Napa Auto Parts 2008 Annual Report Download - page 22

management’s discussion and analysis of nancial condition and results of operations (cont.)
2008
Net Cash Provided by Operating Activities:
e Company continues to generate cash, with net cash provided by
operating activities totaling $530 million in 2008. is represents a
17% decrease from 2007, when net cash provided by operating activi-
ties was especially strong at $641 million. Primarily, the change in
2008 was due to the $116 million net increase in cash used for work-
ing capital requirements, including accounts receivable, inventory and
accounts payable, as well as the $31 million decrease in net income
from 2007. For 2007, the $31 million increase in net income as well
as $167 million in working capital gains during the year resulted in a
48% increase in net cash from operations compared to 2006.
Net Cash Used in Investing Activities:
Net cash flow used in investing activities was $214 million in 2008
compared to $88 million in 2007, an increase of 145%. Primarily,
the change in investing activities was due to the $89 million increase
in cash used for the acquisition of businesses in 2008 and the $56
million decrease in cash proceeds from the sale of assets during the
year, relative to 2007. In 2007, a sale-leaseback transaction for certain
real properties provided the Company $56 million in cash proceeds.
Such sale-leaseback proceeds also explain the 40% decrease in net
cash used in investing activities in 2007 compared to 2006.
Net Cash Used in Financing Activities:
e Company used $473 million of cash in financing activities in
2008, which was relatively consistent with 2007. For the three years
presented, net cash used in financing activities was primarily for
dividends paid to shareholders and the repurchase of the Company’s
common stock. e Company paid dividends to shareholders of
$252 million, $243 million and $228 million during 2008, 2007,
and 2006, respectively. e Company expects this trend of increas-
ing dividends to continue in the foreseeable future. During 2008,
2007 and 2006, the Company repurchased $273 million, $241 mil-
lion and $123 million, respectively, of the Company’s common stock.
We expect to remain active in our share repurchase program, but the
amount and value of shares repurchased will vary annually.
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%.
(0.69% at December 31, 2008). At December 31, 2008 and 2007,
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 approxi-
mately $51 million and $56 million outstanding at December 31,
2008 and 2007, respectively.
At December 31, 2008, the Company had unsecured Senior Notes
outstanding under a $500 million financing arrangement as follows:
$250 million, Series B, 6.23% fixed, due 2011; and $250 million
senior unsecured note, 4.67% fixed, due 2013. Certain borrowings
contain covenants related to a maximum debt-to-capitalization ratio
and certain limitations on additional borrowings. At December 31,
2008, the Company was in compliance with all such covenants.
e weighted average interest rate on the Company’s outstanding
borrowings was approximately 5.45% at December 31, 2008 and
6.05% at December 31, 2007. Total interest expense, net of inter-
est income, for all borrowings was $29.8 million, $21.1 million and
$26.4 million in 2008, 2007 and 2006, respectively.
Construction and Lease Agreement
e Company also has an $85 million construction and lease agree-
ment 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, 2008 was approximately $72 million.
Since the resulting leases are operating leases, no debt obligation is
recorded on the Company’s consolidated balance sheet. is construc-
tion 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, 2008. Refer to Notes 4
and 8 to the Consolidated Financial Statements for further informa-
tion regarding this arrangement.
Contractual and Other Obligations
In October 2007, the Company entered into a sale-leaseback trans-
action with a financial institution. In connection with the transac-
tion, 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 pro-
ceeds 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, 2008:
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