O'Reilly Auto Parts 2006 Annual Report Download - page 37

o’reilly automotive 2006 annual report
page 35
notes to consolidated financial statements (continued)
note 3 – acquisition
On May 31, 2005, the Company purchased all of the outstanding stock of W.E. Lahr Company and its subsidiary, Midwest Auto Parts Distributors, Inc.
and combined affiliates (“Midwest”) for approximately $63 million cash, net of cash acquired, including acquisition costs. Midwest was a specialty retailer,
which supplied automotive aftermarket parts in Minnesota, Montana, North Dakota, South Dakota, Wisconsin and Wyoming. The acquisition was
accounted for using the purchase method of accounting, and accordingly, the results of operations of Midwest are included in the consolidated statements
of income from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values on
the date of acquisition with the excess allocated to goodwill. The acquisition of Midwest was not material for pro forma presentation requirements.
note 4 – stock split
On May 20, 2005, the Company’s Board of Directors declared a two-for-one stock split that was effected in the form of a 100% stock dividend payable
to all shareholders of record as of May 31, 2005. The stock dividend was paid on June 15, 2005. Accordingly, this stock split has been recognized by
reclassifying $559,000, the par value of the additional shares resulting from the split, from retained earnings to common stock.
All share and per share information included in the accompanying consolidated financial statements has been restated to reflect the retroactive effect
of the stock split for all periods presented.
note 5 – related parties
The Company leases certain land and buildings related to forty-eight of its O'Reilly Auto Parts stores under six-year operating lease agreements with
O'Reilly Investment Company and O'Reilly Real Estate Company, partnerships in which certain shareholders and directors of the Company are partners.
Generally, these lease agreements provide for renewal options for an additional six years at the option of the Company and the lease agreements are
periodically modified to further extend the lease term for specific stores under the agreement. Additionally, the Company leases certain land and
buildings related to twenty-one of its O’Reilly Auto Parts stores under 15-year operating lease agreements with O’Reilly-Wooten 2000 LLC, which is
owned by certain shareholders and directors of the Company. Generally, these lease agreements provide for renewal options for two additional five-year
terms at the option of the Company (see Note 7). Rent payments under these operating leases totaled $3,413,000, $3,380,000 and $3,374,000 in
2006, 2005 and 2004, respectively.
note 6 – long-term debt
On July 29, 2005, the Company entered into an unsecured, five-year syndicated credit facility (Credit Facility) in the amount of $100 million led by
Wells Fargo Bank as the Administrative Agent, replacing a three-year $150 million syndicated credit facility. The Credit Facility is guaranteed by all
of the Company’s subsidiaries and may be increased to a total of $200 million, subject to the availability of such additional credit from either existing
banks within the Credit Facility or other banks. The Credit Facility bears interest at LIBOR plus a spread ranging from 0.375% to 0.75% (5.75%
at December 31, 2006) and expires in July 2010. At December 31, 2006, $9.7 million of borrowings were outstanding under the Credit Facility.
At December 31, 2005, the Company had no outstanding balance under the Credit Facility.
The Company issues stand-by letters of credit provided by a $50 million sublimit under the Credit Facility that reduce available borrowings. These
letters of credit are issued primarily to satisfy the requirements of workers compensation, general liability and other insurance policies. Substantially
all of the outstanding letters of credit have a one-year term from the date of issuance and have been issued to replace surety bonds that were previously
issued. Letters of credit totaling $32.9 million and $29.3 million were outstanding at December 31, 2006 and 2005, respectively. Accordingly, the
Company’s aggregate availability for additional borrowings under the Credit Facility was $57.4 million and $70.7 million at December 31, 2006 and
2005, respectively. The Company is subject to a commitment fee ranging from 0.075% to 0.175% (.075% at December 31, 2006) for unused borrowings
under the Credit Facility.
On May 15, 2006, the Company entered into a private placement agreement that allows for the issuance of an aggregate of $300 million in unsecured
senior notes, issuable in series. On May 15, 2006, the Company completed the private placement of $75 million of the first series of Senior Notes
(the “Series 2006-A Senior Notes”) under the Private Placement Agreement. The $75 million of Series 2006-A Senior Notes are due May 15, 2016 and
bear interest at 5.39% per year. Proceeds from the Series 2006-A Senior Notes private placement transaction were used to repay certain existing debt
of the Company, including $75 million of 7.72% Series 2001-A Senior Notes due May 15, 2006.
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 and were repaid on May 15, 2006 from the proceeds from the issuance of the Series 2006-A Senior Notes
discussed above. 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 Company leases certain computer equipment under a capital lease agreement. The lease agreement has a term of 36 months, expiring in 2009.
At December 31, 2006, the monthly installment under this agreement was approximately $28,000. The present value of the future minimum lease
payments under capital leases totaled approximately $779,000 and $285,000 at December 31, 2006 and 2005 respectively, which have been classified