Advance Auto Parts 2003 Annual Report Download

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2,500 Stores Strong and Building Momentum
2003 Annual Report

Table of contents

  • Page 1
    2,500 Stores Strong and Building Momentum 2003 Annual Report

  • Page 2
    ...,000 Team Members at Advance Auto Parts took servicing our customers to a new level in 2003. As the second largest aftermarket retailer in the United States, with over 2,500 stores in 39 states, Puerto Rico and the Virgin Islands, we are building momentum. It's momentum that our customers experience...

  • Page 3
    ... Comparable store sales growth ...Number of stores, end of period...Total store square footage, end of period (in thousands) ...Average net sales per store (5) ...Average net sales per square foot (6) ...Balance Sheet Data: Inventory...Net working capital...Total assets...Total net debt (7) ...Total...

  • Page 4
    .... In 2004, we will continue to emphasize training to equip our Team Members with the knowledge and skills to enhance our customers' shopping experience. We also plan to open 125-135 new locations, which will bring our team exciting advancement opportunities. Prices-In 2004, we will continue to bring...

  • Page 5
    ... y Director Ejecutivo 1. Robert E. Hedrick, Senior Vice President, Human Resources 2. Paul W. Klasing, Executive Vice President, Stores 3. Lawrence P. Castellani, Chairman and Chief Executive Officer 4. Michael N. Coppola, Executive Vice President and Chief Operating Officer 5. Jimmie L. Wade...

  • Page 6
    right people doing the right thing at the right time-satisfying our customers. Advance has the

  • Page 7
    Advance Auto Parts, Inc. and Subsidiaries 2,500 Stores Strong and Building Momentum Building Opportunity for Our Team On October 2, 2003, we opened our 2,500th store in Parma, Ohio, in the Cleveland market. This was a significant milestone for our Company for a number of reasons. It is a ...

  • Page 8
    ... sales in comparable stores rose 7.2% in 2003. Currently, 64% of our stores have a commercial delivery program and as we move into 2004, we see tremendous opportunities to increase our penetration of the commercial segment, especially in the Advance Discount Auto Parts stores in the Florida market...

  • Page 9
    Our name on our Private Label products represents the ideals Advance was built on- Quality, Value, and Trust.

  • Page 10
    We build our systems to soliciting input from the frontline-our stores. serve our customers, always

  • Page 11
    Advance Auto Parts, Inc. and Subsidiaries Financial Review FINANCIAL CONTENTS 10 12 Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes ...

  • Page 12
    ... and the related notes of Advance included elsewhere in this report. Fiscal Year (1)(2) 2003 (in thousands, except per share data) 2002 2001 2000 1999 Statement of Operations Data: Net sales ...Cost of sales ...Supply chain initiatives(3) ...Gross profit ...Selling, general and administrative...

  • Page 13
    ... accounting periods after the acquisition date of November 28, 2001. We do not include net sales from the 36 Western Auto retail stores in our comparable store calculation as a result of their unique product offerings, including specialty merchandise and service. In 2003, the comparable store sales...

  • Page 14
    ... Western Auto Supply Company acquisition and our 2001 acquisition of Discount Auto Parts, or Discount. Additionally, in 1996, we began to aggressively expand our sales to "do-it-for-me," or DIFM, customers by implementing a commercial delivery program. At January 3, 2004, we operated 2,539 stores...

  • Page 15
    ...Our online site allows our customers to pick up merchandise at a conveniently located store or have their purchase shipped directly to their home or business. Our Internet address is www.advanceautoparts.com. We make available free of charge through our Internet website our annual reports on Form 10...

  • Page 16
    ...Net Sales Our vendors are primarily responsible for warranty claims. Merchandise and services sold under warranty, which are not covered by vendors' warranties, include batteries, tires, roadside assistance and Craftsman products. We record accruals for future warranty claims based on current sales...

  • Page 17
    ...(including rent), net advertising expenses, other store expenses and general and administrative expenses, including salaries and related benefits of corporate team members, administrative office expenses, data processing, professional expenses and other related expenses including expenses associated...

  • Page 18
    ... The merger related restructuring charges primarily relate to lease costs associated with closed Advance Auto Parts stores in overlapping markets as a result of the Discount acquisition. Additionally, selling, general and administrative expenses include charges of $25.4 million, or 1.0% of sales, in...

