Dollar General 2007 Annual Report Download - page 69

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Generally, for store closures where a lease obligation still exists, the Company records
the estimated future liability associated with the rental obligation on the date the store is closed
in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal
Activities.” The estimated future liability associated with the rental obligation for certain store
closures associated with the Merger were based on EITF 95-3, “Recognition of Liabilities in
Connection with a Purchase Business Combination.” In the normal course of business, based on
an overall analysis of store performance and expected trends, management periodically evaluates
the need to close underperforming stores. Liabilities are established at the point of closure for the
present value of any remaining operating lease obligations, net of estimated sublease income,
and at the communication date for severance and other exit costs, as prescribed by SFAS 146.
Key assumptions in calculating the liability include the timeframe expected to terminate lease
agreements, estimates related to the sublease potential of closed locations, and estimation of
other related exit costs. Liabilities are reviewed periodically and adjusted when necessary. The
closed store liability balance at February 1, 2008 and February 2, 2007 was $20.2 million and
$5.4 million, respectively.
Accrued expenses and other liabilities
Accrued expenses and other consist of the following:
(In thousands) Successor
2007
Predecessor
2006
Compensation and benefits $ 60,720 $ 41,957
Insurance 64,418 76,062
Taxes (other than taxes on income) 55,990 50,502
Other 119,828 85,037
$ 300,956 $ 253,558
Other accrued expenses primarily include the current portion of liabilities for deferred
rent, freight expense, contingent rent expense, interest, electricity, lease contract termination
liabilities for closed stores, income tax related reserves, and common area maintenance charges.
Insurance liabilities
The Company retains a significant portion of risk for its workers’ compensation,
employee health, general liability, property and automobile claim exposures. Accordingly,
provisions are made for the Company’ s estimates of such risks. The undiscounted future claim
costs for the workers’ compensation, general liability, and health claim risks are derived using
actuarial methods. To the extent that subsequent claim costs vary from those estimates, future
results of operations will be affected. Ashley River Insurance Company (or ARIC, as defined
above), a South Carolina-based wholly owned captive insurance subsidiary of the Company,
charges the operating subsidiary companies premiums to insure the retained workers’
compensation and non-property general liability exposures. Pursuant to South Carolina
insurance regulations, ARIC has cash and cash equivalents and investment balances that are not
available for general corporate purposes, as further described above under “Investments in debt
and equity securities.” ARIC currently insures no unrelated third-party risk.