Quarterly report pursuant to Section 13 or 15(d)

Property and Equipment, Net

Property and Equipment, Net
9 Months Ended
Sep. 28, 2013
Property Plant And Equipment [Abstract]  
Property and Equipment, Net

Note 4 – Property and Equipment, Net

The Company’s fixed assets are stated at cost less accumulated depreciation, amortization and impairment. Depreciation and amortization expense are provided for in amounts sufficient to relate the cost of depreciable and amortizable assets to operations over their estimated service lives. Depreciation and amortization expense for the thirteen weeks ended September 28, 2013 and September 29, 2012 was $2,472 and $3,785, respectively, including amortization expense of $119 for the thirteen weeks ended September 28, 2013 for capital leased assets related to the LaSalle, Illinois facility (see sale-leaseback discussion below for details). Depreciation and amortization expense for the thirty-nine weeks ended September 28, 2013 and September 29, 2012 was $9,736 and $11,533, respectively, including amortization expense of $198 for the thirty-nine weeks ended September 28, 2013 for capital leased assets related to the LaSalle, Illinois facility. The cost and related accumulated depreciation of assets retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings.

The Company accounts for the impairment of property and equipment in accordance with ASC 360. During the second quarter of 2013, the Company identified adverse events related to the Company’s overall financial performance, including accelerating downward trend in the Company’s revenues and gross margin, which indicated that the carrying amount of certain property and equipment may not be recoverable. Given the indicators of impairment, the Company utilized the Royalty Savings method rather than the cost method in determining the fair values, using a discount rate of 14.5% and royalty rate of 1.0%. Based on its analysis, the Company recognized an impairment loss on internally developed software of $4,832. Any future decline in the fair value of an asset group could result in future impairments. As of September 28, 2013, the Company’s property and equipment did not indicate a potential impairment under the provisions of ASC 360 Property, Plant and Equipment. The Company did not recognize any impairment loss on property and equipment for the thirty-nine weeks ended September 29, 2012.

Property and equipment consisted of the following at September 28, 2013 and December 29, 2012:


     September 28,
    December 29,


   $ 630      $ 630   


     8,877        10,680   

Machinery and equipment

     12,332        13,249   

Computer software (purchased and developed) and equipment

     53,727       46,884   


     260        261   

Leasehold improvements

     1,787        2,364   

Furniture and fixtures

     1,073        1,131   

Construction in process

     2,014        3,043   






     80,700        78,242   

Less accumulated depreciation, amortization and impairment

     (60,292     (49,683







Property and equipment, net

   $ 20,408      $ 28,559   







On April 17, 2013, the Company’s wholly-owned subsidiary, Whitney Automotive Group, Inc. (“WAG”) closed the sale of its facility in LaSalle, Illinois for $9,750 pursuant to a purchase and sale agreement dated April 17, 2013 between WAG and STORE Capital Acquisitions, LLC. The Company used the net proceeds of $9,507 (net of $77 in legal fees) from this sale to reduce its revolving loan payable. Under the terms of the purchase and sale agreement, simultaneously with the execution of the purchase and sale agreement and the closing of the sale of the property, the Company entered into a lease agreement with STORE Master Funding III, LLC (“STORE”) whereby we leased back the property for our continued use as an office, retail and warehouse facility for storage, sale and distribution of automotive parts, accessories and related items for 20 years commencing upon the execution of the lease and terminating on April 30, 2033. The related assets represent the amounts included in land and building in the summary above. The Company’s initial base annual rent is $853 for the first year (“Base Rent Amount”), after which the rental amount will increase annually on May 1 by the lesser of 1.5% or 1.25 times the change in the Consumer Price Index as published by the U.S. Department of Labor’s Bureau of Labor Statistics, except that in no event will the adjusted annual rental amount fall below the Base Rent Amount. We were not required to pay any security deposit. Under the terms of the lease, we are required to pay all taxes associated with the lease, pay for any required maintenance on the property, maintain certain levels of insurance and indemnify STORE for losses incurred that are related to our use or occupancy of the property. The lease was accounted for as a capital lease and the $376 excess of the net proceeds over the net carrying amount of the property is amortized in interest expense on a straight-line basis over the lease term of 20 years. As of September 28, 2013, the carrying value of the capital leased asset included in property and equipment, net was $9,309.


Construction in process primarily relates to the Company’s internally developed software (refer to caption “Website and Software Development Costs” in “Note 1 – Summary of Significant Accounting Policies and Nature of Operations”). Certain of the Company’s net property and equipment were located in the Philippines as of September 28, 2013 and December 29, 2012, in the amount of $625 and $1,042, respectively.

Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes, at rates based on the following estimated useful lives:



Machinery and equipment

   2 - 5

Computer software (purchased and developed)

   2 - 3

Computer equipment

   2 - 5


   3 - 5

Leasehold improvements*

   3 - 5

Furniture and fixtures

   3 - 7

Land and building subject to capital lease



* The estimated useful life is the lesser of 3-5 years or the lease term.