  • Page 19
    ... approximately $150,000 per store, net of vendor payables. A portion of the inventory investment is held at a distribution facility. Pre-opening expenses, consisting primarily of store set-up costs and training of new store team members, average approximately $25,000 per store and are expensed when...

  • Page 20
    ... health care and life insurance benefits for eligible retired team members through our postretirement plan. At January 3, 2004, our accrued benefit cost related to this plan was $17.4 million. The plan has no assets and is funded on a cash basis as benefits are paid/incurred. The discount rate...

  • Page 21
    ...Primarily includes employee benefits accruals, restructuring and closed store liabilities and deferred income taxes for which no contractual payment schedule exists. Long-Term Debt Senior Credit Facility In March 2003, we added incremental facilities under our senior credit facility in the form of...

  • Page 22
    ...in the customer's income statement. Additionally, any rebate or refund should also be recognized as a reduction of the cost of sales based on a systematic and rational allocation. The release is effective for fiscal periods beginning after December 15, 2002. Our current accounting policy for vendor...

  • Page 23
    ... of transition for a voluntary change to the fair value based method of accounting for stock issued to employees, who we refer to as team members. This statement also amends FASB No. 123 to require disclosure of the accounting method used for valuation in both annual and interim financial statements...

  • Page 24
    ...or incurrence of judgements, fines or legal costs; • deterioration in general economic conditions; • our ability to meet debt obligations and adhere to the restrictions and covenants imposed under our senior credit facility; • our critical accounting policies; and • other statements that are...

  • Page 25
    Advance Auto Parts, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS January 3, 2004 and December 28, 2002 January 3, 2004 (in thousands, except per share data) December 28, 2002 Assets Current assets: Cash and cash equivalents...Receivables, net...Inventories, net ...Other current assets......

  • Page 26
    ... 29, 2001 Fiscal Years Ended 2003 (in thousands, except per share data) (53 weeks) 2002 (52 weeks) 2001 (52 weeks) Net sales ...Cost of sales, including purchasing and warehousing costs...Expenses associated with supply chain initiatives ...Gross profit ...Selling, general and administrative...

  • Page 27
    ... of common stock, net of $1,369 in related expenses ...Issuance of shares upon the exercise of stock options...Tax benefit related to exercise of stock options...Stock issued under employee stock purchase plan ...Repayment of management loans...Balance, December 28, 2002...Net income ...Unrealized...

  • Page 28
    ...Stock option compensation expense...Amortization of deferred debt issuance costs ...Amortization of bond discount...Compensation for stock issued under the employee stock purchase plan ...Loss (gain) on disposal of property and equipment, net...Impairment of assets held for sale...Provision (benefit...

  • Page 29
    ... arrangements ...Note receivable upon disposal of property and equipment...Issuance of common stock and stock options-Discount acquisition ...Accrued debt issuance costs ...Equity transactions under the stockholder subscription and employee stock option plans ... $ 30,216 - (647,462) 452,600 (99,300...

  • Page 30
    ... operates 36 stores under the "Western Auto" trade name, located primarily in Puerto Rico and the Virgin Islands, which offer certain home and garden merchandise in addition to automotive parts, accessories and service. 2-Summary of Significant Accounting Policies Accounting Period The Company...

  • Page 31
    ... commercial customers through a third-party provider of private label credit cards. The Company establishes reserves for returns and allowances at the time of sale based on current sales levels and historical return rates. Receivables under the private label credit card program are transferred...

  • Page 32
    ... rate ranging from 4.45% to 3.12%; (ii) weighted-average expected life of options of four years; (iii) expected dividend yield of zero and (iv) weighted-average volatility of 17%. For the above information, the fair value of each option granted in fiscal 2001 was estimated on the grant date using...

  • Page 33
    ..., any rebate or refund should also be recognized as a reduction of the cost of sales based on a systematic and rational allocation. The release is effective for fiscal periods beginning after December 15, 2002. The Company's current accounting policy for vendor incentives meets the requirements...

  • Page 34
    ... of transition for a voluntary change to the fair value based method of accounting for stock issued to employees, who the Company refers to as team members. This statement also amends FASB No. 123 to require disclosure of the accounting method used for valuation in both annual and interim financial...

  • Page 35
    ...fair value over the purchase price, was allocated proportionately as a reduction to certain non-current assets, primarily property and equipment. On April 23, 2001, the Company completed its acquisition of Carport Auto Parts, Inc., or Carport. The acquisition included a net 30 retail stores located...

