Napa Auto Parts 2002 Annual Report Download - page 32

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notes to consolidated financial statements, continued
SFAS No. 142 also requires that entities discontinue amortiza-
tion of all purchased goodwill, including amortization of goodwill
recorded in past business combinations. Accordingly, the
Company no longer amortized goodwill beginning in 2002.
Goodwill amortization expense was $11,912,000 and
$11,422,000 in 2001 and 2000, respectively. Accumulated
amortization for goodwill at December 31, 2001 was
$51,134,000.
Other Assets
Other assets consist primarily of a prepaid pension asset, an
investment accounted for under the cost method, and certain
costs of internal-use information systems under development.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
primarily determined on a straight-line basis over the following
estimated useful life of each asset: buildings and improvements,
10 to 40 years; machinery and equipment, 5 to 15 years.
Long-Lived Assets Other Than Goodwill
The Company assesses its long-lived assets other than goodwill
for impairment whenever facts and circumstances indicate that
the carrying amount may not be fully recoverable. To analyze
recoverability, the Company projects undiscounted net future
cash flows over the remaining life of such assets. If these project-
ed cash flows are less than the carrying amount, an impairment
would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. Impairment losses, if any, are
measured based upon the difference between the carrying
amount and the fair value of the assets.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of the fol-
lowing:
(Dollars in Thousands) December 31 2002 2001
Foreign currency translation $43,253 $25,293
Net unrealized loss on derivative
instruments, net of taxes 17,269 20,801
Total accumulated other comprehensive loss $60,522 $46,094
Fair Value of Financial Instruments
The carrying amount reflected in the consolidated balance
sheets for cash and cash equivalents, accounts receivable and
accounts payable approximate their respective fair values based
on the short-term nature of these instruments. The fair value of
interest rate swap agreements, included in other accrued
expenses in the consolidated balance sheet, was approximately
$15,643,000 and $31,570,000 at December 31, 2002 and
2001, respectively. The fair value of derivative financial instru-
ments has been determined based on quoted market prices. At
December 31, 2002 and 2001, the carrying amount for variable
rate long-term debt approximates fair market value since the
interest rates on these instruments are reset periodically to cur-
rent market rates. At December 31, 2002 and 2001, the fair
market value of fixed rate long-term debt was approximately
$537,000,000 and $500,000,000, respectively, based primarily
on quoted prices for these or similar instruments. The fair value
of fixed rate long-term debt was estimated by calculating the
present value of anticipated cash flows. The discount rate used
was an estimated borrowing rate for similar debt instruments
with like maturities.
Derivative Instruments and Hedging Activities
From time to time, the Company uses interest rate swap agree-
ments to synthetically manage the interest rate characteristics of
a portion of its outstanding debt and to limit the Company’s
exposure to rising interest rates. The Company designates at
inception that interest rate swap agreements hedge risks associ-
ated with future variable interest payments and monitors each
swap agreement to determine if it remains an effective hedge.
The effectiveness of the derivative as a hedge is based on a high
correlation between changes in the value of the underlying
hedged item. Ineffectiveness related to the Company’s derivative
transactions is not material. The Company records amounts to
be received or paid as a result of interest swap agreements as
an adjustment to interest expense. All of the Company’s interest
rate swaps are designated as cash flow hedges. Gains or losses
on terminations or redesignation of interest rate swap agree-
ments are deferred and amortized as an adjustment to interest
expense of the related debt instrument over the remaining term
of the original contract life of the agreements. The Company does
not enter into derivatives for speculative or trading purposes.
Shipping and Handling Costs
Shipping and handling costs are classified as selling, administra-
tive and other expenses in the accompanying consolidated
statements of income and totaled approximately $200,000,000,
$198,000,000 and $200,000,000 in the years ended
December 31, 2002, 2001, and 2000, respectively.
Stock Compensation
Until January 1, 2003, the Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”), and related Interpretations in
accounting for stock compensation. Under APB 25, no compen-
sation expense is recognized if the exercise price of stock options
equals the market price of the underlying stock on the date of
grant. Note 7 contains a tabular presentation as if the Company
had applied the alternative fair value accounting provided for
under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to all stock options.
See Recently Issued Accounting Pronouncements below.
Net (Loss) Income Per Common Share
Basic net (loss) income per common share is computed by divid-
ing net (loss) income by the weighted average number of
common shares outstanding during the year. The computation of
diluted net (loss) income per common share includes the dilutive
effect of stock options and non-vested restricted stock awards.
Options to purchase 679,000, 3,485,000 and 4,325,000,
shares of common stock at prices ranging from $23 to $38 per
share were outstanding at December 31, 2002, 2001 and 2000,
respectively, but were not included in the computation of diluted
net (loss) income per common share because the options’ exer-
cise price was greater than the average market price of the
common shares. At December 31, 2002, 2001 and 2000, the
dilutive effect of options to purchase approximately 56,000,
199,000, and 748,000 shares of common stock at an average
exercise price of approximately $18, $18, and $9 per share,
respectively, issued in connection with a 1998 acquisition have