AutoZone 2004 Annual Report Download - page 31
Download and view the complete annual report
Please find page 31 of the 2004 AutoZone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.32’04AnnualReport
NotestoConsolidatedFinancialStatements
NoteA—SignificantAccountingPolicies
Business: AutoZone,Inc.anditswhollyownedsubsidiaries(“AutoZone”orthe“Company”)isprincipallyaretailerofautomotivepartsand
accessories.Attheendoffiscal2004,theCompanyoperated3,420domesticautopartsstoresin48statesandtheDistrictofColumbia
and63autopartsstoresinMexico.Eachstorecarriesanextensiveproductlineforcars,sportutilityvehicles,vansandlighttrucks,includ-
ingnewandremanufacturedautomotivehardparts,maintenanceitems,accessoriesandnon-automotiveproducts.Manyofthedomestic
storeshaveacommercialsalesprogramthatprovidescommercialcreditandpromptdeliveryofpartsandotherproductstolocal,regional
andnationalrepairgarages,dealersandservicestations.TheCompanyalsosellstheALLDATAbrandautomotivediagnosticandrepairsoftware.
Ontheweb,theCompanysellsautomotivediagnosticandrepairinformationandautoandlighttruckpartsthroughwww.autozone.com.
FiscalYear:TheCompany’sfiscalyearconsistsof52or53weeksendingonthelastSaturdayinAugust.
BasisofPresentation:TheconsolidatedfinancialstatementsincludetheaccountsofAutoZone,Inc.anditswhollyownedsubsidiaries.All
significantintercompanytransactionsandbalanceshavebeeneliminatedinconsolidation.
UseofEstimates:ManagementoftheCompanyhasmadeanumberofestimatesandassumptionsrelatingtothereportingofassetsand
liabilitiesandthedisclosureofcontingentliabilitiestopreparethesefinancialstatements.Actualresultscoulddifferfromthoseestimates.
Reclassifications: To conform to current year presentation, certain prior year amounts have been reclassified within the consolidated
statementsofcashflowsandtheconsolidatedbalancesheet.Prioryearpresentationshadnettedorincludedcertainamountswithinaccounts
payable;theseamountshavenowbeenreclassifiedforallperiodspresentedimpactingcashandcashequivalents,accountspayableand
accruedexpenses.
CashEquivalents:Cashequivalentsconsistofinvestmentswithoriginalmaturitiesof90daysorlessatthedateofpurchase.Excludedfrom
cashequivalentsare$20.1millionininvestmentsinmoneymarketaccountsatAugust28,2004,heldbytheCompany’swholly-owned
insurancecaptivethatwasestablishedduringfiscal2004.Theseinvestmentsareincludedwithintheprepaidexpensesandothercurrent
assetscaptionandarerecordedatcost,whichapproximatesmarketvalue,duetotheshortmaturityoftheinvestments.
AccountsReceivable:Accountsreceivableconsistsofreceivablesfromcustomersandvendors,includingthecurrentportionoflong-term
receivablesfromcertainvendors.
MerchandiseInventories:Inventoriesarestatedatthelowerofcostormarketusingthelast-in,first-out(LIFO)method.Includedininventory
are related purchasing, storage and handling costs. Due to price deflation on the Company’s merchandise purchases, the Company’s
inventorybalancesareeffectivelymaintainedunderthefirst-in,first-outmethodastheCompany’spolicyisnottowriteupinventoryfor
favorableLIFOadjustments, resulting incost of sales being reflectedat the higheramount.The cumulativebalanceof thisunrecorded
adjustment,whichwillbereduceduponexperiencingpriceinflationonourmerchandisepurchases,was$158millionatAugust28,2004,
and$102millionatAugust30,2003.
AutoZone has entered into pay-on-scan (“POS”) arrangements with certain vendors, whereby AutoZone will not purchase merchandise
suppliedbyavendoruntilthatmerchandiseisultimatelysoldtoAutoZone’scustomers.Titleandcertainrisksofownershipremainwiththe
vendoruntilthemerchandise issoldtoAutoZone’scustomers. SincetheCompanydoesnot ownmerchandiseunderPOS arrangements
untiljustbeforeitissoldtoacustomer,suchmerchandiseisnotrecordedontheCompany’sbalancesheet.Uponthesaleofthemerchan-
diseto AutoZone’s customers, AutoZonerecognizes the liability forthe goodsandpaysthe vendor inaccordancewiththeagreed-upon
terms.AlthoughAutoZonedoesnotholdtitletothegoods,AutoZonecontrolspricingandhascreditcollectionriskandtherefore,revenues
underPOSarrangementsareincludedinnetsalesintheincomestatement.AutoZonehasfinancedtherepurchaseofexistingmerchandise
inventorybycertainvendorsinordertoconvertsuchvendorstoPOSarrangements.Thesereceivableshavedurationsupto24monthsand
approximated$58.3millionatAugust28,2004.The$27.8millioncurrentportionofthesereceivablesisreflectedinaccountsreceivable
andthe$30.5millionlong-termportionisreflectedasacomponentofotherlong-termassets.MerchandiseunderPOSarrangementswas
$146.6millionatAugust28,2004.
PropertyandEquipment:Propertyandequipmentisstatedatcost.Depreciationiscomputedprincipallyusingthestraight-linemethodover
the following estimated useful lives: buildings, 40 to 50 years; building improvements, 5 to 15 years; equipment, 3 to 7 years; and
leaseholdimprovements,5to15years,nottoexceedtheremainingleaseterm.
ImpairmentofLong-LivedAssets:InaccordancewiththeprovisionsofStatementofFinancialAccountingStandardsNo.144,“Accounting
fortheImpairmentorDisposalofLong-LivedAssets”(“SFAS144”),theCompanyevaluatestherecoverabilityofthecarryingamountsof
theassetscoveredbythisstandardannuallyandmorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemay
notberecoverable.Aspartoftheevaluation,theCompanyreviewsperformanceatthestoreleveltoidentifyanystoreswithcurrentperiod
operatinglosses thatshouldbe considered forimpairment. The Companycomparesthe sumof the undiscounted expectedfuturecash