As filed with the Securities and Exchange Commission on March 10,25, 1999

Registration No. 333-73377
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

AMENDMENT NO. 12
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933

---------------

O'REILLY AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)

---------------

MISSOURI 44-0618012
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)

233 South Patterson
Springfield, Missouri 65802
(417) 862-6708
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

---------------

DAVID E. O'REILLY
President and Chief Executive Officer
O'Reilly Automotive, Inc.
233 South Patterson
Springfield Missouri 65802
(417) 862-6708
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

With copies to:
PETER C. KRUPP, ESQ. LAWRENCE D. LEVIN, ESQ.
Skadden, Arps, Slate, Meagher & Flom Katten Muchin & Zavis
(Illinois) 525 W. Monroe Street
333 W. Wacker Drive, Suite 2100 Suite 1600
Chicago, Illinois 60606 (312) 902-5200
(312) 407-0700

---------------

Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

---------------

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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- -------------------------------------------------------------------------------

SUBJECT TO COMPLETION -- March 10,25, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999

[Logo]

O'Reilly Automotive, Inc.

4,140,0003,340,000 Shares of Common Stock

- --------------------------------------------------------------------------------

The Company: The Offering:

. We are one of the
largest specialty . The Company is
largest specialtyretailers of offering 3,000,000 of
retailers ofautomotive the shares and
automotiveaftermarket parts, existing shareholders
aftermarket parts,tools, supplies, are offering tools, supplies, 1,140,000340,000
equipment and of the
equipment and shares.
accessories in the
United States,
serving both the "do-
it-yourself" and
professional
installer markets.

. The underwriters
have an option to
purchase an
additional 621,000501,000
shares from the
Company to cover
over-allotments.

. O'Reilly
Automotive, Inc. 233
South Patterson
Springfield, MO 65802
(417) 862-6708

. There is an
existing trading
market for these
shares. The reported
last sales price on
March 8,24, 1999 was
$43
11/16$37 1/2 per share.

. Nasdaq Symbol: ORLY

. We plan to repay
debt with the
proceeds from this
offering in order to
facilitate future
expansion of our
operations. We will
not receive any
proceeds from the
shares sold by the
selling shareholders.

. Closing: ,
1999.

------------------------------------------------

Per Share Total
------------------------------------------------------

Public offering price: $ $
Underwriting fees:
Proceeds to Company:
Proceeds to selling shareholders:
------------------------------------------------------

This investment involves risk. See "Risk Factors" beginning on Page 7.

- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------

Donaldson, Lufkin & Jenrette
George K. Baum & Company
William Blair & Company

[Map of the states in which O'Reilly operates indicating the number of O'Reilly
stores in each such state.]

TABLE OF CONTENTS

Page

Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 10
Price Range of Common Stock and
Dividend Policy.................... 11
Capitalization...................... 12
Selected Consolidated Financial
Data............................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 14
Business............................ 20

Page

Management............................................................ 31
Selling Shareholders.................................................. 33
Description of Capital Stock.......................................... 3534
Underwriting.......................................................... 3635
Incorporation of Certain Documents by Reference....................... 3736
Additional Information................................................ 3837
Legal Matters......................................................... 3938
Experts............................................................... 3938
Index to Consolidated Financial Statements............................ F-1

PROSPECTUS SUMMARY

This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully. Unless otherwise indicated, the information
in this prospectus assumes (1) the underwriters' over-allotment option will not
be exercised and (2) the exercise of 340,000 options to purchase our common
stock which expire on April 21, 1999, held by four of our directors and
executive officers. Unless otherwise indicated, "we," "us," "our" and similar
terms, as well as references to the "Company" and "O'Reilly," refer to O'Reilly
Automotive, Inc. and its subsidiaries.

The Company

We are one of the largest specialty retailers of automotive aftermarket
parts, tools, supplies, equipment and accessories in the United States, selling
our products to both do-it-yourself, or DIY, customers and professional
installers. At December 31, 1998 we operated 491 stores in Texas, Missouri,
Oklahoma, Kansas, Iowa, Arkansas, Louisiana, Nebraska and Illinois. Our stores
carry an extensive product line consisting of new and remanufactured automotive
hard parts, maintenance items and accessories, and a complete line of autobody
paint and related materials, automotive tools and professional service
equipment.

In January 1998, we expanded into Texas and Louisiana by acquiring Hi-Lo
Automotive, Inc., a specialty retailer and supplier of automotive aftermarket
products. Of the 182 net Hi-Lo stores we acquired, 165 are located in Texas and
17 are located in Louisiana.

Our annual product sales increased from $316.4 million in 1997 to $616.3
million in 1998. This increase was primarily the result of our acquisition of
Hi-Lo, the opening of 50 net stores and continued strong growth in same store
product sales. Our same store product sales at all stores increased by 6.8% for
the year and 13.3% for the fourth quarter of 1998. Our net income increased
approximately 33% from $23.1 million in 1997 to $30.8 million in 1998.

Our goal is to continue to achieve growth in sales and profitability by
capitalizing on our competitive advantages and executing our growth and
expansion strategies.

