# ADVANCE AUTO PARTS INC (AAP) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from ADVANCE AUTO PARTS INC's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1158449/000115844922000037/aap-20220101.htm Accession: 0001158449-22-000037 Filing date: 2022-02-15 Report date: 2022-01-01 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/AAP/ All MD&A years: /company/AAP/mda/ Next year: /company/AAP/mda/fy2022/ (FY 2022) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the section titled “Part 1. Item 1A. Risk Factors” elsewhere in this report. The discussion of our financial condition and changes in our results of operations, liquidity and capital resources for 2020 compared with 2019 has been omitted from this Form 10-K, but are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended January 2, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 22, 2021. Amounts are presented in thousands, except per share data, unless otherwise stated. Impact of COVID-19 on Our Business During the COVID-19 pandemic, we continue to prioritize the health, safety and wellbeing of our team members and customers; are working to drive financial performance by preserving our cash position, scrutinized planned spending and the prioritization of various initiatives; and will ensure that when the current period of crisis passes, our team will emerge even stronger. During 2021, the principal impacts of the COVID-19 pandemic on our business were related to difficulty with staffing in our distribution centers and stores as a result of direct factors, such as illness, and indirect factors, such as heightened competition for talent in a volatile labor market and supply chain disruption. In addition, we continued to take additional measures to help ensure the health, safety and wellbeing of our team members and customers, including investing in cleaning materials and testing supplies. The COVID-19 pandemic remains an evolving situation and we continue to actively monitor developments that may cause us to take further actions as may be required by federal, state or local authorities or that we determine are in the best interests of our team members, customers, suppliers and stockholders. Management Overview Net sales increased 8.8% in 2021 compared with 2020, driven by an increase in comparable store sales of 10.7%. Comparable store sales exclude week 53 of 2020. Ongoing economic recovery throughout the year, namely in key urban markets where miles driven were most impacted in 2020, contributed to strong recovery of our professional business and an increase in demand in our “do-it-yourself” (“DIY”) business. We generated Diluted earnings per share (“Diluted EPS”) of $9.55 during 2021 compared with $7.14 in 2020. When adjusted for the following non-operational items, our Adjusted diluted earnings per share (“Adjusted EPS”) in 2021 was $12.02 compared with $8.36 in 2020: [[GREPCENT_TABLE]] [["","Year Ended"],["","January 1, 2022","","January 2, 2021"],["Last-in, first-out (\u201cLIFO\u201d) impacts","$","1.42","","","$","(0.15)"],["Transformation expenses","$","0.73","","","$","0.55"],["General Parts International, Inc. (\u201cGPI\u201d) amortization of acquired intangible assets","$","0.32","","","$","0.30"],["Other adjustments","$","\u2014","","","$","0.52"]] [[/GREPCENT_TABLE]] Refer to “Reconciliation of Non-GAAP Financial Measures” for a definition and reconciliation of Adjusted EPS and other non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. 19 Table of Contents A high-level summary of our financial results and other highlights from 2021 include: •Net sales during 2021 were $11.0 billion, an increase of 8.8% compared with 2020, which was driven by the strong recovery in our professional business and growth in our DIY omnichannel business. Prior year Net sales included $158.5 million attributable to the additional week in 2020. Comparable store sales in 2021 increased 10.7%, which was a result positive comparable store sales across every region, with the Southwest and West having the strongest growth. •Gross profit margin for 2021 was 44.8% of Net sales, an increase of 47 basis points compared with 2020. This increase was primarily due to improvements in category management, including strategic pricing and sourcing and owned brand expansion, partially offset by ongoing inflationary costs and unfavorable channel mix. •Operating income for 2021 was $838.7 million, an increase of $88.8 million from 2020. As a percentage of Net sales, operating income was 7.6%, an increase of 21 basis points compared with 2020. The favorable impact in Gross profit was partially offset by increased Selling, general and administrative (“SG&A”) costs primarily driven by inflationary labor-related headwinds, as well as increased incentive compensation and start-up costs associated with new store openings. This was partially offset by a year-over-year decrease in COVID-19 expenses. •We generated cash flow from operations of $1.11 billion during 2021, an increase of 14.7% compared with 2020, primarily due to an increase in Net income, as well as improvements related to working capital. Refer to “Results of Operations” and “Liquidity and Capital Resources” for further details on our results. Business and Risk Update We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both professional and DIY customers. To achieve these improvements, we have undertaken planned strategic initiatives to help build a foundation for long-term