O'Reilly Auto Parts 2002 Annual Report Download - page 44

NOTE 7— COMMITMENTS
Lease Commitments
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 generally 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 through December 15, 2005, and has an option to
request two additional successive renewal periods of five years each. The Facility provides for a residual value guarantee
of $41.7 million at December 31, 2002, and purchase options on the properties. It also contains provisions 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 is utilizing the Facility to finance a portion of its store growth. Funding under the Facility at December 31,
2002, and 2001, totaled $49.0 million and $43.0 million, respectively. Future minimum rental commitments under the
Facility have been included in the table of future minimum annual rental commitments below. The Company’s lessor
under the Facility acts as lessor to numerous other lessees under similar synthetic lease arrangements and has no other
operations. The Company’s maximum loss under its Facility is limited to its $41.7 million residual value guarantee and
none of the Company’s assets have been pledged as collateral for the Lessor’s obligations.
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 approxi-
mately $5.5 million annually and is included in the table of future minimum annual rental commitments. Proceeds from
the transaction were used to reduce outstanding borrowings under the Company’s former revolving credit facility.
On May 16, 2001, the Company completed a $100 million private placement of two series of unsecured senior notes
(“Senior Notes”). The Series 2001-A Senior Notes were issued for $75 million, are due May 16, 2006, and bear interest
at 7.72% per year. The Series 2001-B Senior Notes were issued for $25 million, are due May 16, 2008, and bear interest at
7.92% per year. The private placement agreement allows for a total of $200 million of Senior Notes issuable in series.
Proceeds from the transaction were used to reduce outstanding borrowings under the Company’s former revolving credit facility.
In August 2001, the Company 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.
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, 2002, future minimum rental payments for each of the next five years
and in the aggregate are as follows:
RELATED NON-RELATED
(amounts in thous ands ) PARTIES PARTIES TOTAL
2003 $2,240 $ 27,642 $ 29,882
2004 1,855 25,211 27,066
2005 1,626 22,654 24,280
2006 1,398 19,318 20,716
2007 1,332 16,956 18,288
Thereafter 8,700 123,369 132,069
$17,151 $235,150 $252,301
Rental expense amounted to $29,652,000, $25,122,000 and $16,219,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
Other Commitments
The Company had construction commitments, which totaled approximately $41.1 million, at December 31, 2002.
NOTE 8— LEGAL PROCEEDINGS
The Company was a defendant in a lawsuit entitled “Coalition for Level Playing Field, L.L.C., et. AL., v. AutoZone, Inc.,
et. AL.,” in the United States District Court for the Eastern District of New York. The suit had been brought by a group
of automotive aftermarket warehouse distributors and jobbers, who alleged that the defendants, including the Company,
were in violation of the Robinson-Patman Act. The Company settled the case for an undisclosed amount that did not
have a material impact on the consolidated financial position or results of operations.
The Company is involved in various legal proceedings incidental to the conduct of its business. Although the
Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
believe that, in the aggregate, they will have a material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
42 O’Reilly Automotive