Competitive Advantages

Proven Ability to Execute Dual Market Strategy. From the mid-1980s through
1997, we derived approximately 50% of our product sales from our DIY customers
and approximately 50% from our professional installer customers. Following the
acquisition of Hi-Lo, in 1998 we derived approximately 57% of our product sales
from our DIY customers and approximately 43% from our professional installer
customers. We believe our ability to serve both DIY customers and professional
installers is a competitive advantage which enables us to:

. target a larger base of consumers of automotive aftermarket parts;

. capitalize on our existing retail and distribution infrastructure;

. profitably operate both in large markets and less densely populated
geographic areas which typically attract fewer competitors; and

. enhance service levels offered to our DIY customers by offering a broad
selection of stock keeping units and extensive product knowledge required
by professional installers.

Superior Customer Service. We seek to attract new DIY and professional
installer customers and to retain existing customers by offering superior
customer service, the key elements of which include:

. superior in-store service through highly-motivated, technically
proficient store personnel, referred to as professional parts people,
using advanced point-of-sale systems;

. an extensive selection of products;

. attractive stores in convenient locations; and

. competitive pricing, with a low price guarantee.

Technically Proficient Professional Parts People. Our highly proficient
store personnel, who undergo extensive and ongoing training, provide us with a
significant competitive advantage, particularly over less specialized retail
operators.

Strategic Distribution Systems. We believe that the geographic concentration
of our store network in nine contiguous states and the strategic locations of
our four distribution centers enable us to maintain optimum inventory levels
throughout our store network. In addition, our inventory management and
distribution systems electronically link each of our stores to a distribution
center, providing each O'Reilly store with same day or overnight access to over
100,000 stock keeping units, many of which are hard to find items not typically
stocked by other parts retailers.

Experienced Management Team. Our management team has a demonstrated ability
to successfully execute our business plan, including the identification and
integration of strategic acquisitions. We have a strong senior management team
comprised of 37 professionals who average 20 years of experience with O'Reilly.
In addition, our 50 district managers average over 10 years of experience with
us.

Growth and Expansion Strategies

Increase Operating Efficiencies. We believe that as we continue to grow our
store network we will increasingly be able to enjoy economies of scale and
operating efficiencies, particularly in the areas of purchasing, distribution,
inventory management and advertising.

Selectively Pursue Strategic Acquisitions. We intend to selectively pursue
acquisition targets that will strengthen our position as a leading automotive
products retailer.

Continually Enhance Store Design and Location. We continually update the
location and condition of our store network through systematic renovation and
relocation of existing O'Reilly stores to conform with our prototype store
design, which features enhancements designed to increase product sales and
operating efficiencies and enhance customer service. In 1998, we renovated or
relocated 18 stores, and in 1999 we plan to renovate or relocate approximately
19 stores.

Recent Developments

Hinojosa Acquisition. In October 1998, we agreed to purchase substantially
all of the assets of Hinojosa Auto Parts for approximately $6 million. Hinojosa
is a specialty retailer and supplier of automotive aftermarket products with a
chain of 10 stores and a 48,000 square foot distribution center operating in
the Rio Grande Valley along the Texas/Mexico border. We expect the acquisition
of Hinojosa to close in April 1999.

Increase in Authorized Shares. At our regularly scheduled annual meeting on
May 4, 1999, we will seek shareholder approval of a proposal to increase the
number of shares of common stock authorized from 30 million to 90 million. We
believe that such additional shares will provide us the flexibility to act
promptly with respect to stock splits and stock dividends, public and private
financings, acquisitions and other corporate purposes.

The Offering

Common stock offered by:
The Company................. 3,000,000 shares
Selling shareholders........
1,140,000 shares
Total....................
4,140,000340,000 shares

Common stock to be outstanding 3,340,000 shares
after the offering............
24,689,700 shares (a)
Use of proceeds................

We intend to use the estimated net proceeds
of $125.4$107.6 million (based on an assumed
offering price of $43 11/16)$37 1/2) that we will
receive from this offering to repay a portion
of our borrowings outstanding under our
existing credit facility. We will not receive
any of the proceeds from the shares sold by
- -------------------- the selling shareholders.

(a) Based on shares outstanding as of December 31, 1998 plus 340,000 shares
underlying options to be exercised in connection with this offering.
Excludes: (1) 1,626,925 shares subject to outstanding options on December
31, 1998 at a weighted average exercise price of $21.74 per share; (2)
2,523,075 additional shares reserved for issuance under our stock option
and other stock-based plans; and (3) 621,000501,000 shares subject to the
underwriters' over-allotment option.

Risk Factors

See "Risk Factors" beginning on page 7 for a description of certain risks
relevant to an investment in our common stock. These risk factors include,
among others, risks related to competition in the automotive aftermarket
business, our growth strategy, our acquisition strategy, our sensitivity to
regional economic and weather conditions, our dependence upon key and other
personnel, the significant voting control held by our principal shareholders
and the Year 2000 issue.

