QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
O’REILLY AUTOMOTIVE, INC. (Exact name of registrant as specified in its charter)
(State or other jurisdiction of | | Commission file number | | (I.R.S. Employer Identification No.) |
incorporation or organization) | | | | |
233 South Patterson Avenue
Springfield, Missouri65802
(Address of principal executive offices, Zip code)
(417) 862-6708
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | |||
Common Stock, | $0.01 par value | | ORLY | | The Nasdaq Stock Market LLC |
| | | | (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | |||
☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: Common stock, $0.01 par value - 85,027,69758,894,096 shares outstanding as of October 30, 2017.April 29, 2024.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017
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| 4 | |
Condensed Consolidated Statements of Shareholders’ Equity (Deficit) | | 5 |
| 6 | |
| 7 | |
| 17 | |
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1
Item 1. Financial Statements
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
(In thousands, except share data)
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | (Note) | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 37,287 | $ | 146,598 | |||
Accounts receivable, net | 219,631 | 197,274 | |||||
Amounts receivable from suppliers | 79,491 | 82,105 | |||||
Inventory | 2,987,592 | 2,778,976 | |||||
Other current assets | 34,480 | 53,022 | |||||
Total current assets | 3,358,481 | 3,257,975 | |||||
Property and equipment, at cost | 5,114,804 | 4,832,342 | |||||
Less: accumulated depreciation and amortization | 1,822,123 | 1,708,911 | |||||
Net property and equipment | 3,292,681 | 3,123,431 | |||||
Goodwill | 787,210 | 785,399 | |||||
Other assets, net | 40,956 | 37,384 | |||||
Total assets | $ | 7,479,328 | $ | 7,204,189 | |||
Liabilities and shareholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,154,250 | $ | 2,936,656 | |||
Self-insurance reserves | 72,223 | 67,921 | |||||
Accrued payroll | 80,953 | 71,717 | |||||
Accrued benefits and withholdings | 65,574 | 74,454 | |||||
Income taxes payable | 6,175 | — | |||||
Other current liabilities | 249,325 | 249,901 | |||||
Total current liabilities | 3,628,500 | 3,400,649 | |||||
Long-term debt | 2,900,816 | 1,887,019 | |||||
Deferred income taxes | 131,847 | 90,166 | |||||
Other liabilities | 203,986 | 199,219 | |||||
Shareholders’ equity: | |||||||
Common stock, $0.01 par value: | |||||||
Authorized shares – 245,000,000 | |||||||
Issued and outstanding shares – | |||||||
85,338,294 as of September 30, 2017, and | |||||||
92,851,815 as of December 31, 2016 | 853 | 929 | |||||
Additional paid-in capital | 1,267,810 | 1,336,707 | |||||
Retained (deficit) earnings | (654,484 | ) | 289,500 | ||||
Total shareholders’ equity | 614,179 | 1,627,136 | |||||
Total liabilities and shareholders’ equity | $ | 7,479,328 | $ | 7,204,189 |
| | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||
| | (Unaudited) | | (Note) | ||
Assets |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 89,264 | | $ | 279,132 |
Accounts receivable, net | |
| 437,821 | |
| 375,049 |
Amounts receivable from suppliers | |
| 139,267 | |
| 140,443 |
Inventory | |
| 4,805,164 | |
| 4,658,367 |
Other current assets | |
| 128,181 | |
| 105,311 |
Total current assets | |
| 5,599,697 | |
| 5,558,302 |
| | | | | | |
Property and equipment, at cost | |
| 8,555,556 | |
| 8,312,367 |
Less: accumulated depreciation and amortization | |
| 3,360,351 | |
| 3,275,387 |
Net property and equipment | |
| 5,195,205 | |
| 5,036,980 |
| | | | | | |
Operating lease, right-of-use assets | | | 2,227,783 | | | 2,200,554 |
Goodwill | |
| 1,009,857 | |
| 897,696 |
Other assets, net | |
| 180,512 | |
| 179,463 |
Total assets | | $ | 14,213,054 | | $ | 13,872,995 |
| | | | | | |
Liabilities and shareholders’ deficit | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 6,117,068 | | $ | 6,091,700 |
Self-insurance reserves | |
| 130,974 | |
| 128,548 |
Accrued payroll | |
| 127,704 | |
| 138,122 |
Accrued benefits and withholdings | |
| 174,125 | |
| 174,650 |
Income taxes payable | |
| 147,645 | |
| 7,860 |
Current portion of operating lease liabilities | | | 399,245 | | | 389,536 |
Other current liabilities | |
| 791,633 | |
| 730,937 |
Total current liabilities | |
| 7,888,394 | |
| 7,661,353 |
| | | | | | |
Long-term debt | |
| 5,288,632 | |
| 5,570,125 |
Operating lease liabilities, less current portion | | | 1,900,200 | | | 1,881,344 |
Deferred income taxes | |
| 321,323 | |
| 295,471 |
Other liabilities | |
| 205,703 | |
| 203,980 |
| | | | | | |
Shareholders’ equity (deficit): | |
|
| |
|
|
Common stock, $0.01 par value: | |
| | | | |
Authorized shares – 245,000,000 | | | | | | |
Issued and outstanding shares – | | | | | | |
58,982,123 as of March 31, 2024, and | | | | | | |
59,072,792 as of December 31, 2023 | | | 590 | |
| 591 |
Additional paid-in capital | |
| 1,410,756 | |
| 1,352,275 |
Retained deficit | |
| (2,849,108) | |
| (3,131,532) |
Accumulated other comprehensive income | | | 46,564 | | | 39,388 |
Total shareholders’ deficit | |
| (1,391,198) | |
| (1,739,278) |
| | | | | | |
Total liabilities and shareholders’ deficit | | $ | 14,213,054 | | $ | 13,872,995 |
Note: The balance sheet at December 31, 2016,2023, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
See accompanying Notes to condensed consolidated financial statements.
2
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands, except per share data)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales | $ | 2,339,830 | $ | 2,220,955 | $ | 6,786,918 | $ | 6,493,794 | |||||||
Cost of goods sold, including warehouse and distribution expenses | 1,109,536 | 1,050,929 | 3,225,415 | 3,099,010 | |||||||||||
Gross profit | 1,230,294 | 1,170,026 | 3,561,503 | 3,394,784 | |||||||||||
Selling, general and administrative expenses | 768,331 | 722,217 | 2,238,938 | 2,103,288 | |||||||||||
Operating income | 461,963 | 447,809 | 1,322,565 | 1,291,496 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (24,324 | ) | (18,706 | ) | (64,555 | ) | (52,228 | ) | |||||||
Interest income | 592 | 1,227 | 1,768 | 3,172 | |||||||||||
Other, net | 1,299 | 1,563 | 1,302 | 3,821 | |||||||||||
Total other expense | (22,433 | ) | (15,916 | ) | (61,485 | ) | (45,235 | ) | |||||||
Income before income taxes | 439,530 | 431,893 | 1,261,080 | 1,246,261 | |||||||||||
Provision for income taxes | 155,796 | 153,400 | 429,591 | 454,600 | |||||||||||
Net income | $ | 283,734 | $ | 278,493 | $ | 831,489 | $ | 791,661 | |||||||
Earnings per share-basic: | |||||||||||||||
Earnings per share | $ | 3.26 | $ | 2.93 | $ | 9.28 | $ | 8.25 | |||||||
Weighted-average common shares outstanding – basic | 86,947 | 94,891 | 89,641 | 95,994 | |||||||||||
Earnings per share-assuming dilution: | |||||||||||||||
Earnings per share | $ | 3.22 | $ | 2.90 | $ | 9.15 | $ | 8.14 | |||||||
Weighted-average common shares outstanding – assuming dilution | 88,025 | 96,120 | 90,869 | 97,309 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Sales | | $ | 3,976,240 | | $ | 3,707,864 |
Cost of goods sold, including warehouse and distribution expenses | |
| 1,942,068 | |
| 1,817,535 |
Gross profit | |
| 2,034,172 | |
| 1,890,329 |
| | | | | | |
Selling, general and administrative expenses | |
| 1,281,691 | |
| 1,173,684 |
Operating income | |
| 752,481 | |
| 716,645 |
| | | | | | |
Other income (expense): | |
|
| |
|
|
Interest expense | |
| (57,148) | |
| (44,572) |
Interest income | |
| 1,656 | |
| 868 |
Other, net | |
| 3,401 | |
| 4,479 |
Total other expense | |
| (52,091) | |
| (39,225) |
| | | | | | |
Income before income taxes | |
| 700,390 | |
| 677,420 |
Provision for income taxes | |
| 153,152 | |
| 160,535 |
Net income | | $ | 547,238 | | $ | 516,885 |
| | | | | | |
Earnings per share-basic: | |
|
| |
|
|
Earnings per share | | $ | 9.27 | | $ | 8.36 |
Weighted-average common shares outstanding – basic | |
| 59,017 | |
| 61,840 |
| | | | | | |
Earnings per share-assuming dilution: | |
|
| |
|
|
Earnings per share | | $ | 9.20 | | $ | 8.28 |
Weighted-average common shares outstanding – assuming dilution | |
| 59,454 | |
| 62,398 |
See accompanying Notes to condensed consolidated financial statements.
3
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands)
For the Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
(As Adjusted, Note) | |||||||
Operating activities: | |||||||
Net income | $ | 831,489 | $ | 791,661 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of property, equipment and intangibles | 173,500 | 161,447 | |||||
Amortization of debt discount and issuance costs | 2,078 | 1,811 | |||||
Deferred income taxes | 41,848 | 4,439 | |||||
Share-based compensation programs | 14,835 | 14,371 | |||||
Other | 8,174 | 4,174 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (28,761 | ) | (35,312 | ) | |||
Inventory | (208,338 | ) | (158,877 | ) | |||
Accounts payable | 217,486 | 390,849 | |||||
Income taxes payable | 32,124 | 39,636 | |||||
Other | 2,984 | 60 | |||||
Net cash provided by operating activities | 1,087,419 | 1,214,259 | |||||
Investing activities: | |||||||
Purchases of property and equipment | (347,756 | ) | (356,234 | ) | |||
Proceeds from sale of property and equipment | 1,906 | 2,489 | |||||
Payments received on notes receivable | — | 1,047 | |||||
Other | (2,072 | ) | — | ||||
Net cash used in investing activities | (347,922 | ) | (352,698 | ) | |||
Financing activities: | |||||||
Proceeds from borrowings on revolving credit facility | 2,487,000 | — | |||||
Payments on revolving credit facility | (2,218,000 | ) | — | ||||
Proceeds from the issuance of long-term debt | 748,800 | 499,160 | |||||
Payment of debt issuance costs | (7,490 | ) | (4,125 | ) | |||
Repurchases of common stock | (1,893,148 | ) | (959,789 | ) | |||
Net proceeds from issuance of common stock | 34,186 | 47,419 | |||||
Other | (156 | ) | (207 | ) | |||
Net cash used in financing activities | (848,808 | ) | (417,542 | ) | |||
Net (decrease) increase in cash and cash equivalents | (109,311 | ) | 444,019 | ||||
Cash and cash equivalents at beginning of the period | 146,598 | 116,301 | |||||
Cash and cash equivalents at end of the period | $ | 37,287 | $ | 560,320 | |||
Supplemental disclosures of cash flow information: | |||||||
Income taxes paid | $ | 359,838 | $ | 416,901 | |||
Interest paid, net of capitalized interest | 72,252 | 59,547 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Net income | | $ | 547,238 | | $ | 516,885 |
Other comprehensive income (loss): | | | | | | |
Foreign currency translation adjustments | |
| 7,176 | |
| 18,898 |
Total other comprehensive income | | | 7,176 | | | 18,898 |
| | | | | | |
Comprehensive income | | $ | 554,414 | | $ | 535,783 |
See accompanying Notes to condensed consolidated financial statements.
