Napa Auto Parts 2007 Annual Report Download - page 34

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notes฀to฀consolidated฀financial฀statements฀(continued)
december฀31,฀2007
1. Summary of Significant Accounting Policies (continued)
Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income is comprised
of the following:
(in thousands) December 31, 2007 2006
Foreign currency translation $ 129,700 $ 50,823
Net unrealized loss on
derivative instruments,
net of taxes – (296)
Unrecognized net actuarial
loss, net of tax (250,846) (290,461)
Unrecognized prior service
cost, net of tax (2,569) (2,600)
Total accumulated
other comprehensive loss $ (123,715) $ (242,534)
Fair Value of Financial Instruments
e carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, trade accounts receivable
and trade accounts payable approximate their respective fair
values based on the short-term nature of these instruments. At
December 31, 2007 and 2006, the fair market value of fixed
rate debt was approximately $529,000,000 and $511,000,000,
respectively, based primarily on quoted prices for these or similar
instruments. e fair value of fixed rate debt was estimated by
calculating the present value of anticipated cash flows. e
discount rate used was an estimated borrowing rate for similar
debt instruments with like maturities.
Shipping and Handling Costs
Shipping and handling costs are classified as selling, adminis-
trative and other expenses in the accompanying consolidated
statements of income and totaled approximately $140,000,000,
$130,000,000, and $100,000,000 in the years ended December
31, 2007, 2006, and 2005, respectively.
Advertising Costs
Advertising costs are expensed as incurred and totaled
$44,700,000, $49,700,000, and $44,100,000 in the years
ended December 31, 2007, 2006, and 2005, respectively.
Stock Compensation
e Company maintains various Long-Term Incentive Plans,
which provide for the granting of stock options, stock apprecia-
tion rights, restricted stock, restricted stock units, performance
awards, dividend equivalents, and other share-based awards.
Effective January 1, 2003, the Company prospectively adopted
the fair value method of accounting for stock compensation.
e Company recognizes compensation expense based on the
straight-line method. Until January 1, 2003, the Company had
elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25), and
related Interpretations in accounting for stock compensation.
Under APB No. 25, no compensation expense was recognized
if the exercise price of stock options equaled or exceeded the
market price of the underlying stock on the date of grant. Pro
forma information regarding net income and earnings per share
is required by SFAS No. 123, as amended, determined as if the
Company had accounted for its employee stock options granted
subsequent to December 31, 1994, under the fair value method
of SFAS No. 123.
Effective January 1, 2006, the Company adopted SFAS No.
123(R) choosing the “modified prospective” method. Compensa-
tion cost recognized for the years ended December 31, 2007 and
2006, includes: (a) compensation cost for all share-based pay-
ments granted prior to, but not yet vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123; and (b) compensation
cost for all share-based payments granted subsequent to January
1, 2006, based on the grant date fair value estimated with the
provisions of SFAS No. 123(R). Results for prior periods have
not been restated. Most options may be exercised not earlier than
twelve months nor later than ten years from the date of grant.
Net Income per Common Share
Basic net income per common share is computed by dividing net
income by the weighted average number of common shares out-
standing during the year. e computation of diluted net income
per common share includes the dilutive effect of stock options
and non-vested restricted stock awards.
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current year presentation. e Company determined that
certain of the business’ warehousing, distribution, and handling
costs previously classified in the consolidated statements of income
as components of selling, administrative and other expenses
should be classified as cost of goods sold to be consistent with
the Company’s policy of capitalizing these costs in inventory.
ese costs amount to $171,000,000 and $166,000,000 for fiscal
years 2006 and 2005, respectively. e reclassification had no
effect on net sales, operating margins, net income or diluted
earning per share. Such reclassifications were considered to be
immaterial for all periods.
Recently Issued Accounting Pronouncements
On September 15, 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS No. 157). SFAS No. 157 defines fair