Summary Consolidated Financial Data

Years Ended December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
(In thousands, except per share and operating
data)

Income Statement Data:
Product sales........... $167,057 $201,492 $259,243 $316,399 $616,302
Gross profit............ 69,299 84,724 108,471 134,610 257,863
Operating income........ 17,157 22,037 28,851 37,084 56,901
Income before income
taxes.................. 17,533 22,273 30,033 37,556 49,943
Net income.............. 11,072 14,091 18,971 23,143 30,772
Net income per common
share.................. $ 0.64 $ 0.79 $ 0.91 $ 1.10 $ 1.45
Net income per common
share--assuming
dilution............... $ 0.64 $ 0.79 $ 0.90 $ 1.09 $ 1.42

Selected Operating Data:
Number of stores at
beginning of year...... 145 165 188 219 259
Net stores added(a)..... 20 23 31 40 232(b)
Number of stores at year
end.................... 165 188 219 259 491
Total store square
footage at year end
(in 000's)(c).......... 785 923 1,155 1,454 3,172
Weighted average product
sales per store (in
000's)(c).............. $ 1,007 $ 1,101 $ 1,239 $ 1,306 $ 1,368
Percentage increase in
same store product
sales(d)............... 8.9% 8.9% 14.4% 6.8% 6.8%

As of December 31, 1998
------------------------
Actual As Adjusted(e)
(In thousands)

Balance Sheet Data:
Working capital.................................... $208,363 $212,312$211,512
Total assets....................................... 493,288 493,288
Short-term debt.................................... 13,691 13,691
Long-term debt, less current portion............... 170,166 40,30858,128
Shareholders' equity............................... 218,394 352,201333,581

- --------------------
(a) Two stores were closed during 1997 and one was closed in 1998.
Additionally, seven former Hi-Lo stores located in California were sold
in 1998. No other stores were closed or sold during the periods
presented.
(b) Reflects 182 net stores acquired in the Hi-Lo acquisition and 50 net
stores opened.
(c) Total square footage includes normal selling, office, stockroom and
receiving space. Weighted average product sales per store are weighted to
consider the approximate dates of store openings.
(d) We calculate same store product sales based on the change in product
sales of only those stores open during both full periods being compared.
We calculate the percentage increase in same store product sales based on
store sales results which exclude sales of specialty machinery, sales by
outside salesmen and sales to employees.

(e) As adjusted to reflect the sale by us of 3,000,000 shares of common stock
offered hereby at an assumed offering price of $43 11/16$37 1/2 and the
application of the estimated net proceeds therefrom, and the effect of
the exercise of the 340,000 options being exercised in connection with
this offering.

RISK FACTORS

Before you invest in our common stock, you should be aware that making such
an investment involves various risks, including those described below. You
should carefully consider these risk factors, together with all of the other
information included in this prospectus or incorporated by reference, before
you decide whether to purchase shares of our common stock.

Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You
should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other "forward-
looking" information. We believe it is important to communicate our
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or over which we have no control. The
risk factors listed in this section, as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in
our forward-looking statements. Before you invest in our common stock, you
should be aware that the occurrence of the events described in these risk
factors and elsewhere in this prospectus could have a material adverse effect
on our business, operating results and financial condition.

The Automotive Aftermarket Business is Highly Competitive

Both the DIY and professional installer portions of our business are highly
competitive, particularly in the more densely populated areas that we serve.
Some of our competitors are larger than we are and have greater financial
resources. In addition, some of our competitors are smaller than we are overall
but have a greater presence than we do in a particular market. For a list of
our principal competitors, see the "Business--Competition" section of this
prospectus.

We Cannot Assure Future Growth

We believe that our ability to open additional stores at an accelerated rate
will be a significant factor in achieving our growth objectives for the future.
Failure to achieve our growth objectives may negatively impact the trading
price of our common stock. Our ability to accomplish our growth objectives is
dependent, in part, on matters beyond our control, such as weather conditions,
zoning and other issues related to new store site development, the availability
of qualified management personnel and general business and economic conditions.
We cannot be sure that our growth plans for 1999 and beyond will be achieved.
For a discussion of our growth strategies, see the "Business--Growth and
Expansion Strategies" section of this prospectus.

Acquisitions May Not Lead to Expected Growth

We acquired Hi-Lo in January 1998 and plan to acquire Hinojosa in April
1999. We expect to continue to acquire companies as an element of our growth
strategy. Acquisitions involve certain risks that could cause our actual growth
to differ from our expectations. For example: (1) we may not be able to
continue to identify suitable acquisition candidates or to acquire additional
companies at favorable prices or on other favorable terms; (2) our management's
attention may be distracted; (3) we may fail to retain key acquired personnel;
(4) we may assume unanticipated legal liabilities and

other problems; and (5) we may not be able to successfully integrate the
operations (accounting and billing functions, for example) of businesses we
acquire to realize economic, operational and other benefits.

Sensitivity to Regional Economic and Weather Conditions

All of our stores are located in the Central and Southern United States. In
particular, approximately 35% of our stores are located in Texas. Therefore,
our business is sensitive to the economic and weather conditions of these
regions. Unusually severe or inclement weather tends to reduce sales,
particularly to DIY customers.