4
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2024 | |||||||||||||||
|
| | | | |
| |
| | | | Accumulated |
| | | ||
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||||
|
| Shares |
| Par Value |
| Capital |
| Deficit | | Income |
| Total | |||||
Balance at December 31, 2023 |
| 59,073 | | $ | 591 | | $ | 1,352,275 | | $ | (3,131,532) | | $ | 39,388 | | $ | (1,739,278) |
Net income |
| — | |
| — | |
| — | |
| 547,238 | | | — | |
| 547,238 |
Total other comprehensive income | | — | | | — | | | — | | | — | | | 7,176 | | | 7,176 |
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes |
| 6 | |
| — | |
| 5,607 | |
| — | | | — | |
| 5,607 |
Net issuance of common stock upon exercise of stock options |
| 165 | |
| 2 | |
| 52,414 | |
| — | | | — | |
| 52,416 |
Share-based compensation |
| — | |
| — | |
| 6,548 | |
| — | | | — | |
| 6,548 |
Share repurchases, including fees | | (262) | | | (3) | | | (6,088) | | | (263,928) | | | — | | | (270,019) |
Excise tax on share repurchases |
| — | |
| — | |
| — | |
| (886) | | | — | |
| (886) |
Balance at March 31, 2024 |
| 58,982 | | $ | 590 | | $ | 1,410,756 | | $ | (2,849,108) | | $ | 46,564 | | $ | (1,391,198) |
| | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2023 | |||||||||||||||
|
| | | | |
| |
| | | | Accumulated |
| | | ||
| | | | | | | Additional | | | | | Other | | | | ||
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||||
|
| Shares |
| Par Value |
| Capital |
| Deficit | | Income |
| Total | |||||
Balance at December 31, 2022 |
| 62,353 | | $ | 624 | | $ | 1,311,488 | | $ | (2,375,860) | | $ | 2,996 | | $ | (1,060,752) |
Net income |
| — | |
| — | |
| — | |
| 516,885 | | | — | |
| 516,885 |
Total other comprehensive income | | — | | | — | | | — | | | — | | | 18,898 | | | 18,898 |
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes |
| 8 | |
| — | |
| 5,293 | |
| — | | | — | |
| 5,293 |
Net issuance of common stock upon exercise of stock options |
| 35 | |
| — | |
| 10,255 | |
| — | | | — | |
| 10,255 |
Share-based compensation |
| — | |
| — | |
| 6,980 | |
| — | | | — | |
| 6,980 |
Share repurchases, including fees |
| (1,357) | |
| (14) | |
| (28,740) | |
| (1,082,707) | | | — | |
| (1,111,461) |
Excise tax on share repurchases | | — | | | — | | | — | | | (11,115) | | | — | | | (11,115) |
Balance at March 31, 2023 |
| 61,039 | | $ | 610 | | $ | 1,305,276 | | $ | (2,952,797) | | $ | 21,894 | | $ | (1,625,017) |
See accompanying Notes to condensed consolidated financial statements.
5
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Operating activities: |
| |
|
| |
|
Net income | | $ | 547,238 | | $ | 516,885 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
| |
Depreciation and amortization of property, equipment and intangibles | |
| 109,648 | |
| 93,747 |
Amortization of debt discount and issuance costs | |
| 1,593 | |
| 1,215 |
Deferred income taxes | |
| 2,374 | |
| 3,393 |
Share-based compensation programs | |
| 7,022 | |
| 7,435 |
Other | |
| 2,997 | |
| 29 |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| (36,954) | |
| (2,610) |
Inventory | |
| (92,042) | |
| (179,481) |
Accounts payable | |
| 6,107 | |
| 172,701 |
Income taxes payable | |
| 140,025 | |
| 145,441 |
Other | |
| 16,207 | |
| (44,991) |
Net cash provided by operating activities | |
| 704,215 | |
| 713,764 |
| | | | | | |
Investing activities: | |
|
| |
|
|
Purchases of property and equipment | |
| (249,240) | |
| (223,268) |
Proceeds from sale of property and equipment | |
| 3,853 | |
| 2,704 |
Other, including acquisitions, net of cash acquired | |
| (155,366) | |
| (956) |
Net cash used in investing activities | |
| (400,753) | |
| (221,520) |
| | | | | | |
Financing activities: | |
|
| |
|
|
Proceeds from borrowings on revolving credit facility | |
| 30,000 | |
| 1,216,000 |
Payments on revolving credit facility | |
| — | |
| (661,000) |
Net payments of commercial paper | | | (310,805) | | | — |
Repurchases of common stock | |
| (270,019) | |
| (1,111,461) |
Net proceeds from issuance of common stock | |
| 57,815 | |
| 15,146 |
Other | |
| (569) | |
| (354) |
Net cash used in financing activities | |
| (493,578) | |
| (541,669) |
| | | | | | |
Effect of exchange rate changes on cash | | | 248 | | | 714 |
Net decrease in cash and cash equivalents | |
| (189,868) | |
| (48,711) |
Cash and cash equivalents at beginning of the period | |
| 279,132 | |
| 108,583 |
Cash and cash equivalents at end of the period | | $ | 89,264 | | $ | 59,872 |
| | | | | | |
Supplemental disclosures of cash flow information: | |
|
| |
|
|
Income taxes paid | | $ | 9,798 | | $ | 9,696 |
Interest paid, net of capitalized interest | |
| 34,671 | |
| 26,531 |
See accompanying Notes to condensed consolidated financial statements.
6
(Unaudited)
March 31, 2024
NOTE 1 -– BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of O’Reilly Automotive, Inc. and its subsidiaries (the “Company” or “O’Reilly”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017,March 31, 2024, are not necessarily indicative of the results that may be expected for the year ended December 31, 2017.2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Reportannual report on Form 10-K for the year ended December 31, 2016.
Principles of consolidation:
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
NOTE 2 – BUSINESS COMBINATION
On January 22, 2024, the Company completed the previously announced strategic acquisition of Groupe Del Vasto (“Vast Auto”), an auto parts supplier headquartered in Montreal, Quebec, Canada, pursuant to a stock purchase agreement whereby 100% of all outstanding shares of Vast Auto were acquired, with all consideration paid in cash at closing. The acquisition of Vast Auto represents O’Reilly’s entrance into the Canadian automotive aftermarket. At the time of the acquisition, Vast Auto operated two distribution centers and six satellite warehouses that support a network of 23 company-owned stores and thousands of independent jobber and professional customers across Eastern Canada. The results of Vast Auto’s operations have been included in the Company’s condensed consolidated financial statements beginning from the date of acquisition. Pro forma results of operations related to the acquisition of Vast Auto are not presented as Vast Auto’s results are not material to the Company’s results of operations.
The purchase price allocation process consists of collecting data and information to enable the Company to value the assets acquired and liabilities assumed as a result of the business combination. Potential identifiable intangible assets under evaluation include, but are not limited to, trade names and trademarks, non-compete agreements, and customer relationships. In addition, other assets, including internal use software, and other assumed liabilities may be identified, valued, and recorded. Due to the close proximity of the Vast Auto acquisition closing date and the Company’s fiscal quarter end, the Company remains in the initial measurement period.
The preliminary purchase price allocation, which is provisional and will change as additional information is obtained and valuation work is completed during the initial measurement period, resulted in the initial recognition of $109.8 million of goodwill and intangible assets included in “Goodwill”, including impacts from the recognition of applicable deferred taxes related to the acquisition, on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2024. Goodwill generated from this reportacquisition is not amortizable for more information.tax purposes.
NOTE 3 – VARIABLE INTEREST ENTITIES
The Company invests in certain tax credit funds that promote renewable energy. These investments generate a return primarily through the realization of federal tax credits and other tax benefits. The Company accounts for the tax attributes of its renewable energy investments using the deferral method. Under this method, realized investment tax credits and other tax benefits are recognized as a reduction of the renewable energy tax credits.
The Company has determined its investment in these tax credit funds were investments in variable interest entities (“VIEs”). The Company analyzes any investments in VIEs at inception and again if certain triggering events are identified to determine if it is the primary beneficiary. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIEs’ economic performance including, but not limited to, the ability to direct financing, leasing, construction, and other operating decisions and activities. As of March 31, 2024, the Company had invested in six unconsolidated tax credit fund entities that were considered to be VIEs and concluded it was not the primary beneficiary of any of the entities, as it did not have the power to control the activities that most significantly impact the entities, and has therefore accounted for these investments using the equity method.
7
The Company’s maximum exposure to losses associated with these VIEs is generally limited to its net investment, which was $29.8 million as of March 31, 2024, and was included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets.
NOTE 24 – FAIR VALUE MEASUREMENTS
The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth below:
● | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. |
● | Level 2 – Inputs other than quoted prices in active markets included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
● | Level 3 – Unobservable inputs for the asset or liability. |
Financial assets and liabilities measured at fair value on a recurring basis:
The Company invests in various marketable securities with the intention of selling these securities to fulfill its future unsecured obligationobligations under the Company’s nonqualified deferred compensation plan. See Note 612 for further information concerning the Company’s benefit plans.
The Company’s marketable securities were accounted for as trading securities and the carrying amount of its marketable securities were included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets as of
The tables below identify the estimated fair value of the Company’s marketable securities, determined by reference to quoted market prices (Level 1), as of
September 30, 2017 | |||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Marketable securities | $ | 24,528 | $ | — | $ | — | $ | 24,528 |
December 31, 2016 | |||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Marketable securities | $ | 20,462 | $ | — | $ | — | $ | 20,462 |
| | | | | | | | | | | | |
| | March 31, 2024 | ||||||||||
| | Quoted Priced in Active Markets | | Significant Other | | Significant | | | | |||
| | for Identical Instruments | | Observable Inputs | | Unobservable Inputs | | | | |||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
Marketable securities | | $ | 62,219 | | $ | — | | $ | — | | $ | 62,219 |
| | | | | | | | | | | | |
| | December 31, 2023 | ||||||||||
| | Quoted Prices in Active Markets | | Significant Other | | Significant | | | ||||
| | for Identical Instruments | | Observable Inputs | | Unobservable Inputs | | | ||||
|
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
Marketable securities | | $ | 59,508 | | $ | — | | $ | — | | $ | 59,508 |
Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or property and equipment that are determined to be impaired. As of September 30, 2017,March 31, 2024, and December 31, 2016,2023, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.
Fair value of financial instruments:
The carrying amounts of the Company’s senior notes, and unsecured revolving credit facility borrowings, and commercial paper program borrowings are included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017,March 31, 2024, and December 31, 2016. See Note 3 for further information concerning the Company’s senior notes and unsecured revolving credit facility.2023.
