Advance Auto Parts 2004 Annual Report Download - page 48

46
Notes฀to฀Consolidated฀Financial฀Statements฀(continued)
For฀the฀Years฀Ended฀January฀1,฀2005,฀January฀3,฀2004,฀and฀December฀28,฀2002฀(in฀thousands,฀except฀per฀share฀data)
฀ At฀January฀1,฀2005฀and฀January฀3,฀2004,฀future฀minimum฀
sub-lease฀ income฀ to฀ be฀ received฀ under฀ non-cancelable฀
operating฀leases฀is฀$8,413฀and฀$9,487,฀respectively.
฀ Net฀rent฀expense฀for฀fiscal฀2004,฀fiscal฀2003฀and฀fiscal฀
2002฀was฀as฀follows:
2004 2003 2002
Minimum฀facility฀rentals฀...... $169,449 $154,461 $140,929
Contingent฀facility฀rentals฀..... 1,201 1,395 1,059
Equipment฀rentals฀.................. 5,128 5,117 6,112
Vehicle฀rentals฀....................... 6,007 7,104 6,419
181,785 168,077 154,519
Less:฀Sub-lease฀income฀......... (3,171) (3,223) (3,250)
$178,614 $164,854 $151,269
฀ Rental฀ payments฀ to฀ related฀ parties฀ of฀ approximately฀
$3,044฀in฀fiscal฀2004,฀$3,011฀in฀fiscal฀2003฀and฀$3,168฀in฀
fiscal฀2002฀are฀included฀in฀net฀rent฀expense฀for฀open฀stores.฀
Rent฀expense฀associated฀with฀closed฀locations฀is฀ included฀
in฀other฀selling,฀general฀and฀administrative฀expenses.
16.฀Installment฀Sales฀Program
฀ A฀ subsidiary฀ of฀ the฀ Company฀ maintains฀ an฀ in-house฀
finance฀program,฀which฀offers฀financing฀to฀retail฀custom-
ers.฀Finance฀charges฀of฀$2,257,฀$3,380฀and฀$3,901฀on฀the฀
installment฀sales฀program฀are฀included฀in฀ net฀sales฀in฀the฀
accompanying฀ consolidated฀ statements฀ of฀ operations฀ for฀
the฀ fiscal฀ years฀ ended฀ January฀ 1,฀ 2005,฀ January฀ 3,฀ 2004฀
and฀December฀28,฀2002,฀respectively.฀The฀cost฀of฀adminis-
tering฀the฀installment฀sales฀program฀is฀included฀in฀selling,฀
general฀and฀administrative฀expenses.
17.฀Contingencies
฀ In฀ the฀ case฀ of฀ all฀ known฀ contingencies,฀ the฀ Company฀
accrues฀for฀an฀obligation,฀including฀estimated฀legal฀costs,฀
when฀it฀is฀probable฀and฀the฀amount฀is฀reasonably฀estimable.฀
As฀ facts฀ concerning฀ contingencies฀ become฀ known฀ to฀ the฀
Company,฀the฀Company฀reassesses฀its฀position฀with฀respect฀
to฀ accrued฀ liabilities฀ and฀ other฀ potential฀ exposures.฀
Estimates฀ that฀ are฀ particularly฀ sensitive฀ to฀ future฀ change฀
include฀tax฀and฀legal฀matters,฀which฀are฀subject฀to฀change฀
as฀ events฀ evolve฀ and฀ as฀ additional฀ information฀ becomes฀
available฀during฀the฀administrative฀and฀litigation฀process.
฀ The฀Company’s฀Western฀Auto฀subsidiary,฀together฀with฀
other฀ defendants,฀ including฀ automobile฀ manufacturers,฀
automotive฀ 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฀ and฀ some฀ of฀ its฀ subsidiaries฀ 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.฀Many฀of฀the฀cases฀pending฀against฀ the฀
Company฀or฀its฀subsidiaries฀are฀in฀the฀early฀stages฀of฀liti-
gation.฀ 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฀ bankruptcy,฀
which฀ will฀ limit฀ plaintiffs’฀ ability฀ to฀ recover฀ monetary฀
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฀was฀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฀exposure฀to฀asbestos-containing฀products฀increases฀
substantially,฀ the฀ costs฀ associated฀ with฀ concluding฀ these฀
claims,฀including฀damages฀resulting฀from฀any฀adverse฀ver-
dicts,฀could฀have฀a฀material฀adverse฀effect฀on฀its฀operating฀
results,฀financial฀position฀and฀liquidity฀in฀future฀periods.
฀ 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฀
material฀ adverse฀ effect฀ on฀ the฀ Company’s฀ financial฀ posi-
tion฀or฀results฀of฀operations.
฀ The฀Company฀is฀self-insured฀for฀general฀and฀automobile฀
liability,฀workers’฀compensation฀and฀the฀health฀care฀claims฀
of฀its฀team฀members,฀although฀the฀Company฀maintains฀stop-฀
loss฀ coverage฀ with฀ third-party฀ insurers฀ to฀ limit฀ its฀ total฀
liability฀ exposure.฀ Liabilities฀ associated฀ with฀ these฀ losses฀
are฀calculated฀for฀claims฀filed฀and฀claims฀incurred฀but฀not฀
yet฀ reported฀ at฀ the฀ Company’s฀ estimate฀ of฀ their฀ ultimate฀
cost฀ based฀ upon฀ analyses฀ of฀ historical฀ data,฀ demographic฀
and฀severity฀factors฀and฀valuations฀provided฀by฀third-party฀
actuaries.฀ Management฀ monitors฀ new฀ claims฀ and฀ claim฀฀
development฀as฀well฀as฀negative฀trends฀related฀to฀the฀claims฀฀