Dependence Upon Key and Other Personnel

Our success has been largely dependent on the efforts of certain key
personnel, including David E. O'Reilly, Lawrence P. O'Reilly, Charles H.
O'Reilly, Jr., Rosalie O'Reilly Wooten and Ted F. Wise. Our business and
results of operations could be materially adversely affected by the loss of the
services of one or more of these individuals. Additionally, our successful
implementation and management of our growth and expansion strategies will
depend on our ability to continue to attract and retain qualified personnel. We
cannot be sure that we will be able to continue to attract such personnel. For
a further discussion of our management and personnel, see the "Business" and
"Management" sections of this prospectus.

Significant Voting Control is held by the O'Reilly Family

Upon completion of this offering, members of the O'Reilly family will
beneficially own approximately 26.0%29.2% of the then outstanding shares of our
common stock (25.4%(28.6% if the underwriters' over-allotment option is exercised in
full). As a result, the O'Reilly family acting together will continue to be
able to exercise significant voting control over the Company, including the
election of our directors and on any other matter being voted on by our
shareholders, including any merger, sale of assets or other change in control.
We further discuss our ownership in the "Selling Shareholders" section of this
prospectus.

Possible Volatility of Our Stock Price

The stock market and the price of our common stock may be subject to
volatile fluctuations based on general economic and market conditions. The
market price for our common stock may also be affected by our ability to meet
analysts' expectations. Failure to meet such expectations, even slightly, could
have an adverse effect on the market price of our common stock. In addition,
stock market volatility has had a significant effect on the market prices of
securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business.

Year 2000 Issue

Historically, certain computerized systems have used two digits rather than
four to define the applicable year. Computer equipment and software and devices
with imbedded technology that are time-sensitive may recognize a date using
"00" as the year 1900 rather than the year 2000, resulting in system failure or
miscalculations. This problem is generally referred to as the "Year 2000
issue."

Risks posed by the Year 2000 issue could include a loss of communications
links with store locations, interruptions in the nightly replenishment of store
inventories, and the inability to process transactions, send purchase orders or
engage in similar routine business activities. We presently believe that our
approach to the Year 2000 issue, including assessment, remediation, testing of
necessary changes and contingency planning will minimize the business risk of
the Year 2000 issue. However, if we do not make the necessary modifications or
conversions or do not complete them in a timely manner, it could have a
material adverse effect on our operations. In addition, our operations could be
adversely affected if we fail to retain internal personnel dedicated to the
remediation of the Year 2000 issue, if our external vendors fail to timely
deliver software corrections and if our key business partners fail to complete
their Year 2000 remediation efforts. We discuss our Year 2000 conversion in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus.

Shares Eligible for Future Sale

All of the shares of common stock to be outstanding following the completion
of this offering will be tradeable without restriction by persons other than
our affiliates. All of the shares of common stock currently held by our
affiliates may be sold in reliance upon the exemptive provisions of Rule 144 of
the Securities Act of 1933, as amended, subject to certain volume and other
conditions imposed by such rule. We cannot predict the effect, if any, that
future sales of shares of common stock or the availability of such shares for
sale will have on the market price of the common stock prevailing from time to
time. Sales of substantial amounts of common stock, or the perception that such
sales might occur, could adversely affect the prevailing market price of the
common stock. Our directors and executive officers and the selling shareholders
have agreed with the underwriters that they will not, without the written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, publicly sell
or distribute the shares of common stock held by them for a period of 90 days
beginning on the date of this prospectus.

USE OF PROCEEDS

The net proceeds from the sale of the 3,000,000 shares of common stock
offered by us will be approximately $125.4$107.6 million (approximately $151.4$125.6
million if the underwriters' over-allotment option is exercised in full) at an
assumed offering price of $43 11/16$37 1/2 per share and after deducting the estimated
underwriting fees and expenses of this offering. We will not receive any
proceeds from the sale of common stock by the selling shareholders. We
anticipate that such net proceeds will be used to repay certain indebtedness
that we incurred under our existing credit facility in connection with opening
new stores, renovating or relocating existing stores and the Hi-Lo acquisition.

Our unsecured five-year syndicated credit facility provides for, among other
things, a $125 million revolving loan, which was extended to $160 million
through July 31, 1999, and a $48 million term loan. At December 31, 1998, the
effective interest rate on the revolving and term loan portions, which each
mature on January 27, 2003, was 6.22% per annum.

Pending use of the net proceeds as described above, such funds will be
invested in short-term, interest-bearing securities or deposited in short-term
interest-bearing bank accounts.

PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY

Our common stock is traded on the Nasdaq National Market under the symbol
ORLY. The following table sets forth, for the periods indicated, the range of
high and low bid prices for our common stock as reported on the Nasdaq National
Market.

Price Range of
Common Stock
----------------
High Low

Year Ended December 31, 1997:
First Quarter............................................... $19 1/16 $15 1/2
Second Quarter.............................................. 19 7/8 16 7/8
Third Quarter............................................... 26 18 7/8
Fourth Quarter.............................................. 28 21
Year Ended December 31, 1998:
First Quarter............................................... $30 1/2 $24 5/8
Second Quarter.............................................. 36 3/4 25 5/8
Third Quarter............................................... 39 1/2 28 5/8
Fourth Quarter.............................................. 48 3/8 31 5/8
Year Ended December 31, 1999:
First Quarter (through March 8,24, 1999)............................................. $52 3/4 $42$37 1/2

On March 8,24, 1999, the reported last sale price of the common stock was $43
11/16$37
1/2 per share. As of March 1, 1999, we had approximately 1,574 shareholders of
record.

