Advance Auto Parts 2005 Annual Report Download - page 56

retail customers. Finance charges of $1,763, $2,257
and $3,380 on the installment sales program are
included in net sales in the accompanying consoli-
dated statements of operations for the fiscal years
ended December 31, 2005, January 1, 2005 and
January 3, 2004, respectively. The cost of administer-
ing the installment sales program is included in sell-
ing, general and administrative expenses.
18. CONTINGENCIES:
In the case of all known contingencies, the
Company accrues for an obligation, including esti-
mated legal costs, when it is probable and the amount
is reasonably estimable. As facts concerning contin-
gencies 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 sub-
ject to change as events evolve, and as additional
information becomes available during the administra-
tive and litigation process.
The Company’s Western Auto subsidiary, together
with other defendants including automobile manu-
facturers, 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 plaintiffs 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 litigation. The damages claimed against the defen-
dants in some of these proceedings are substantial.
Additionally, some of the automotive parts manufac-
turers named as defendants in these lawsuits have
declared bankruptcy, which will limit plaintiffs’ abil-
ity to recover monetary damages from those defen-
dants. Although the Company diligently defends
against these claims, the Company may enter into
discussions regarding settlement of these and other
lawsuits, and may enter into settlement agreements, if
it believes settlement is in the best interests of the
Company’s shareholders. The Company 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 the Company’s operating
results, financial position or liquidity. 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 sub-
sidiaries 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 verdicts,
could have a material adverse effect on its operating
results, financial position or liquidity in future periods.
The Company is involved in various types of legal
proceedings arising from claims of employment dis-
crimination or other types of employment matters as
a result of claims by current and former employees.
The damages claimed against the Company in some
of these proceedings are substantial; however,
because of the uncertainty of the outcome of such legal
proceedings and because the Company’s liability, if
any, arising from such legal matters, including the
size of any damages awarded if plaintiffs are success-
ful in litigation or any negotiated settlement, could
vary widely, the Company cannot reasonably esti-
mate the possible loss or range of loss which may
arise. The Company is also involved in various other
claims and legal proceedings arising in the normal
course of business. 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 position, results of operations or
liquidity.
The Company is self-insured for general and auto-
mobile 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, demo-
graphic and severity factors and periodic valuations
provided by third-party actuaries. Management mon-
itors new claims and claim development as well as
negative trends related to the claims incurred but not
reported in order to assess the adequacy of the
Company’s insurance reserves. While the Company
does not expect the amounts ultimately paid to differ
significantly from its estimates, the self-insurance
54
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)