a base
salary of $600,000, subject to annual increases at the discretion of the Board
of Directors, and an annual cash bonus based on our achievement of performance
targets established by the Board of Directors. In the event
Mr. Castellani’s employment was terminated without cause, or he terminated
his employment for good reason, as defined in the employment agreement, the
agreement provided that he would receive salary through the later of the end
of
the term of employment or one year from the effective date of termination,
less
any amounts earned in other employment, and the pro rata share of the bonus
due
to Mr. Castellani prior to the termination of employment.
Mr. Castellani agreed not to compete with us, to preserve our confidential
information, not to recruit or employ our employees to or in other businesses
and not to solicit our customers or suppliers for competitors until one year
after the effective date of termination of his employment. This agreement
terminated upon Mr. Castellani’s retirement as our employee in May 2005. Mr.
Castellani remained as chairman of the Board subsequent to that date. As
compensation for being non-executive chairman, he received a retainer of
$125,000 in excess of normal director fees until the May 2006 meeting of the
Board.
On
April 15, 1998, Messrs. Klasing and Wade entered into employment
agreements with us. These agreements contain severance provisions that provide
for one year of base salary upon termination of employment, by us without cause
or by the employee with good reason as defined in the employment agreement,
less
any amounts earned in other employment, and the pro rata share of the bonus
due
to the employee prior to the termination of employment. The agreements extend
from year-to-year unless terminated by the employee or us. Other provisions
require us to pay bonuses earned by the employee upon our achievement of certain
financial targets
that
are
approved by our Board of Directors, and an agreement by the employee not to
compete with us, to preserve our confidential information, not to recruit or
employ our employees to or in other businesses and not to solicit our customers
or suppliers for competitors. In February 2006, the Company notified Messrs.
Klasing and Wade of its intention not to renew these agreements upon the
expiration of the current term of the agreement on April 15, 2006 in
anticipation of entering into new employment agreements.
Effective
March 31, 2006, Messrs. Coppola, Klasing, Moore, Mueller, Murray, and Wade
entered into employment agreements with the Company. These agreements supersede
any existing employment agreements or arrangements. The agreements contain
severance provisions that provide for payment of one year of base salary upon
termination of employment, by the Company without cause or by the employee
with
good reason as defined in the employment agreement, and the pro rata share
of
the bonus and unused vacation due to the employee prior to the termination
of
employment. The initial term of the agreements is one year, and the agreements
extend from year-to-year unless terminated by the employee or the Company.
Other
provisions require us to pay bonuses earned by the employee upon our achievement
of certain financial targets that are approved by our Board of Directors, and
an
agreement by the employee not to compete with the Company, to preserve our
confidential information, not to recruit or employ our employees to or in other
businesses and not to solicit our customers or suppliers for competitors during
the term of the executive’s employment and for one year following termination of
employment. In the case of death, a lump sum amount equal to the executive’s
annual salary shall be paid to his designated beneficiary or estate. In the
case
of termination of employment due to disability as defined in the agreement,
the
executive will receive an amount equal to 30 percent of his base salary for
a
one year period.
RELATED-PARTY
TRANSACTIONS
Mr.
Nicholas F. Taubman served as a member of our Board of Directors from February
2004 until he resigned in November 2005 to accept the appointment as U.S.
Ambassador to Romania. We lease our Roanoke, Virginia distribution center,
an
office and warehouse facility, one warehouse, 14 of our stores and four former
stores and have leased other former stores from Mr. Taubman or members of his
immediate family. We lease a corporate facility from Ki, L.C., a Virginia
limited liability company owned by two trusts for the benefit of a child and
a
grandchild of Mr. Taubman. All these affiliated leases are on a triple net
basis. Lease expense for these affiliated leases was $2.9 million for 2005,
$3.0
million for 2004 and $3.0 million for 2003.
STOCKHOLDER
PROPOSALS FOR 2007 ANNUAL MEETING
Stockholders
intending to present a proposal at the 2007 annual meeting and have it included
in our proxy statement for that meeting must submit the proposal in writing
at
our offices at 5673 Airport Road, Roanoke, Virginia 24012, Attention: Corporate
Secretary, on or before December 13, 2006. Applicable SEC rules and regulations
govern the submission of stockholder proposals and our consideration of them
for
inclusion in next year’s proxy statement.
Stockholders
intending to present a proposal at the 2007 annual meeting (but not to include
the proposal in our proxy statement), or to nominate a person for election
as a
director, must comply with the requirements set forth in our by-laws. Our
by-laws require, among other things, that our corporate secretary receive
written notice from the record holder of intent to present such proposal or
nomination no less than 45 days and no more than 75 days prior to the
anniversary of the date on which we first mailed the proxy materials for the
preceding year’s annual meeting. Therefore, we must receive notice of such
proposal no earlier than January 27, 2007, and no later than February 26, 2007.
The notice must contain the information required by our by-laws. You may obtain
a print copy of our by-laws upon request from our corporate secretary at Advance
Auto Parts, 5673 Airport Road, Roanoke, Virginia 24012. Our by-laws are also
available on our web site at www.AdvanceAutoParts.com.
