Advance Auto Parts 2004 Annual Report Download - page 42

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40
฀ Changes฀in฀estimates฀associated฀ with฀restructuring฀ lia-
bilities฀ resulted฀ in฀ adjustments฀ to฀ the฀ carrying฀ value฀ of฀
property฀and฀equipment,฀net฀on฀the฀accompanying฀consoli-
dated฀ balance฀ sheets฀ and฀ did฀ not฀ affect฀ the฀ Company’s฀
consolidated฀statements฀of฀operations.฀The฀closed฀store฀and฀
restructuring฀ liabilities฀ are฀ recorded฀ in฀ accrued฀ expenses฀
(current฀portion)฀and฀other฀long-term฀liabilities฀(long-term฀
portion)฀in฀the฀accompanying฀consolidated฀balance฀sheets.
5.฀Receivables
฀ Receivables฀consist฀of฀the฀following:
January฀1,฀
2005
January฀3,฀
2004
Trade:
฀ Wholesale฀(Note฀3)฀............................... $฀฀฀฀฀— $฀ ฀ ฀435
฀ Retail฀...................................................... 34,654 24,594
Vendor฀........................................................ 60,097 56,727
Installment฀................................................. 7,506 10,418
Other฀.......................................................... 7,815 1,755
Total฀receivables฀........................................ 110,072 93,929
Less:฀Allowance฀for฀doubtful฀accounts฀.... (8,103) (9,130)
Receivables,฀net฀......................................... $101,969 $84,799
6.฀Inventories,฀net
฀ Inventories฀are฀stated฀at฀the฀lower฀of฀cost฀or฀market,฀cost฀
being฀ determined฀ using฀ the฀ last-in,฀ first-out,฀ or฀ LIFO,฀
method฀ for฀ approximately฀ 93%฀ of฀ inventories฀ at฀ both฀
January฀ 1,฀ 2005฀ and฀ January฀ 3,฀ 2004.฀ Under฀ the฀ LIFO฀
method,฀ the฀Company’s฀cost฀ of฀sales฀reflects฀the฀costs฀ of฀
the฀most฀currently฀purchased฀inventories฀while฀the฀inven-
tory฀carrying฀balance฀represents฀the฀costs฀relating฀to฀prices฀
paid฀in฀prior฀years.฀The฀Company’s฀costs฀to฀acquire฀inven-
tory฀have฀been฀decreasing฀in฀recent฀years฀as฀a฀result฀of฀its฀
significant฀ growth.฀ Accordingly,฀ the฀ cost฀ to฀ currently฀
replace฀ inventory฀ is฀ less฀ than฀ the฀ LIFO฀ balances฀ carried฀
for฀ similar฀ product.฀ As฀ a฀ result฀ of฀ the฀ LIFO฀ method฀ and฀
the฀ ability฀ to฀ obtain฀ lower฀ product฀ costs,฀ the฀ Company฀
recorded฀reductions฀to฀cost฀of฀sales฀of฀$11,212,฀$2,156฀and฀
$13,128฀ for฀ fiscal฀ years฀ ended฀ 2004,฀ 2003฀ and฀ 2002,฀
respectively.
฀ The฀ remaining฀ inventories฀ are฀ comprised฀ of฀ product฀
cores,฀which฀consist฀of฀the฀non-consumable฀portion฀of฀cer-
tain฀ parts฀ and฀ batteries฀ and฀ are฀ valued฀ under฀ the฀ first-in,฀
first-out,฀ or฀ FIFO,฀ method.฀ 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฀no฀฀
material฀difference฀from฀applying฀either฀the฀LIFO฀or฀FIFO฀
valuation฀methods.
฀ The฀Company฀capitalizes฀certain฀purchasing฀and฀ware-
housing฀costs฀into฀inventory.฀Purchasing฀and฀warehousing฀
costs฀ included฀ in฀ inventory,฀ at฀ FIFO,฀ at฀ January฀ 1,฀ 2005฀
and฀ January฀ 3,฀ 2004,฀ were฀ $81,458฀ and฀ $75,349,฀ respec-
tively.฀Inventories฀consist฀of฀the฀following:
January฀1,฀
2005
January฀3,฀
2004
Inventories฀at฀FIFO,฀net฀........................... $1,128,135 $1,051,678
Adjustments฀to฀state฀inventories฀฀
฀ at฀LIFO฀................................................. 73,315 62,103
Inventories฀at฀LIFO,฀net฀........................... $1,201,450 $1,113,781
฀ Replacement฀cost฀approximated฀FIFO฀cost฀at฀January฀1,฀
2005฀and฀January฀3,฀2004.
฀ Inventory฀ quantities฀ are฀ tracked฀ through฀ a฀ perpetual฀
inventory฀system.฀The฀Company฀uses฀a฀cycle฀counting฀pro-
gram฀ in฀ all฀ distribution฀ centers,฀ Parts฀ Delivered฀ Quickly,฀
or฀ PDQs,฀ Local฀ Area฀ Warehouses,฀ or฀ LAWs,฀ and฀ retail฀
stores฀ to฀ ensure฀ the฀ accuracy฀ of฀ the฀ perpetual฀ inventory฀
quantities฀ of฀ both฀ merchandise฀ and฀ core฀ inventory.฀ The฀
Company฀ establishes฀ reserves฀ for฀ estimated฀ shrink฀ based฀
on฀historical฀accuracy฀and฀effectiveness฀of฀the฀cycle฀count-
ing฀ program.฀ The฀ Company฀ also฀ establishes฀ reserves฀ for฀
potentially฀ excess฀ and฀ obsolete฀ inventories฀ based฀ on฀ cur-
rent฀ inventory฀ levels฀ of฀ discontinued฀ product฀ and฀ the฀฀
historical฀analysis฀of฀the฀liquidation฀of฀discontinued฀inven-
tory฀below฀cost.฀The฀nature฀of฀the฀Company’s฀inventory฀is฀
such฀ that฀ the฀ risk฀ of฀ obsolescence฀ is฀ minimal฀ and฀ excess฀
inventory฀has฀historically฀been฀returned฀to฀the฀Company’s฀
vendors฀ for฀credit.฀The฀ Company฀provides฀reserves฀when฀
less฀than฀full฀credit฀is฀expected฀from฀a฀vendor฀or฀when฀liq-
uidating฀product฀will฀result฀in฀retail฀prices฀below฀recorded฀
costs.฀The฀Company’s฀reserves฀against฀inventory฀for฀these฀
matters฀were฀$21,929฀and฀$16,011฀at฀January฀1,฀2005฀and฀
January฀3,฀2004,฀respectively.
7.฀Property฀and฀Equipment
฀ Property฀ and฀ equipment฀ are฀ stated฀ at฀ cost,฀ less฀ accu-
mulated฀ 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฀accu-
mulated฀depreciation฀are฀removed฀from฀the฀accounts,฀with฀
any฀ gain฀ or฀ loss฀ reflected฀ in฀ the฀ consolidated฀ statements฀฀
of฀operations.
Notes฀to฀Consolidated฀Financial฀Statements฀(continued)
For฀the฀Years฀Ended฀January฀1,฀2005,฀January฀3,฀2004,฀and฀December฀28,฀2002฀(in฀thousands,฀except฀per฀share฀data)