Napa Auto Parts 2010 Annual Report Download - page 45

Table of Contents
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Merchandise Inventories, Including Consideration Received From Vendors
Merchandise inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for a
majority of automotive parts, electrical/electronic materials, and industrial parts, and by the first-in, first-out (FIFO) method for office
products and certain other inventories. If the FIFO method had been used for all inventories, cost would have been approximately
$383,094,000 and $398,122,000 higher than reported at December 31, 2010 and 2009, respectively. During 2010, reductions in
inventory levels in industrial parts inventories resulted in liquidations of LIFO inventory layers. The effect of the LIFO liquidation in
2010 was to reduce cost of goods sold by approximately $25,000,000. During 2009, reductions in inventory levels in industrial and
electrical parts inventories resulted in liquidations of LIFO inventory layers. The effect of the LIFO liquidation in 2009 was to reduce cost
of goods sold by approximately $22,000,000.
The Company identifies slow moving or obsolete inventories and estimates appropriate provisions related thereto. Historically, these
losses have not been significant as the vast majority of the Company’s inventories are not highly susceptible to obsolescence and are
eligible for return under various vendor return programs. While the Company has no reason to believe its inventory return privileges will
be discontinued in the future, its risk of loss associated with obsolete or slow moving inventories would increase if such were to occur.
The Company enters into agreements at the beginning of each year with many of its vendors that provide for inventory purchase
incentives. Generally, the Company earns inventory purchase incentives upon achieving specified volume purchasing levels or other
criteria. The Company accrues for the receipt of these incentives as part of its inventory cost based on cumulative purchases of inventory
to date and projected inventory purchases through the end of the year. While management believes the Company will continue to receive
consideration from vendors in 2011 and beyond, there can be no assurance that vendors will continue to provide comparable amounts of
incentives in the future.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of prepaid expenses and amounts due from vendors.
Goodwill and Other Intangible Assets
The Company reviews its goodwill and indefinite lived intangible assets annually in the fourth quarter, or sooner if circumstances
indicate that the carrying amount may exceed fair value. The present value of future cash flows approach was used to determine any
potential impairment. The Company determined that these assets were not impaired and, therefore, no impairments were recognized for the
years ended December 31, 2010, 2009, or 2008. If an impairment occurs at a future date, it may have the effect of increasing the volatility
of the Company’s earnings.
Other Assets
Other assets are comprised of the following:

 

Retirement benefit assets  $ 7,642
Deferred compensation benefits  15,490
Investment accounted for under the cost method  21,400
Cash surrender value of life insurance policies  59,890
Other  43,161
Total other assets  $147,583
F-10