Advance Auto Parts 2003 Annual Report Download - page 15

names. Our stores offer a broad selection of brand name and
proprietary automotive replacement parts, accessories and
maintenance items for domestic and imported cars and light
trucks, with no significant concentration in any specific area. In
addition, we operated 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.
Fiscal
2003 2002 2001
Number of stores at beginning of year....... 2,435 2,484 1,729
New stores .............................................. 125 110 781
Closed stores........................................... (21) (159) (26)
Number of stores, end of period................. 2,539 2,435 2,484
Relocated stores.......................................... 32 39 18
In addition to our DIY business, we serve DIFM customers
via sales to commercial accounts. Sales to DIFM cus-
tomers represented approximately 16% of our retail sales in
2003 and consisted of sales to both walk-in commercial
customers and sales delivered to our commercial customers’
places of business, including independent garages, service
stations and auto dealers. At January 3, 2004, we had 1,625
stores with commercial delivery programs.
We also provide our customers online shopping and
access to over 1 million stock keeping units, or SKUs. 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-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to the Securities Act of 1934 as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
Stock Split
On October 29, 2003, our Board of Directors declared a
two-for-one stock split of our common stock, effected as
a 100% stock dividend. The dividend was distributed on
January 2, 2004 to holders of record as of December 11,
2003 and began trading on a post-split basis on January 5,
2004. All references to share and per share amounts in this
discussion and analysis reflect the effect of the stock split.
Discontinued Operations
On December 19, 2003, we discontinued the supplying
of merchandise to our wholesale distribution network. The
wholesale distribution network, or Wholesale, consisted of
independently owned and operated dealer locations, for
which we supplied merchandise inventory and certain serv-
ices. Due to the wide variety of products supplied to the
dealers and the reduced concentration of stores spread over
a wide geographic area, it had become difficult to serve
these dealers effectively. This component of our business
operated in the wholesale segment and excluding certain
allocated and team member benefit expenses of $2.4 mil-
lion, $3.3 million and $5.5 million for fiscal years 2003,
2002 and 2001, represented the entire results of operations
previously reported in that segment. We have classified
these operating results as discontinued operations in the
accompanying consolidated statements of operations for the
fiscal year ended January 3, 2004, December 28, 2002 and
December 29, 2001 to reflect this decision.
Critical Accounting Policies
Our financial statements have been prepared in accord-
ance with accounting policies generally accepted in the
United States of America. Our discussion and analysis of
the financial condition and results of operations are based
on these financial statements. The preparation of these
financial statements requires the application of accounting
policies in addition to certain estimates and judgments by
our management. Our estimates and judgments are based on
currently available information, historical results and other
assumptions we believe are reasonable. Actual results could
differ from these estimates.
The preparation of our financial statements included the
following significant estimates.
Vendor Incentives
As discussed further elsewhere in this report, we recog-
nize certain vendor incentives earned related to long-term
supply agreements as a reduction to cost of sales over the
life of the agreement based on the timing of purchases, not
as reductions to inventory. The functional amounts earned
under long-term arrangements are based on our estimate of
total purchases that will be made over the life of the con-
tracts and the amount of incentives that will be earned. The
incentives are generally recognized based on the cumulative
purchases as a percentage of total estimated purchases over
the life of the contract. The estimate of total purchases are
highly sensitive to market demand for certain product and
could positively or negatively impact our gross margins if
actual purchases or results from any one year differ from
our estimates, however, incentives earned over the life of
the contract would be the same.
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Advance Auto Parts, Inc. and Subsidiaries