Napa Auto Parts 2005 Annual Report Download - page 20

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 agree-
ments. The total amount advanced and outstanding under
this facility at December 31, 2005 was approximately $84 mil-
lion. 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 .50%. The lease facility contains resid-
ual value guarantee provisions and guarantees under events
of default. Although management believes the likelihood of
funding to be remote, the maximum guarantee obligation,
which represents our residual value guarantee, under the
construction and lease facility is approximately $73 million
at December 31, 2005.
Contractual and Other Obligations
The following table shows the Company’s approximate
obligations and commitments, excluding interest due on
credit facilities, to make future payments under contractual
obligations as of December 31, 2005:
Purchase orders or contracts for the purchase of inventory
and other goods and services are not included in our estimates.
Weare not able to determine the aggregate amount of such
purchase orders that represent contractual obligations, as pur-
chase orders may represent authorizations to purchase rather
than binding agreements. Our purchase orders are based on
our current distribution needs and are fulfilled by our vendors
within short time horizons. The Company does not have signifi-
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 Facility’ above, the
Company has approximately $84 million outstanding under a
construction and lease facility which expires in 2008. In addition,
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). The Company’s maximum
exposure to loss as a result of its involvement with these inde-
pendents and affiliates is equal to the total borrowings subject
to the Company’s guarantee. To date, the Company has had no
significant losses in connection with guarantees of independ-
ents’ and affiliates’ borrowings. The following table shows the
Company’s approximate commercial commitments under these
two arrangements as of December 31, 2005:
In addition, the Company sponsors defined benefit pension
plans that may obligate us to make contributions to the plans
from time to time. Contributions in 2005 were $134 million.
We expect to make a cash contribution to our qualified
defined benefit plans in 2006, and contributions required
for 2007 and future years will depend on a number of unpre-
dictable factors including the market performance of the
plans’ assets and future changes in interest rates that affect
the actuarial measurement of the plans’ obligations.
ShareRepurchases
On April 19, 1999, our Board of Directors authorized the
repurchase of 15 million shares of our common stock.
Through December 31, 2005, approximately 12 million
shares have been repurchased under this authorization.
CRITICAL ACCOUNTING ESTIMATES
General
Management’sDiscussion and Analysis of Financial Condition and
Results of Operations is based upon our consolidated financial
statements, which have been prepared in accordance with gen-
erally accepted accounting principles in the United States. The
preparation of these financial 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 esti-
mates 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 highly 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 financial statements. Management believes the following
critical accounting policies reflect its most significant estimates
and assumptions used in the preparation of the consolidated
financial statements. For further information on the critical
accounting policies, see Note 1 of the notes to our consolidated
financial statements.
18
Management's Discussion and Analysis of Financial Condition and Results of Operations
(continued)
PAYMENT DUE BY PERIOD
Less than Over
(in thousands) Total 1year 1-3 years 4-5 years 5years
Credit facilities $ 500,881 $ 881 $ 250,000 $ — $ 250,000
Capital leases 27,376 3,537 7,105 6,672 10,062
Operating leases 475,118 134,530 179,433 81,459 79,696
Total Contractual
Cash Obligations $ 1,003,375 $ 138,948 $ 436,538 $ 88,131 $ 339,758
PAYMENT DUE BY PERIOD
Total
Amounts Less than 1-3 4-5 Over
(in thousands) Committed 1 year years years 5 years
Guaranteed borrowings
of independents
and affiliates $ 175,832 $ 40,871 $ 22,039 $ 14,646 $ 98,276
Residual value
guarantee under
operating leases 72,640 — — 72,640 —
Total commercial
commitments $ 248,472 $ 40,871 $ 22,039 $ 87,286 $ 98,276