O'Reilly Auto Parts 2007 Annual Report Download - page 24

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Management’s Discussion and Analysis
of Financial Condition and Results of Operations (continued)
the opening of new stores and distribution centers, as well as the relocation or remodeling of existing stores. We opened 190, 170, and 149
(excluding the 72 stores acquired with Midwest) net stores in 2007, 2006 and 2005, respectively. We remodeled or relocated 55, 31 and 37 stores
in 2007, 2006 and 2005, respectively. Enhancements in existing store technology include the roll out of our new point of sale system as well as
hardware upgrades, new in-store starter and alternator testers and the installation of energy management systems. We acquired a location and
began construction in 2007 on a new distribution center that will be located in Lubbock, TX. The new distribution center is scheduled to be
completed and to begin operations in 2008. We acquired a new facility near Minneapolis, Minnesota in 2006 for the relocation of the St. Paul,
Minnesota distribution center that was completed and began operations in 2007. We acquired a new distribution center near Indianapolis,
Indiana in 2005 that was subsequently equipped and opened in 2006.
Our continuing store expansion program requires significant capital expenditures and working capital principally for inventory requirements.
Our 2008 growth plans call for approximately 205 new stores and the addition of one distribution center with total capital expenditures of $275
million to $285 million. The costs associated with the opening of a new store (including the cost of land acquisition, improvements, fixtures, net
inventory investment and computer equipment) are estimated to average approximately $1.2 million to $1.4 million; however, such costs may be
significantly reduced where we lease, rather than purchase, the store site. We plan to finance our expansion program through cash expected to be
provided from operating activities and available borrowings under our existing credit facility.
On May 15, 2006, we entered into a private placement agreement that allows for the issuance of an aggregate of $300 million in unsecured senior
notes, issuable in series. On May 15, 2006, the Company completed the private placement of $75 million of the first series of Senior Notes (the
“Series 2006-A Senior Notes”) under the Private Placement Agreement. The $75 million of Series 2006-A Senior Notes are due May 15, 2016
and bear interest at 5.39% per year. Proceeds from the Series 2006-A Senior Notes private placement transaction were used to repay certain
existing debt of the Company, including $75 million of 7.72% Series 2001-A Senior Notes due May 15, 2006.
On July 29, 2005, we entered into an 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 0.375% to 0.750% (5.25% at
December 31, 2007) and expires in July 2010. There were no outstanding borrowings under the Credit Facility at December 31, 2007. Outstanding
borrowings totaled $9.7 million at December 31, 2006. 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 $71.4 million and $57.4 million at December 31, 2007 and 2006, respectively.
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 with an unrelated party. 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 September 28, 2007, the Company completed a second amended and restated master agreement to its $49 million Synthetic Operating
Lease Facility with a group of financial institutions. The terms of such lease facility provide for an initial lease period of seven years, a residual
value guarantee of approximately $39.7 million at December 31, 2007 and purchase options on the properties. The lease facility also contains a
provision for an event of default whereby the lessor, among other things, may require the Company to purchase any or all of the properties.
Management believes it is reasonable to assume that such an event of default will not occur. One additional renewal period of seven years may
be requested from the lessor, although the lessor is not obligated to grant such renewal. The second amended and restated Facility has been
accounted for as an operating lease under SFAS No. 13 and related interpretations, including FASB Interpretation No. 46R.