Napa Auto Parts 2004 Annual Report Download - page 22

Three Months Ended
March 31, June 30, Sept. 30, Dec. 31,
(in thousands except for per share data)
2004
Net Sales $ 2,196,991 $ 2,297,686 $ 2,349,283 $ 2,253,307
Gross Profit 686,911 693,065 699,393 750,354
Net Income 100,199 101,146 97,893 96,314
Diluted Earnings Per Share .57 .58 .56 .55
2003
Net Sales $ 2,021,858 $ 2,152,794 $ 2,189,388 $ 2,085,260
Gross Profit 638,340 651,383 651,949 680,944
Income before Cumulative Effect
of a Change in Accounting Principle 88,424 90,148 88,333 86,737
Cumulative Effect of a Change in
Accounting Principle (19,541) — — —
Net Income 68,883 90,148 88,333 86,737
Diluted Earnings Per Share:
Before Change in Accounting Principle .51 .52 .51 .50
After Change in Accounting Principle .39 .52 .51 .50
20
management’s discussion and analysis of financial condition and results of operations
(continued)
from erosion of purchasing power and provide investment results
that meet or exceed the pension plan’s actuarially assumed long
term rate of return.
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 2005
pension expense or income is 8.5% 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 obliga-
tions 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 discount rate of 6.0% at December 31, 2004.
Net periodic cost for our defined benefit pension plans was
$26,411,000, $17,688,000 and $661,000 for the years ended
December 31, 2004, 2003 and 2002, respectively. These expenses
are included in SG&A expenses.
QUARTERLY RESULTS OF OPERATIONS
The preparation of interim consolidated financial statements
requires management to make estimates and assumptions for
the amounts reported in the interim condensed consolidated
financial statements. Specifically, the Company makes certain
estimates in its interim consolidated financial statements for the
accrual of bad debts, inventory adjustments and discounts and
volume incentives earned. Bad debts are accrued based on a
percentage of sales and volume incentives are estimated based
upon cumulative and projected purchasing levels. Inventory
adjustments are accrued on an interim basis and adjusted in the
fourth quarter based on the annual October 31 book-to-physical
inventory adjustment. The methodology and practices used in
deriving estimates for interim reporting typically result in adjust-
ments upon accurate determination at year-end. The effect of
these adjustments in 2004 and 2003 was not significant.
The cumulative effect of a change in accounting principle related
to cash consideration from vendors in 2003, as discussed above,
resulted in a decrease in net income in the first quarter of 2003
of $.12 per share. Without the cumulative effect adjustment,
diluted earnings per share would have been $.51 in the quarter
ended March 31, 2003.
The following is a summary of the quarterly results of operations
for the years ended December 31, 2004 and 2003:
FORWARD-LOOKING STATEMENTS
Some statements in this report constitute forward-looking state-
ments that are subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company cautions
that its forward-looking statements involve risks and uncertainties.
The Company undertakes no duty to update its forward-looking
statements, which reflect the Company’s beliefs, expectations
and plans as of the present. Actual results or events may differ
materially from those indicated as a result of various important
factors. Such factors include, but are not limited to, changes in
general economic conditions, the growth rate of the market for
the Company's products and services, the ability to maintain
favorable supplier arrangements and relationships, competitive
product and pricing pressures, including internet related initiatives,
the effectiveness of the Company’s promotional, marketing and
advertising programs, changes in laws and regulations, including
changes in accounting and taxation guidance, the uncertainties
of litigation, as well as other risks and uncertainties discussed
from time to time in the Company’s filings with the Securities and
Exchange Commission. Readers are cautioned that other factors
not listed here or in our Securities and Exchange Commission
filings could materially impact the Company’s future earnings,
financial position and cash flows. You should not place undue
reliance upon forward-looking statements contained herein,
and you should carefully read the other reports that the
Company will, from time to time, file with the Securities and
Exchange Commission.