Management may vote proxies in its discretion on any matter at the 2007 annual
meeting if we do not receive notice of the matter within the time frame
described in this paragraph. In addition our CEO or any other person presiding
at the meeting may exclude any matter that is not properly presented in
accordance with these requirements.
OTHER
MATTERS
The
Board
of Directors does not intend to present any other matters at the meeting and
knows of no other matters which will be presented at the meeting.
A
copy of
our 2005 annual report of stockholders is being mailed to each stockholder
of
record together with this proxy statement. The annual report is not part of
our
proxy soliciting material.
By
order of the Board
of Directors,
Eric
M.
Margolin
Senior
Vice
President
General
Counsel and
Secretary
Roanoke,
Virginia
April 12,
2006
APPENDIX
A
ADVANCE
AUTO PARTS, INC.
AUDIT
COMMITTEE CHARTER
PURPOSE
The
Audit
Committee (the "Committee") is appointed by the Board of Directors (the "Board")
of Advance Auto Parts, Inc. (the "Company" or "Advance") to assist the Board
in
monitoring (1) the integrity of the financial statements, reporting processes
and internal controls of the Company and its subsidiaries, (2) the compliance
by
the Company and its subsidiaries with legal and regulatory requirements related
to the production of timely and accurate financial statements, (3) the
performance of the Company’s internal and independent auditors and (4) the
qualifications and independence of the Company’s independent auditor. In
addition, the Committee is responsible for preparing the Audit Committee report
required by the Securities and Exchange Commission’s (“SEC”) proxy rules for
inclusion in the Company’s annual proxy statement.
COMMITTEE
COMPOSITION
The
Committee shall have a minimum of three directors appointed by the Board at
its
annual meeting on the recommendation of the Nominating and Corporate Governance
Committee. Each member of the Committee must meet the independence requirements
of the Exchange Act and the requirements of the New York Stock Exchange (an
“Independent Director”). Each member of the Committee shall be financially
literate, as determined by the Board, or must become financially literate within
a reasonable period of time after his or her appointment to the Board. At least
one member of the Committee shall be a financial expert under the SEC’s rules as
determined by the Board. A Committee member may not serve on the audit
committees of more than two other public companies.
Additional
members of the Committee may be appointed at any time by action of the Board.
Members of the Committee may be removed at any time with or without cause by
action of the Board, but in no event shall the Committee have fewer than three
members.
AUTHORITY
The
Committee shall have the full and exclusive authority to take any actions
necessary to discharge its duties under this Charter. The Committee may take
any
actions consistent with this Charter, the Company’s by-laws and Certificate of
Incorporation as the Committee or the Board deems necessary or
appropriate.
The
Committee shall have the independent authority to retain legal, accounting
or
other consultants to advise the Committee. The Company shall provide for
appropriate funding, as determined by the Committee, for compensating the
Company’s independent auditor and any legal, accounting or other advisors
retained independently by the Committee.
The
Committee may not delegate any of its responsibilities to the Company’s
management.
OVERSIGHT
OF THE INDEPENDENT AUDITOR
The
Committee shall:
1. Be
directly responsible for the appointment, compensation, oversight and
termination of the Company’s independent auditor (including resolution of
disagreements between management, the independent auditor
and the internal audit department regarding financial reporting). The Company's
independent auditor shall report directly to the Committee.
2. Ensure
that the Company’s independent auditor is and remains independent under all
applicable rules and regulations, including establishing clear hiring policies
for employees or former employees of the independent auditors.
3. At
least
annually, obtain and review a report by the independent auditor describing:
a. the
firm's internal quality-control procedures;
b. any
material issues raised by the most recent internal quality-control review,
or
peer review, of the firm, or by any inquiry or investigation by governmental
or
professional authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps taken to deal
with any such issues; and
c. all
relationships between the independent auditor and the Company, to assess the
auditor’s independence.
4. Pre-approve
audit services and permitted non-audit services to be performed by the Company’s
independent auditor. The Committee may establish pre-approval policies and
procedures. In the event the Committee pre-approves non-audit services by the
Company’s independent auditor, or establishes pre-approval policies and
procedures, it shall notify the Board.
5. Report
to
the Board in time for inclusion in the annual proxy statement all categories
of
audit fees required under SEC rules, including audit fees, audit-related fees,
tax fees and all other fees.
OVERSIGHT
OF THE INTERNAL AUDIT DEPARTMENT
The
Committee shall:
1. Be
directly responsible for the oversight of the Company’s internal audit
department (including resolution of disagreements between management, the
independent auditor and the internal audit department regarding financial
reporting). The internal audit department shall report to the
Committee.
2. Review
with management the appointment, retention, compensation and replacement of
the
senior internal auditing executive.
3. Review
any significant reports to management prepared by the Company's internal
auditing staff and management's responses.
