Advance Auto Parts 2015 Annual Report Download - page 68

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
January 2, 2016, January 3, 2015 and December 28, 2013
(in thousands, except per share data)
F-14
percentage of sales in excess of stipulated minimums for certain store facilities as defined in the individual lease agreements.
Most of the leases provide that the Company pay taxes, maintenance, insurance and certain other expenses applicable to the
leased premises. Management expects that in the normal course of business leases that expire will be renewed or replaced by
other leases.
Property and Equipment
Property and equipment are stated at cost, or at fair value at acquisition if acquired through a business combination, 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 account balances, 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 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.
Closed Facility Liabilities and Exit Activities
The Company continually reviews the operating performance of its existing store locations and closes or relocates certain
stores identified as underperforming. In addition, the Company is consolidating certain locations as part of its planned
integration of GPI. Expenses accrued pertaining to closed facility exit activities are included in the Company’s closed facility
liabilities, within Accrued expenses and Other long-term liabilities in the accompanying consolidated balance sheets, and
recognized in SG&A in the accompanying consolidated statements of operations at the time the facilities actually close. Closed
facility liabilities include the present value of the remaining lease obligations and management’s estimate of future costs of
insurance, property tax and common area maintenance expenses (reduced by the present value of estimated revenues from
subleases and lease buyouts).
From time to time closed facility liability estimates require revisions, primarily due to changes in assumptions associated
with revenue from subleases. The effect of accretion and changes in estimates for our closed facility liabilities are included in
SG&A in the accompanying consolidated statements of operations at the time the changes in estimates are made.
Employees receiving severance benefits as the result of a store closing or other restructuring activity are required to render
service until they are terminated in order to receive benefits. The severance is recognized in SG&A in the accompanying
consolidated statements of operations over the related service period. Other restructuring costs, including costs to relocate
employees, are recognized in the period in which the liability is incurred.
The Company also evaluates and determines if the results from the closure of store locations should be reported as
discontinued operations based on the elimination of the operations and associated cash flows from the Company’s ongoing
operations. During 2015, the Company adopted ASU 2014-08 "Presentation of Financial Statements (Topic 205) and Property,
Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of Equity"
which requires that a disposal of a component of an entity or a group of components of an entity be reported in discontinued
operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial
results.