8
The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair value as of September 30, 2017,March 31, 2024, and December 31, 2016,2023, was determined by reference to quoted market prices of the same or similar instruments (Level 2) (in thousands):
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
Senior Notes | $ | 2,631,816 | $ | 2,733,350 | $ | 1,887,019 | $ | 1,977,510 |
| | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 | ||||||||
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | ||||
Senior Notes | | $ | 4,821,943 | | $ | 4,643,028 | | $ | 4,820,543 | | $ | 4,687,065 |
The carrying amount of the Company’s unsecured revolving credit facility approximates fair value (Level 2), as borrowings under the facility bear variable interest at current market rates.
The accompanying Condensed Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts receivable, amounts receivable from suppliers, and accounts payable. Due to the short-term nature of these financial instruments, the Company believes that the carrying values of these instruments approximate their fair values.
NOTE 5 – LEASES
The Company leases certain office space, retail stores, distribution centers, and equipment under long-term, non-cancelable operating leases. The following table summarizes Total lease cost for the three months ended March 31, 2024 and 2023, which were primarily included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income (in thousands):
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 | | 2023 | ||
Operating lease cost | | $ | 103,556 | | $ | 96,518 |
Short-term operating lease cost | |
| 2,500 | |
| 3,704 |
Variable operating lease cost | |
| 25,634 | |
| 24,471 |
Sublease income | |
| (1,154) | |
| (1,214) |
Total lease cost | | $ | 130,536 | | $ | 123,479 |
The following table summarizes other lease-related information for the three months ended March 31, 2024 and 2023:
| | | | | | | |
|
| For the Three Months Ended | |||||
| | March 31, | |||||
| | 2024 | | 2023 | |||
Cash paid for amounts included in the measurement of operating lease liabilities: |
| |
| | | | |
| Operating cash flows from operating leases | | $ | 101,616 | | $ | 95,494 |
Right-of-use assets obtained in exchange for new operating lease liabilities | | | 88,091 | | | 126,986 |
NOTE 6 – SUPPLIER FINANCE PROGRAM
The Company has established and maintains supplier finance programs with certain third-party financial institutions, which allow participating merchandise suppliers to voluntarily elect to assign the Company’s payment obligations due to these merchandise suppliers to one of the designated third-party institutions. Under these supplier finance programs, the Company has agreed to pay the third-party financial institutions the stated amount of confirmed merchandise supplier invoices on the original maturity dates of the invoices, which are generally for a term of one year. The Company does not have any assets pledged as security or other forms of guarantees for the committed payment to the third-party financial institutions. As of March 31, 2024, and December 31, 2023, the Company had obligations outstanding under these programs for invoices that were confirmed as valid to the third-party financial institutions in the amounts of $4.3 billion and $4.4 billion, respectively, which were included as a component of “Accounts payable” on the accompanying Condensed Consolidated Balance Sheets.
9
The following table identifies the amounts included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017,March 31, 2024, and December 31, 20162023 (in thousands):
September 30, 2017 | December 31, 2016 | ||||||
Revolving Credit Facility, weighted-average variable interest rate of 2.283% | $ | 269,000 | $ | — | |||
$500 million, 4.875% Senior Notes due 2021(1), effective interest rate of 4.957% | 497,363 | 496,758 | |||||
$300 million, 4.625% Senior Notes due 2021(2), effective interest rate of 4.646% | 298,891 | 298,679 | |||||
$300 million, 3.800% Senior Notes due 2022(3), effective interest rate of 3.845% | 298,126 | 297,868 | |||||
$300 million, 3.850% Senior Notes due 2023(4), effective interest rate of 3.851% | 298,525 | 298,355 | |||||
$500 million, 3.550% Senior Notes due 2026(5), effective interest rate of 3.570% | 495,682 | 495,359 | |||||
$750 million, 3.600% Senior Notes due 2027(6), effective interest rate of 3.619% | 743,229 | — | |||||
Long-term debt | $ | 2,900,816 | $ | 1,887,019 |
| | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||
Revolving Credit Facility, weighted-average variable interest rate of 8.500% | | $ | 30,000 | | $ | — |
Commercial paper program, weighted-average variable interest rate of 5.527% as of March 31, 2024, and 5.640% as of December 31, 2023 | | | 437,000 | | | 750,900 |
3.550% Senior Notes due 2026, effective interest rate of 3.570% | |
| 500,000 | |
| 500,000 |
5.750% Senior Notes due 2026, effective interest rate of 5.767% | | | 750,000 | | | 750,000 |
3.600% Senior Notes due 2027, effective interest rate of 3.619% | |
| 750,000 | |
| 750,000 |
4.350% Senior Notes due 2028, effective interest rate of 4.383% | |
| 500,000 | |
| 500,000 |
3.900% Senior Notes due 2029, effective interest rate of 3.901% | | | 500,000 | | | 500,000 |
4.200% Senior Notes due 2030, effective interest rate of 4.205% | | | 500,000 | | | 500,000 |
1.750% Senior Notes due 2031, effective interest rate of 1.798% | | | 500,000 | | | 500,000 |
4.700% Senior Notes due 2032, effective interest rate of 4.740% | | | 850,000 | | | 850,000 |
Total principal amount of debt | | | 5,317,000 | | | 5,600,900 |
Less: Unamortized discount and debt issuance costs | | | 28,368 | | | 30,775 |
Total long-term debt | | $ | 5,288,632 | | $ | 5,570,125 |
Unsecured revolving credit facility:
The Company entered intois party to a credit agreement dated June 15, 2021, as amended as of March 6, 2023 (the “Credit Agreement”). The Credit Agreement provides for a $1.2five-year $1.8 billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by JPMorgan Chase Bank, N.A., which is scheduled to mature in April 2022.June of 2026. The Credit Agreement includes a $200 million sub-limit for the issuance of letters of credit and a $75 million sub-limit for swing line borrowings under the Revolving Credit Facility. As described in the Credit Agreement governing the Revolving Credit Facility, the Company may, from time to time, subject to certain conditions, increase the aggregate commitments under the Revolving Credit Facility by up to $600$900 million, provided that the aggregate amount of the commitments does not exceed $1.8$2.7 billion at any time.
As of September 30, 2017,March 31, 2024, and December 31, 2016,2023, the Company had outstanding letters of credit, primarily to support obligations related to workers’ compensation, general liability, and other insurance policies, under the Credit Agreement in the amounts of $41.3$5.7 million and $38.7$5.4 million, respectively, reducing the aggregate availability under the credit agreementsCredit Agreement by those amounts.
Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at either an Alternate Base Rate or an Adjusted LIBOTerm SOFR Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans made under the Revolving Credit Facility bear interest at an Alternate Base Rate plus the applicable margin for Alternate Base Rate loans. In addition, the Company pays a facility fee on the aggregate amount of the commitments under the Credit Agreement in an amount equal to a percentage of such commitments. The interest rate margins and facility fee are based upon the better of the ratings assigned to the Company’s debt by Moody’s Investor Service, Inc. and Standard & Poor’s Ratings Services, subject to limited exceptions. As of September 30, 2017,March 31, 2024, based upon the Company’s current credit ratings, its margin for Alternate Base Rate loans was 0.000%, its margin for EurodollarTerm Benchmark Revolving Loans was 0.900% and its facility fee was 0.100%.
The Credit Agreement contains certain covenants, including limitations on subsidiary indebtedness, a minimum consolidated fixed charge coverage ratio of 2.50:1.00 and a maximum consolidated leverage ratio of 3.50:1.00. The consolidated fixed charge coverage ratio includes a calculation of earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense to fixed charges. Fixed charges include interest expense, capitalized interest, and rent expense. The consolidated leverage ratio includes a calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit, and similar instruments, five-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company should default on any covenant (subject to customary grace periods, cure rights, and materiality thresholds) contained in the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the Credit Agreement, and litigation from lenders. As of September 30, 2017,March 31, 2024, the Company remained in compliance with all covenants under the Credit Agreement.
In addition to the letters of credit issued under the Credit Agreement described above, as of March 31, 2024, and December 31, 2023, the Company had additional outstanding letters of credit, primarily to support obligations under workers’ compensation, general liability, and other insurance policies, in the amount of $132.1 million and $106.8 million, respectively. Substantially all of these letters of credit
10
have a one-year term from the date of issuance and were not issued under the Company’s Credit Agreement or another committed facility.
Commercial paper program:
On August 17, 2017,9, 2023, the Company issued $750 millionestablished a commercial paper program (the “Program”) pursuant to which it may issue short-term, unsecured commercial paper notes (the “Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the Notes outstanding under the Program at any time not to exceed $1.8 billion. The Notes will have maturities of up to 397 days from the date of issue. The Notes rank at least pari passu with all of the Company’s other unsecured 3.600% Seniorand unsubordinated indebtedness. The Company plans to use its Revolving Credit Facility as a liquidity backstop for the repayment of Notes due 2027 (“3.600% Senioroutstanding under the Program. The Notes due 2027”) at a price toissued under the public of 99.840% of their face value with UMB Bank, N.A. (“UMB”) as trustee. InterestProgram were included in “Long-term debt” on the 3.600% accompanying Condensed Consolidated Balance Sheet as of March 31, 2024, as the Company has the ability and intent to refinance these Notes on a long-term basis.
Senior Notes due 2027 is payable onnotes:
As of March 1 and September 1 of each year, beginning on March 1, 2018, and is computed on31, 2024, the basis of a 360-day year.
The Company provides warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime warranties. The risk of loss arising from warranty claims is typically the obligation of the Company’s suppliers. Certain suppliers provide upfront
The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2017,March 31, 2024, and December 31, 2016. The2023; the following table identifies the changes in the Company’s aggregate product warranty liabilities for the ninethree months ended September 30, 2017March 31, 2024 (in thousands):
Warranty liabilities, balance at December 31, 2016 | $ | 36,623 | |
Warranty claims | (60,173 | ) | |
Warranty accruals | 65,450 | ||
Warranty liabilities, balance at September 30, 2017 | $ | 41,900 |
| | | |
Warranty liabilities, balance at December 31, 2023 | | $ | 117,895 |
Warranty claims | |
| (44,585) |
Warranty accruals | |
| 48,275 |
Foreign currency translation | | | 14 |
Warranty liabilities, balance at March 31, 2024 | | $ | 121,599 |
NOTE 59 – SHARE REPURCHASE PROGRAM
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements, and overall market conditions. The Company’s Board of Directors may increase or otherwise modify, renew, suspend, or terminate the share repurchase program at any time, without prior notice. As announced on May 10, 2017,23, 2023, and September 1, 2017,November 16, 2023, the Company’s Board of Directors each time approved a resolution to increase the authorization amount under the share repurchase program by an additional $1.0$2.0 billion, resulting in a cumulative authorization amount of $9.8$25.8 billion. EachThe additional authorization isauthorizations are effective for a three-year period,three years, beginning on its respective announcement date.
