O'Reilly Auto Parts 2008 Annual Report Download - page 33

O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT PG.31
MAN AGEMENT ’S DISCUS SION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We also record a reserve to reduce the carrying value of our perpetual inventory to account for quantities in our perpetual records above the
actual existing quantities on hand caused by unrecorded shrink. We estimate this reserve based on the results of our extensive and frequent
cycle counting programs and periodic, full physical inventories at our stores and distribution centers. To the extent that our estimates do not
accurately reect the actual unrecorded inventory shrinkage, we could potentially experience a material impact to our inventory balances.
We have historically been able to provide a timely and accurate measurement of shrink and have not experienced material adjustments to our
estimates. If unrecorded shrink were changed 10% from the estimate that we recorded based on our historical experience at December 31, 2008,
the nancial impact would have been approximately $0.9 million or 0.3% of pretax income for the year ended December 31, 2008.
VALUATION OF LONG-LIVED ASSETS AND GOODWILL – In accordance with the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), we evaluate the carrying value of long-lived
assets whenever events or changes in circumstances indicate that a potential impairment has occurred. As part of the evaluation, we review
performance at the store level to identify any stores with current period operating losses that should be considered for impairment. A potential
impairment has occurred if the projected future undiscounted cash ows realized from the best possible use of the asset are less than the
carrying value of the asset. e estimate of cash ows includes management’s assumptions of cash inows and outows directly resulting from
the use of that asset in operations. If the carrying amount of an asset exceeds its estimated future cash ows, an impairment charge is recognized
for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Our impairment analyses contain estimates due to
the inherently judgmental nature of forecasting long-term estimated cash ows and determining the ultimate useful lives and fair values of the
assets. Actual results could dier from these estimates, which could materially impact our impairment assessment.
Under the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we review
goodwill and other intangible assets for impairment annually or when events or changes in circumstances indicate the carrying value of these
assets might exceed their current fair values. e Company has not historically recorded an impairment to its goodwill or intangible assets.
e process of evaluating goodwill for impairment involves the determination of the fair value of our Company. Inherent in such fair value
determinations are certain judgments and estimates, including estimates which incorporate assumptions marketplace participants would use
in making their estimates of fair value. In the future, if events or market conditions aect the estimated fair value to the extent that an asset is
impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.
CONTRACTUAL OBLIGATIONS
We have other liabilities reected in our balance sheet, including deferred income taxes and self-insurance accruals. Interest payments on our
variable rate long-term debt are not included in the nancial commitments table. e payment obligations associated with these liabilities are
not reected in the nancial commitments table due to the absence of scheduled payments. erefore, the timing of these payments cannot be
determined, except for amounts estimated to be payable in 2009 that are included in current liabilities. In addition, we have commitments with
various vendors for the purchase of inventory as of December 31, 2008. e nancial commitments table excludes these commitments because
they are cancelable by their terms.
Our contractual obligations, as in eect at December 31, 2008, including commitments for future payments under non-cancelable lease
arrangements, short and long-term debt arrangements, interest payments related to long-term debt, xed payments related to interest rate
swaps and purchase obligations for construction contract commitments, are summarized below and are fully disclosed in Notes 4 and 6 to the
consolidated nancial statements.
Payments Due By Period
(In thousands) Total Before 1 Year 1-2 Years 3-4 Years Years 5 and Over
Contractual Obligations:
Long-term debt $ 717,768 $ -- $ -- $ 614,200 $ 103,568
Payments under interest rate swap agreements 135,663 21,596 29,870 13,000 71,197
Future minimum lease payments under capital leases 16,174 8,808 6,096 1,168 102
Future minimum lease payments under operating leases 1,505,771 213,482 370,074 283,505 638,710
Other obligations 4,800 600 1,200 1,200 1,800
Purchase obligations 130,106 130,106 -- -- --
Total contractual cash obligations $ 2,510,282 $ 374,592 $ 407,240 $ 913,073 $ 815,377