Napa Auto Parts 2006 Annual Report Download - page 23

Purchase orders or contracts for the purchase of inventory and
other goods and services are not included in our estimates. We
are not able to determine the aggregate amount of such purchase
orders that represent contractual obligations, as purchase orders
may represent authorizations to purchase rather than binding
agreements. Our purchase orders are based on our current dis-
tribution needs and are fullled by our vendors within short time
horizons. The Company does not have signicant agreements for
the purchase of inventory or other goods specifying minimum
quantities or set prices that exceed our expected requirements.
As discussed in “Construction and Lease Agreement” above,
the Company has approximately $84 million outstanding under
a construction and lease agreement which expires in 2009. In
addition, the Company guarantees the borrowings of certain inde-
pendently controlled automotive parts stores (independents) and
certain other afliates in which the Company has a minority equity
ownership interest (afliates). The Company’s maximum exposure
to loss as a result of its involvement with these independents and
afliates is equal to the total borrowings subject to the Company’s
guarantee. To date, the Company has had no signicant losses
in connection with guarantees of independents’ and afliates’
borrowings. The following table shows the Company’s approximate
commercial commitments under these two arrangements as of
December 31, 2006:
Payment Due by Period
Total
Amounts Less than Over
(in thousands) Committed 1 year 1-3 years 4-5 years 5 years
Guaranteed
borrowings
of independents
and affiliates $ 186,473 $ 49,173 $ 21,309 $ 14,206 $ 101,785
Residual value
guarantee under
operating leases 72,640 – 72,640 – –
Total Commercial
Commitments $ 259,113 $ 49,173 $ 93,949 $ 14,206 $ 101,785
In addition, the Company sponsors dened benet pension
plans that may obligate us to make contributions to the plans
from time to time. Contributions in 2006 were $67 million.
We expect to make a cash contribution to our qualied dened
benet plans in 2007, and contributions required for 2008 and
future years will depend on a number of unpredictable factors
including the market performance of the plans’ assets and future
changes in interest rates that affect the actuarial measurement
of the plans’ obligations.
Share Repurchases
On April 19, 1999, our Board of Directors authorized the repurchase
of 15 million shares of our common stock, and on August 21, 2006,
the Board authorized the repurchase of an additional 15 million
shares. Such repurchase plans were announced on April 20, 1999
and August 21, 2006, respectively. The authorization for these
repurchase plans continues until all such shares have been
repurchased, or the repurchase plan is terminated by action of the
Board of Directors. Through December 31, 2006, approximately 14.7
million shares have been repurchased under these authorizations.
Critical Accounting Estimates
General
Management’s Discussion and Analysis of Financial Condition
and Results of Operations is based upon our consolidated nancial
statements, which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these
nancial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
net sales and expenses and related disclosure of contingent assets
and liabilities. Management bases its estimates on historical
experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an
accounting estimate to be made based on assumptions about
matters that are uncertain at the time the estimate is made and
if different estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to
occur periodically, could materially impact the consolidated nancial
statements. Management believes the following critical accounting
policies reect its most signicant estimates and assumptions used
in the preparation of the consolidated nancial statements. For
further information on the critical accounting policies, see Note 1
of the notes to our consolidated nancial statements.
Inventories – Provisions for Slow Moving and Obsolescence
The Company identies slow moving or obsolete inventories
and estimates appropriate loss provisions related thereto. Histori-
cally, these loss provisions have not been signicant 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.
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