O'Reilly Auto Parts 2010 Annual Report Download - page 71

60
The favorable lease assets, included in the table above, were recorded in conjunction with the acquisition of CSK and represent the
values of operating leases acquired with favorable terms. These favorable leases had an estimated weighted-average remaining useful
life of approximately 10.3 years as of December 31, 2010.
In addition, the Company has recorded a liability for the values of
operating leases with unfavorable terms, acquired in the acquisition of CSK, totaling approximately $49.6 million at December 31,
2010 and 2009. These unfavorable leases have an estimated weighted-average remaining useful life of approximately 6.3 years.
During the years ended December 31, 2010, 2009 and 2008, the Company recognized an amortized benefit of $7.0 million, $9.2
million and $3.9 million, respectively, related to these unfavorable operating leases. The carrying amount, net of accumulated
amortization, of the unfavorable lease liability is $29.5 million and $36.5 million as of December 31, 2010 and 2009, respectively, and
is shown in the “Other liabilities” section of the Consolidated Balance Sheets. None of the liabilities related to these unfavorable
leases relate to stores to be closed as discussed in Note 2 or Note 7.
As of December 31, 2010, the estimated net amortizable benefit of the Company’s intangible assets and liabilities for each of the next
five years is as follows (in thousands):
2011 $ 747
2012 737
2013 553
2014
529
2015 136
Total $ 2,702
The change in goodwill for the years ended December 31, 2010 and 2009, was as follows (in thousands):
Balance at December 31, 2008 $ 720,508
Adjustment to preliminary purchase price allocation of CSK 24,479
Other (674)
Balance at December 31, 2009 744,313
Other (338)
Balance at December 31, 2010 $ 743,975
NOTE 4—LONG-TERM DEBT AND CAPITAL LEASES
Outstanding long-term debt was as follows on December 31, 2010 and 2009 (in thousands):
December 31,
2010
December 31,
2009
Capital leases $ 2,704 $ 11,230
6 ¾% Senior Exchangeable Notes - 100,718
FILO revolving credit facility - 125,000
Tranche A revolving credit facility 356,000 553,800
Total debt and capital lease obligations 358,704 790,748
Current maturities of debt and capital lease obligations 1,431 106,708
Total long-term debt and capital lease obligations $ 357,273 $ 684,040
6¾% Exchangeable Senior Notes:
On July 11, 2008, the Company executed the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the 6¾%
Exchangeable Senior Notes due 2025 (the “Notes”), in which it agreed to become a guarantor, on a subordinated basis, of the $100
million principal amount of the Notes originally issued by CSK pursuant to an Indenture dated as of December 19, 2005, as amended
and supplemented by the First Supplemental Indenture dated as of December 30, 2005, and the Second Supplemental Indenture, dated
as of July 27, 2006, by and between CSK Auto Corporation, CSK Auto, Inc. and The Bank of New York Mellon Trust Company,
N.A., as trustee. On December 31, 2008, and effective as of July 11, 2008, the Company entered into the Fourth Supplemental
Indenture in order to correct the definition of Exchange Rate in the Third Supplemental Indenture.
The Noteholders had the option to require the Company to repurchase some or all of the Notes for cash at a repurchase price equal to
100% of the principal amount of the Notes being repurchased, plus any accrued and unpaid interest on December 15, 2010; December
15, 2015; or December 15, 2020, or on any date following a fundamental change as described in the indenture. None of the
Noteholders exercised such option at December 15, 2010.
61
On July 1, 2010, the Notes became exchangeable, per the terms of the indentures governing the Notes, at the option of the holders and
remained exchangeable through September 30, 2010, the last trading day of the Company’s third quarter, as provided for in the
indentures governing the Notes. The Notes became exchangeable as the Company’s common stock closed at or above 130% of the
Exchange Price for 20 trading days within the 30 consecutive trading day period ending on June 30, 2010. As a result, during the
exchange period commencing July 1, 2010, and continuing through and including September 30, 2010, for each $1,000 principal
amount of the Notes held, holders of the Notes could, if they elected, surrender their Notes for exchange. If the Notes were
exchanged, the Company would deliver cash equal to the lesser of the aggregate principal amount of Notes to be exchanged and the
Company’s total exchange obligation and, in the event the Company’s total exchange obligation exceeded the aggregate principal
amount of Notes to be exchanged, shares of the Company’s common stock in respect of that excess. The total exchange obligation
reflected the exchange rate whereby each $1,000 in principal amount of the Notes was exchangeable into an equivalent value of
approximately 25.97 shares of the Company’s common stock and approximately $60.61 in cash. On September 28, 2010, certain
holders of the Notes delivered notice to the exchange agent to exercise their right to exchange $11 million of the principal amount of
the Notes. The Cash Settlement Averaging Period (as defined in the indentures governing the Notes) ended on October 27, 2010, and
on October 29, 2010, the Company delivered $11 million in cash, which represented the principal amount of the Notes exchanged and
the value of partial shares, and 92,855 shares of the Company’s common stock to the exchange agent in settlement of the exchange
obligation. Concurrently, the Company retired the $11 million principal amount of the exchanged Notes. On October 1, 2010, the
Notes again became exchangeable at the option of the holders and remained exchangeable through December 31, 2010.
