O'Reilly Auto Parts 2003 Annual Report Download - page 33

management’s discussion and analysis
of financial condition and results of operations (continued)
Principally as a result of the foregoing, net income in 2002 was $82.0 million (6.3% of product sales), an increase of $15.6 million
or 23.6%, from net income in 2001 of $66.4 million (6.1% of product sales).
liquidity and capital resources
Net cash provided by operating activities was $172.8 million in 2003, $104.5 million in 2002 and $50.0 million in 2001. The
increase in cash provided by operating activities in 2003 compared to 2002 was primarily due to increases in net income, accounts
payable, accrued payroll, accrued benefits and withholdings, partially offset by increases in receivables and inventory. The increase in
accounts payable was primarily due to management’s efforts with vendors to extend the terms of payment. The increases in accrued
payroll, benefits and withholdings, accounts receivable and inventory primarily relate to the increased level of our operations.
The increase in cash provided by operating activities in 2002 compared to 2001 was primarily due to increases in net income, accounts
payable, income taxes payable, accrued payroll and accrued benefits and withholdings, partially offset by increases in receivables and
inventory. These increases relate primarily to the increased level of our operations.
Net cash used in investing activities was $134.6 million in 2003, $105.4 million in 2002 and $77.8 million in 2001. The increase in
cash used in investing activities in 2003 and 2002 was primarily due to increased purchases of property and equipment.
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, 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 and is included in the table
of contractual obligations under non-cancelable operating leases.
On May 16, 2001, we 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 and is guaranteed by all of our subsidiaries. Proceeds from the
transaction were used to reduce outstanding borrowings under our former revolving credit facility.
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 the Company. 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 June 26, 2003, we completed an amended and restated master agreement to our $50 million Synthetic Operating Lease Facility
(the Facility or the Synthetic Lease) with a group of financial institutions. The terms of the Facility provide for an initial lease period
of five years, a residual value guarantee of approximately $44.2 million at December 31, 2003, and purchase options on the properties.
The Facility 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. One additional renewal period of five years may be requested from the lessor, although the lessor is not
obligated to grant such renewal. The Facility has been accounted for as an operating lease under the provisions of Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 13 and related interpretations, including Financial
Interpretation No. 46. Future minimum rental commitments under the Facility have been included in the table of contractual
obligations below.
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