Advance Auto Parts 2001 Annual Report Download - page 16

26 ADVANCE AUTO PARTS ANNUAL REPORT 2001 ADVANCE AUTO PARTS ANNUAL REPORT 2001 27
As of the date of the Discount acquisition, management formalized a
plan to close certain Discount Auto Parts stores in overlapping markets or
stores not meeting the Company’s profitability objectives, to relocate
certain Discount administrative functions to the Company’s headquarters
and to terminate certain management, administrative and support team
members of Discount. Additional purchase price liabilities of
approximately $9,066 have been recorded for severance and relocation
costs and approximately $2,331 for store and other exit costs. As of
December 29, 2001, two stores have been closed. The Company expects to
finalize its plan for termination of team members and closure of Discount
Auto Parts stores within one year from the date of the Discount acquisition
and to complete the terminations and closures by the end of fiscal 2002.
Additional liabilities for severance, relocation, store and other facility exit
costs may result in an adjustment to the purchase price. A reconciliation of
activity with respect to these restructuring accruals is as follows:
Other Exit
Severance Relocation Costs Total
Balance at January 2, 1999 $ 7,738 $ 838 $ 13,732 $ 22,308
Purchase accounting adjustments 3,630 (137) (1,833) 1,660
Reserves utilized (7,858) (701) (4,074) (12,633)
Balance at January 1, 2000 3,510 - 7,825 11,335
Purchase accounting adjustments - - (1,261) (1,261)
Reserves utilized (3,510) - (2,767) (6,277)
Balance at December 30, 2000 - - 3,797 3,797
Purchase accounting adjustments 9,292 611 3,606 13,509
Reserves utilized (837) - (2,500) (3,337)
Balance at December 29, 2001 $ 8,455 $ 611 $ 4,903 $ 13,969
Other exit cost liabilities will be settled over the remaining terms of the
underlying lease agreements.
5. Receivables:
Receivables consist of the following:
December 29, December 30,
2001 2000
Trade:
Wholesale $ 8,965 $ 12,202
Retail 19,857 15,666
Vendor (Note 2) 55,179 36,260
Installment (Note 17) 15,430 14,197
Related parties 1,100 3,540
Employees 683 607
Other 2,380 3,127
Total receivables 103,594 85,599
Less: Allowance for doubtful accounts (9,890) (5,021)
Receivables, net $ 93,704 $ 80,578
6. Inventories, net
Inventories are stated at the lower of cost or market. Inventory quantities
are tracked through a perpetual inventory system. The Company uses a
cycle counting program to ensure the accuracy of the perpetual inventory
quantities and establishes reserves for estimated shrink based on historical
accuracy of the cycle counting program. Cost is determined using the last-
in, first-out (“LIFO”) method for approximately 90% of inventories at
December 29, 2001 and December 30, 2000, and the first-in, first-out
(“FIFO”) method for remaining inventories. The Company capitalizes
certain purchasing and warehousing costs into inventory. Purchasing and
warehousing costs included in inventory, at FIFO, at December 29, 2001
and December 30, 2000, were $69,398 and $56,305, respectively. The
nature of the Company’s inventory is such that the risk of obsolescence is
minimal. In addition, the Company has historically been able to return
excess items to the vendor for credit. The Company does provide reserves
where less than full credit will be received for such returns and where the
Company anticipates that items will be sold at retail for prices that are less
than recorded cost. Inventories consist of the following:
December 29, December 30,
2001 2000
Inventories at FIFO, net $ 935,181 $ 779,376
Adjustments to state inventories at LIFO 46,819 9,538
Inventories at LIFO, net $ 982,000 $ 788,914
Replacement cost approximated FIFO cost at December 29, 2001 and
December 30, 2000.
During the fourth quarter of fiscal 2001, the Company recorded a non-
recurring expense of $10,493 ($9,099 in gross profit and $1,394 in
selling, general and administrative expenses) related to the Company’s
supply chain initiatives. These initiatives will reduce the Company’s
overall inventory investment as a result of only offering selective products
in specific store locations or regions. The gross profit charge relates
primarily to restocking and handling fees associated with inventory
identified for return to the Company’s vendors. Additionally, the supply
chain initiative includes a review of the Company’s logistics operations.
The expense recorded in selling, general and administrative expenses
includes cost associated with the relocation of certain equipment from a
distribution facility closed as part of these initiatives (Notes 4 and 9).
7. Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Expenditures for maintenance and repairs are charged
directly to expense when incurred; major improvements are capitalized.
When items are sold or retired, the related cost and accumulated
depreciation are removed from the accounts, with any gain or loss
reflected in the consolidated statements of operations.
