Napa Auto Parts 2003 Annual Report Download - page 18

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
was in compliance with all such covenants. The weighted
average interest rate on the Company's outstanding borrowings
was approximately 4.9% and 4.8% at December 31, 2003 and
2002, respectively. Total interest expense for all borrowings was
$51.5 million and $59.6 million in 2003 and 2002, respectively.
CONSTRUCTION AND LEASE FACILITY
The Company also has an $85 million 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, 2003 was approximately $80 million. Since
the resulting leases are operating leases, no debt obligation
is recorded on the Company’s balance sheet. This construction
and lease facility expires in 2008. Lease payments fluctuate
based upon current interest rates and are generally based
upon LIBOR plus .55%. The lease facility contains residual value
guarantee provisions and guarantees under events of default.
Although management believes the likelihood of funding to
be remote, the maximum guarantee obligation under the
construction and lease facility is approximately $80 million
at December 31, 2003.
CONTRACTUAL AND OTHER OBLIGATIONS
The following table shows the Company’s approximate obli-
gations and commitments to make future payments under
contractual obligations as of December 31, 2003
(in thousands):
The Company has certain commercial commitments related
to affiliate borrowing guarantees and residual values under
operating leases. The Company believes the likelihood of
any significant amounts being funded in connection with
these commitments to be remote. The following table shows
the Company’s approximate commercial commitments as of
December 31, 2003 (in thousands):
In addition, the Company sponsors a defined benefit pension
plan that may obligate us to make contributions to the plan
from time to time. We expect to make a cash contribution to
our qualified defined benefit plan in 2004, and contributions
required for 2005 and future years will depend on a number
of unpredictable factors including the market performance
of the plan’s assets and future changes in interest rates that
affect the actuarial measurement of the plan's obligations.
INTEREST RATE SWAPS
The Company manages its exposure to changes in short-term
interest rates, particularly to reduce the impact on its floating-
rate term notes, by entering into interest rate swap agree-
ments. The Company has interest rate swaps with fair value
of approximately $11.6 million and $15.6 million outstanding
as of December 31, 2003 and December 31, 2002, respectively.
The decrease in fair values since December 31, 2002 is primarily
due to normal settlement of monthly payments due on swaps
during the year ended December 31, 2003, offset by increases
in the fair value of the liability on outstanding swaps during
the period.
The following table shows the activity of the Company’s
liability for interest rate swap agreements for the period
from December 31, 2002 to December 31, 2003 (in thousands):
Fair value of contracts outstanding at December 31, 2002 $ 15,643
Contracts realized or otherwise settled
during the period (cash paid) (5,494)
Other changes in fair values 1,437
Fair value of contracts outstanding at December 31, 2003 $ 11,586
This interest rate swap liability is included in Other Accrued
Expenses in the Company’s consolidated balance sheet. Other
than interest rate swaps, the Company does not have any
other significant derivative instruments. The Company does
not enter into derivatives for speculative or trading purposes.
During 2003, the Company’s exposure to future declines in
interest rates associated with fixed rate interest rate swap
agreements was consistent with 2002. At December 31, 2003,
the Company had fixed interest rate payment swap agree-
ments outstanding in the amount of $100 million, comprised
of two $50 million notional swaps with maturity dates of
2005 and 2008. In addition, at December 31, 2003, approxi-
mately $500 million of the Company’s total borrowings,
which mature in approximately five and eight years, are at
fixed rates of interest. A 1% adverse change in interest rates
would not have a material adverse impact on future earnings
and cash flows of the Company.
SHARE REPURCHASES
On April 19, 1999, the Board authorized the repurchase
of 15 million shares. Through December 31, 2003, approxi-
mately 8.4 million shares have been repurchased under this
authorization.
CRITICAL ACCOUNTING ESTIMATES
General
Management’s Discussion and Analysis of Financial Condition
and Results of Operations is based upon our Consolidated
Financial Statements, which have been prepared in accor-
dance with GAAP. The preparation of these financial
statements requires management to make estimates and
assumptions that affect the reported amounts of assets,
PAYMENT DUE BY PERIOD
Period less Period 1-3 Period 4-5 Period over
Total than 1 year years years 5 years
Credit facilities $ 677,633 $ 52,525 $ 108 $ 250,000 $ 375,000
Operating leases 383,335 104,862 136,934 69,721 71,818
Total Contractual
Cash Obligations $1,060,968 $ 157,387 $ 137,042 $ 319,721 $ 446,818
PAYMENT DUE BY PERIOD
Total Period Period Period Period
Amounts less than 1-3 4-5 over
Committed 1 year years years 5 years
Guaranteed borrowings
of affiliates $ 163,006 $ 22,778 $ 7,442 $ 4,961 $127,825
Residual value
guarantee under
operating leases 69,330 — — 69,330 —
Total Commercial
Commitments $ 232,336 $ 22,778 $ 7,442 $ 74,291 $127,825