O'Reilly Auto Parts 2010 Annual Report Download - page 49

38
Our adjusted debt to adjusted EBITDAR ratio was 1.6 times and 2.4 times as of December 31, 2010 and 2009, respectively. Under
our current financing plan, we have a target adjusted consolidated leverage ratio of 2.0 times to 2.25 times.
Twelve Months Ended
December 31,
(In thousands, except adjusted debt to EBITDAR ratio)
2010 2009
GAAP debt $ 358,704 $ 790,748
Add: Letters of credit 71,206 72,381
Rent X 6 1,361,274 1,374,804
Less: Premium on exchangeable notes -- 718
Non-GAAP adjusted debt $ 1,791,184 $ 2,237,215
GAAP net income $ 419,373 $ 307,498
Legacy CSK DOJ investigation charge 20,900 --
Gain on settlement of note receivable, net of tax (7,215) --
Non-GAAP adjusted net income 433,058 307,498
Add: Interest expense 39,273 45,176
Taxes, net of impact of gain on settlement of note receivable 265,576 189,400
Adjusted EBIT 737,907 542,074
Add: Depreciation and amortization 161,442 148,179
Rent expense 226,879 229,134
Stock option compensation expense 14,947 13,451
Adjusted EBITDAR $ 1,141,175 $ 932,838
Adjusted debt to adjusted EBITDAR 1.6 2.4
The adjusted debt to adjusted EBITDAR ratio discussed in the paragraph and presented in the table above is not derived in accordance
with United States generally accepted accounting principles (“GAAP”). We do not, and nor do we suggest investors should, consider
such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe that the
presentation of financial results and estimates excluding the impact of the CSK DOJ investigation charge, the gain from the settlement
of the note receivable, and the presentation of EBITDAR provides meaningful supplemental information to both management and
investors that is indicative of our core operations. We exclude these items in judging our performance and believe this non-GAAP
information is useful to investors as well. Material limitations of this non-GAAP measure are that such measures do not reflect actual
GAAP amounts. We compensate for such limitations by presenting, in the table above, the accompanying reconciliation to the most
directly comparable GAAP measures.
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 $5.3 million annually.
In August 2001, we entered into a sale-leaseback with O’Reilly-Wooten, 2001 LLP (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.
We issued stand-by letters of credit provided by a $200 million sub limit under the Credit Facility that reduced our available
borrowings. Those letters of credit were issued primarily to satisfy the requirements of workers compensation, general liability and
39
other insurance policies. Substantially all of the outstanding letters of credit had a one-year term from the date of issuance. Letters of
credit totaling $71.2
million and $72.3 million were outstanding at December 31, 2010 and 2009, respectively.
CONTRACTUAL OBLIGATIONS
Deferred income taxes and commitments with various vendors for the purchase of inventory are included in “Other liabilities” on our
Consolidated Balance Sheets but are not reflected in the table below due to the absence of scheduled maturities, the nature of the
account or the commitment’s cancellation terms. Due to the absence of scheduled maturities, the timing of certain of these payments
cannot be determined, except for amounts estimated to be payable in 2011, which are included in “Current liabilities” on our
Consolidated Balance Sheets.
Our contractual obligations as of December 31, 2010, included commitments for future payments under non-cancelable lease
arrangements, short and long-term debt arrangements, interest payments related to long-term debt, fixed payments related to interest
rate swaps and purchase obligations for construction contract commitments, which are summarized in the table below and are fully
disclosed in Note 4 “Long-Term Debt” and Note 6 “Commitments” to the consolidated financial statements. We expect to fund these
commitments primarily with operating cash flows generated in the normal course of business or through borrowings under our
Revolver.
Payments Due By Period
Total
Before 1
Year
1 to 2
Years
3 to 4
Years
Years 5
and Over
(In thousands)
Contractual Obligations:
Long-term debt principal and interest payments
(1)(2)(3) $ 356,087 $ 87 $ 356,000 $ - $ -
Payments under interest rate swap agreements 4,768 4,768 - - -
Future minimum lease payments under capital leases
(4) 2,938 1,518 1,071 254 95
Future minimum lease payments under operating leases
(4) 1,507,557 219,941 381,106 276,108 630,402
Other obligations 3,600 600 1,200 1,200 600
Self-insurance reserves (5) 109,351 53,416 29,038 14,260 12,637
Construction commitments 64,816 64,816 - - -
Total contractual cash obligations $ 2,049,117 $ 345,146 $ 768,415 $ 291,822 $ 643,734
(1) At December 31, 2010, we had borrowings of $106 million under our secured Credit Facility, which were not covered under an interest rate swap agreement,
with interest rates ranging from 2.31% to 4.25%. At December 31, 2009, we had borrowings of $279 million under our Credit Facility, which were not
covered under an interest rate swap agreement, with interest rates ranging from 2.50% to 4.50%. During the years ended December 31, 2010 and 2009, we
incurred interest expense of $16 million and $23 million, respectively, as a result of borrowings under our secured Credit Facility, which were not covered
under an interest rate swap agreement. See Note 4 “Long-Term Debt” to the consolidated financial statements for further information.
(2) On January 14, 2011, we entered into a new credit agreement for a five-year $750 million Revolver, which matures in January of 2016. Borrowings under
the Revolver (other than swing line loans) bear interest, at our option, at either the Base Rate or Eurodollar Rate (both as defined in the agreement) plus a
margin, that will vary from 1.325% to 2.500% in the case of loans bearing interest at the Eurodollar Rate and 0.325% to 1.500% in the case of loans bearing
interest at the Base Rate, in each case based upon the ratings assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services.
Swing line loans made under the Revolver bear interest at the Base Rate plus the applicable margin described above. In addition, we pay a facility fee on the
aggregate amount of the commitments in an amount equal to a percentage of such commitments, varying from 0.175% to 0.500% based upon the ratings
assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services. The Revolver replaced the secured Credit Facility.
(3) On January 14, 2011, we issued $500 million of unsecured 4.875% Senior Notes which are due on January 14, 2021. The estimated annual interest
payments for the 2011 4.875% Senior Notes are expected to be approximately $24 million. The principal amount and estimated annual interest payments are
not included in the above table of contractual obligations as of December 31, 2010.
(4) The minimum lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our
operating leases but are generally not fixed and can fluctuate from year to year. These expenses historically average approximately 20% of the
corresponding lease payments.
(5) We use various self-insurance mechanisms to provide for potential liabilities from workers’ compensation, vehicle and general liability, and employee health
care benefits. These liabilities are recorded on our Consolidated Balance Sheets at our estimate of their net present value and do not have scheduled
maturities, however we can estimate the timing of future payments based upon historical patterns.
We record a reserve for potential liabilities related to uncertain tax positions, including estimated interest and penalties. These
estimates are not included in the above table because the timing related to the ultimate resolution or settlement of these positions
cannot be determined. As of December 31, 2010, we recorded a liability of $41.3 million related to these uncertain tax positions on
our Consolidated Balance Sheets, all of which was included as a component of “Other liabilities”.
FORM 10-K