Advance Auto Parts 2007 Annual Report Download - page 80

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(in thousands, except per share data)
The Company establishes reserves for estimated shrink based on historical accuracy and effectiveness of the
cycle counting program. The Company also establishes reserves for potentially excess and obsolete inventories
based on current inventory levels and the historical analysis of product sales and current market conditions. 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 liquidating product will result in retail prices below recorded costs. The
following table presents changes in the Company’s inventory reserves.
December 29, December 30, December 31,
2007 2006 2005
Inventory reserves, beginning of period 31,376$ 22,825$ 21,929$
Reserves established 106,387 94,206 90,431
Reserves utilized (102,198) (85,655) (89,535)
Inventory reserves, end of period 35,565$ 31,376$ 22,825$
8. Property and Equipment:
Property and equipment are stated at cost, less accumulated depreciation. 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 accumulated depreciation are removed from the accounts, with any gain or loss reflected
in the consolidated statements of operations.
Depreciation of land improvements, buildings, furniture, fixtures and equipment, and vehicles is provided over
the estimated useful lives, which range from 2 to 40 years, of the respective assets using the straight-line method.
Depreciation of building and leasehold improvements is provided over the shorter of the original useful lives of the
respective assets or the term of the lease using the straight-line method. The term of the lease is generally the initial
term of the lease unless external economic factors exist such that renewals are reasonably assured in which case, the
renewal period would be included in the lease term for purposes of establishing an amortization period. Depreciation
expense was $146,182, $138,064 and $119,938 for the fiscal years ended 2007, 2006 and 2005, respectively.
Property and equipment consists of the following:
Original
Useful Lives
December 29,
2007
December 30,
2006
Land and land improvements 0 - 10 years 274,710$ 238,186$
Buildings 40 years 358,366 328,997
Building and leasehold improvements 10 - 40 years 208,395 197,657
Furniture, fixtures and equipment 3 - 12 years 868,421 843,645
Vehicles 2 - 10 years 26,382 24,682
Construction in progress 60,464 28,151
Other 4,230 4,230
1,800,968 1,665,548
Less - Accumulated depreciation and amortization (753,024) (670,571)
Property and equipment, net 1,047,944$ 994,977$
The Company capitalized approximately $2,274, $3,641 and $6,584 incurred for the development of internal
use computer software in accordance with the American Institute of Certified Public Accountant’s Statement of
Position 98-1, “Accounting for the Cost of Computer Software Developed or Obtained for Internal Use” during
fiscal 2007, fiscal 2006 and fiscal 2005, respectively. These costs are included in the furniture, fixtures and
equipment category above and are depreciated on the straight-line method over three to seven years.
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