Advance Auto Parts 2005 Annual Report Download - page 48

46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Years Ended December 31, 2005, January 1, 2005 and January 3, 2004 (in thousands, except per share data)
costs of the related physical damage including the
recovery of damaged merchandise at retail values and
damaged capital assets at replacement cost. Prior to
December 31, 2005, the Company and the insurance
carrier settled in full a claim for the retail value of
certain merchandise inventory damaged by
Hurricanes Katrina and Wilma. The Company has
evaluated and recognized a receivable for the recov-
ery of these fixed costs, net of deductibles. The fol-
lowing table represents the net impact of certain
insured fixed costs less recoveries as reflected in the
selling, general and administrative line of the accom-
panying condensed consolidated statement of opera-
tions for the fiscal year ended December 31, 2005. At
December 31, 2005, seven stores remain closed as a
result of these events.
December 31, 2005
Estimated fixed costs .................................... $15,351
Insurance recovery of fixed costs,
net of deductibles...................................... (6,518)
Insurance recovery for merchandise
inventories settled during the year,
net of deductibles...................................... (8,941)
Net expense................................................... $ (108)(a)
(a) Does not include the earnings impact of sales disruptions.
The Company expects the above insurance recover-
ies that have not been settled in full will be collected
within the next twelve months. The Company expects
to recognize additional recoveries in future quarters
primarily representing the remaining retail value of
damaged merchandise and the replacement value of
damaged capital assets not previously settled.
5. DISCONTINUED OPERATIONS:
On December 19, 2003, the Company discontinued
the supply of merchandise to its Wholesale
Distribution Network, or Wholesale. Wholesale con-
sisted of independently owned and operated dealer
locations, for which the Company supplied merchan-
dise inventory. This component of the Company’s
business operated in the Company’s previously
reported wholesale segment. The Company has
accounted for the discontinuance of the wholesale
segment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-
Lived Assets.” The Company has classified these
operating results as discontinued operations in the
accompanying consolidated statements of operations
for the fiscal year ended January 3, 2004. For the fis-
cal year ended January 3, 2004, the Wholesale
Distribution Network had revenues of $52,486. For
the fiscal year ended January 1, 2005, the operating
results related to the discontinued wholesale business
were minimal as a result of recognizing an estimate
of exit costs in fiscal 2003.
The discontinued wholesale segment, excluding
certain allocated and Team Member benefit expenses,
represented the entire results of operations previously
reported in that segment. These excluded expenses
represented $2,361 of allocated and Team Member
benefit expenses for fiscal 2003, which remain a
component of income from continuing operations
and have therefore been excluded from discontinued
operations. The Company has allocated corporate
interest expenses incurred under the Company’s sen-
ior credit facility and subordinated notes. The allocat-
ed interest complies with the provisions of Emerging
Issue Task Force No. 87-24, “Allocation of Interest to
Discontinued Operations,” and is reported in discon-
tinued operations on the accompanying statement of
operations. This amount was $484 for fiscal 2003. The
loss on the discontinued operations of Wholesale for
fiscal 2003 included $2,693 of exit costs as follows:
Severance costs.................................................................. $1,183
Warranty allowances ......................................................... 1,656
Other.................................................................................. (146)
Total exit costs................................................................... $2,693
6. CLOSED STORE
AND RESTRUCTURING LIABILITIES:
The Company continually reviews the operating
performance of its existing store locations and closes
certain locations identified as under performing.
Closing an under performing location has not result-
ed in the elimination of the operations and associated
cash flows from the Company’s ongoing operations
as the Company transfers those operations to another
location in the local market. The Company maintains
closed store liabilities that include liabilities for these
exit activities and liabilities assumed through past
acquisitions that are similar in nature but recorded by
the acquired companies prior to acquisition. The
Company had also maintained restructuring liabili-
ties recorded through purchase accounting that
reflected costs of the plan to integrate the acquired
operations into the Company’s business. These inte-
gration plans related to the operations acquired in the
fiscal 1998 merger with Western Auto Supply
Company, or Western, and the fiscal 2001 acquisition
of Discount.