O'Reilly Auto Parts 2009 Annual Report Download - page 48

34
OFF BALANCE SHEET ARRANGEMENTS
Off balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for which
we have an obligation to the entity that is not recorded in our consolidated financial statements. We have utilized various off balance
sheet financial instruments from time to time as sources of cash when such instruments provided a cost-effective alternative to our
existing sources of cash. We do not believe, however, that we are dependent on the availability of these instruments to fund our
working capital requirements or our growth plans.
On December 29, 2000, we entered into a sale-leaseback transaction with an unrelated party. Under the terms of the transaction, we
sold 90 properties, including land, buildings and improvements, which generated $52.3 million of 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 is approximately $5.5 million annually.
In August 2001, we entered into a sale-leaseback with O’Reilly-Wooten 2000 LLC (an entity owned by certain affiliates of the
Company). The transaction involved the sale and leaseback of nine O’Reilly Auto Parts stores and generated approximately $5.6
million of cash. 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 September 28, 2007, we completed a second amended and restated master agreement to our $49 million Synthetic Operating Lease
Facility with a group of financial institutions. The 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.
On July 11,
2008, in connection with the acquisition of CSK, we purchased all the properties included in our Synthetic Operating Lease Facility for
$49.3 million, thus terminating the facility. The purchase was funded through borrowings under the ABL Credit Facility.
On July 11, 2008, and as a result of the acquisition, we entered into a master lease agreement with ARI Fleet LT (“ARI”), which was
originally entered into on March 19, 2001, by CSK. The lease agreement with ARI is for the lease of all of CSK’s delivery and
management vehicles, which is accounted for as a capital lease. Under the master agreement, a lease contract is created on each
vehicle, with terms typically ranging from 50 to 60 months. Interest expense on the capital lease totaled $0.3 million for each of the
years ended December 31, 2009 and 2008. At December 31, 2009 and 2008, the book value of the ARI master lease agreement was
$3.9 million and $7.4 million, respectively.
We issue stand-by letters of credit provided by a $200 million sub limit under the ABL Credit Facility that reduce our 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. Letters of
credit totaling $72.3
million and $55.6 million were outstanding at December 31, 2009 and 2008, respectively.