success across the organization, which include: •Continued development of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach. •Advancement towards optimizing our footprint by market, including consolidating our Worldpac and Autopart International businesses, to drive share, repurpose our in-market store and asset base and streamline our distribution network. •Continued evolution of our marketing campaigns, which focus on our customers and how we serve them every day with care and speed and innovate to meet their needs, inclusive of the iconic DieHard® brand. •Progress in the implementation of a more efficient end-to-end supply chain to deliver our broad assortment of inventory. •Enhancement of Advance Same Day® Curbside Pick Up, Advance Same Day® Home Delivery and our mobile application and e-commerce performance. •Actively pursuing new store openings in 2022, including through lease acquisition opportunities as available and appropriate, in existing markets and new markets, as well as expansion of our independent Carquest network. Industry Update Operating within the automotive aftermarket industry, we are influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. In addition to the “Impact of COVID-19 on Our Business” section included within Management’s Discussion and Analysis of Financial Condition and Results of Operations, these factors include, but are not limited to: •Fuel costs •Unemployment rates •Consumer confidence •Competition •Changes in new car sales •Miles driven •Vehicle manufacturer warranties •Average age of vehicles in operation •Economic and political uncertainty •Deferral of elective automotive maintenance and improvements in new car quality 20 Table of Contents While these factors tend to fluctuate, we remain confident in the long-term growth prospects for the automotive parts industry. Results of Operations The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated. [[GREPCENT_TABLE]] [["","Year Ended","","2021 vs. 2020 $ Change","","Basis Points","","2020 vs. 2019 $ Change","","Basis Points"],["(in millions)","January 1, 2022","","January 2, 2021","","December 28, 2019"],["Net sales","$","10,998.0","","100.0","%","","$","10,106.3","","100.0","%","","$","9,709.0","","100.0","%","","$","891.7","","","\u2014","","","$","397.3","","","\u2014"],["Cost of sales","6,069.2","","55.2","","","5,624.7","","55.7","","","5,454.3","","56.2","","","444.5","","","(47)","","","170.4","","","(52)"],["Gross profit","4,928.7","","44.8","","","4,481.6","","44.3","","","4,254.7","","43.8","","","447.2","","","47","","","226.9","","","52"],["SG&A","4,090.0","","37.2","","","3,731.7","","36.9","","","3,577.6","","36.8","","","358.3","","","26","","","154.1","","","8"],["Operating income","838.7","","7.6","","","749.9","","7.4","","","677.2","","7.0","","","88.9","","","21","","","72.8","","","45"],["Interest expense","(37.8)","","(0.3)","","","(46.9)","","(0.5)","","","(39.9)","","(0.4)","","","9.1","","","12","","","(7.0)","","","(5)"],["Loss on debt extinguishment","\u2014","","\u2014","","","(48.0)","","(0.5)","","","(10.8)","","(0.1)","","","48.0","","","48","","","(37.2)","","","(36)"],["Other income (expense), net","5.0","","0.0","","","(4.0)","","0.0","","","11.2","","0.1","","","9.0","","","8","","","(15.2)","","","(15)"],["Provision for income taxes","(189.8)","","(1.7)","","","(158.0)","","(1.6)","","","(150.9)","","(1.6)","","","(31.8)","","","(16)","","","(7.1)","","","(1)"],["Net income","$","616.1","","5.6","%","","$","493.0","","4.9","%","","$","486.8","","5.0","%","","$","123.2","","","72","","","$","6.3","","","(14)"]] [[/GREPCENT_TABLE]] Note 1: Table amounts may not foot due to rounding. Note 2: Fiscal years 2021 and 2019 included 52 weeks. Fiscal year 2020 included 53 weeks. Net Sales Net sales for 2021 were $11.0 billion, an increase of $891.7 million, or 8.8%, compared with 2020, which was driven by an increase in comparable store sales of 10.7% resulting from strong recovery of our professional business and growth in our DIY omnichannel business. We experienced positive comparable store sales across every region, with the Southwest and West having the strongest growth. Net sales growth was less than comparable store sales due to 2020 including $158.5 million attributable to the 53rd week. We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated stores in comparable store sales from the original date of opening. Net sales for the 53rd week in a year are not included in the comparable sales calculation for that year. For example, our comparable sales results for 2021 compare the 52-week period in 2021 to weeks 1 through 52 reported in 2020. Comparable sales is intended only as supplemental information and is not a substitute for Net sales presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Gross Profit Gross profit in 2021 was $4.93 billion, or 44.8% of Net sales, compared with $4.48 billion, or 44.3% of Net sales, in 2020, an increase of 47 basis points. The increase in Gross profit as a percentage of Net sales was primarily due to improvements in category management including strategic pricing and sourcing and owned brand expansion. This was partially offset by ongoing inflationary costs and unfavorable channel mix. As a result of changes in our LIFO reserve, an increase of $122.3 million and a benefit of $13.8 million were included in Cost of sales in 2021 and 2020. 