O'Reilly Auto Parts 2005 Annual Report Download - page 31

O’REILLY AUTOMOTIVE 2005 ANNUAL REPORT
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management’s discussion and analysis
of financial condition and results of operations (continued)
Although the cost to acquire the business of an independently owned parts store varies, depending primarily upon the amount of inventory and
the amount, if any, of real estate being acquired, we estimate that the average cost to acquire such a business and convert it to one of our stores is
approximately $400,000. We plan to finance our expansion program through cash expected to be provided from operating activities and available
borrowings under our existing credit facilities.
On July 29, 2005, we amended the unsecured, five-year syndicated credit facility (“Credit Facility”) in the amount of $100 million led by Wells Fargo
Bank as the Administrative Agent, replacing a three-year $150 million syndicated credit facility. The Credit Facility is guaranteed by all of our
subsidiaries and may be increased to a total of $200 million, subject to the availability of such additional credit from either existing banks within the
Credit Facility or other banks. The Credit Facility bears interest at LIBOR plus a spread ranging from 0.50% to 1.0% (4.86% at December 31, 2005)
and expires in July 2010. At December 31, 2005 and 2004, we had no outstanding borrowings under the Credit Facility. The available borrowings
under the Credit Facility are reduced by stand-by letters of credit issued by us primarily to satisfy the requirements of workers compensation, general
liability and other insurance policies. Our aggregate availability for additional borrowings under the Credit Facility was $70.7 million and $128.7 million
at December 31, 2005 and 2004, respectively.
In May 2006, $75 million of our private placement notes will become due. We anticipate repaying these notes with cash expected to be provided by
operating activities or a combination of such cash, available borrowing capacity under our revolving credit facility and the issuance of new private
placement notes.
off balance sheet arrangements
We have utilized various financial instruments from time to time as sources of cash when such instruments provided a cost effective alternative to
our existing sources of cash. We do not believe, however, that we are dependent on the availability of these instruments to fund our working capital
requirements or our growth plans.
On December 29, 2000, we completed a sale-leaseback transaction. Under the terms of the transaction, we sold 90 properties, including land, buildings
and improvements, which generated $52.3 million of additional cash. The lease, which is being accounted for as an operating lease, provides for an
initial lease term of 21 years and may be extended for one initial ten-year period and two additional successive periods of five years each. The resulting
gain of $4.5 million has been deferred and is being amortized over the initial lease term. Net rent expense during the initial term will be approximately
$5.5 million annually.
In August 2001, we completed a sale-leaseback with O’Reilly-Wooten 2000 LLC (an entity owned by certain shareholders of the Company).
The transaction involved the sale and leaseback of nine O’Reilly Auto Parts stores and resulted in approximately $5.6 million of additional cash
to us. The transaction did not result in a material gain or loss. The lease, which has been accounted for as an operating lease, calls for an initial
term of 15 years with three five-year renewal options.
On June 26, 2003, we completed an amended and restated master agreement to our $50 million Synthetic Operating Lease Facility, relating to our
properties leased from SunTrust Equity Funding, LLC (the “Synthetic Lease”), with a group of financial institutions. The terms of the Synthetic
Lease provide for an initial lease period of five years, a residual value guarantee of approximately $42.2 million at December 31, 2005, and purchase
options on the properties. The Synthetic Lease also contains a provision for an event of default whereby the lessor, among other things, may require
us to purchase any or all of the properties. One additional renewal period of five years may be requested from the lessor, although the lessor is not
obligated to grant such renewal. The Synthetic Lease has been accounted for as an operating lease under the provisions of Financial Accounting
Standards Board (“FASB”) SFAS No. 13 and related interpretations, including FASB Interpretation No. 46.
We issue stand-by letters of credit provided by a $50 million sublimit under the Credit Facility that reduce our available borrowings. These letters of
credit are issued primarily to satisfy the requirements of workers compensation, general liability and other insurance policies. Substantially all of the
outstanding letters of credit have a one-year term from the date of issuance and have been issued to replace surety bonds that were previously issued.
Letters of credit totaling $29.3 million and $21.3 million were outstanding at December 31, 2005 and 2004, respectively.