OVERSIGHT
OF FINANCIAL MATTERS AND REGULATORY COMPLIANCE
The
Committee shall:
1. Assist
the Board to ensure that management properly develops and adheres to a sound
system of internal controls and that procedures are in place to objectively
assess management’s practices and internal controls.
2. Ensure
that outside auditors, through their own review, objectively assess the
Company’s financial reporting practices and that the Company’s accounting
policies are consistently applied.
3. Make
regular reports to the Board addressing the quality and integrity of the
Company's financial statements, reporting processes, internal controls,
accounting principles, regulatory compliance, the performance and independence
of the independent auditors, and the performance of the Company's internal
audit
function.
4. Prepare
the "audit committee report" required by the rules of the SEC to be included
in
the Company's annual proxy statement.
5. Review
with the Company's General Counsel any legal matter that could have a material
impact on the Company's financial statements.
6. Be
directly responsible for the oversight of the Company’s compliance office. The
responsibility for the compliance office shall rest with the Company’s General
Counsel. The compliance office shall report to the Committee.
7. Ensure
that before filing financial statements with the SEC the independent auditor
reports to the Committee, the Company’s CEO and CFO: (1) all critical accounting
policies and practices used by the Company, (2) all alternative accounting
treatments of financial information within generally accepted accounting
principles (“GAAP”) that have been discussed with management, including the
ramifications of the use of such alternative treatments and disclosures and
the
treatment preferred by the independent auditor, and (3) other material written
communications between the independent auditor and management.
8. Review
the Company's quarterly and annual audited financial statements with management
and the independent auditor, including the Company’s disclosures under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” to examine the effectiveness of the Company’s accounting and
auditing principles and practices, disclosure controls and procedures, internal
controls and disclosures made in management’s discussion and analysis. The
Committee shall then recommend to the Board whether the audited financial
statements should be included in the Company's quarterly or annual
reports.
9. Review
with the independent auditor any problems or difficulties the auditor may have
encountered during the audit and any management letter comments relating to
accounting matters or internal controls provided by the independent auditor
and
the Company's response to that letter. Such review should address:
a. Any
difficulties encountered in the course of the audit work, including any
restrictions on the scope of activities, access to required information,
personnel or disagreements with management.
b. Any
changes required in the planned scope of the audit.
c. The
internal audit department responsibilities, budget and staffing.
10. Review
the reports of the CEO and CFO (in connection with their required
certifications) regarding any significant deficiencies or material weaknesses
in
the design or operation of internal controls, and any fraud that involves
management or other employees who have a significant role in the Company's
internal controls.
11. Discuss
earnings press releases, as well as financial information and earnings guidance
provided to analysts and rating agencies.
12. Discuss
guidelines and policies with respect to risk assessment and risk
management.
13. Establish
procedures for the receipt, retention and treatment of complaints received
by
the Company regarding financial reporting, accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submissions by
employees or contractors of concerns regarding questionable accounting or
auditing matters.
14. Review
and approve the appointment of actuaries and other experts engaged by the
Company to assist in estimates used in preparing financial
statements.
MANAGING
THE AUDIT COMMITTEE
The
Committee shall:
1. Review
and reassess the adequacy of this Audit Committee Charter (the "Charter")
annually and recommend any proposed changes to the Board for approval. The
Charter will be included as an appendix to the annual stockholders' meeting
proxy statement once every three years or in the next annual stockholders'
meeting proxy statement after any significant amendment to the
Charter.
2. Review
and assess annually the efficiency and effectiveness of the Audit Committee's
performance.
MEETINGS
The
Audit
Committee shall meet at least quarterly, but as frequently as circumstances
may
require. Meetings of the Audit Committee may be held with or without notice
at
such time and place as may be designated from time to time in advance by the
Committee ("Regular Meeting"). Meetings which are not Regular Meetings of the
Committee may be called from time to time by the Committee chairman, if any,
or
by request from any Committee member and notice thereof shall be given to all
members. Notice
of
meetings shall be provided in accordance with the applicable sections of the
Company’s by-laws.
In
addition, the Committee shall meet periodically with management, the senior
internal auditing executive and the independent auditor in separate executive
sessions.
ADMINISTRATION
The
Committee shall keep regular minutes of its proceedings and make reports to
the
Board upon request. Unless the Board otherwise provides, the Committee may
make,
alter and repeal rules for the conduct of its business not inconsistent with
the
Company's by-laws. In the absence of such rules the Committee shall conduct
its
business in the same manner as the Board conducts its business pursuant to
the
Company’s by-laws.
All
Committee members are expected to allocate sufficient time in their schedules
to
fulfill their fiduciary duties to the Company. All Committee members are
expected to participate in the Committee meetings regularly, and in no event
in
fewer than 75% of such meetings annually. They are expected to be prepared
for
each meeting, by reviewing the advance materials, seeking such additional
information and assistance as they determine to be helpful and adequately
informing themselves of matters under the Committee's consideration and
otherwise to participate actively in the Committee's deliberations.
The
Committee shall not act through subcommittees but may appoint subcommittees
to
study and report to it on any matter.