Depreciation of land improvements, buildings, furniture, fixtures and
equipment, and vehicles is provided over the estimated useful lives, which
range from 2 to 40 years, of the respective assets using the straight-line
method. Amortization of building and leasehold improvements is provided
over the shorter of the estimated useful lives of the respective assets or the
term of the lease using the straight-line method.
Property and equipment consists of the following:
Estimated December 29, December 30,
Useful Lives 2001 2000
Land and land improvements 0 - 10 years $ 170,780 $ 40,371
Buildings 40 years 199,304 79,109
Building and leasehold
improvements 10 - 40 years 91,338 84,658
Furniture, fixtures
and equipment 3 - 12 years 433,518 357,642
Vehicles 2 - 10 years 32,047 30,506
Other 23,499 10,571
950,486 602,857
Less - Accumulated depreciation
and amortization (239,204) (191,897)
Property and equipment, net $ 711,282 $ 410,960
Advance Auto Parts, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
December 29, 2001, December 30, 2000 and January 1, 2000 (in thousands, except per share data and per store data)
Depreciation and amortization expense was $70,745, $66,826 and
$58,147 for the fiscal years ended 2001, 2000 and 1999, respectively. The
Company capitalized approximately $19,699, $9,400 and $561 in primarily
third party costs incurred in the development of internal use computer
software during fiscal 2001, fiscal 2000 and fiscal 1999, respectively.
8. Carport Acquisition
On April 23, 2001, the Company completed its acquisition of Carport Auto
Parts, Inc. (“Carport”). The acquisition included a net 30 retail stores
located in Alabama and Mississippi, and substantially all of the assets used
in Carport’s operations. The acquisition has been accounted for under the
purchase method of accounting and, accordingly, Carport’s results of
operations have been included in the Company’s consolidated statement of
operations since the acquisition date.
The purchase price, of $21,533, has been allocated to the assets
acquired and the liabilities assumed based on their fair values at the date of
acquisition. This allocation resulted in the recognition of $3,695 in
goodwill, of which $444 was amortized during fiscal 2001.
9. Assets Held for Sale
The Company applies SFAS No. 121, “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” which
requires that long-lived assets and certain identifiable intangible assets to
be disposed of be reported at the lower of the carrying amount or the fair
market value less selling costs. As of December 29, 2001 and December
30, 2000, the Company’s assets held for sale were $60,512 and $25,077,
respectively, primarily consisting of real property acquired in the Western
Merger and Discount acquisition.
During fiscal 2001, the Company recorded an impairment charge of
$12,300, to reduce the carrying value of certain non-operating facilities to
their estimated fair market value. $4,700 of the charge represents the write-
down of a closed distribution center acquired as part of the Western merger
included in the Wholesale segment. $4,600 represents the reduction in
carrying value of the former Western Auto corporate office also acquired
in the Western merger. The facility, which is held in the Wholesale
segment, consists of excess space not required for the Company’s current
needs. The remaining $3,000 represents a reduction to the carrying value
of a recently closed distribution center in Jeffersonville, Ohio, held in the
Retail segment, that was identified for closure as part of the Company’s
supply chain review. As of December 29, 2001, the carrying value for these
properties included in assets held for sale is $13,800. The reduction in
these book values represents the Company’s best estimate of fair market
value based on recent marketing efforts to attract buyers for these
properties.
During fiscal 2000, the Company also recorded an impairment related
to the Western Auto corporate office space. The impairment charge of
$856 reduced the carrying value to $8,000.
10. Other Assets:
As of December 29, 2001 and December 30, 2000, other assets include
deferred debt issuance costs of $25,790 and $14,843, respectively (net of
accumulated amortization of $3,597 and $8,232, respectively), relating
primarily to the financing in connection with the Discount acquisition
(Notes 3 and 13) and the fiscal 1998 recapitalization. Such costs are being
amortized over the term of the related debt (5 years to 11 years). Other
assets also include the non-current portion of deferred income tax assets
(Note 15).
11. Accrued Expenses:
Accrued expenses consist of the following:
December 29, December 30,
2001 2000
Payroll and related benefits $ 58,656 $ 25,507
Restructuring and closed store liabilities 15,879 3,772
Warranty 21,587 18,962
Other 80,096 76,721
Total accrued expenses $ 176,218 $ 124,962
12. Other Long-Term Liabilities:
Other long-term liabilities consist of the following:
December 29, December 30,
2001 2000
Employee benefits $ 22,152 $ 24,625
Restructuring and closed store liabilities 7,733 6,813
Other 6,388 12,495
Total other long-term liabilities $ 36,273 $ 43,933
Advance Auto Parts, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
December 29, 2001, December 30, 2000 and January 1, 2000 (in thousands, except per share data and per store data)