Napa Auto Parts 2007 Annual Report Download - page 23

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distribution needs and are fulfilled by our vendors within short
time horizons. e Company does not have significant 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 $72 million outstanding under a con-
struction and lease agreement which expires in 2009. In addition,
the Company guarantees the borrowings of certain independently
controlled automotive parts stores (independents) and certain other
affiliates in which the Company has a minority equity ownership
interest (affiliates). e Company’s maximum exposure to loss as a
result of its involvement with these independents 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 independents’ and affiliates’ borrowings. e fol-
lowing table shows the Company’s approximate commercial com-
mitments under these two arrangements as of December 31, 2007:
Amount of Commitment Expiration per Period
Total
Amounts Less than Over
(in thousands) Committed 1 year 1-3 yrs 4-5 yrs 5 years
Line of credit – – – – –
Standby letters
of credit $ 56,453 $ 56,453 $ – $ – $ –
Guaranteed
borrowings
of independents
and affiliates 173,928 48,669 19,343 12,895 93,021
Residual value
guarantee under
operating leases 62,678 – 62,678 – –
Total commercial
commitments $ 293,059 $ 105,122 $ 82,021 $ 12,895 $ 93,021
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 2007 were $35 million. We ex-
pect to make a cash contribution to our qualified defined benefit
plans in 2008, and contributions required for 2009 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 repur-
chase 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. e 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. In 2007, the Company repurchased
the approximately 300,000 remaining shares under the 1999
authorization and this authorization is closed. rough
December 31, 2007, approximately 4.7 million shares have
been repurchased under the August 21, 2006 authorization.
Critical Accouting 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 accordance
with U.S. generally accepted accounting principles. e prepara-
tion 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 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 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.
Inventories – Provisions for Slow Moving and Obsolescence
e Company identifies slow moving or obsolete inventories and
estimates appropriate loss provisions related thereto. Historically,
these loss provisions have not been significant as the vast majority
of the Company’s inventories are not highly susceptible to obso-
lescence 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.
Allowance for Doubtful Accounts – Methodology
e Company evaluates the collectibility of accounts receivable
based on a combination of factors. Initially, the Company esti-
mates an allowance for doubtful accounts as a percentage of net