O'Reilly Auto Parts 2002 Annual Report Download - page 33

2002 Annual Report 31
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 closed on September 1, 2001, with a purchase price of approximately
$5.6 million for nine O’Reilly Auto Parts stores and 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.
Capital expenditures were $102.3 million in 2002, $68.5 million in 2001 and $82.0 million in 2000. These
expenditures were primarily related to the opening of new stores, as well as the relocation or remodeling of existing
stores. We either opened or acquired 106, 203 and 101 net stores in 2002, 2001 and 2000, respectively. Eighteen
net, additional stores were acquired in December 2002, and will be included in 2003 as new stores. We remodeled or
relocated 27 stores in 2002, 16 stores in 2001 and 8 stores in 2000. Three new distribution centers were acquired;
two in October 2001, located in Nashville, Tennessee and Knoxville, Tennessee, and one in October 2000, located in
Little Rock, Arkansas.
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.
On July 29, 2002, we completed an unsecured, three-year syndicated credit facility (the “Credit Facility”) in the
amount of $150 million led by Wells Fargo Bank as the Administrative Agent replacing a five-year 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
availability of such additional credit from either existing banks within the Credit Facility or other banks. The Credit Facility
bears interest at LIBOR plus .875% (2.26% at December 31, 2002) and expires in July 2005. At December 31, 2002,
$90,000,000 of the Credit Facility was outstanding. At December 31, 2001, we had available an unsecured credit
facility providing for maximum borrowings of $140 million. The facility was comprised of a revolving credit facility of
$125 million, and a term loan of $15 million. At December 31, 2001, $61,350,000 of the revolving credit facility and
$15 million of the term loan was outstanding. The credit facility, which bore interest at LIBOR plus 0.50%, expired in
January 2003. All borrowings outstanding under the old credit facility at December 31, 2001, were fully repaid in 2002.
Our contractual obligations, including commitments for future payments under non-cancelable lease arrangements
and short- and long-term debt arrangements, are summarized below and are fully disclosed in Notes 6 and 7 to the
Consolidated Financial Statements.
(in thous ands ) LESS THAN 2-3 4-5 AFTER 5
PAYMENTS DUE BY PERIOD TOTAL 1 YEAR YEARS YEARS YEARS
Contractual Obligations:
Notes payable $ 95 $ 78 $ 17 $ — $ —
Long-term debt 190,076 12 90,027 75,033 25,004
Capital lease obligations 981 592 389 — —
Operating leases 252,301 29,882 51,346 39,004 132,069
Unconditional purchase commitments 41,094 41,094 — — —
Total contractual cash obligations $484,547 $ 71,658 $141,779 $114,037 $157,073
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)