O'Reilly Auto Parts 2000 Annual Report Download - page 29

2000 AR
27
NOTE 7 – COMMITMENTS
Lease Commitments
During 1999, the Company entered into a Master Lease Agreement
with O’Reilly-Wooten 2000 LLC (an entity owned by certain
shareholders of the Company) related to the sale and leaseback of
certain properties. The transaction closed on January 4, 1999, with
a purchase price of approximately $5.5 million. The lease calls for
an initial term of 15 years with two five-year renewal options.
On December 29, 2000, the Company completed a sale-leaseback
transaction. Under the terms of the transaction, the Company 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 mini-
mum annual rental commitments under non-cancelable operating
leases. Proceeds from the transaction were used to reduce out-
standing borrowings under the Company’s Revolving Credit Facility.
On December 15, 2000, the Company entered into a $50 million
Synthetic Operating Lease Facility (“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 the development
thereof by the Company as the Construction Agent and Guarantor.
The Company subsequently leases 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 the Company to purchase any or all of
the properties. The Company plans to utilize the Facility to finance
a portion of its planned store growth for 2001. Funding under the
Facility at December 31, 2000, totaled $1.0 million.
The Company also leases certain office space, retail stores, property
and equipment under long-term, non-cancelable operating leases.
Most of these leases include renewal options and some include
options to purchase and provisions for percentage rent based on
sales. At December 31, 2000, future minimum rental payments
under all of the Company’s operating leases for each of the
next five years and in the aggregate are as follows:
Related Non-related
(In thousands) Parties Parties Total
2001 $ 2,032 $ 19,823 $ 21,855
2002 1,957 18,239 20,196
2003 1,160 16,874 18,034
2004 1,001 15,436 16,437
2005 665 13,273 13,938
Thereafter 5,575 112,305 117,880
$ 12,390 $ 195,950 $ 208,340
Rental expense amounted to $16,219,000, $14,122,000 and
$13,862,000 for the years ended December 31, 2000, 1999,
and 1998, respectively.
Other Commitments
The Company had construction commitments, which totaled
approximately $7.0 million, at December 31, 2000.
NOTE 8 – LEGAL PROCEEDINGS
The Company is currently involved in litigation as a result of a
complaint filed against Hi/LO in May 1997. The plaintiff in this
lawsuit sought to certify a class action on behalf of persons or
entities in the states of Texas, Louisiana and California that have
purchased a battery from Hi/LO since May 1990. The complaint
alleges that Hi/LO offered and sold “old,” “used” and “out of
warranty” batteries as if the batteries were new, resulting in claims
for violations of deceptive trade practices, breach of contract,
negligence, fraud, negligent misrepresentation and breach of
warranty. The plaintiff is seeking, on behalf of the class, an
unspecified amount of compensatory and punitive damages,
as well as attorneys’ fees and pre- and post-judgment interest.
On July 27, 1998, the Trial Court certified this class. The Company
appealed the decision to certify the class in the Court of Appeals
for the Ninth District of Texas. On February 25, 1999, the Court of
Appeals issued an opinion affirming the Trial Court’s decision to
certify the class. At that time, the Company appealed the opinion
by seeking a mandamus from the Supreme Court of Texas. On
April 6, 1999, the Supreme Court of Texas asked the plaintiff to