Since our initial public offering, we have not paid cash dividends on our
common stock. We currently anticipate that all of our earnings will be retained
for development of our business and do not anticipate paying any cash dividends
in the foreseeable future. In addition, our credit facility restricts our
ability to pay cash dividends.

CAPITALIZATION

The following table sets forth our short-term debt and total capitalization
as of December 31, 1998 (1) on an actual basis, and (2) as adjusted to reflect
(a) our receipt of the estimated net proceeds from the sale of 3,000,000 shares
of our common stock offered hereby at an assumed offering price of $43 11/16$37 1/2 and
the application of the estimated net proceeds therefrom, and (b) the effect of
the exercise of the 340,000 options being exercised in connection with this
offering. You should read this table in conjunction with our consolidated
financial statements, including the notes thereto, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this prospectus.

As of December
31, 1998
-----------------
As
Actual Adjusted
(In thousands)

Short-term debt, including current portion of long-term debt. $ 13,691 $ 13,691
======== ========

Long-term debt............................................... $170,166 $ 40,30858,128
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding............... -- --
Common stock; $0.01 par value; 30,000,000 shares
authorized; 21,349,700 shares issued and outstanding
(actual), 24,689,700 shares issued and outstanding (as
adjusted) (a)............................................. 213 246
Additional paid-in capital................................. 82,658 216,432197,812
Retained earnings.......................................... 135,523 135,523
-------- --------
Total shareholders' equity............................... 218,394 352,201333,581
-------- --------
Total capitalization................................... $388,560 $392,509$391,709
======== ========

- ---------------------

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data and
other operating information. The selected consolidated financial data is
derived from our consolidated financial statements which have been audited by
Ernst & Young LLP, independent auditors. The selected consolidated financial
data should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included or incorporated by
reference herein.

Years Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
(In thousands, except per share and
operating data)

Income Statement Data:
Product sales.............. $167,057 $201,492 $259,243 $316,399 $616,302
Cost of goods sold,
including warehouse and
distribution expenses..... 97,758 116,768 150,772 181,789 358,439
-------- -------- -------- -------- --------
Gross profit............... 69,299 84,724 108,471 134,610 257,863
Operating, selling, general
and administrative
expenses.................. 52,142 62,687 79,620 97,526 200,962
-------- -------- -------- -------- --------
Operating income........... 17,157 22,037 28,851 37,084 56,901
Other income (expense),
net....................... 376 236 1,182 472 (6,958)
-------- -------- -------- -------- --------
Income before income taxes. 17,533 22,273 30,033 37,556 49,943
Provision for income taxes. 6,461 8,182 11,062 14,413 19,171
-------- -------- -------- -------- --------
Net income................. $ 11,072 $ 14,091 $ 18,971 $ 23,143 $ 30,772
======== ======== ======== ======== ========
Net income per common
share..................... $ 0.64 $ 0.79 $ 0.91 $ 1.10 $ 1.45
======== ======== ======== ======== ========
Net income per common
share--assuming dilution.. $ 0.64 $ 0.79 $ 0.90 $ 1.09 $ 1.42
======== ======== ======== ======== ========
Weighted average common
shares outstanding........ 17,310 17,820 20,864 21,043 21,238
Weighted average common
shares outstanding--
assuming dilution......... 17,389 17,902 21,032 21,277 21,602
Selected Operating Data:
Number of stores at
beginning of year......... 145 165 188 219 259
Net stores added (a)....... 20 23 31 40 232(b)
Number of stores at year
end....................... 165 188 219 259 491
Total store square footage
at year end (in 000's)
(c)....................... 785 923 1,155 1,454 3,172
Weighted average product
sales per store (in 000's)
(c)....................... $ 1,007 $ 1,101 $ 1,239 $ 1,306 $ 1,368
Percentage increase in same
store product sales (d)... 8.9% 8.9% 14.4% 6.8% 6.8%

As of December 31,
------------------------------------------------
1994 1995 1996 1997 1998
(In thousands)

Balance Sheet Data:
Working capital............ $ 41,416 $ 80,471 $ 74,403 $ 93,763 $208,363
Total assets............... 87,327 153,604 183,623 247,617 493,288
Short-term debt............ 311 231 3,154 130 13,691
Long-term debt, less
current portion........... 461 358 237 22,641 170,166
Shareholders' equity....... 70,224 133,870 155,782 182,039 218,394

- ---------------------
(a) Two stores were closed during 1997 and one was closed in 1998.
Additionally, seven former Hi-Lo stores located in California were sold in
1998. No other stores were closed or sold during the periods presented.
(b) Reflects 182 net stores acquired in the Hi-Lo acquisition and 50 net stores
opened.
(c) Total square footage includes normal selling, office, stockroom and
receiving space. Weighted average product sales per store are weighted to
consider the approximate dates of store openings.
(d) We calculate same store product sales based on the change in product sales
of only those stores open during both full periods being compared. We
calculate the percentage increase in same store product sales based on
store sales results which exclude sales of specialty machinery, sales by
outside salesmen and sales to employees.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition, results of operations
and liquidity and capital resources should be read in conjunction with our
consolidated financial statements, related notes and other financial
information included elsewhere in this prospectus.