11
The following table identifies shares of the Company’s common stock that have been repurchased as part of the Company’s publicly announced share repurchase program for the three months ended March 31, 2024 and 2023 (in thousands, except per share data):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Shares repurchased | 2,743 | 367 | 8,047 | 3,673 | |||||||||||
Average price per share | $ | 200.70 | $ | 281.04 | $ | 235.26 | $ | 261.32 | |||||||
Total investment | $ | 550,530 | $ | 102,941 | $ | 1,893,068 | $ | 959,743 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Shares repurchased |
| | 262 | | | 1,357 |
Average price per share | | $ | 1,029.24 | | $ | 819.06 |
Total investment | | $ | 270,017 | | $ | 1,111,447 |
As of September 30, 2017,March 31, 2024, the Company had $994.8 million$2.3 billion remaining under its share repurchase program. authorization. Excise tax on shares repurchased, assessed at one percent of the fair market value of shares repurchased, was $2.7 million for the three months ended March 31, 2024.
Subsequent to the end of the thirdfirst quarter and through November 7, 2017,May 9, 2024, the Company repurchased an0.2 million additional 0.4 million shares of its common stock under its share repurchase program, at an average price of $209.61,$1,053.19, for a total investment of $85.2$208.7 million. The Company has repurchased a total of 65.494.5 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through November 7, 2017,May 9, 2024, at an average price of $135.17,$250.21, for a total aggregate investment of $8.8$23.7 billion.
NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes adjustments for foreign currency translations. The tables below summarize activity for changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | |
| | Foreign | | Total Accumulated Other | ||
| | Currency (1) | | Comprehensive Income | ||
Accumulated other comprehensive income, balance at December 31, 2023 | | $ | 39,388 | | $ | 39,388 |
Change in accumulated other comprehensive income | | | 7,176 | | | 7,176 |
Accumulated other comprehensive income, balance at March 31, 2024 | | $ | 46,564 | | $ | 46,564 |
| | | | | | |
| | Foreign | | Total Accumulated Other | ||
| | Currency (1) | | Comprehensive Income | ||
Accumulated other comprehensive income, balance at December 31, 2022 | | $ | 2,996 | | $ | 2,996 |
Change in accumulated other comprehensive income | | | 18,898 | | | 18,898 |
Accumulated other comprehensive income, balance at March 31, 2023 | | $ | 21,894 | | $ | 21,894 |
(1) | Foreign currency translation is not shown net of additional U.S. tax, as other basis differences of non-U.S. subsidiaries are intended to be permanently reinvested. |
NOTE 11 – REVENUE
The table below identifies the Company’s revenues disaggregated by major customer type for the three months ended March 31, 2024 and 2023 (in thousands):
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Sales to do-it-yourself customers | | $ | 2,001,986 | | $ | 1,918,467 |
Sales to professional service provider customers |
| | 1,869,740 |
| | 1,711,964 |
Other sales, sales adjustments, and sales from the acquired Vast Auto stores |
| | 104,514 |
| | 77,433 |
Total sales | | $ | 3,976,240 | | $ | 3,707,864 |
See Note 8 for information concerning the expected costs associated with the Company’s assurance warranty obligations.
12
The Company recognizes share-based compensation expense based on the fair value of the grants, awards, or shares at the time of the grant, award, or issuance. Share-based compensation includes stock option awards, restricted stock awards, and stock appreciation rights issued under the Company’s employee incentive plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans and director stock plan and stock issued through the Company’s employee stock purchase plan.
Stock options:
The Company’s stock-based incentive plans provide for the granting of stock options for the purchase of common stock of the Company to directors and certain key employees of the Company. OptionsEmployee stock options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant. DirectorEmployee stock options granted under the plans expire after seven years and are fully vested after six months. Employee options granted under the plans expire after ten10 years and typically vest 25% per year, over four years. The Company records compensation expense for the grant-dategrant date fair value of the option awards evenly over the vesting period or the minimum required service period.
The table below identifies stock option activity under these plans during the ninethree months ended September 30, 2017March 31, 2024 (in thousands, except per share data):
Shares | Weighted-Average Exercise Price | |||||
Outstanding at December 31, 2016 | 2,800 | $ | 104.90 | |||
Granted | 240 | 257.39 | ||||
Exercised | (483 | ) | 51.35 | |||
Forfeited | (26 | ) | 207.45 | |||
Outstanding at September 30, 2017 | 2,531 | $ | 128.50 | |||
Exercisable at September 30, 2017 | 1,705 | $ | 75.65 |
| | | | | |
|
| |
| | |
| | Shares | | Weighted- Average | |
| | (in thousands) | | Exercise Price | |
Outstanding at December 31, 2023 |
| 884 | | $ | 428.50 |
Granted |
| 54 | |
| 1,069.20 |
Exercised |
| (165) | |
| 316.84 |
Forfeited or expired |
| (2) | |
| 641.53 |
Outstanding at March 31, 2024 |
| 771 | | $ | 496.55 |
Exercisable at March 31, 2024 |
| 545 | | $ | 369.68 |
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes model requires the use of assumptions, including the risk freerisk-free rate, expected life, expected volatility, and expected dividend yield.
● | Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected life. |
● | Expected life – Represents the period of time that options granted are expected to be outstanding. The Company uses historical experience to estimate the expected life of options granted. |
● | Expected volatility – Measure of the amount, by which the Company’s stock price is expected to fluctuate, based on a historical trend. |
● | Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends. |
The table below identifies the weighted-average assumptions used for grants awarded during the ninethree months ended September 30, 2017March 31, 2024 and 2016:
For the Nine Months Ended September 30, | |||||
2017 | 2016 | ||||
Risk free interest rate | 1.98 | % | 1.45 | % | |
Expected life | 5.5 Years | 5.6 Years | |||
Expected volatility | 22.2 | % | 22.4 | % | |
Expected dividend yield | — | % | — | % |
| | | | | | |
| | March 31, | ||||
|
| 2024 | | 2023 | ||
Risk free interest rate |
| 4.14 | % | | 3.91 | % |
Expected life |
| 6.6 | Years | | 6.5 | Years |
Expected volatility |
| 28.3 | % | | 29.1 | % |
Expected dividend yield |
| — | % | | — | % |
The following table summarizes activity related to stock options awarded by the Company for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in thousands, except per share data):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Compensation expense for stock options awarded | $ | 3,679 | $ | 3,653 | $ | 11,826 | $ | 11,793 | |||||||
Income tax benefit from compensation expense related to stock options | 1,402 | 1,365 | 4,507 | 4,405 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Compensation expense for stock options awarded | | $ | 5,595 | | $ | 6,119 |
Income tax benefit from compensation expense related to stock options | |
| 1,438 | |
| 1,534 |
The weighted-average grant-date fair value of options granted during the ninethree months ended September 30, 2017,March 31, 2024, was $64.45$411.22, compared to $64.00$318.08 for the ninethree months ended September 30, 2016.March 31, 2023. The remaining unrecognized compensation expense related to unvested stock
13
option awards at September 30, 2017,March 31, 2024, was $28.6$55.5 million, and the weighted-average period of time over which this cost will be recognized is 2.63.0 years.
Other share-based compensation plans:
The Company sponsors other share-based compensation plans: an employee stock purchase plan and incentive plans that provide for the awarding of shares of restricted stock to certain key employees and directors. The Company’s employee stock purchase plan (the “ESPP”), which permits all eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value, and a director stock plan, which provides for the award of shares of restricted stock to the Company’s independent directors, that vest evenly over a three-year period and are held in escrow until such vesting has occurred.value. The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the Company’s common stock during the offering periods, and compensation expense is recognized based on the discount
The table below summarizes activity related to the Company’s other share-based compensation plans for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in thousands):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Compensation expense for shares issued under the ESPP | $ | 545 | $ | 538 | $ | 1,659 | $ | 1,610 | |||||||
Income tax benefit from compensation expense related to shares issued under the ESPP | 208 | 201 | 632 | 601 | |||||||||||
Compensation expense for restricted shares awarded | 258 | 327 | 1,350 | 968 | |||||||||||
Income tax benefit from compensation expense related to restricted awards | $ | 98 | $ | 122 | $ | 515 | $ | 361 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Compensation expense for shares issued under the ESPP | | $ | 953 | | $ | 861 |
Income tax benefit from compensation expense related to shares issued under the ESPP | | | 245 | | | 216 |
Compensation expense for restricted shares awarded | | | 474 | | | 455 |
Income tax benefit from compensation expense related to restricted awards | | $ | 122 | | $ | 114 |
Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan (the “401(k) Plan”) that covers substantially all employees who are at least 21 years of age and have completed one year of service.age. The Company makes matching contributions equal to 100% of the first 2% of each employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. The Company may also make additional discretionary profit sharing contributions to the plan401(k) Plan on an annual basis as determined by the Board of Directors. The Company did not make any discretionary contributions to the 401(k) Plan during the three or nine months ended September 30, 2017March 31, 2024 or 2016.2023. The Company expensed matching contributions under the 401(k) Plan in the amountsamount of $5.7$13.8 million and $5.3$9.6 million for the three months ended September 30, 2017March 31, 2024 and 2016,2023, respectively, which were primarily included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income. The Company expensed matching contributions under the 401(k) Plan in the amounts of $17.0 million and $15.5 million for the nine months ended September 30, 2017 and 2016, respectively, which were included in “Selling, general and administrative expense” on the accompanying Condensed Consolidated Statements of Income.
Nonqualified deferred compensation plan:
The Company sponsors a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for highly compensated employees whose contributions to the 401(k) Plan are limited due to the application of the annual limitations under the Internal Revenue Code. The Deferred Compensation Plan provides these employees with the opportunity to defer the full 6% of matched compensation, including salary and incentive based compensation that was precluded under the Company’s 401(k) Plan,Code, which iscould then be matched by the Company using the same formula as the 401(k) Plan. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned.plan. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The Company has an unsecured obligation to pay, in the future, the value of the deferred compensation and Company match, if applicable, adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. See Note 4 for further information concerning the Company’s marketable securities held to fulfill our future unsecured obligations under this plan.
The liability for compensation deferred under the Deferred Compensation Plan was $24.5$62.2 million and $20.5$59.5 million as of September 30, 2017,March 31, 2024, and December 31, 2016,2023, respectively, which was included in “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of $0.1 million and less than $0.1 million for each of the three months ended September 30, 2017March 31, 2024 and 2016,2023, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income.
Stock appreciation rights:
The Company’s incentive plans provide for the granting of stock appreciation rights, which expire after 10 years and vest 25% per year, over four years, and are settled in cash. As of March 31, 2024, and December 31, 2023, there were 14,204 and 13,079 stock appreciation rights outstanding, respectively. During the three months ended March 31, 2024, there were 1,125 stock appreciation rights granted and no stock appreciation rights exercised or forfeited. The liability for compensation to be paid for redeemed stock appreciation rights was $6.2 million and $4.5 million as of March 31, 2024, and December 31, 2023, respectively, which were included in “Other liabilities” on the Condensed Consolidated Balance Sheets. The Company expensed matching contributions under the Deferred Compensation Planrecorded compensation expense for stock appreciation rights in the amount
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of $0.1$1.6 million and $0.3 million for the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income.
NOTE 13 – COMMITMENTS
The Company has entered into a conditional agreement to purchase federal renewable energy tax credits (“RETC”). As of March 31, 2024, the Company has committed to purchase approximately $375 million RETCs upon the credit transfer date, which is anticipated to occur by June of 2025.
