Advance Auto Parts 2003 Annual Report Download - page 43

advertising and promotional payments, a share in the
manufacturers’ profits, and excessive payments for services
purportedly performed for the manufacturers in violation of
the Robinson-Patman Act. In January 2003, a trial was held
and the jury found that the Company did not violate the
Robinson-Patman Act. The plaintiffs subsequently appealed
this decision, however, in November 2003 the Court of
Appeals upheld the verdict.
The Company’s Western Auto subsidiary, together with
other defendants including automobile manufacturers, auto-
motive parts manufacturers and other retailers, has been
named as a defendant in lawsuits alleging injury as a result
of exposure to asbestos-containing products. The Company,
Discount and Parts America, acquired as part of the Western
Auto Supply Company acquisition in 1998, also have been
named as defendants in many of these lawsuits. The plain-
tiffs have alleged that these products were manufactured,
distributed and/or sold by the various defendants. To date,
these products have included brake and clutch parts and
roofing materials. The number of cases in which the
Company or one of its subsidiaries has been named as a
defendant has increased in the past year. Many of the cases
pending against the Company or its subsidiaries are in the
early stages of litigation. The damages claimed against the
defendants in some of these proceedings are substantial.
Additionally, some of the automotive parts manufacturers
named as defendants in these lawsuits have declared bank-
ruptcy, which will limit plaintiffs’ ability to recover mone-
tary damages from those defendants. The Company believes
that it has valid defenses against these claims. The
Company also believes that most of these claims are at least
partially covered by insurance. Based on discovery to date,
the Company does not believe the cases currently pending
will have a material adverse effect on it. However, if the
Company was to incur an adverse verdict in one or more of
these claims and were ordered to pay damages that were not
covered by insurance, these claims could have a material
adverse affect on its operating results, financial position and
liquidity. If the number of claims filed against the Company
or any of its subsidiaries alleging injury as a result of expo-
sure to asbestos-containing products increases substantially,
the costs associated with concluding these claims, including
damages resulting from any adverse verdicts, could have a
material adverse effect on its operating results, financial
position and liquidity in future periods.
In October 2000, a vendor repudiated a long-term pur-
chase agreement entered into with the Company in January
2000. The Company filed suit against the vendor in
November of fiscal 2000 to recover monetary damages.
Based on consultation with the Company’s legal counsel,
management believed the purchase agreement was entered
into in good faith and it was highly probable that the
Company would prevail in its suit. Therefore, the Company
recorded a gain of $3,300, which represented actual dam-
ages incurred through December 30, 2000, as a reduction of
cost of sales in the accompanying consolidated statement of
operations for the year ended December 30, 2000. Related
income taxes and legal fees of $1,300 were also recorded in
the accompanying consolidated statement of operations for
the year ended December 30, 2000. During the first quarter
of fiscal 2001, the Company reached a settlement with this
vendor and recorded a net gain of $8,300 as a reduction to
cost of sales in the accompanying consolidated statement of
operations for the year ended December 29, 2001.
The Company is also involved in various other claims
and lawsuits arising in the normal course of business. The
damages claimed against the Company in some of these
proceedings are substantial. Although the final outcome of
these legal matters cannot be determined, based on the facts
presently known, it is management’s opinion that the final
outcome of such claims and lawsuits will not have a mate-
rial adverse effect on the Company’s financial position or
results of operations.
The Company is self-insured with respect to workers’
compensation and health care claims for eligible active team
members. In addition, the Company is self-insured for general
and automobile liability claims. The Company maintains
certain levels of stop-loss insurance coverage for these claims
through an independent insurance provider. The cost of self-
insurance claims is accrued based on actual claims reported
plus an estimate for claims incurred but not reported. These
estimates are based on historical information along with
certain assumptions about future events, and are subject to
change as additional information becomes available.
The Company has entered into employment agreements
with certain team members that provide severance pay ben-
efits under certain circumstances after a change in control
of the Company or upon termination of the team member
by the Company. The maximum contingent liability under
these employment agreements is approximately $2,408 and
$7,309 at January 3, 2004 and December 28, 2002 of which
nothing has been accrued, respectively.
19—Benefit Plans
401(k) Plan
The Company maintains a defined contribution team
member benefit plan, which covers substantially all team
members after one year of service. The plan allows for
team member salary deferrals, which are matched at the
Company’s discretion. Company contributions were $6,398,
$6,930 and $5,238 in fiscal 2003, fiscal 2002, and fiscal 2001.
All team members covered under the Discount plan were
included in the Company’s plan effective May 31, 2002.
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Advance Auto Parts, Inc. and Subsidiaries