21 Table of Contents Selling, General and Administrative Expenses SG&A for 2021 was $4.09 billion, or 37.2% of Net sales, compared with $3.73 billion, or 36.9% of Net sales, for 2020, an increase of 26 basis points. This increase as a percentage of Net sales was primarily due to increased labor and related payroll expenses resulting from inflationary labor-related headwinds, increased incentive compensation resulting from higher Net sales and start-up costs associated with our new store openings, offset by a decrease in COVID-19 expenses. The additional week in 2020 contributed $53.5 million to SG&A. Interest Expense Interest expense for 2021 was $37.8 million, an increase of $9.1 million compared with 2020. This increase was primarily due to the issuance of $500.0 million of our 3.900% senior unsecured notes due 2030 on April 16, 2020 and $350.0 million of our 1.750% senior unsecured notes due 2027 on September 29, 2020. Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details. Loss on Early Redemptions of Senior Unsecured Notes During the fifty-three weeks ended January 2, 2021, we incurred charges of $48.0 million related to the early redemption of our 2022 and 2023 senior unsecured notes. Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details. Provision for Income Taxes Our Provision for income taxes for 2021 was $189.8 million compared with $158.0 million for 2020, an increase of $31.8 million primarily due to an increase in taxable income. Our effective tax rate was 23.6% for 2021 and 24.3% for 2020. During 2021, the driver of the decrease in tax expense resulted from a benefit relating to share-based awards and greater utilization of tax credits. 22 Table of Contents Reconciliation of Non-GAAP Financial Measures “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial measures not derived in accordance with GAAP. Non-GAAP financial measures, including Adjusted net income and Adjusted EPS, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. We have presented these non-GAAP financial measures as we believe that the presentation of our financial results that exclude: (1) LIFO impacts; (2) transformation expenses under our strategic business plan; (3) non-cash amortization related to the acquired GPI intangible assets; and (4) other nonrecurring adjustments, are useful and indicative of our base operations because the expenses vary from period to period in terms of size, nature and significance and/or relate to store closure and consolidation activity in excess of historical levels. These measures assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry. The disclosure of these measures allows investors to evaluate our performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses we have determined are not normal, recurring cash operating expenses necessary to operate our business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures. LIFO Impacts — Beginning the first quarter of 2021, to assist in comparing our current operating results with the operational performance of other companies in our industry, the impact of LIFO on our results of operations is a reconciling item to arrive at non-GAAP financial measures. Transformation Expenses — Costs incurred in connection with our business plan that focuses on specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise, that we do not view to be normal cash operating expenses. These expenses will include, but not be limited to the following: •Restructuring costs - Costs primarily relating to the early termination of lease obligations, asset impairment charges, other facility closure costs and team member severance in connection with our voluntary retirement program and continued optimization of our organization. •Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the development of various information technology and supply chain projects in connection with our enterprise integration initiatives. •Other significant costs - Costs primarily relating to accelerated depreciation of various legacy information technology and supply chain systems in connection with our enterprise integration initiatives and temporary off-site workspace for project teams who are primarily working on the development of specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise. GPI Amortization of Acquired Intangible Assets — As part of our acquisition of GPI, we obtained various intangible assets, including customer relationships, non-compete contracts and favorable lease agreements, which we expect to be subject to amortization through 2025. 23 Table of Contents We have included a reconciliation of this information to the most comparable GAAP measures in the following table: [[GREPCENT_TABLE]] [["","Year Ended"],["","January 1, 2022","","January 2, 2021"],["Net income (GAAP)","$","616,108","","","$","493,021"],["Cost of sales adjustments:"],["LIFO impacts (1)","122,303","","","(13,817)"],["Transformation expenses:"],["Other significant costs","2,608","","","3,161"],["SG&A adjustments:"],["GPI amortization of acquired intangible assets","27,587","","","27,337"],["Transformation expenses:"],["Restructuring costs","27,307","","","16,765"],["Third-party professional services","24,099","","","14,117"],["Other significant costs","8,796","","","15,965"],["Other income adjustment (2)","\u2014","","","48,022"],["Provision for income taxes on adjustments (3)","(53,175)","","","(27,888)"],["Adjusted net income (Non-GAAP)","$","775,633","","","$","576,683"],["Diluted earnings per share (GAAP)","$","9.55","","","$","7.14"],["Adjustments, net