The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (in thousands, except per share data):
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Numerator (basic and diluted): |
| |
|
| |
|
Net income | | $ | 547,238 | | $ | 516,885 |
| | | | | | |
Denominator: | |
|
| |
|
|
Weighted-average common shares outstanding – basic | |
| 59,017 | |
| 61,840 |
Effect of stock options (1) | |
| 437 | |
| 558 |
Weighted-average common shares outstanding – assuming dilution | |
| 59,454 | |
| 62,398 |
| | | | | | |
Earnings per share: | |
|
| |
|
|
Earnings per share-basic | | $ | 9.27 | | $ | 8.36 |
Earnings per share-assuming dilution | | $ | 9.20 | | $ | 8.28 |
| | | | | | |
Antidilutive potential common shares not included in the calculation of diluted earnings per share: | |
|
| |
|
|
Stock options (1) | |
| 119 | |
| 149 |
Weighted-average exercise price per share of antidilutive stock options (1) | | $ | 917.74 | | $ | 725.14 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator (basic and diluted): | |||||||||||||||
Net income | $ | 283,734 | $ | 278,493 | $ | 831,489 | $ | 791,661 | |||||||
Denominator: | |||||||||||||||
Weighted-average common shares outstanding – basic | 86,947 | 94,891 | 89,641 | 95,994 | |||||||||||
Effect of stock options (1) | 1,078 | 1,229 | 1,228 | 1,315 | |||||||||||
Weighted-average common shares outstanding – assuming dilution | 88,025 | 96,120 | 90,869 | 97,309 | |||||||||||
Earnings per share: | |||||||||||||||
Earnings per share-basic | $ | 3.26 | $ | 2.93 | $ | 9.28 | $ | 8.25 | |||||||
Earnings per share-assuming dilution | $ | 3.22 | $ | 2.90 | $ | 9.15 | $ | 8.14 | |||||||
Antidilutive potential common shares not included in the calculation of diluted earnings per share: | |||||||||||||||
Stock options (1) | 784 | 271 | 620 | 319 | |||||||||||
Weighted-average exercise price per share of antidilutive stock options (1) | $ | 246.65 | $ | 267.66 | $ | 258.75 | $ | 264.88 |
(1) | |
See Note |
For the three and nine months ended September 30, 2017March 31, 2024 and 2016,2023, the computation of diluted earnings per share did not include certain securities. These securities represent underlying stock options not included in the computation of diluted earnings per share, because the inclusion of such equity awards would have been antidilutive.
See Note 9 for information concerning the end of the third quarter and through November 7, 2017, the Company repurchased an additional 0.4 million shares of its common stock under itsCompany’s subsequent share repurchase program, at an average price of $209.61, for a total investment of $85.2 million.
NOTE 815 – LEGAL MATTERS
The Company is currently involved in litigation incidental to the ordinary conduct of the Company’s business. TheBased on existing facts and historical patterns, the Company accrues for litigation losses in instances where a materialan adverse outcome is probable and the Company is able to reasonably estimate the probable loss.loss in accordance with Accounting Standard Codification 450-20. The Company also accrues for an estimate of material legal costs to be incurred in pendingfor litigation matters. Although the Company cannot ascertain the amount of liability that it may incur from any of theselegal matters, it does not currently believe that, in the aggregate, these matters, taking into account applicable insurance and accruals, will have a material adverse effect on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
NOTE 9 -16 – RECENT ACCOUNTING PRONOUNCEMENTS
In MayNovember of 2014,2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers2023-07, “Segment Reporting (Topic 606)”280): Improvements to Reportable Segment Disclosures” (“ASU 2014-09”2023-07”). ASU 2023-07 increases the disclosures about a public entity’s reportable segments. Under ASU 2014-09, an2023-07, a public entity is required to follow a five-step process to determine the amount of revenue to recognize when promised goods or services are transferred to customers. ASU 2014-09 offers specific accounting guidance for costs to obtain or fulfill a contract with a customer. In addition, an entity iswould be required to disclose sufficient informationsignificant segment expenses that are regularly provided to understand the nature, amount, timing,chief operating decision maker (“CODM”), a description of other segment items by reportable segment, annual disclosures about a reportable segment’s profit or loss and uncertaintyassets required by Topic 280 in interim periods, any additional measures of revenuea segment’s profit or loss used by the CODM to allocate resources, and cash flows arising from contracts with
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ASU 2015-14”), to defer the effective date of ASU 2014-09 by one year. For public companies, ASU 2015-14 changes ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. These ASUs can be adopted retrospectively or as a cumulative-effective adjustment at the date of adoption, with early adoption allowed, but not before December 15, 2016. The Company will adopt this guidance beginning with its first quarter ending March 31, 2018. The Company has established a task force, composed of multiple functional groups inside of the Company, which is currently in the process of evaluating critical components of this new guidance and the potential impact of the guidance on the Company’s financial position, results of operations and cash flows. Based on the preliminary work completed, the Company is considering the potential implications of the new standard on the Company’s recognition of customer related accounts receivable, warranty costs that are not the responsibility of the Company’s suppliers, the application of the Company’s retail O’Rewards loyalty program and all applicable financial statement disclosures required by the new guidance. At this time, the task force has not completed its evaluation of the impact or means of adoption.
In AugustDecember of 2016, the2023, FASB issued Accounting Standard Update ASU No. 2016-15, “Statement of Cash Flows2023-09, “Income Taxes (Topic 230)740): Classification of Certain Cash ReceiptsImprovements to Income Tax Disclosures” (“ASU 2023-09”). Under ASU 2023-09, a public entity will be required to disclose specific categories in the rate reconciliation and Cash Payments (a consensusprovide additional information for reconciling items that meet a quantitative threshold, such as if the effect of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice for eight specific parts on cash flow statement presentation and classification: debt prepaymentreconciling item is equal to or debt extinguishment costs; settlement of zero-coupon debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (COLI) policies; distributions received from equity method investments; beneficial interests in securitization transactions; and separately identifiable cash flows and applicationgreater than five percent of the predominance principle. For public companies,amount computed by multiplying pretax income/loss by the applicable statutory income tax rate. Entities would also have to disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid, along with income/loss from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state, and foreign. ASU 2016-152023-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and requires retrospective adoption, with2024. ASU 2023-09 allows for early adoption permitted.for annual financial statements that have not yet been issued and allows retrospective and prospective adoption. The Company will adopt this guidance beginning with its firstfourth quarter ending MarchDecember 31, 2018.2025. The application of this new guidance is not expected to have a material impact on the Company’s consolidated financial condition, results of operations, or cash flows.
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Unless otherwise indicated, “we,” “us,” “our”“our,” and similar terms, as well as references to the “Company” or “O’Reilly,” refer to O’Reilly Automotive, Inc. and its subsidiaries.
In Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity, and certain other factors that may affect our future results, including
● | an overview of the key drivers and other influences on the automotive aftermarket industry; |
● | our results of operations for the three months ended March 31, 2024 and 2023; |
● | our liquidity and capital resources; |
● | our critical accounting estimates; and |
● | recent accounting pronouncements that may affect our Company. |
The review of Management’s Discussion and Analysis should be made in conjunction with our condensed consolidated financial statements, related notes and other financial information, forward-looking statements, and other risk factors included elsewhere in this quarterly report.
FORWARD-LOOKING STATEMENTS
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “estimate,” “may,” “could,” “will,” “believe,” “expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend”“intend,” or similar words. In addition, statements contained within this quarterly report that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues, and future performance. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties, and assumptions, including, but not limited to, the economy in general, inflation,general; inflation; consumer debt levels; product demand,demand; a public health crisis; the market for auto parts, competition, weather,parts; competition; weather; tariffs; availability of key products and supply chain disruptions; business interruptions, including terrorist activities, war and the threat of war; failure to protect our brand and reputation; challenges in international markets; volatility of the market price of our common stock; our increased debt levels; credit ratings on public debt; damage, failure, or interruption of information technology systems, including information security and cyber-attacks; historical growth rate sustainability; our ability to hire and retain qualified employees; risks associated with the performance of acquired businesses, our ability to hirebusinesses; and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public debt, governmental regulations, terrorist activities, war and the threat of war.regulations. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2016,2023, and subsequent Securities and Exchange Commission filings, for additional factors that could materially affect our financial performance. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
OVERVIEW
We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States.States, Puerto Rico, Mexico, and Canada. We are one of the largest U.S. automotive aftermarket specialty retailers, selling our products to both do-it-yourself (“DIY”)DIY customers and professional service providers – our “dual market strategy.” Our goal is to achieve growth in sales and profitability by capitalizing on our competitive advantages, such as our dual market strategy, superior customer service provided by well-trained and technically proficient Team Members, and strategic distribution and hub store network that provides same day and over-night inventory access for our stores carry anto offer a broad selection of product offerings. The successful execution of our growth strategy includes aggressively opening new stores, growing sales in existing stores, continually enhancing merchandising and store layouts, and implementing our Omnichannel initiatives. As of March 31, 2024, we operated 6,131 stores in 48 U.S. states and Puerto Rico, 63 stores in Mexico, and 23 stores in Canada.
See Note 2 “Business Combination” to the Condensed Consolidated Financial Statements for further information concerning the Canada stores acquired through the recent Vast Auto acquisition.
The extensive product line consistingoffered in our stores consists of new and remanufactured automotive hard parts, maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools, and professional service provider service equipment. Our extensive product line includes an assortment of products that are differentiated by quality and price for most of the product lines we offer. For many of our product offerings, this quality differentiation reflects “good,” “better,” and “best” alternatives.
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Our sales and total gross marginprofit dollars are, generally, highest for the “best” quality category of products. Consumers’ willingness to select products at a higher point on the value spectrum is a driver of enhanced sales and profitability in our industry. We have ongoing initiatives focused on marketing and training to educate customers on the advantages of ongoing vehicle maintenance, as well as “purchasing up” on the value spectrum.
Our stores also offer enhanced services and programs to our customers, including used oil, oil filter, and battery recycling; battery, wiper, and bulb replacement; battery diagnostic testing; electrical and module testing; check engine light code extraction; loaner tool program; drum and rotor resurfacing; custom hydraulic hoses; professional paint shop mixing and related materials; and machine shops.
Our strategybusiness is to open new stores to achieve greater penetration into existing markets and expansion into new, contiguous markets. We typically open new stores either by (i) constructing a new facility or renovating an existing one on property we purchase or lease and stocking the new store with fixtures and inventory; (ii) acquiring an independently owned auto parts store, typically by the purchase of substantially all of the inventory and other assets (other than realty) of such store; or (iii) purchasing multi-store chains. We plan to open 190 net, new stores in 2017, in addition to the conversion of 48 stores acquired from Bond Auto Parts (“Bond”) in December 2016, as previously announced, and plan to open 200 net, new stores in 2018. We believe our investment in store growth will be funded with the cash flows expected to be generated by our existing operations and through available borrowings under our existing unsecured revolving
We believe the key drivers of current and future demand over the long-term for the products sold within the automotive aftermarket include the number of U.S. miles driven, number of U.S. registered vehicles, newannual rate of light vehicle registrations,sales, and average vehicle age and unemployment.