We are one of the largest specialty retailers of automotive aftermarket
parts, tools, supplies, equipment and accessories in the United States, selling
our products to both DIY customers and professional installers. Our stores
carry an extensive product line consisting of new and remanufactured automotive
hard parts, maintenance items and accessories, and a complete line of autobody
paint and related materials, automotive tools and professional service
equipment.

In January 1998, we acquired Hi-Lo for a cash purchase price of
approximately $49.3 million. At the time of the acquisition, Hi-Lo had $43.2
million of existing debt, among other liabilities, which we assumed. Through
the Hi-Lo acquisition, we acquired a net of 182 stores and a 425,000 square
foot distribution center located in Houston, Texas.

We calculate same store product sales based on the change in product sales
of only those stores open during both full periods being compared. We calculate
the percentage increase in same store product sales based on store sales
results which exclude sales of specialty machinery, sales by outside salesmen
and sales to employees.

Cost of goods sold consists primarily of product costs and warehouse and
distribution expenses. Cost of goods sold as a percentage of product sales may
be affected by variations in our product mix, price changes in response to
competitive factors and fluctuations in merchandise costs and vendor programs.

Operating, selling, general and administrative expenses consist primarily of
store payroll, store occupancy, advertising expenses, other store expenses and
general and administrative expenses, including salaries and related benefits of
corporate employees, administrative office occupancy expenses, data processing,
professional expenses and other related expenses.

Results of Operations

The following table sets forth certain of our summary income statement data
as a percentage of product sales for the years indicated:

Years Ended December 31,
----------------------------
1996 1997 1998

Product sales.............................. 100.0% 100.0% 100.0%
Cost of goods sold, including warehouse and
distribution expenses..................... 58.2 57.5 58.2
-------- -------- --------
Gross profit............................... 41.8 42.5 41.8
Operating, selling, general and
administrative
expenses.................................. 30.7 30.8 32.6
-------- -------- --------
Operating income........................... 11.1 11.7 9.2
Other income (expense)..................... 0.5 0.1 (1.1)
-------- -------- --------
Income before income taxes................. 11.6 11.8 8.1
Provision for income taxes................. 4.3 4.5 3.1
-------- -------- --------
Net income................................. 7.3% 7.3% 5.0%
======== ======== ========

1998 Compared to 1997

Product sales increased $299.9 million, or 94.8% from $316.4 million in
1997 to $616.3 million in 1998 due to 182 net additional stores acquired from
Hi-Lo, 50 net additional stores opened during 1998, and a $33.1 million, or
6.8% increase in same store product sales. We believe that the customer
acceptance experienced by these new stores and the increased product sales
achieved by the existing stores is the result of our offering of a broader
selection of stock keeping units in most stores, an increased promotional and
advertising effort through a variety of media and localized promotional
events, and continued improvement in the merchandising and store layouts of
most stores. Also, our continued focus on serving professional installers
contributed to increased sales.

Gross profit increased 91.6% from $134.6 million (or 42.5% of product
sales) in 1997 to $257.9 million (or 41.8% of product sales) in 1998. The
decrease in gross profit margin was primarily attributable to the inclusion of
eleven months of Hi-Lo operations, which resulted in a higher cost of sales.
The decrease was offset partially by continued improvements in our product
acquisition programs and conversions in the product lines in the Hi-Lo stores.

Operating, selling, general and administrative expenses increased $103.4
million from $97.5 million (or 30.8% of product sales) in 1997 to $201.0
million (or 32.6% of product sales) in 1998. The increase in these expenses in
dollar amount and as a percentage of sales primarily resulted from the Hi-Lo
acquisition and net store openings, as well as the addition of team members
and facilities to support the increased level of our operations.

Other income (expense) decreased by $7.5 million from income of $0.5
million in 1997 to expense of $7.0 million in 1998, primarily due to increased
interest expense from higher balances on long-term debt principally resulting
from the Hi-Lo acquisition and growth in the scope of our operations.

Our provision for income taxes was 38.4% of income before income taxes in
1998 and 1997.

Principally as a result of the foregoing, net income in 1998 was $30.8
million, or 5.0% of product sales, an increase of $7.6 million (or 33.0%) from
net income in 1997 of $23.1 million, or 7.3% of product sales.

1997 Compared to 1996

Product sales increased $57.2 million, or 22.1%, from $259.2 million in
1996 to $316.4 million in 1997 due to 40 net additional stores opened during
1997 and a $15.6 million, or 6.8%, increase in same store product sales. We
believe that the customer acceptance experienced by these new stores and the
increased product sales achieved by the existing stores is the result of our
continuation of media advertising during 1997 at levels comparable to those
set in 1996, an increase in the broad selection of stock keeping units at the
newer or recently renovated or relocated stores, the increase in inventory
levels at most stores, and the increasing penetration of the general
geographic markets in which we operate.