of tax","2.47","","","1.22"],["Adjusted diluted earnings per share (Non-GAAP)","$","12.02","","","$","8.36"]] [[/GREPCENT_TABLE]] (1)For the 53 weeks ended January 2, 2021, non-GAAP expenses have been adjusted to be comparable with our 2021 presentation. (2)During 2020, we incurred charges relating to a make-whole provision and tender premiums of $46.3 million and debt issuance costs of $1.7 million resulting from the early redemption of our 2022 and 2023 senior unsecured notes. (3)The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments. Liquidity and Capital Resources Overview Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives under our strategic business plan and other operational priorities. Historically, we have used available funds to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our stock repurchase program, to pay our quarterly cash dividends and for acquisitions; however, given uncertainties related to the COVID-19 pandemic, our future uses of cash may differ if our relative priorities, including the weight we place on the preservation of cash and liquidity, change. Typically, we have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our obligations for the next year. We also believe such funds, cash and available borrowings, together with our ability to generate cash through credit facilities and notes offerings as needed, will be sufficient to fund our obligations long-term. Cash requirements for obligations next year and beyond are discussed in the “Contractual and Off Balance Sheet Obligations” section below. Share Repurchases In April 2021 and November 2019, our Board of Directors authorized $1.0 billion and $700.0 million for our share repurchase program. On February 8, 2022, our Board of Directors authorized an additional $1.0 billion toward the existing share repurchase program. 24 Table of Contents During 2021, we repurchased 4.6 million shares of our common stock at an aggregate cost of $886.7 million, or an average price of $192.92 per share, in connection with our share repurchase program. We had $545.5 million remaining under our share repurchase program as of January 1, 2022. During 2020, we repurchased 3.0 million shares of our common stock at an aggregate cost of $458.5 million, or an average price of $150.65 per share, under our share repurchase program. Refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further details on our share repurchase program. Capital Expenditures Our primary capital requirements have been the funding of our investments in supply chain and information technology, e-commerce and maintenance of existing stores and branches. We lease approximately 83% of our stores and branches. Our capital expenditures were $289.6 million in 2021, an increase of $22.1 million from 2020, and was primarily related to several information technology projects, including our finance enterprise resource planning system, as well as investments in supply chain and store improvements. Our future capital requirements will depend in large part on the timing or number of the investments we make in information technology and supply chain network initiatives and existing stores and new store development (leased and owned locations) within a given year. In 2022, we anticipate that our capital expenditures related to such investments will range from $300 million to $350 million, but may vary with business conditions. Analysis of Cash Flows The following table summarizes our cash flows from operating, investing and financing activities: [[GREPCENT_TABLE]] [["","Year Ended"],["","January 1, 2022","","January 2, 2021","","December 28, 2019"],["Cash flows provided by operating activities","$","1,112,262","","","$","969,688","","","$","866,909"],["Cash flows used in investing activities","(287,314)","","","(266,897)","","","(462,939)"],["Cash flows used in financing activities","(1,064,112)","","","(285,997)","","","(882,153)"],["Effect of exchange rate changes on cash","5,600","","","(467)","","","321"],["Net (decrease) increase in cash and cash equivalents","$","(233,564)","","","$","416,327","","","$","(477,862)"]] [[/GREPCENT_TABLE]] Operating Activities In 2021, Net cash provided by operating activities increased $142.6 million to $1.11 billion. The net increase in cash flows provided by operating activities compared with the prior year was primarily driven by an increase in Net income, which was a result of our significant Net sales growth related to the strong recovery of our professional business and growth in our DIY omnichannel business, as well as improvements in working capital. In the current year, working capital included an increase in cash provided by Accrued expenses and Accounts payable, partially offset by an increase in cash used by Inventories. Refer to “Results of Operations” for further details on our results. Investing Activities In 2021, Net cash used in investing activities increased by $20.4 million to $287.3 million compared with 2020. Cash used in investing activities for 2021 consisted primarily of purchases of property and equipment, which was comparable with capital expenditures in 2020. Financing Activities In 2021, Net cash used in financing activities increased by $778.1 million to $1.06 billion compared with 2020, primarily due to higher share repurchase activity of $436.5 million and an increase of quarterly dividends per share. 