O'Reilly Auto Parts 2008 Annual Report Download - page 55

O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT PG.53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 – REL ATED PART IES
e Company leases certain land and buildings related to 49 of its O’Reilly Auto Parts stores under een-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 ve years at the option of the Company and the lease
agreements are periodically modied to further extend the lease term for specic stores under the agreement. Additionally, the Company leases
certain land and buildings related to 21 of its O’Reilly Auto Parts stores under een-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 ve-year terms at the option of the Company (see Note 6). Rent payments under these operating leases totaled $3,542,000,
$3,446,000 and $3,413,000 in 2008, 2007 and 2006, respectively.
NOTE 6 – COMMI TMENT S
LEASE COMMITMENTS
On September 28, 2007, the Company completed a second amended and restated master agreement to its $49 million Synthetic Operating
Lease Facility with a group of nancial institutions. e terms of such lease facility provided for an initial lease period of seven years, a residual
value guarantee of approximately $39.7 million at December 31, 2007 and purchase options on the properties. e lease facility also contained a
provision for an event of default whereby the lessor, among other things, may require the Company to purchase any or all of the properties. e
second amended and restated Facility had been accounted for as an operating lease under SFAS No. 13 and related interpretations, including
FASB Interpretation No. 46R. On July 11, 2008, the Company, in connection with the acquisition of CSK, purchased all the properties included
in its Synthetic Operating Lease Facility in the amount of $49.3 million, thus terminating the facility. e purchase was funded through
borrowings under a new asset-based revolving credit facility. See Note 4 “Long-Term Debt” and Note 2 “Business Combination.”
e Company also leases certain oce 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,
2008, future minimum rental payments under all of the Company’s operating leases for each of the next ve years and in the aggregate are as
follows:
(In thousands) Related Parties Non-related Parties Total
2009 $ 3,661 $ 209,821 $ 213,482
2010 3,080 191,319 194,399
2011 2,869 172,806 175,675
2012 2,836 152,630 155,466
2013 2,760 125,279 128,039
ereaer 7,600 631,110 638,710
$ 22,806 1,482,965 1,505,771
Rental expense amounted to $142,363,000, $55,358,000 and $49,245,000 for the years ended December 31, 2008, 2007, and 2006, respectively.
OTHER COMMITMENTS
e Company had construction commitments, which totaled approximately $130.1 million, at December 31, 2008.
NOTE 7 – STORE CLOSING COSTS
e Company maintains reserves for closed stores and other properties that are no longer being utilized in current operations and accounts
for these costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. e Company provides for
closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the remaining noncancelable lease
payments, occupancy costs and lease termination fees aer the closing date, net of estimated sublease income. e closed property lease liabilities
are expected to be paid over the remaining lease terms. e Company estimates sublease income and future cash ows based on the Company’s
experience and knowledge of the market in which the closed property is located, the Company’s previous eorts to dispose of similar assets and
existing economic conditions. Adjustments to closed property reserves are made to reect changes in estimated sublease income or actual exit
costs from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.