Gross profit increased 24.1% from $108.5 million (or 41.8% of product
sales) in 1996 to $134.6 million (or 42.5% of product sales) in 1997. The
increase in gross profit margin was primarily attributable to lower product
costs resulting from our obtaining increased volume discounts and other
economies of scale. The increase was partially offset by continued price
competition among automotive parts retailers.

Operating, selling, general and administrative expenses increased $17.9
million from $79.6 million (or 30.7% of product sales) in 1996 to $97.5 million
(or 30.8% of product sales) in 1997. The increased dollar amount of these
expenses resulted primarily from the new store openings and additions to
administrative staff and facilities which occurred during 1997 in order to
support our increased level of operations.

Our provision for income taxes increased from 36.8% of income before income
taxes in 1996 to 38.4% in 1997. The increase in the effective income tax rate
was primarily due to more of our sales occurring in states with higher income
tax rates. Additionally, in 1996, interest income of over $400,000 was tax
exempt, but all interest income was taxable in 1997.

Principally as a result of the foregoing, net income in 1997 was $23.1
million, or 7.3% of product sales, an increase of $4.1 million (or 21.6%) from
net income in 1996 of $19.0 million, or 7.3% of product sales.

Liquidity and Capital Resources

Net cash provided by operating activities was $4.9 million in 1996 and $17.9
million in 1997. Net cash used in operating activities was $19.1 million in
1998. The increase in 1997 compared to 1996 is principally the result of
increases in net income and accounts payable and accrued expenses, partially
offset by an increase in inventory. The increase in inventory is due to the
addition in 1997 of 40 net stores and an increase in inventory levels at most
stores and the distribution centers. The net cash used in operating activities
in 1998 is principally the result of increases in inventory, amounts receivable
from vendors, refundable income taxes, accounts receivable and accrued payroll,
net of increases in accounts payable and deferred income taxes. The increase in
inventory is due to the addition of 50 net stores, an increase in inventory
levels at many stores particularly the acquired Hi-Lo stores and increases in
inventory at the Oklahoma City distribution center, due to its expansion, and
the Houston distribution center, to improve order fill and service levels.

Net cash used in investing activities was $11.2 million in 1996, $37.7
million in 1997 and $100.8 million in 1998. The increase in cash used in 1997
was primarily due to increased capital expenditures without any offsetting
proceeds from the sale of short-term investments. The increase in cash used in
1998 was primarily due to the purchase of Hi-Lo and increased capital
expenditures.

Capital expenditures were $34.5 million in 1996, $37.2 million in 1997 and
$57.7 million in 1998. These expenditures were primarily related to the opening
of new stores as well as the relocation or remodeling of existing stores. We
opened 31 new stores and remodeled or relocated 32 stores in 1996. In 1997, we
opened 40 net stores and remodeled or relocated 28 stores. In 1998, we opened
50 net stores and renovated or relocated 18 stores. Also, in 1996, 1997 and
1998, we purchased real estate for new stores and store relocations totaling
approximately $7.8 million, $8.1 million and $9.9 million, respectively. In
1997, we purchased real estate for the Des Moines distribution center totaling
$0.7 million. Construction costs for the Des Moines distribution center, which
is scheduled to be completed in April 1999, totaled $3.7 million at December
31, 1998.

Our continuing store expansion program requires significant capital
expenditures and working capital principally for inventory requirements. The
costs associated with the opening of a new store (including the cost of land
acquisition, improvements, fixtures, inventory and computer equipment) are
estimated to average approximately $900,000 to $1.1 million; however, such
costs may be

significantly reduced where we lease, rather than purchase, the store site.
Although the cost to acquire the business of an independently owned parts store
varies, depending primarily upon the amount of inventory and the amount, if
any, of real estate being acquired, we estimate that the average cost to
acquire such a business and convert it to one of our stores is approximately
$400,000. We plan to finance our expansion program through cash expected to be
provided from operating activities and available borrowings, after the
application of the proceeds from this offering.

On July 8, 1997, our Board of Directors declared a two-for-one stock split
effected in the form of a 100% stock dividend to all shareholders of record as
of July 31, 1997. The stock dividend was paid on August 31, 1997.

In order to fund the Hi-Lo acquisition, our continuing store expansion
program, and our working capital and general corporate needs, we replaced our
lines of credit in January 1998 with an unsecured, five-year syndicated credit
facility totaling $173 million. The facility is comprised of a $125 million
revolving loan, a $5 million sublimit for the issuance of letters of credit and
a $48 million term loan. This credit facility is guaranteed by our
subsidiaries. At December 31, 1998, the effective interest rate on the
revolving and term loan portions, which each mature on January 27, 2003, was
6.22% per annum. At December 31, 1998, there were no borrowings available under
this credit facility.

In January 1999, we amended the above credit facility to increase the amount
available under the revolving facility by $35 million. The additional $35
million is available until July 31, 1999 or until a "capital markets event"
occurs. We believe that this offering will constitute a capital markets event.
The additional $35 million bears interest at the same rate as the revolving
credit facility discussed above.