25 Table of Contents Our Board of Directors has declared a quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On February 14, 2022, our Board of Directors declared a quarterly cash dividend of $1.50 per share to be paid on April 1, 2022 to shareholders of record as of March 18, 2022. Long-Term Debt As of January 1, 2022, we had a credit rating from the S&P of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by the S&P and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may be limited. In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease. With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and unconditional guarantee, Advance Stores, a wholly owned subsidiary of the Issuer, serves as the guarantor (“Guarantor Subsidiary”). The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. Our captive insurance subsidiary, an insignificant wholly owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes. For additional information on transactions entered into relating to Long-term debt during the fifty-two weeks ended January 1, 2022, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein. Contractual and Off Balance Sheet Obligations We enter into operating leases for certain store locations, distribution centers, office spaces, equipment and vehicles. Our property leases generally contain renewal and escalation clauses and other concessions. These provisions are considered in our calculation of our minimum lease payments that are recognized as expense on a straight-line basis over the applicable lease term. Any lease payments that are based upon an existing index or rate are included in our minimum lease payment calculations. As of January 1, 2022, our operating lease obligations were $2.80 billion. As of January 1, 2022, our long-term debt, consisting of senior unsecured notes with varying maturities through 2030, was $1.04 billion. Interest payable related to long-term debt was $219.9 million as of January 1, 2022. As part of our normal operations, we enter into purchase commitments primarily for the purchase of goods or services that are enforceable, legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of January 1, 2022, our purchase commitments were $70.3 million. Critical Accounting Policies Our financial statements have been prepared in accordance with GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates. The preparation of our financial statements included the following significant estimates and exercise of judgment. Vendor Incentives We receive incentives in the form of reductions to amounts owed and/or payments from vendors related to volume rebates and other promotional considerations. Many of these incentives are under agreements with terms in excess of one year, while others are negotiated on an annual basis or less. Advertising allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred. Volume rebates and vendor promotional allowances that do not meet the requirements for offsetting in SG&A and that are earned based on inventory purchases are initially recorded as a reduction to inventory. These deferred amounts are recorded as a reduction to Cost of sales as the inventory is sold. 26 Table of Contents Vendor promotional allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred if the fair value of that benefit can be reasonably estimated. Certain of our vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected annual purchase volumes. Periodic assessments of the accruals are performed to determine the appropriateness of the estimate and are adjusted for accordingly. Amounts received or receivable from vendors that are not yet earned are reflected as deferred revenue. Our estimate of the portion of deferred revenue that will be realized within one year of the balance sheet date is included in Other current liabilities. Earned amounts that are receivable from vendors are included in Receivables, net, except for that portion expected to be received after one year, which is included in Other assets, net. We regularly review the receivables from vendors to ensure they are able to meet their obligations. Historically, the change in our reserve for receivables related to vendor funding has not been significant. Self-Insurance Reserves Our self-insurance reserves consist of the estimated exposure for claims filed, claims incurred but not yet reported and projected future claims, and are established using actuarial methods followed in the insurance industry and our historical claims experience. Specific factors include, but are not limited to, assumptions about health care costs, the severity of accidents and the incidence of illness and the average size of claims. Generally, claims for automobile and general liability and workers’ compensation take several years to settle. We classify the portion of our self-insurance reserves that is not expected to be settled within one year in Other long-term liabilities. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our self-insurance reserves and corresponding SG&A could be affected if future claim experience differs significantly from historical trends and actuarial assumptions. A 10% change in our self-insurance liabilities at January 1, 2022 would result in a change in expense of approximately $13.4 million for 2021. New Accounting Pronouncements For a description of recently adopted and issued accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “Recently Issued Accounting Pronouncements” in Note 2. Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included herein.