Napa Auto Parts 2005 Annual Report Download - page 40

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7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The effect of a one-percentage point change in the 2005
assumed health care cost trend is as follows:
The Company has a defined contribution plan that covers
substantially all of its domestic employees. The Company’s
matching contributions are determined based on 20% of the
first 6% of the covered employee’s salary. Total plan expense
was approximately $6,722,000 in 2005, $6,034,000 in 2004,
and $5,674,000 in 2003.
8. GUARANTEES
Certain operating leases expiring in 2008 contain residual
value guarantee provisions and other guarantees which would
become due in the event of a default under the operating
lease agreement, or at the expiration of the operating lease
agreement if the fair value of the leased properties is less than
the guaranteed residual value. The maximum amount of the
Company’spotential guarantee obligation, representing the
residual value guarantee, at December 31, 2005, is approxi-
mately $72,640,000. The Company believes the likelihood of
funding the guarantee obligation under any provision of the
operating lease agreements is remote.
The Company guarantees the borrowings of certain independ-
ently controlled automotive parts stores (independents) and
certain other affiliates in which the Company has a minority
equity ownership interest (affiliates). Presently, the independents
are generally consolidated by an unaffiliated enterprise that
has a controlling financial interest through ownership of a
majority voting interest in the entity.The Company has no
voting interest or other equity conversion rights in any of the
independents. The Company does not control the independents
or the affiliates, but receives a fee for the guarantee. The
Company has concluded that it is not the primary beneficiary
with respect to any of the independents and that the affiliates
are not variable interest entities. The Company’s maximum
exposure to loss as a result of its involvement with these
independents and affiliates is equal to the total borrowings
subject to the Company’sguarantee.
At December 31, 2005, the total borrowings of the independents
and affiliates subject to guarantee by the Company were
approximately $175,800,000. These loans generally mature over
periods from one to ten years. In the event that the Company
is required to make payments in connection with guaranteed
obligations of the independents or the affiliates, the Company
would obtain and liquidate certain collateral (e.g. accounts
receivable and inventory) to recover all or a portion of the
amounts paid under the guarantee. To date, the Company
has had no significant losses in connection with guarantees
of independents’ and affiliates’ borrowings.
9. SEGMENT DATA
The segment data for the past five years presented on page 14
is an integral part of these consolidated financial statements.
The Company’s automotive segment distributes replacement
parts (other than body parts) for substantially all makes and
models of automobiles, trucks and other vehicles.
The Company’s industrial segment distributes a wide variety
of industrial bearings, mechanical and fluid power transmission
equipment, including hydraulic and pneumatic products, material
handling components, and related parts and supplies.
The Company’s office products segment distributes a wide variety
of office products, computer supplies, office furniture, and
business electronics.
The Company’s electrical/electronic materials segment distributes
a wide variety of electrical/electronic materials, including
insulating and conductive materials for use in electronic and
electrical apparatus.
Inter-segment sales are not significant. Operating profit for
each industry segment is calculated as net sales less operating
expenses excluding general corporate expenses, interest
expense, equity in income from investees, amortization and
minority interests. Approximately $39,700,000, $34,700,000,
and $19,200,000 of income before income taxes and cumulative
effect of a change in accounting principle was generated in
jurisdictions outside the United States for the years ending
December 31, 2005, 2004, and 2003, respectively. Net sales
and net long-lived assets by country relate directly to the
Company’s operations in the respective country. Corporate
assets are principally cash and cash equivalents and headquarters’
facilities and equipment.
For management purposes, net sales by segment exclude the
effect of certain discounts, incentives and freight billed to
customers. The line item “other” represents the net effect of
the discounts, incentives and freight billed to customers, which
are reported as a component of net sales in the Company’s
consolidated statements of income.
Notes to Consolidated Financial Statements
(continued)
(in thousands) Decrease Increase
Total service and interest cost components
on 2005 net periodic postretirement health
care benefit cost $ (364) $ 573
Accumulated postretirement benefit obligation
for health care benefits at December 31, 2005 (3,368) 5,128