O'Reilly Auto Parts 2009 Annual Report Download - page 74

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December 15, 2010, upon at least 35-calendar days notice. The Company intends to redeem the Notes in December of 2010, and plans
to fund the redemption with available borrowings under its ABL Credit Facility.
The Company has determined that the share exchange feature and the embedded put and call options within the Notes will be
accounted for as equity instruments and as such, the share exchange feature and the embedded options have not been accounted for as
derivatives. Effective January 1, 2009, the Company adopted the provisions of the Debt with Conversion and Other Options Topic
470 (“ASC 470”) of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), which impacts the
accounting associated with its Notes. ASC 470 requires the Company to recognize interest expense, including non-cash interest, based
on the market rate for similar debt instruments without the conversion feature, which the Company determined to be 5.93%. In
accordance with ASC 470, the liability component of the exchangeable debt was measured as of the acquisition date, using a 5.93%
interest rate and an assumed 2.43-year life, as determined by the first date the holders may require the Company redeem the Note. The
difference between the fair value of the Notes at acquisition date and the fair value of the liability component on that date and
December 31, 2009, was $2,100,000, which was assigned to equity. The carrying amount of the equity portion of the Notes was
$2,100,000 at December 31, 2009, and is fixed until the Notes are settled. The principal amount of the Notes as of December 31, 2009
and 2008, was $100,000,000. The unamortized premium on the Notes was $718,000 and $3,568,000 as of December 31, 2009 and
2008, respectively, which would be amortized over a period of approximately 0.96 and 1.96 years, respectively, resulting in a net
carrying amount of the Notes as of December 31, 2009 and 2008, of $100,718,000 and $103,568,000, respectively. As of December
31, 2009, the if-converted value of the Notes was $100,037,000; however, as of December 31, 2008, the exchange value of the Notes
did not exceed their principal amount. The net interest expense related to the Notes for the year ended December 31, 2009, was
$5,999,000, resulting in an effective interest rate of 6.0%. The net interest expense related to the Notes for the year ended December
31, 2008, was $2,892,000, resulting in an effective interest rate of 6.0%. The incremental net shares for the Notes exchange feature
were included in the diluted earnings per share calculation for the year ended December 31, 2009. The incremental net shares for the
Notes exchange feature were not included in the diluted earnings per share calculation for the year ended December 31, 2008, as the
impact would have been antidilutive. The retrospective accounting impact the adoption of ASC 470 had on the Company’s
Consolidated Balance Sheet as of December 31, 2008, was not material.
The Company leases certain equipment under capital lease agreements. The lease agreements have terms ranging from 47 to 180
months, expiring on dates ranging from February 2010 to March 2017. The present value of the future minimum lease payments under
capital leases totaled approximately $10,455,000 and $12,997,000 at December 31, 2009 and 2008, respectively, which have been
classified as long-term debt in the accompanying consolidated financial statements. The Company acquired additional equipment
under capital leases in the amount of $8,337,000 during the period ended December 31, 2009. The Company assumed capital lease
liabilities totaling $13,022,000 in its acquisition of CSK; in addition, the Company acquired additional equipment under capital leases
in the amount of $4,847,000 during the period ended December 31, 2008.
The Company assumed certain building capital leases, which have lease agreements with terms ranging from 58 to 302 months,
expiring on dates ranging from October 2010 to April 2015. The present value of future minimum lease payments under building
capital leases totaled approximately $775,000 and $1,930,000 at December 31, 2009 and 2008, respectively, which have been
classified as long-term debt in the accompanying consolidated financial statements. The Company did not acquire any building capital
leases during the period ended December 31, 2009. The Company assumed building capital lease liabilities totaling $2,190,000 in its
acquisition of CSK during the period ended December 31, 2008.
Principal maturities of long-term debt and capital lease obligations are as follows (in thousands):
2010 $ 106,708
2011 2,947
2012 945
2013 679,387
2014 456
Thereafter 305
$ 790,748
NOTE 5 — RELATED PARTIES
The Company leases certain land and buildings related to 48 of its O'Reilly Auto Parts stores under fifteen-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 five 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 21 of its O’Reilly Auto Parts stores under
fifteen-year operating lease agreements with O’Reilly-Wooten 2000 LLC, which is owned by certain shareholders and directors of the