Napa Auto Parts 2002 Annual Report Download - page 36

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notes to consolidated financial statements, continued
6. Leased Properties
The Company leases land, buildings and equipment. Certain land
and building leases have renewal options generally for periods
ranging from two to ten years. In addition, certain properties occu-
pied under operating leases contain normal purchase options.
The Company also has an $85,000,000 construction and lease
facility. Properties acquired by the lessor are constructed and
then leased to the Company under operating lease agreements.
The total amount advanced and outstanding under this facility at
December 31, 2002 was approximately $66,000,000. Since the
resulting leases are accounted for as operating leases, no debt
obligation is recorded on the Company’s balance sheet. Future
minimum payments, by year and in the aggregate, under the non-
cancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 2002 (in
thousands):
2003 $101,728
2004 74,143
2005 51,734
2006 34,852
2007 26,069
Subsequent to 2007 87,324
$375,850
Rental expense for operating leases was approximately
$114,352,000 in 2002, $112,470,000 in 2001, and
$106,689,000 in 2000.
7. Stock Options and Restricted Stock Awards
In 1999, the Company authorized the grant of options of up to
9,000,000 shares of common stock. In accordance with stock
option plans approved by shareholders, options are granted to key
personnel for the purchase of the Company’s stock at prices not
less than the fair market value of the shares on the dates of
grant. Most options may be exercised not earlier than twelve
months nor later than ten years from the date of grant.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, as amended by SFAS No. 148
and described in Note 1, 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. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the follow-
ing weighted-average assumptions for 2002, 2001 and 2000,
respectively: risk-free interest rates of 4.1%, 5.0%, and 5.9%; divi-
dend yield of 4.0%; 3.8%, and 5.0%; annual volatility factor of the
expected market price of the Company’s common stock of 0.22,
0.26, and 0.18, and an expected life of the options of 8 years, 5
years, and 6 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vest-
ing restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assump-
tions including the expected stock price volatility. Because the
Company’s employee stock options have characteristics signifi-
cantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management’s opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures under SFAS No. 123 as
amended by SFAS No. 148, the estimated fair value of the
options is amortized to expense over the options’ vesting period.
The following table illustrates the effect on net income and earn-
ings per share if the fair value based method had been applied to
all outstanding and unvested awards in each period (in thou-
sands, except per share amounts):
Year ended December 31, 2002 2001 2000
Net (loss) income, as reported $(27,590) $297,147 $385,323
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (3,376) (3,394) (5,354)
Pro forma net (loss) income $(30,966) $293,753 $379,969
(Loss) income per share:
Basic—as reported $(0.16)$1.72 $2.20
Basic—pro forma $(0.18) $1.70 $2.17
Diluted—as reported $(0.16) $1.71 $2.20
Diluted—pro forma $(0.18) $1.69 $2.17