Napa Auto Parts 2008 Annual Report Download - page 43

would become due in the event of a default under the operating lease
agreement, or at the expiration of the operating lease agreement if the
fair value of the leased properties is less than the guaranteed residual
value. e maximum amount of the Company’s potential guarantee
obligation, representing the residual value guarantee, at December 31,
2008, is approximately $62,678,000. e Company believes the likeli-
hood of funding the guarantee obligation under any provision of the
operating lease agreement is remote.
e Company also guarantees the borrowings of certain indepen-
dently controlled automotive parts stores (independents) and certain
other affiliates in which the Company has a minority equity owner-
ship interest (affiliates). Presently, the independents are generally
consolidated by unaffiliated enterprises that have a controlling finan-
cial interest through ownership of a majority voting interest in the
entity. e Company has no voting interest or other equity conversion
rights in any of the independents. e Company does not control the
independents or the affiliates, but receives a fee for the guarantee. e
Company has concluded that it is not the primary beneficiary with re-
spect to any of the independents and that the affiliates are not variable
interest entities. 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.
At December 31, 2008, the total borrowings of the independents and
affiliates subject to guarantee by the Company were approximately
$189,946,000. ese loans generally mature over periods from one to
ten years. In the event that the Company is required to make pay-
ments in connection with guaranteed obligations of the independents
or the affiliates, the Company would obtain and liquidate certain
collateral (e.g., accounts receivable and inventory) to recover all or a
portion of the amounts paid under the guarantee. When it is deemed
probable that the Company will incur a loss in connection with a guar-
antee, a liability is recorded equal to this estimated loss. To date, the
Company has had no significant losses in connection with guarantees
of independents’ and affiliates’ borrowings.
Effective January 1, 2003, the Company adopted FASB Interpretation
No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (FIN No. 45). In
accordance with FIN No. 45 and based on available information, the
Company has accrued for those guarantees related to the independents’
and affiliates’ borrowings and the construction and lease agreement as
of December 31, 2008 and 2007. ese liabilities are not material to
the financial position of the Company and are included in other long-
term liabilities in the accompanying consolidated balance sheets.
9. acquisitions
During 2008, the Company acquired 11 companies in the Automotive,
Industrial, Office Supply and Electrical/Electronic Groups for ap-
proximately $130,000,000. e acquisitions were accounted for in
accordance with SFAS No. 141, Business Combinations, and, accordingly,
the Company allocated the purchase price to the assets acquired and
the liabilities assumed based on their fair values as of their respective
acquisition dates. e results of operations for the acquired com-
panies were included in the Company’s consolidated statements of
income beginning on their respective acquisition dates. e Company
recorded approximately $72,000,000 of goodwill and other intangible
assets associated with these acquisitions.
10. segment data
e segment data for the past five years presented on page 15 is an
integral part of these consolidated financial statements.
e Company’s reportable segments consist of automotive, industrial,
office products, and electrical/electronic materials. Within the report-
able segments, certain of the Company’s operating segments are aggre-
gated because they have similar economic characteristics, products and
services, type and class of customers, and distribution methods.
e Company’s automotive segment distributes replacement parts
(other than body parts) for substantially all makes and models of
automobiles, trucks, and other vehicles.
e Company’s industrial segment distributes a wide variety of
industrial bearings, mechanical and fluid power transmission equip-
ment, including hydraulic and pneumatic products, material handling
components, and related parts and supplies.
e Company’s office products segment distributes a wide variety
of office products, computer supplies, office furniture, and business
electronics.
e Company’s electrical/electronic materials segment distributes a
wide variety of electrical/electronic materials, including insulating and
conductive materials for use in electronic and electrical apparatus.
Inter-segment sales are not significant. Operating profit for each
industry segment is calculated as net sales less operating expenses
excluding general corporate expenses, interest expense, equity in
income from investees, amortization, and minority interests. Approxi-
mately $49,900,000, $46,900,000, and $43,500,000 of income before
income taxes was generated in jurisdictions outside the United States
for the years ending December 31, 2008, 2007, and 2006, respectively.
Net sales and net long-lived assets by country relate directly to the
Company’s operations in the respective country. Corporate assets are
principally cash and cash equivalents and headquarters’ facilities and
equipment.
For management purposes, net sales by segment exclude the effect of
certain discounts, incentives, and freight billed to customers. e line
item “other” represents the net effect of the discounts, incentives, and
freight billed to customers, which are reported as a component of net
sales in the Company’s consolidated statements of income.
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