Advance Auto Parts 2007 Annual Report Download - page 70

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(in thousands, except per share data)
Insurance
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 using actuarial methods followed in the insurance industry and the Company’s historical claims
experience. The following table presents changes in the Company’s self-insurance reserves.
December 29, December 30, December 31,
2007 2006 2005
Self-insurance reserves, beginning of period 71,519$ 54,899$ 44,102$
Reserves established 102,641 97,201 80,811
Reserves utilized (88,637) (80,581) (70,014)
Self-insurance reserves, end of period 85,523$ 71,519$ 54,899$
Warranty Costs
The Company's vendors are primarily responsible for warranty claims. Warranty costs relating to merchandise
(primarily batteries) sold under warranty, which are not covered by vendors' warranties, are estimated based on the
Company's historical experience and are recorded in the period the product is sold. The following table presents
changes in our warranty reserves.
December 29, December 30, December 31,
2007 2006 2005
Warranty reserves, beginning of period 13,069$ 11,352$ 10,960$
Reserves established 24,722 17,352 14,268
Reserves utilized (20,034) (15,635) (13,876)
Warranty reserves, end of period 17,757$ 13,069$ 11,352$
Revenue Recognition
The Company recognizes merchandise revenue at the point of sale to customers. The majority of sales are made
for cash and credit with no recourse; however, the Company extends credit to certain commercial customers through
a third-party provider of private label credit cards. Receivables under the private label credit card program are
generally transferred to a third-party provider with no recourse. The Company provides an allowance for doubtful
accounts on receivables sold with recourse based upon factors related to credit risk of specific customers, historical
trends and other information.
Sales Returns and Allowances
The Company’s accounting policy for sales returns and allowances consists of establishing reserves for
estimated returns at the time of sale. The Company estimates returns based on current sales levels and the
Company’s historical return experience on a specific product basis. The Company’s reserve for sales returns and
allowances was not significant at December 29, 2007 and December 30, 2006.
Sales Taxes
The Company presents sales net of sales taxes in its consolidated statements of operations.
F-11