Number of Miles Driven
The number of total miles driven in the U.S. influences the demand for repair and maintenance products sold within the automotive aftermarket. In total, vehicles in the U.S. are driven approximately three trillion miles per year, resulting in ongoing wear and tear and a corresponding continued demand for the repair and maintenance products necessary to keep these vehicles in operation. According to the U.S. Department of Transportation, the number of total miles driven in the U.S. increased 2.4%, 3.5%0.9% and 1.8%2.1% in 2016, 20152022 and 2014,2023, respectively, and year-to-date through AugustFebruary of 2017, year-to-date2024, miles driven have increased 1.4%0.6%. We would expectTotal miles driven can be impacted by macroeconomic factors, including rapid increases in fuel cost, but we are unable to continue to see modest improvements in totalpredict the degree of impact these factors may have on miles driven in the U.S., supported by an increasing numberfuture.
Size and Age of registered vehicles on the road, resulting in continued demand for automotive aftermarket products.
The total number of vehicles on the road and the average age of the vehicle population heavily influence the demand for products sold within the automotive aftermarket industry. As reported by Thethe Auto Care Association, the total number of registered vehicles increased 7%13.9% from 20062012 to 2016,2022, bringing the number of light vehicles on the road to 264283 million by the end of 2016.2022. For the year ended December 31, 2016,2023, the seasonally adjusted annual rate of light vehicle sales in the U.S. (“SAAR”) was approximately 18.315.8 million vehicles, and for 2017,2024, the SAAR is estimated to be approximately 18.515.5 million vehicles, contributing to the continued growth in the total number of registered vehicles on the road. In the past decade,From 2012 to 2022, vehicle scrappage rates have remained relatively stable, ranging from 4.3%4.1% to 5.7% annually. As a result, over the past decade, the average age of the U.S. vehicle population has increased, growing 22%9.9%, from 9.511.1 years in 20062012 to 11.612.2 years in 2016. 2022. While the annual changes to the vehicle population resulting from new vehicle sales and the fluctuation in vehicle scrappage rates in any given year represent a small percentage of the total light vehicle population and have a muted impact on the total number and average age of vehicles on the road over the short term, we believe our business benefits from the current environment of elevated new and used vehicle prices, as consumers are more willing to continue to invest in their current vehicle.
We believe thisthe increase in average vehicle age over the long term can be attributed to better engineered and manufactured vehicles, which can be reliably driven at higher mileages due to better quality power trains, and interiors and exteriors, and the consumer’scoupled with consumers’ willingness to invest in maintaining these higher-mileage, better built vehicles. As the average age of vehicles on the road increases, a larger percentage of miles are being driven by vehicles that are outside of a manufacturer warranty. These out-of-warranty, older vehicles generate strong demand for automotive aftermarket products as they go through more routine maintenance cycles, have more frequent mechanical failures, and generally require more maintenance than newer vehicles. We believe consumers will continue to invest in these reliable, higher-quality, higher-mileage vehicles, and these investments, along with an increasing total light vehicle fleet, will support continued demand for automotive aftermarket products.
Inflationary cost pressures impact our business; however, historically we have been successful, in many cases, in reducing the threateffects of future joblessnessmerchandise cost increases, principally by taking advantage of supplier incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the uncertainty surroundingextent our acquisition costs increase due to base commodity price increases or other input cost increases affecting the overall economic healthentire industry, we have typically been able to pass along these cost increases through higher selling prices for the affected products. As a result, we do not believe inflation has had a material adverse effect on our operations.
To some extent, our business is seasonal, primarily as a result of the U.S. have a negative impact of weather conditions on consumer confidence and the level of consumer discretionary spending. Long-term trends of high unemploymentcustomer buying patterns. While we have historically impededrealized operating profits in each quarter of the growth of annual miles driven, as well as decrease consumer discretionary spending, both of which negatively impact demand for products soldyear, our store sales and profits have historically been higher in the automotive aftermarket industry. As of December 31, 2016, the U.S. unemployment rate was 4.7%,second and as of September 30, 2017, the U.S. unemployment rate was 4.2%. We believe total employment should remain at healthy levels with marginal improvements, and we would expect to see an increase in commuter traffic with a growing work force, further aiding the positive trend of growth of total miles driventhird quarters (April through September) than in the U.S.first and demand for automotive aftermarket products.
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We remain confident in our ability to gain market share in our existing markets and grow our business in new markets by focusing on our dual market strategy and the core O’Reilly values of hard work and excellent customer service.
RESULTS OF OPERATIONS
Sales:
Sales for the three months ended September 30, 2017,March 31, 2024, increased $119$268 million, or 7%, to $2.34$3.98 billion from $2.22$3.71 billion for the same period one year ago, representing an increase of 5%. Sales for the nine months ended September 30, 2017, increased $293 million to $6.79 billion from $6.49 billion for the same period one year ago, representing an increase of 5%.ago. Comparable store sales for stores open at least one year increased 1.8%3.4% and 4.2%10.8% for the three months ended September 30, 2017March 31, 2024 and 2016, respectively. Comparable store sales for stores open at least one year increased 1.5% and 4.8% for the nine months ended September 30, 2017 and 2016,2023, respectively. Comparable store sales are calculated based on the change in sales offor U.S. stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores, and sales to Team Members, as well as sales from Leap Day in the three months ended March 31, 2024. Online sales for ship-to-home orders and pickup in-store orders for U.S. stores open at least one year are included in the comparable store sales calculation. We opened 37 and 58 net, new stores during the ninethree months ended September 30, 2016.
The increase in sales for the three and nine months ended September 30, 2017 (in millions):
Increase in Sales for the Three Months Ended September 30, 2017, Compared to the Same Period in 2016 | Increase in Sales for the Nine Months Ended September 30, 2017, Compared to the Same Period in 2016 | ||||||
Store sales: | |||||||
Comparable store sales, including sales from the 48 acquired Bond stores | $ | 57 | $ | 144 | |||
Non-comparable store sales: | |||||||
Sales for stores opened throughout 2016, excluding stores open at least one year that are included in comparable store sales | 29 | 117 | |||||
Sales for stores opened throughout 2017 | 35 | 63 | |||||
Sales from Leap Day in 2016 | — | (25 | ) | ||||
Sales in 2016 for stores that have closed | (1 | ) | (4 | ) | |||
Non-store sales: | |||||||
Includes sales of machinery and sales to independent parts stores and Team Members | (1 | ) | (2 | ) | |||
Total increase in sales | $ | 119 | $ | 293 |
See Note 11 “Revenue” to the resources necessaryCondensed Consolidated Financial Statements for further information concerning the Company’s sales. See Note 2 “Business Combination” to convert the 48 Bond storesCondensed Consolidated Financial Statements for further information concerning the acquired in December 2016 to our systems, inventory selection and décor packages during 2017, and 200 net, new store openings in 2018.
Gross profit:
Gross profit for the three months ended September 30, 2017,March 31, 2024, increased 8% to $1.23$2.03 billion (or 52.6%51.2% of sales) from $1.17$1.89 billion (or 52.7%51.0% of sales) for the same period one year ago, representing an increase of 5%. Gross profit for the nine months ended September 30, 2017, increased to $3.56 billion (or 52.5% of sales) from $3.39 billion (or 52.3% of sales) for the same period one year ago, representing an increase of 5%.ago. The increase in gross profit dollars for the three months ended September 30, 2017,March 31, 2024, was primarily the result of sales from new stores, the increase in comparable store sales at existing stores, and sales from the 48 acquired Bond stores. The increase in gross profit dollars for the nine months ended September 30, 2017, was the result of sales from new stores, the increase in comparable store sales at existingand acquired stores, and sales from the 48 acquired Bond stores, partially offset by prior year gross profit dollars generated from one additional day due to Leap Day. The decreaseincrease in gross profit as a percentage of sales for the three months ended September 30, 2017,March 31, 2024, was primarily
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2017,March 31, 2024, increased 9% to $768 million$1.28 billion (or 32.8%32.2% of sales) from $722 million$1.17 billion (or 32.5%31.7% of sales) for the same period one year ago, representing an increase of 6%. SG&A for the nine months ended September 30, 2017, increased to $2.24 billion (or 33.0% of sales) from $2.10 billion (or 32.4% of sales) for the same period one year ago, representing an increase of 6%.ago. The increase in total SG&A dollars for the three months ended September 30, 2017,March 31, 2024, was primarily the result of additional Team Members facilities and vehicles to support our increased sales and store count. The increase in total SG&A dollars for the nine months ended September 30, 2017, was primarily the result of additional Team Members, facilities and vehicles to support our increased sales and store count, partially offset by a $9.1 million benefit from the reduction in our legal accrual following the expiration of the statute of limitations related to a legacy claim and prior year incremental SG&A expenses incurred from one additional day due to Leap Day.Day, and SG&A associated with the Vast Auto acquisition and operations. The increasesincrease in SG&A as a percentage of sales for the three and nine months ended September 30, 2017, were primarilyMarch 31, 2024, was principally due to deleveragedepreciation costs on accelerated refreshment of store operating costs on soft comparable store sales duringdelivery fleet, investment initiatives aimed at refreshing the current periods.
Operating income:
As a result of the impacts discussed above, operating income for the three months ended September 30, 2017,March 31, 2024, increased 5% to $462$752 million (or 19.7%18.9% of sales) from $448$717 million (or 20.2%19.3% of sales) for the same period one year ago, representing an increase of 3%. As a result of the impacts discussed above, operatingago.
Other income and expense:
Total other expense for the ninethree months ended September 30, 2017,March 31, 2024, increased 33% to $1.32 billion$52 million (or 19.5%1.3% of sales) from $1.29 billion$39 million (or 19.9%1.1% of sales) for the same period one year ago, representing anago. The increase of 2%.
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the result of increased interest expense on higher average outstanding borrowings and increased amortization of debt issuance costs.
Income taxes:
Our provision for income taxes for the three months ended September 30, 2017, increasedMarch 31, 2024, decreased 5% to $156 million (or 6.7% of sales) from $153 million (or 6.9% of sales)(21.9% effective tax rate) from $161 million (23.7% effective tax rate) for the same period one year ago, representing an increase of 2%. Ourago. The decreases in our provision for income taxes for the nine months ended September 30, 2017, decreased to $430 million (or 6.3% of sales) from $455 million (or 7.0% of sales) for the same period one year ago, representing a decrease of 6%. Ourand our effective tax rate for the three months ended September 30, 2017, was 35.4%March 31, 2024, were the result of income before income taxes,higher excess tax benefits from share-based compensation in the current period, as compared to 35.5% for the same period one year ago. Our effective tax rate for the nine months ended September 30, 2017, was 34.1% of income before income taxes, compared to 36.5% for the same period one year ago. The increase in our provision for income taxes for the three months ended September 30, 2017, was primarily the result of higher taxable income in the three months ended September 30, 2017, partially offset by the adoption of Accounting Standard Update No. 2016-09, which provided a benefit of $3 million to the provision for income taxes. The decrease in our provision for income taxes for the nine months ended September 30, 2017, was primarily the result of the adoption of Accounting Standard Update No. 2016-09 in 2017, which provided a benefit of $35 million to the provision for income taxes, partially offset by higher taxable income. The decreases in our effective tax rate for the three and nine months ended September 30, 2017, were primarily the result of the adoption of Accounting Standard Update No. 2016-09 in 2017, which provided a benefit of 63 basis points and 279 basis points to the effective tax rate for the three and nine months ended September 30, 2017, respectively.
