Advance Auto Parts 2006 Annual Report Download - page 73

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2006, December 31, 2005 and January 1, 2005
(in thousands, except per share data)
1. Organization and Description of Business:
Advance Auto Parts, Inc. (“Advance”) conducts all of its operations through either its wholly owned subsidiary,
Advance Stores Company, Incorporated and its subsidiaries ("Stores") or Autopart International (“AI”), collectively,
the “Company.” Stores operate 2,995 stores within the United States, Puerto Rico and the Virgin Islands. The
Company operates 2,958 stores throughout 40 states in the Northeastern, Southeastern and Midwestern regions of
the United States. These stores operate under the “Advance Auto Parts” trade name except for certain stores in the
State of Florida which operate under the “Advance Discount Auto Parts” trade name. These 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 product area. In
addition, Stores operates 37 stores under the “Western Auto” and “Advance Auto Parts” trade names, located
primarily in Puerto Rico and the Virgin Islands. The Western Auto stores offer automotive tires and service in
addition to automotive parts, accessories and maintenance items. AI operates 87 stores under the “Autopart
International” trade name throughout the Northeastern region of the United States.
2. Summary of Significant Accounting Policies:
Accounting Period
The Company's fiscal year ends on the Saturday nearest the end of December, which results in an extra week
every six years (the next 53 week fiscal year is 2009). All other fiscal years presented include 52 weeks of
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates.
Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
ƔTotal cost of merchandise sold including: ƔPayroll and benefit costs for retail and corporate team
ƔFreight expenses associated with moving members, including share-based compensation;
merchandise inventories from our vendors to our ƔOccupancy costs of retail and corporate facilities;
distribution center; ƔDepreciation related to retail and corporate assets;
ƔVendor incentives; ƔAdvertising;
ƔCash discounts on payments to vendors; ƔSelf-insurance costs;
ƔInventory shrinkage; ƔProfessional services; and
ƔWarranty costs; ƔOther administrative costs, such as credit card service
ƔCosts associated with operating our distribution fees, supplies, travel and lodging.
network, including payroll and benefit costs, occupancy
costs and depreciation; and
ƔFreight expenses associated with moving merchandise
inventories from our distribution center to our retail stores.
Cost of Sales SG&A
F-10