Napa Auto Parts 2010 Annual Report Download - page 26

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Table of Contents
Impairment of Property, Plant and Equipment and Goodwill and Other Intangible Assets
At least annually, the Company evaluates property, plant and equipment, goodwill and other intangible assets for potential
impairment indicators. The Company’s judgments regarding the existence of impairment indicators are based on market conditions and
operational performance, among other factors. Future events could cause the Company to conclude that impairment indicators exist and
that assets associated with a particular operation are impaired. Evaluating for impairment also requires the Company to estimate future
operating results and cash flows which require judgment by management. Any resulting impairment loss could have a material adverse
impact on the Company’s financial condition and results of operations.
Employee Benefit Plans
The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor
the performance of the Company’s pension plan assets. The pension plan investment strategy implemented by the Company’s
management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the
U.S. and Canada and fiduciary standards. The long-term primary objectives for the pension plan funds are to provide for a reasonable
amount of long-term growth of capital without undue exposure to risk, protect the assets from erosion of purchasing power and provide
investment results that meet or exceed the pension plan’s actuarially assumed long term rate of return. The Company’s investment strategy
with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (50% S&P 500 Index, 5% Russell
Mid Cap Index, 10% Russell 2000 Index, 5% MSCI EAFE Index, and 30% BarCap U.S. Govt/Credit).
We make several critical assumptions in determining our pension plan liabilities and related pension expense. We believe the most
critical of these assumptions are the expected rate of return on plan assets and the discount rate. Other assumptions we make relate to
employee demographic factors such as rate of compensation increases, mortality rates, retirement patterns and turnover rates.
Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset
allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2011 pension expense or income
is 7.87% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit
obligations, using capital market data and historical relationships.
The discount rate is chosen as the rate at which pension obligations could be effectively settled and is based on capital market
conditions as of the measurement date. We have matched the timing and duration of the expected cash flows of our pension obligations to
a yield curve generated from a broad portfolio of high-quality fixed income debt instruments to select our discount rate. Based upon this
cash flow matching analysis, we selected a weighted average discount rate for the plans of 5.74% at December 31, 2010.
Net periodic benefit cost for our defined benefit pension plans was $21.9 million, $7.3 million and $46.9 million for the years
ended December 31, 2010, 2009 and 2008, respectively. The decreasing trend in pension cost from 2008 to 2009 was primarily due to the
curtailment and subsequent remeasurement which is discussed below, and the change in assumptions for the rate of return on plan
assets, the discount rate and the rate of compensation increases. Refer to Note 7 of the Consolidated Financial Statements for more
information regarding employee benefit plans.
In April 2009, the Company recorded a $4.3 million non-cash curtailment adjustment in connection with a reorganization, which
reduced the expected years of future service of employees covered by the U.S. defined benefit pension plan.
In July 2009, the Company announced changes to the U.S. postretirement benefit plan. Effective January 1, 2010, future retirees no
longer receive employer-provided medical benefits and current pre-65 retirees no longer receive employer-provided post-65 benefits
(beyond an access-only arrangement).
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