Net income:
As a result of the impacts discussed above, net income for the three months ended September 30, 2017,March 31, 2024, increased 6% to $284$547 million (or 12.1%13.8% of sales) from $278$517 million (or 12.5%13.9% of sales) for the same period one year ago, representing an increase of 2%. As a result of the impacts discussed above, net income for the nine months ended September 30, 2017, increased to $831 million (or 12.3% of sales) from $792 million (or 12.2% of sales) for the same period one year ago, representing an increase of 5%.
Earnings per share:
Our diluted earnings per common share for the three months ended September 30, 2017,March 31, 2024, increased 11% to $3.22$9.20 on 8859 million shares from $2.90$8.28 on 9662 million shares for the same period one year ago. Our diluted earnings per common share for the nine months ended September 30, 2017, increased 12% to $9.15 on 91 million shares from $8.14 on 97 million shares for the same period one year ago. Due to the adoption of Accounting Standard Update No. 2016-09, our diluted earnings per common share for the three and nine months ended September 30, 2017, included a benefit of $0.02 and $0.35, respectively, comprised of a $0.03 and $0.39 earnings per share increase, respectively, from a lower effective tax rate, partially offset by a $0.01 and $0.04, respectively, earnings per share decrease from an increase in the number of weighted-average common shares outstanding - assuming dilution.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to maintain and enhance our existing stores, invest to open new stores, fund strategic acquisitions, expand distribution infrastructure, operatedevelop enhanced information technology systems and maintain existing storestools, and may include the opportunistic repurchase of shares of our common stock through our Board-approved share repurchase program. TheOur material cash requirements necessary to maintain the current operations of our long-term business strategy include, but are not limited to, inventory purchases; human capital obligations, including payroll and benefits; contractual obligations, including debt and interest obligations; capital expenditures; payment of income taxes; and other operational priorities. We expect to fund our short- and long-term cash and capital requirements with our primary sources of our liquidity, arewhich include funds generated from the normal course of our business operations, and borrowedborrowings under our unsecured revolving credit facility. Decreasedfacility and our commercial paper program, and senior note offerings. However, there can be no assurance that we will continue to generate cash flows or maintain liquidity at or above recent levels, as we are unable to predict decreased demand for our products or changes in customer buying patternspatterns. Additionally, these factors could negatively impact our ability to generate funds from operations. Additionally, decreased demand or changes in buying patterns couldalso impact our ability to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our unsecured revolving credit facility. We believe that cash expected
Other than the commitment discussed in Note 13 “Commitments” to be provided by operating activities and availability underthe Condensed Consolidated Financial Statements, there have been no material changes to the contractual obligations, to which we are committed, since those discussed in our unsecured revolving credit facility will be sufficient to fund both our short-term and long-term capital and liquidity needsannual report on Form 10-K for the foreseeable future. However, there can be no assurance that we will continue to generate cash flows at or above recent levels.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 (in thousands):
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
Liquidity: |
| 2024 |
| 2023 | ||
Total cash provided by/(used in): |
| |
|
| |
|
Operating activities | | $ | 704,215 | | $ | 713,764 |
Investing activities | |
| (400,753) | |
| (221,520) |
Financing activities | |
| (493,578) | |
| (541,669) |
Effect of exchange rate changes on cash | | | 248 | | | 714 |
Net decrease in cash and cash equivalents | | $ | (189,868) | | $ | (48,711) |
| | | | | | |
Capital expenditures | | $ | 249,240 | | $ | 223,268 |
Free cash flow (1) | | | 438,855 | | | 486,118 |
For the Nine Months Ended September 30, | |||||||
Liquidity: | 2017 | 2016 | |||||
Total cash provided by/(used in): | |||||||
Operating activities (1) | $ | 1,087,419 | $ | 1,214,259 | |||
Investing activities | (347,922 | ) | (352,698 | ) | |||
Financing activities (1) | (848,808 | ) | (417,542 | ) | |||
Net (decrease) increase in cash and cash equivalents | $ | (109,311 | ) | $ | 444,019 | ||
Capital expenditures | $ | 347,756 | $ | 356,234 | |||
Free cash flow (2) | $ | 704,381 | $ | 811,991 |
(1) | |
Calculated as net cash provided by operating activities, less capital expenditures, |
Operating activities:
The decrease in net cash provided by operating activities during the ninethree months ended September 30, 2017,March 31, 2024, compared to the same period in 2016,2023, was primarily due to a smaller decreaselarger increase in our net inventory investment and an increase in accounts receivable, partially offset by an increase in net income and a largerdecrease in accrued benefits payments during the three months ended March 31, 2023. The increase in deferred income taxes.
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accounts receivable is timing in nature, as the current period ended on a weekend, resulting in a high credit card receivable balance. The smaller decrease in our net inventory investment is primarily the result of fewer new suppliers entering our supplier financing programsaccrued benefits and withholdings was due to a decrease in 2017, as compared to 2016. The larger increase in deferred income taxes is primarily the result of additional depreciation recognized for income tax purposes, as compared to the same period in the prior year.
Investing activities:
The decreaseincrease in net cash used in investing activities during the ninethree months ended September 30, 2017,March 31, 2024, compared to the same period in 2016,2023, was primarily the result of a decreasethe acquisition of Vast Auto and an increase in capital expenditures. The decreaseincrease in capital expenditures was primarily relateddue to the
Financing activities:
The increasedecrease in net cash used in financing activities during the ninethree months ended September 30, 2017,March 31, 2024, compared to the same period in 2016,2023, was primarily attributable to an increase ina lower level of repurchases of our common stock duringin the current period, as compared topartially offset by a net paydown on the Company’s commercial paper issuances in the current period versus net borrowings on the Company’s revolving credit facility during the same period in the prior year, partially offset by a higher level of net borrowings during the current period, as compared2023.
Debt instruments:
See Note 7 “Financing” to the same period inCondensed Consolidated Financial Statements for information concerning the prior year.
Debt covenants:
The indentures governing our senior notes contain covenants that limit our ability and the ability of certain of our subsidiaries to, among other things, create certain liens on assets to secure certain debt and enter into certain sale and leaseback transactions, and limit our ability to merge or consolidate with another company or transfer all or substantially all of our property, in each case as set forth in the indentures. These covenants are, however, subject to a number of important limitations and exceptions. As of September 30, 2017,March 31, 2024, we were in compliance with the covenants applicable to our senior notes.
The Credit Agreement contains certain covenants, including limitations on indebtedness, a minimum consolidated fixed charge coverage ratio of 2.50:1.00 and a maximum consolidated leverage ratio of 3.50:1.00. The consolidated fixed charge coverage ratio includes a calculation of earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense to fixed charges. Fixed charges include interest expense, capitalized interest, and rent expense. The consolidated leverage ratio includes a calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit, and similar instruments, five-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that we should default on any covenant contained within the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the Credit Agreement, and litigation from our lenders.
We had a consolidated fixed charge coverage ratio of 5.906.31 times and 6.146.64 times as of September 30, 2017March 31, 2024 and 2016,2023, respectively, and a consolidated leverage ratio of 1.951.84 times and 1.531.86 times as of September 30, 2017March 31, 2024 and 2016,2023, respectively, remaining in compliance with all covenants related to the borrowing arrangements.
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The table below outlines the calculations of the consolidated fixed charge coverage ratio and consolidated leverage ratio covenants, as defined in the Credit Agreement governing the Revolving Credit Facility, for the twelve months ended September 30, 2017March 31, 2024 and 20162023 (dollars in thousands):
| | | | | | | |
| | | For the Twelve Months Ended | ||||
| | | March 31, | ||||
| |
| 2024 |
| 2023 | ||
GAAP net income | | $ | 2,376,934 | | $ | 2,207,655 | |
Add: | Interest expense | |
| 214,244 | |
| 167,451 |
| Rent expense (1) | |
| 431,176 | |
| 400,831 |
| Provision for income taxes | |
| 650,786 | |
| 635,159 |
| Depreciation expense | |
| 421,444 | |
| 363,811 |
| Amortization expense | |
| 3,518 | |
| 4,946 |
| Non-cash share-based compensation | |
| 27,098 | |
| 27,360 |
Non-GAAP EBITDAR | | $ | 4,125,200 | | $ | 3,807,213 | |
| | | | | | | |
| Interest expense | | $ | 214,244 | | $ | 167,451 |
| Capitalized interest | |
| 8,718 | |
| 5,259 |
| Rent expense (1) | |
| 431,176 | |
| 400,831 |
Total fixed charges | | $ | 654,138 | | $ | 573,541 | |
| | | | | | | |
Consolidated fixed charge coverage ratio | |
| 6.31 | |
| 6.64 | |
| | | | | | | |
GAAP debt | | $ | 5,288,632 | | $ | 4,927,678 | |
Add: | Stand-by letters of credit | |
| 137,848 | |
| 116,688 |
| Unamortized discount and debt issuance costs | |
| 28,368 | |
| 27,322 |
| Five-times rent expense | |
| 2,155,880 | |
| 2,004,155 |
Non-GAAP adjusted debt | | $ | 7,610,728 | | $ | 7,075,843 | |
| | | | | | | |
Consolidated leverage ratio | |
| 1.84 | |
| 1.86 |
(1) | The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per Accounting Standard Codification 842 (“ASC 842”) the most directly comparable GAAP financial measure, for the twelve months ended March 31, 2024 and 2023 (in thousands): |
| | | | | | | |
| | For the Twelve Months Ended | |||||
| | March 31, | |||||
| | 2024 | | 2023 | |||
Total lease cost, per ASC 842 |
| $ | 510,208 | | $ | 476,439 | |
Less: | Variable non-contract operating lease components, related to property taxes and insurance | |
| 79,032 | |
| 75,608 |
Rent expense | | $ | 431,176 | | $ | 400,831 |
For the Twelve Months Ended September 30, | |||||||
2017 | 2016 | ||||||
GAAP net income | $ | 1,077,519 | $ | 1,010,237 | |||
Add: Interest expense | 83,258 | 66,340 | |||||
Rent expense | 295,083 | 279,863 | |||||
Provision for income taxes | 574,491 | 585,650 | |||||
Depreciation expense | 228,815 | 212,208 | |||||
Amortization expense | 1,104 | 1,430 | |||||
Non-cash share-based compensation | 19,323 | 19,614 | |||||
Non-GAAP EBITDAR | $ | 2,279,593 | $ | 2,175,342 | |||
Interest expense | $ | 83,258 | $ | 66,340 | |||
Capitalized interest | 8,298 | 7,976 | |||||
Rent expense | 295,083 | 279,863 | |||||
Total fixed charges | $ | 386,639 | $ | 354,179 | |||
Consolidated fixed charge coverage ratio | 5.90 | 6.14 | |||||
GAAP debt | $ | 2,900,816 | $ | 1,886,501 | |||
Stand-by letters of credit | 41,258 | 38,618 | |||||
Discount on senior notes | 3,894 | 3,295 | |||||
Debt issuance costs | 14,290 | 10,204 | |||||
Five-times rent expense | 1,475,415 | 1,399,315 | |||||
Non-GAAP adjusted debt | $ | 4,435,673 | $ | 3,337,933 | |||
Consolidated leverage ratio | 1.95 | 1.53 |
The table below outlines the calculation of Free cash flow and reconciles Free cash flow to Net cash provided by operating activities, the most directly comparable GAAP financial measure, for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 (in thousands):
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash provided by operating activities (1) | $ | 1,087,419 | $ | 1,214,259 | ||||
Less: | Capital expenditures | 347,756 | 356,234 | |||||
Excess tax benefit from share-based compensation | 35,282 | 46,034 | ||||||
Free cash flow | $ | 704,381 | $ | 811,991 |
| | | | | | | |
| | | For the Three Months Ended | ||||
| | | March 31, | ||||
| |
| 2024 |
| 2023 | ||
Cash provided by operating activities | | $ | 704,215 | | $ | 713,764 | |
Less: | Capital expenditures | |
| 249,240 | |
| 223,268 |
| Excess tax benefit from share-based compensation payments | |
| 16,120 | |
| 4,378 |
Free cash flow | | $ | 438,855 | | $ | 486,118 |
Free cash flow, the consolidated fixed charge coverage ratio, and the consolidated leverage ratio discussed and presented in the tables above are not derived in accordance with United States generally accepted accounting principles (“GAAP”). We do not, 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 our free cash flow, consolidated fixed charge coverage ratio, and consolidated leverage ratio provides meaningful supplemental information to both management and investors and reflects the required covenants under the Credit Agreement. We include these items in judging our performance and believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the tables above, a reconciliation to the most directly comparable GAAP measures.
