Dollar General 2006 Annual Report Download - page 66
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of approximately $45.6 million as of February 2, 2007. This inventory is expected to be sold
during 2007. Markdowns which are not below cost impact the Company’ s gross profit in the
period in which such markdowns are taken. The amount of the below-cost inventory adjustment
is based on management’ s assumptions regarding the timing and adequacy of markdowns and
the final adjustment may vary materially from the amount recorded depending on various factors,
including timing of the execution of the plan, retail market conditions and the accuracy of
assumptions used by management in developing these estimates.
Exit and disposal activities
In November 2006, the Company’ s Board of Directors approved management’ s
recommendation to close, in addition to those stores that might be closed in the ordinary course
of business, approximately 400 stores by the end of fiscal 2007 (approximately 128 of which
have been closed as of February 2, 2007), and expects to incur the following pretax costs
associated with the closing of these stores (in millions):
(Unaudited)
Estimated
Total
Incurred in
2006 Remaining
Lease contract termination costs $ 38.1 $ 5.7 $ 32.4
One-time employee termination benefits 1.4 0.3 1.1
Other associated store closing costs 9.0 0.2 8.8
Inventory liquidation fees 5.0 1.6 3.4
Asset impairment & accelerated depreciation 9.0 8.3 0.7
Inventory markdowns below cost 10.5 6.7 3.8
Total $ 73.0 $ 22.8 $ 50.2
Other associated store closing costs as listed in the table above primarily include the
removal of any usable assets as well as real estate consulting and other services.
Liability balances related to activities discussed above for stores closed during 2006 are
as follows (in millions):
Balance,
February 3,
2006
2006 Initial
Expenses
2006 Payments
and Other
Balance,
February 2,
2007
Lease contract termination costs $ - $ 5.7 $ 0.7 $ 5.0
One-time employee termination benefits - 0.3 - 0.3
Other associated store closing costs - 0.2 - 0.2
Inventory liquidation fees - 1.6 1.3 0.3
Total $ - $ 7.8 $ 2.0 $ 5.8
In addition, non-cash costs and charges of approximately $15.0 million associated with
this decision have been recognized in 2006, comprised of $8.0 million of property and equipment
impairment and $0.3 million of accelerated depreciation included in SG&A, and $6.7 million of
below-cost inventory adjustments included in cost of goods sold. The Company recorded an
estimated below-cost inventory reserve for closing stores of $7.8 million during the third quarter
of 2006, which was reduced by $4.2 million during the remainder of 2006, reflecting the
Company’ s $3.1 million estimate of the below-cost markdowns that were taken during that
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