O'Reilly Auto Parts 2000 Annual Report Download - page 20

2000 AR
18
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, for $52.3 million. 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 and is included in the
table of future minimum annual rental commitments under non-
cancelable operating leases. Proceeds from the transaction were used
to reduce outstanding borrowings under our Revolving Credit Facility.
Capital expenditures were $82.0 million in 2000, $86.0 million in
1999 and $57.7 million in 1998. These expenditures were primarily
related to the opening of new stores, as well as the relocation or
remodeling of existing stores. We opened 101, 80 and 50 net stores
in 2000, 1999 and 1998, respectively. We remodeled or relocated
eight stores in both 2000 and in 1999, and 18 stores in 1998. Two
new distribution centers were acquired; one in October 2000, located
in Little Rock, Arkansas, and the other in December 1999, located
in Dallas, Texas.
On December 15, 2000, we entered into a $50 million Synthetic
Operating Lease Facility (“Synthetic Facility” or “the Facility”) with
a group of financial institutions. Under the Facility, the Lessor acquires
land to be developed for O’Reilly Auto Parts stores and funds our
development thereof as the Construction Agent and Guarantor.
We subsequently lease the property from the Lessor for an initial
term of five years with two additional successive renewal periods
of five years each. The Facility provides for a residual value guarantee
and purchase options on the properties. It 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. We plan to utilize
the Facility to finance a portion of our planned store growth for 2001.
Funding under the Facility at December 31, 2000, totaled $1.0 million.
Our continuing store expansion program requires significant capital
expenditures and working capital principally for inventory requirements.
The costs associated with the opening of a new store (including
the cost of land acquisition, improvements, fixtures, inventory and
computer equipment) are estimated to average approximately
$900,000 to $1.1 million; however, such costs may be significantly
reduced where we lease, rather than purchase, the store site.
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 and the Synthetic Facility.
On November 4, 1999, the Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend to all
shareholders of record as of November 15, 1999. The stock dividend
was paid on November 30, 1999.
In March 1999, we sold 7,002,000 shares of common stock
through a secondary public offering. The net proceeds from that
offering, which amounted to $124.6 million, were used to repay
a portion of our outstanding indebtedness under our bank credit
facilities and to fund our expansion.
In order to fund the Hi/LO acquisition, our continuing store expansion
program, and our working capital and general corporate needs,
we replaced our lines of credit in January 1998 with an unsecured,
five-year syndicated credit facility totaling $175 million. The facility
was reduced to $165 million in 1999 and further reduced to $152.5
million in 2000. The facility is comprised of a $125 million revolving
loan, a $5 million sublimit for the issuance of letters of credit and
a $27.5 million term loan. This credit facility is guaranteed by our
subsidiaries. At December 31, 2000, the effective interest rate on
the revolving and term loan portions, which each mature on
January 27, 2003, was 7.0% per annum. At December 31, 2000,
$50.2 million in borrowings was available under this credit facility.
We believe that our existing cash, short-term investments, cash
expected to be provided by operating activities, available bank credit
facilities and trade credit will be sufficient to fund both our short- and
long-term capital needs for the foreseeable future.
Inflation and Seasonality
We succeeded, in many cases, in reducing the effects of merchandise
cost increases principally by taking advantage of vendor incentive
programs, economies of scale resulting from increased volume of
purchases and selective forward buying. As a result, we do not
believe that our operations have been materially affected by inflation.
Our business is somewhat seasonal, primarily as a result of the
impact of weather conditions on store sales. Store sales and profits
have historically been higher in the second and third quarters (April
through September) of each year than in the first and fourth quarters.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued …
O'REILLY AUTOMOTIVE