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Share repurchase program:
See Note 9 “Share Repurchase Program” to the program, we may, from time to time, repurchase shares of our common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, basedConsolidated Financial Statements for information on a variety of factors such as price, corporate trading policy requirements and overall market conditions. Our Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As announced on May 10, 2017, and September 1, 2017, our Board of Directors each time approved a resolution to increase the authorization amount under our share repurchase program by an additional $1.00 billion, resulting in a cumulative authorization amount of $9.75 billion. Each additional authorization is effective for a three-year period, beginning on its respective announcement date.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Shares repurchased | 2,743 | 367 | 8,047 | 3,673 | |||||||||||
Average price per share | $ | 200.70 | $ | 281.04 | $ | 235.26 | $ | 261.32 | |||||||
Total investment | $ | 550,530 | $ | 102,941 | $ | 1,893,068 | $ | 959,743 |
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends and other factors believed to be relevant at the time the condensed consolidated financial statements are prepared. There have been no material changes in the critical accounting estimates since those discussed in our Annual Reportannual report on Form 10-K for the year ended December 31, 2016.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 16 “Recent Accounting Pronouncements” to the Condensed Consolidated Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). Under ASU 2014-09, an entity is required to follow a five-step process to determine the amount of revenue to recognize when promised goods or services are transferred to customers. ASU 2014-09 offers specific accounting guidanceStatements for costs to obtain or fulfill a contract with a customer. In addition, an entity is required to disclose sufficient information to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August of 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), to defer the effective date of ASU 2014-09 by one year. For public companies, ASU 2015-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest rate risk:
We are subject to interest rate risk to the extent we borrow against our unsecured revolving credit facility (the “Revolving Credit Facility”) with variable interest rates based on either aan Alternative Base Rate or EurodollarAdjusted Term SOFR Rate, as defined in the credit agreement governing the Revolving Credit Facility. As of September 30, 2017,March 31, 2024, we had outstanding borrowings under our Revolving Credit Facility in the amount of $269$30.0 million, at the weighted-average variable interest rate of 2.283%8.500%. At this borrowing level, a 0.25%10% increase in interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows in the amount of $0.7$0.2 million.
We are also subject to interest rate risk to the extent we issue short-term, unsecured commercial paper notes under our commercial paper program (the “Program”) with variable interest rates. As of March 31, 2024, we had outstanding borrowings under the Program in the amount of $437.0 million, at the weighted-average variable interest rate of 5.527%. At this borrowing level, a 10% increase in interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows in the amount of $2.4 million.
Cash equivalents risk:
We invest certain of our excess cash balances in short-term, highly-liquid instruments with maturities of 90 days or less. We do not expect any material losses from our invested cash balances and we believe that our interest rate exposure is minimal. As of September 30, 2017,March 31, 2024, our cash and cash equivalents totaled $37$89.3 million.
Foreign currency risk:
Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than our entities’ functional currencies. To minimize our risk, we generally enter into transactions denominated in the respective functional currencies. Our foreign currency exposure arises from Mexican peso-denominated and Canadian dollar-denominated revenues and profits and their respective translations into U.S. dollars.
We view our investments in Mexican subsidiaries as long-term. The net asset exposure in the Mexican subsidiaries translated into U.S. dollars using the period-end exchange rates was $368.1 million at March 31, 2024. The period-end exchange rate of the Mexican peso, relative to the U.S. dollar, strengthened by approximately 2.4% from December 31, 2023. The potential loss in value of our net assets in the Mexican subsidiaries resulting from a 10% change in quoted foreign currency exchange rates at March 31, 2024, would be approximately $33.5 million. Any changes in our net assets in the Mexican subsidiaries relating to foreign currency exchange rates would be reflected in the financial statements through the foreign currency translation component of accumulated other comprehensive income, unless the Mexican subsidiaries are sold or otherwise disposed. A 10% change in average exchange rates would not have had a material impact on our results of operations.
We view our investments in Canadian subsidiaries as long-term. The net asset exposure in the Canadian subsidiaries translated into U.S. dollars using the period-end exchange rates was $168.7 million at March 31, 2024. The period-end exchange rate of the Canadian dollar, relative to the U.S. dollar, weakened by approximately 2.2% from December 31, 2023. The potential loss in value of our net assets in the Canadian subsidiaries resulting from a 10% change in quoted foreign currency exchange rates at March 31, 2024, would be approximately $15.3 million. Any changes in our net assets in the Canadian subsidiaries relating to foreign currency exchange rates would be reflected in the financial statements through the foreign currency translation component of accumulated other comprehensive income, unless the Canadian subsidiaries are sold or otherwise disposed. A 10% change in average exchange rates would not have had a material impact on our results of operations.
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Our market risks have not materially changed since those discussed in our Annual Reportannual report on Form 10-K for the year ended December 31, 2016.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”),the Company, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) and as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company, including its consolidated subsidiaries, in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROLS
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2017,March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 1. Legal Proceedings
The Company is currently involved in litigation incidental to the ordinary conduct of the Company’s business. TheBased on existing facts and historical patterns, the Company accrues for litigation losses in instances where a materialan adverse outcome is probable and the Company is able to reasonably estimate the probable loss.loss in accordance with Accounting Standard Codification 450-20. The Company also accrues for an estimate of material legal costs to be incurred in pendingfor litigation matters. Although the Company cannot ascertain the amount of liability that it may incur from any of theselegal matters, it does not currently believe that, in the aggregate, these matters, taking into account applicable insurance and accruals, will have a material adverse effect on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
As of September 30, 2017,March 31, 2024, there have been no material changes in O’Reilly Automotive, Inc. and its subsidiaries’to the risk factors since those discussedset forth in our Annual Reportannual report on Form 10-K for the year ended December 31, 2016.
The Company had no sales of unregistered securities during the ninethree months ended September 30, 2017.March 31, 2024. The following table identifies all repurchases during the three months ended September 30, 2017,March 31, 2024, of any of the Company’s securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, by or on behalf of the Company or any affiliated purchaser (in thousands, except per share data):
| | | | | | | | | | |
|
| |
| | |
| Total Number of |
| Maximum Dollar Value | |
| | Total | | Average | | Shares Purchased as | | of Shares that May Yet | ||
| | Number of | | Price Paid | | Part of Publicly | | Be Purchased Under the | ||
Period | | Shares Purchased | | per Share | | Announced Programs | | Programs (1) | ||
January 1, 2024, to January 31, 2024 |
| 93 | | $ | 958.52 |
| 93 | | $ | 2,482,988 |
February 1, 2024, to February 29, 2024 |
| 96 | |
| 1,045.55 |
| 96 | |
| 2,382,822 |
March 1, 2024, to March 31, 2024 |
| 73 | |
| 1,097.57 |
| 73 | | $ | 2,302,184 |
Total as of March 31, 2024 |
| 262 | | $ | 1,029.24 |
| 262 | |
|
|
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (1) | ||||||||||
July 1, 2017, through July 31, 2017 | — | $ | — | — | $ | 545,288 | ||||||||
August 1, 2017, through August 31, 2017 | 1,999 | 200.82 | 1,999 | 143,757 | ||||||||||
September 1, 2017, through September 30, 2017 | 744 | 200.38 | 744 | $ | 994,758 | |||||||||
Total as of September 30, 2017 | 2,743 | $ | 200.70 | 2,743 |
(1) | |
Item 5. Other Information
(c) Rule 10b5-1 Trading Plan Elections:
During the endCompany’s fiscal quarter ended March 31, 2024, Chris Mancini, Senior Vice President of Central Store Operations of the third quarterCompany, terminated a Rule 10b5-1 trading plan that was originally established on August 23, 2023. The plan was terminated during the Company’s unrestricted trading window and through November 7, 2017,at a time when Mr. Mancini was not in possession of material, non-public information about the Company repurchased an additional 0.4 million shares of its common stock under its share repurchase program, at an average price of $209.61, for a total investment of $85.2 million. The Company has repurchased a total of 65.4 million shares of its common stock under its share repurchase program since the inceptionCompany.
None of the programCompany’s other Directors or Officers adopted, modified, or terminated a Rule 10b5-1 trading agreement or a non-Rule 10b5-1 trading agreement, as defined in JanuaryItem 408(c) of 2011 and through November 7, 2017, at an average price of $135.17, for a total aggregate investment of $8.8 billion.Regulation S-K, during the Company’s fiscal quarter ended March 31, 2024.
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Exhibit No. | Description | | |
3.1 | |||
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21.1 | | | |
31.1 | |||
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101.INS | | iXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | | iXBRL Taxonomy Extension | |
101.CAL | | iXBRL Taxonomy Extension Calculation | |
101.DEF | | iXBRL Taxonomy Extension Definition | |
101.LAB | | iXBRL Taxonomy Extension Label | |
101.PRE | | iXBRL Taxonomy Extension Presentation | |
104 | | Cover Page Interactive Data File, formatted as Inline XBRL, contained in Exhibit 101 attachments. | |
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(a) | | Management contract or compensatory plan or arrangement | |
* | | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K. | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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O’REILLY AUTOMOTIVE, INC. | | |||
| | | | |
May 9, 2024 | | /s/ | Brad Beckham | |
Date | | Brad Beckham | | |
| | Chief Executive Officer | | |
| | (Principal Executive Officer) | | |
| | | | |
May 9, 2024 | | /s/ | Jeremy A. Fletcher | |
Date | | Jeremy A. Fletcher | | |
| | |||
Executive Vice President and Chief Financial Officer | | |||
| | (Principal Financial and Accounting Officer) | |
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