The Company had the option to redeem some or all of the Notes for cash at a redemption price of 100% of the principal amount plus
any accrued and unpaid interest on or after December 15, 2010, upon at least 35-calendar days notice. On November 15, 2010, the
Company notified Noteholders of its intention to call all of the Notes on December 21, 2010, (the “Redemption Date”) at a redemption
price of 100% of the principal amount thereof, plus any accrued and unpaid interest up to, but not including, the Redemption Date. As
a result of the Notes being called for redemption, the Notes were exchangeable at any time on or prior to December 17, 2010, the
second Trading Day (as defined in the Indenture) preceding the Redemption Date. Upon exchange, the Company would deliver cash
equal to the lesser of the aggregate principal amount of Notes to be exchanged and the Company’s total exchange obligation and, in
the event the Company’s total exchange obligation exceeded the aggregate principal amount of Notes to be exchanged, shares of the
Company’s common stock in respect of that excess. On or prior to December 17, 2010, all holders of the Notes delivered notice to the
exchange agent to exercise their right to exchange the remaining $89 million principal amount of the Notes. The Cash Settlement
Averaging Period (as defined in the indentures governing the Notes) ended on December 16, 2010, and on December 21, 2010, the
Company delivered $89 million in cash, which represented the principal amount of the Notes exchanged and the value of partial
shares, and 939,312 shares of the Company’s common stock to the exchange agent in settlement of the exchange obligation.
Concurrently, the Company retired the remaining $89 million principal amount of the exchanged Notes.
The Company distinguishes its financial instruments between permanent equity, temporary equity, and assets and liabilities. The
share exchange feature and the embedded put and call options within the Notes are required to be accounted for as equity instruments.
All of the outstanding Notes were retired on December 21, 2010. The principal amount of the Notes as of December 31, 2009, was
$100 million. The unamortized premium on the Notes was $0.7 million as of December 31, 2009, resulting in a net carrying amount
of the Notes as of December 31, 2009, of $100.7 million. For the year ended December 31, 2009, the if-converted value of the Notes
was $100 million. The net interest expense related to the Notes for the year ended December 31, 2010, was $6.0 million, resulting in
an effective interest rate of 6.0%. The net interest expense related to the Notes for the year ended December 31, 2009, was $6.0
million, 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 $2.9 million, resulting in an effective interest rate of 6.0%.
Asset-based revolving credit facility:
On July 11, 2008, in connection with the acquisition of CSK (see Note 2), the Company entered into a credit agreement for a five year
$1.2 billion credit facility arranged by 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 Credit Facility was comprised
of a five-year $1.075 billion tranche A revolving credit facility and a five-year $125 million first-in-last-out revolving credit facility
(“FILO tranche”) both of which were scheduled to mature on July 11, 2013. The terms of the Credit Facility grant the Company the
right to terminate the FILO tranche upon meeting certain requirements, including no events of default and aggregate projected
availability under the Credit Facility. During the third quarter ended September 30, 2010, the Company, upon meeting all
requirements to do so, elected to exercise its right to terminate the FILO tranche. As of December 31, 2010, the amount of the
borrowing base available under the Credit Facility was $1.071 billion, of which the Company had outstanding borrowings of $356
million. The available borrowings under the Credit Facility are also reduced by stand-by letters of credit issued by the Company
primarily to satisfy the requirements of workers compensation, general liability and other insurance policies. As of December 31,
2010, the Company had stand-by letters of credit outstanding in the amount of $71.2 million and the aggregate availability for
additional borrowings under the Credit Facility was $644 million. As of December 31, 2009, the amount of the borrowing base
available under the Credit Facility was $1.196 billion, of which the Company had outstanding borrowings of $678.8 million. The
available borrowings under the Credit Facility are also reduced by stand-by letters of credit outstanding in the amount of $72.3 million
and the aggregate availability for additional borrowings under the Credit Facility was $445.2 million. As part of the Credit Facility,
the Company pledged virtually all of its assets as collateral and was subject to an ongoing consolidated leverage ratio covenant, with
which the Company complied on December 31, 2010 and 2009. All outstanding borrowings under the Credit Facility were repaid on
FORM 10-K