Napa Auto Parts 2007 Annual Report Download - page 22

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Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations฀(continued)
2007
Net Cash Used in Financing Activities:
e Company used $469 million of cash in financing activities in
2007, primarily for dividends to shareholders and the repurchase
of the Company’s common stock. Dividends and share repurchases
were also the primary financing activities in 2006 and 2005. e
Company paid dividends to shareholders of $243 million, $228
million, and $216 million during 2007, 2006, and 2005, respec-
tively. e Company expects this trend of increasing dividends to
continue in the foreseeable future. During 2007, 2006 and 2005,
the Company repurchased $241 million, $123 million and $119
million, respectively, in the Company’s common stock. We plan to
remain active in our share repurchase program, but the amount
and value of shares repurchased will vary annually.
Total debt of $500 million at December 31, 2007 is comprised of
two $250 million term notes with a consortium of financial and
insurance institutions due in 2008 and 2011. e term note due
in 2008 was classified as a current liability at December 31, 2007.
e Company does not anticipate repaying these notes prior to
their scheduled expiration.
Notes and Other Borrowings
e Company maintains a $350 million unsecured revolving line
of credit with a consortium of financial institutions, which matures
in December 2012 and bears interest at LIBOR plus .23%.
(5.08% at December 31, 2007). At December 31, 2007 and 2006,
no amounts were outstanding under the line of credit. Due to
the workers compensation and insurance reserve requirements in
certain states, the Company also had unused letters of credit of
$56,453,000 and $58,955,000 outstanding at December 31, 2007
and 2006, respectively.
At December 31, 2007, the Company had unsecured Senior Notes
outstanding under a $500 million financing arrangement as follows:
$250 million, Series A, 5.86% fixed, due 2008; and $250 million,
Series B, 6.23% fixed, due 2011. Certain borrowings contain
covenants related to a maximum debt-to-capitalization ratio and
certain limitations on additional borrowings. At December 31,
2007, the Company was in compliance with all such covenants.
e weighted average interest rate on the Company’s outstanding
borrowings was approximately 6.05% at December 31, 2007
and 2006. Total interest expense, net of interest income, for all
borrowings was $21.1 million, $26.4 million and $29.6 million
in 2007, 2006 and 2005, respectively.
Construction and Lease Agreement
e Company also has an $85 million construction and lease
agreement with an unaffiliated third party. Properties acquired by
the lessor are constructed and then leased to the Company under
operating lease agreements. e total amount advanced and
outstanding under this agreement at December 31, 2007 was
approximately $72 million. Since the resulting leases are operating
leases, no debt obligation is recorded on the Company’s consolidated
balance sheet. is construction and lease agreement expires
in 2009 and no additional properties are being added to this
agreement, as the construction term has ended. Lease payments
fluctuate based upon current interest rates and are generally
based upon LIBOR plus .50%. e lease agreement 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, which
represents our residual value guarantee, under the construction
and lease agreement is approximately $63 million at December
31, 2007. Refer to Notes 4 and 8 to the Consolidated Financial
Statements for further information regarding this arrangement.
Contractual and Other Obligations
In October 2007, the Company entered into a sale-leaseback
transaction with a financial institution. In connection with the
transaction, the Company sold certain automotive retail store
properties and immediately leased the properties back over a lease
term of twenty years. e lease was classified as an operating lease.
Net proceeds from the transaction amounted to approximately
$56 million. e Company realized a net gain of approximately
$20 million, which was deferred and will be amortized over the
lease term.
e following table shows the Company’s approximate obligations
and commitments, including interest due on credit facilities,
to make future payments under contractual obligations as of
December 31, 2007:
Payment Due by Period
Less than Over
(in thousands) Total 1 year 1-3 yrs 4-5 yrs 5 years
Credit facilities $ 574,427 $ 279,000 $ 31,150 $ 264,277 $ —
Capital leases 11,106 2,344 3,918 2,005 2,839
Operating leases 584,077 131,659 171,938 97,861 182,619
Total contractual
cash obligations $ 1,169,610 $ 413,003 $ 207,006 $ 364,143 $ 185,458
Due to the uncertainty of the timing of future cash flows associated
with the Company’s unrecognized tax benefits at December 31,
2007, the Company is unable to make reasonably reliable estimates
of the period of cash settlement with the respective taxing authorities.
erefore, $32 million of unrescognized tax benefits have been
excluded from the contractual obligations table above. Refer to
Note 6 to the Consolidated Financial Statements for a discussion
on income taxes.
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