  • Page 36
    ... by the present value of estimated revenues from subleases and are established by a charge to selling, general and administrative costs in the accompanying consolidated statements of operations at the time the facilities actually close. The Company currently uses discount rates ranging from 4.5% to...

  • Page 37
    ...portion of certain parts and batteries. Core values are included as part of our merchandise costs and are either passed on to the customer or returned to the vendor. Additionally, these products are not subject to the frequent cost changes like our other merchandise inventory, therefore resulting in...

  • Page 38
    ... market value. A charge of $4,700 represents the write-down of a closed distribution center acquired as part of the Western merger. A charge of $4,600 represents the reduction in carrying value of the former Western Auto corporate office also acquired in the Western merger. Both of these facilities...

  • Page 39
    Advance Auto Parts, Inc. and Subsidiaries The Company completed the redemption of its outstanding senior subordinated notes and senior discount debentures on April 15, 2003. Incremental facilities were added to fund the redemption in the form of a tranche A-1 term loan facility of $75,000 and ...

  • Page 40
    ... Receivables The Company established a stock subscription plan in fiscal 1998, which allows certain directors, officers and key team members of the Company to purchase shares of common stock. The plan required that the purchase price of the stock equal the fair market value at the time of the...

  • Page 41
    Advance Auto Parts, Inc. and Subsidiaries The provision (benefit) for income taxes from continuing operations differed from the amount computed by applying the federal statutory income tax rate due to: 2003 Income from continuing operations before cumulative effect of a change in accounting ...

  • Page 42
    ... in net rent expense for open stores. Rent expense associated with closed locations is included in other selling, general and administrative expenses. 17-Installment Sales Program 16 -Lease Commitments The Company leases store locations, distribution centers, office space, equipment and vehicles...

  • Page 43
    ... a defined contribution team member benefit plan, which covers substantially all team members after one year of service. The plan allows for team member salary deferrals, which are matched at the Company's discretion. Company contributions were $6,398, $6,930 and $5,238 in fiscal 2003, fiscal 2002...

  • Page 44
    ... cost of retiree health and life insurance benefits is recognized over the years that the team members $1,637 The postretirement benefit obligation was computed using the following discount rates as determined by the Company's actuaries as January 1 for each applicable year. 2003 Discount rate...

  • Page 45
    Advance Auto Parts, Inc. and Subsidiaries and thereafter. If the health care cost were increased 1% for all future years the accumulated postretirement benefit obligation would have increased by $2,588 as of January 3, 2004. The effect of this change on the combined service and interest cost would ...

  • Page 46
    ... years ended January 3, 2004 and December 28, 2002. During fiscal 2002, the Company established an employee stock purchase plan under which all eligible team members may purchase common stock at 85% of fair market value (determined quarterly) through payroll deductions. There are annual limitations...

  • Page 47
    Advance Auto Parts, Inc. and Subsidiaries 22-Quarterly Financial Data (unaudited) The following table summarizes quarterly financial data for fiscal years 2003 and 2002: 2003(1) Net sales ...Gross profit...Income from continuing operations ...Income (loss) on discontinued operations...Net income ...

  • Page 48
    ...AUDITORS' REPORT To the Board of Directors and Stockholders of Advance Auto Parts, Inc. Roanoke, Virginia We have audited the accompanying consolidated balance sheets of Advance Auto Parts, Inc. and subsidiaries (the Company) as of January 3, 2004 and December 28, 2002, and the related consolidated...

  • Page 49
    ... and objectivity and are the responsibility of the management of Advance Auto Parts. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on...

  • Page 50
    ...contained in our amended senior credit facility, or other agreements, and other factors deemed relevant by our board of directors. SEC FORM 10-K Stockholders may obtain free of charge a copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission by writing...

  • Page 51
    ..., 2004. 1 D. Scott Miller Senior Vice President, Real Estate Common Stock: Ticker Symbol: AAP Listing: New York Stock Exchange David B. Mueller Senior Vice President, Merchandising and Marketing Kurt R. Schumacher Senior Vice President, Store Operations-Florida Independent Accountants: Deloitte...

  • Page 52
    5673 Airport Road Roanoke, Virginia 24012 540-362-4911 www.AdvanceAutoParts.com IN MEMORY OF Stephen M. Peck On behalf of the Board of Directors and the Advance Auto Parts' Team, we would like to express our appreciation and gratitude to our Lead Director, Stephen M. Peck, who passed away on March...