O'Reilly Auto Parts 2009 Annual Report Download - page 67

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In May 2009, the FASB issued the Subsequent Events Topic (“ASC 855”) of the FASB ASC. ASC 855 incorporates into authoritative
accounting literature certain guidance that already existed within generally accepted auditing standards. ASC 855 addresses events
which occur after the balance sheet date but before the issuance of financial statements. Under ASC 855, as under current practice, an
entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and
must disclose, but not record, the effects of subsequent events which provide evidence about conditions that did not exist at the balance
sheet date. In addition, ASC 855 requires disclosure of the date through which an entity has evaluated subsequent events and the basis
for that date. ASC 855 is effective for interim and annual periods ended after June 15, 2009. The Company adopted the provisions of
ASC 855 beginning with its condensed consolidated financial statements for the quarter ended June 30, 2009.
In June 2009, the FASB issued the Generally Accepted Accounting Standards Topic (“ASC 105”) of the FASB ASC. ASC 105
defines the FASB ASC as the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American
Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. This
standard reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent
structure; also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in
separate sections. ASC 105 is effective for reporting periods ended after September 15, 2009. The Company adopted the provisions
of ASC 105 beginning with its condensed consolidated financial statements for the quarter ended September 30, 2009, and the
Company’s financial statements and related disclosures reflect the newly adopted codification.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) number 2009-05 (“ASU 2009-05”), an update to the Fair
Value Measurements and Disclosures Topic (“ASC 820”). This update provides clarification that in circumstances in which a quoted
price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using (a) a
valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities
and/or (b) an income approach valuation technique or a market approach valuation technique, consistent with the principles of ASC
820. This update is effective for the first reporting period (including interim periods) beginning after issuance. The Company adopted
this update beginning with its condensed consolidated financial statements for the quarter ended September 30, 2009; the adoption of
this update did not have a material impact on the Company’s consolidated financial position or results of operations.
Subsequent Events
The Company entered into an interest rate swap transaction on January 21, 2010, with Barclays Capital. The Company entered into
this swap transaction to mitigate the interest rate risk on an additional $50,000,000 of the Company’s outstanding floating rate debt
under its Credit Agreement. The swap transaction has an effective date of January 22, 2010, and a maturity date of January 31, 2011.
Under the terms of the swap transaction, the Company is required to make certain monthly fixed rate payments calculated on a notional
amount of $50,000,000 at a fixed rate of 0.525% and the counterparty is obligated to make certain monthly floating rate payments to
the Company based on LIBOR on the same referenced notional amount.
The Company opened its second, new distribution center in the western-half of the United States in January of 2010 in Moreno Valley,
California. This distribution center is an owned facility with over 547,000 operating square feet. This facility will service the 238
Kragen stores in the southern California area. The Kragen stores that will be serviced out of this distribution center began converting
to the O’Reilly systems in January of 2010 and will continue to convert at a rate of approximately 30 stores per week. All 238 Kragen
stores are expected to be converted to the O’Reilly systems and be serviced from this new distribution center by the end of the first
quarter of 2010.
The Company has evaluated subsequent events and transactions that occurred after the balance sheet date of December 31, 2009,
through the filing of these financial statements which occurred on February 26, 2010. Other than the events described above, no
material events or transactions, which would require adjustments or disclosures in the consolidated financial statements, occurred
during this period.
NOTE 2 – BUSINESS COMBINATION
On July 11, 2008, the Company completed the acquisition of CSK, one of the largest specialty retailers of auto parts and accessories in
the Western United States and one of the largest such retailers in the United States, based on store count. Pursuant to the merger
agreement, each share of CSK common stock outstanding immediately prior to the merger was canceled and converted into the right to
receive 0.4285 of a share of O’Reilly common stock and $1.00 in cash. To fund the transaction, the Company entered into a credit
agreement for a $1.2 billion asset-based revolving credit facility arranged by Bank of America, N.A. (“BA”), which the Company used
to refinance debt, fund the cash portion of the acquisition, pay for other transaction-related expenses and provide liquidity for the
combined Company going forward. The results of CSK’s operations have been included in the Company’s consolidated financial
statements since the acquisition date.