Advance Auto Parts 2003 Annual Report Download - page 33

Based on the estimated current and future fair values of
the hedge arrangements at January 3, 2004, the Company
estimates amounts currently included in accumulated other
comprehensive income that will be reclassified to earnings
in the next 12 months will consist of a loss of $433 under
the interest rate collar and a loss of $821 associated with the
interest rate swaps.
Segment Reporting
The Company has adopted SFAS No. 131, “Disclosures
About Segments of an Enterprise and Related Information,”
which defines how operating segments are determined and
requires disclosures about products, services, major cus-
tomers and geographic areas. Subsequent to the Company’s
discontinuance of the Wholesale Distribution Network
(Note 3), the Company believes that it began operating in
one business segment.
Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, “Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections.” As a result of
rescinding FASB Statement No. 4, “Reporting Gains Losses
from Extinguishment of Debt,” gains and losses from extin-
guishment of debt should be classified as extraordinary
items only if they meet the criteria in APB Opinion No. 30,
“Reporting the Results of Operations—Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events
and Transactions.” This statement also amends FASB
Statement No. 13, “Accounting for Leases,” to eliminate an
inconsistency between the required accounting for sale-
leaseback transactions and the required accounting for
certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. Additional
amendments include changes to other existing authoritative
pronouncements to make various technical corrections, clar-
ify meanings or describe their applicability under changed
conditions. The Company adopted SFAS No. 145 during
the first quarter of fiscal 2003. For the fiscal years ended
2003, 2002 and 2001, the Company recorded losses on the
extinguishment of debt of $47,288, $16,822 and $6,106,
respectively and has appropriately reclassified such amounts.
In September 2002 (as subsequently updated in
November 2003), the FASB released EITF Issue No. 02-16,
“Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor.” This EITF
addresses how a reseller should account for consideration
received from a vendor since EITF Issue No. 01-9,
“Accounting for Consideration Given by a Vendor to a
Customer (including a Reseller of the Vendor’s Products),”
only addresses the accounting treatment from the vendor’s
perspective. The consensus is that cash received from a
vendor is presumed to be a reduction of the vendor’s prod-
ucts or services and should, therefore, be characterized as a
reduction in the cost of sales when recognized in the
customer’s income statement, unless a reimbursement of
costs is incurred by the customer to sell the vendor’s prod-
ucts, in which case the cash consideration should be charac-
terized as a reduction of that cost when recognized 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. The Company’s current accounting
policy for vendor incentives meets the requirements of this
EITF and therefore the adoption of this release during the
first quarter of fiscal 2003 had no impact on the Company’s
financial position or results of operations.
In November 2002, the FASB issued Interpretation, or
FIN, No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guar-
antees of Indebtedness of Others.” FIN No. 45 sets forth
expanded disclosure requirements in the financial statements
about a guarantor’s obligations under certain guarantees
that it has issued. It also clarifies that, under certain circum-
stances, a guarantor is required to recognize a liability for
the fair value of the obligation at the inception of the
guarantee. Certain types of guarantees, such as product
warranties, guarantees accounted for as derivatives, and
guarantees related to parent-subsidiary relationships are
excluded from the liability recognition provisions of FIN
No. 45, however, they are subject to the disclosure require-
ments. The initial liability recognition provisions are applica-
ble on a prospective basis to guarantees issued or modified
after December 31, 2002. The disclosure requirements of
Interpretation No. 45 are effective for financial statements
for interim or annual periods ending after December 15,
2002. The Company has no guarantees of third-party
indebtedness and therefore the adoption of FIN No. 45
during the first quarter of fiscal 2003 had no impact on the
Company’s financial position or results of operations. The
Company has accurately complied with the disclosure
aspect of FIN No. 45 as it relates to warranties.
In January 2003, the FASB issued Interpretation No. 46,
“Consolidation of Variable Interest Entities,” an interpreta-
tion of Accounting Research Bulletin No. 51, “Consolidated
Financial Statements.” Interpretation No. 46 prescribes how
to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide
whether to consolidate that entity. This interpretation
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved.
Interpretation No. 46 is effective immediately for variable
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Advance Auto Parts, Inc. and Subsidiaries