Napa Auto Parts 2009 Annual Report Download - page 43

Table of Contents


 
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
$398,122,000 and $426,461,000 higher than reported at December 31, 2009 and 2008, respectively. 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 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 providing for inventory purchase
incentives and advertising allowances. Generally, the Company earns inventory purchase incentives and advertising allowances upon
achieving specified volume purchasing levels or other criteria. The Company accrues for the receipt of inventory purchase incentives and
advertising allowances as part of its inventory cost based on cumulative purchases of inventory to date and projected inventory purchases
through the end of the year, or, in the case of specific advertising allowances, upon completion of the Company’s obligations related
thereto. While management believes the Company will continue to receive consideration from vendors in 2010 and beyond, there can be no
assurance that vendors will continue to provide comparable amounts of incentives and allowances in the future.

Prepaid expenses and other current assets consist primarily of prepaid expenses and amounts due from vendors.

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, 2009, 2008, or 2007. If an impairment occurs at a future date, it may have the effect of increasing the volatility
of the Company’s earnings.

Other assets are comprised of the following:

 

Retirement benefit assets  $ 7,229
Investment accounted for under the cost method  21,400
Cash surrender value of life insurance policies  47,873
Other  37,835
Total other assets  $114,337
F-10