We believe that the proceeds from this offering, combined with our existing
cash, short-term investments, cash expected to be provided by operating
activities, available bank credit facilities and trade credit will be
sufficient to fund both our short and long-term capital needs for the
foreseeable future.

Inflation and Seasonality

We succeeded, in many cases, in reducing the effects of merchandise cost
increases principally by taking advantage of vendor incentive programs,
economies of scale resulting from increased volume of purchases and selective
forward buying. As a result, we do not believe that our operations have been
materially affected by inflation.

Our business is somewhat seasonal primarily as a result of the impact of
weather conditions on store sales. Store sales and profits have historically
been higher in the second and third quarters (April through September) of each
year than in the first and fourth quarters.

Quarterly Results

The following table sets forth certain quarterly unaudited operating data
for fiscal 1997 and 1998. The unaudited quarterly information includes all
adjustments which management considers necessary for a fair presentation of the
information shown.

The unaudited operating data presented below should be read in conjunction
with our consolidated financial statements and related notes included elsewhere
in this prospectus, and the other financial information included herein.

Fiscal 1997
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share
data)

Product sales.............................. $ 68,472 $ 82,448 $ 87,517 $ 77,962
Gross profit............................... 29,191 34,715 36,531 34,173
Operating income........................... 7,928 9,493 10,467 9,196
Net income................................. 5,007 6,082 6,621 5,433
Net income per common share................ 0.24 0.29 0.31 0.26
Net income per common share--assuming
dilution.................................. $ 0.24 $ 0.29 $ 0.31 $ 0.25

Fiscal 1998
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share
data)

Product sales.............................. $118,269 $165,242 $172,784 $160,007
Gross profit............................... 50,669 66,201 69,345 71,648
Operating income........................... 10,602 13,745 15,435 17,119
Net income................................. 5,819 7,672 8,361 8,920
Net income per common share................ 0.28 0.36 0.39 0.42
Net income per common share--assuming
dilution.................................. $ 0.27 $ 0.36 $ 0.39 $ 0.41

Year 2000 Issue

We have appointed an internal Year 2000 issue project manager and
remediation team and have adopted a four phase approach of assessment,
remediation, testing and contingency planning. The scope of the project
includes our review of all internal software, hardware and operating systems
and an assessment of the risk to our business posed by any lack of vendor
preparedness with respect to the Year 2000 issue. We have completed the initial
assessment of all internal systems, are progressing with the remediation and
testing phases, and have begun contingency planning for information technology
systems. We believe that this approach of assessment (including prioritization
by business risk), remediation (including conversions to new software), testing
of necessary changes, and contingency planning will minimize the business risk
of the Year 2000 issue from internal systems.

We are utilizing internal personnel to correct, replace and test our
software and plan to complete the Year 2000 project no later than September 1,
1999. The total cost of the Year 2000 project is estimated at $100,000. Of the
total project cost, approximately $25,000 represents the purchase of
replacements or upgrades of software and hardware, which will be capitalized.
We will expense the remaining portion of the project cost as incurred during
1999. As of December 31, 1998, we had spent approximately $33,060 on the Year
2000 project.

We have established ongoing communications with all our significant vendors
to monitor their progress in resolving their issues related to the Year 2000
issue. Many of such vendors have informed us that they are making substantial
progress in resolving their Year 2000 issue. However, the most likely worst
case scenario for us would entail failure of one or more of our significant
vendors to continue operations (even temporarily) following transition to the
year 2000. We have also contacted suppliers of products significant to our
operations containing embedded chips to

monitor their progress in resolving issues related to the Year 2000 issue. No
material issues have been identified to date as a result of these contacts. We
cannot guarantee that our business partners will adequately address issues
related to the Year 2000 issue in a timely manner or that the failure of our
business partners to correct these issues would not have a material adverse
effect on the Company.

We have completed contingency plans to be used in the event of a business
interruption caused by the Year 2000 issue for some, but not all, of our
internal information technology systems. Such plans are being developed for
some of our other systems. Elements of our contingency plans include switching
vendors and utilizing back-up systems that do not rely on computers.

The cost and time estimated for the Year 2000 project are based on our best
current estimates. We cannot guarantee that these estimates will be achieved
and that planned results will be achieved.

New Accounting Standards

Recent pronouncements of the FASB, which we were required to adopt in 1998,
include SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."

SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. The statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The adoption of SFAS No. 130 had no
effect on our financial statements since we have no items of comprehensive
income.

SFAS No. 131 supersedes SFAS No. 14 and establishes new standards for the
way that public companies report selected information about operating segments
in annual financial statements and requires that those companies report
selected information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 had no effect on our financial statements since we operate in a
single segment.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
required to be adopted in years beginning after June 15, 1999. The Company does
not anticipate that the adoption of SFAS No. 133 will have a significant effect
on the financial position or results of operations of the Company.

BUSINESS

We are one of the largest specialty retailers of automotive aftermarket
parts, tools, supplies, equipment and accessories in the United States, selling
our products to both DIY customers and professional installers. At December 31,
1998 we operated 491 stores in Texas, Missouri, Oklahoma, Kansas, Iowa,
Arkansas, Louisiana, Nebraska and Illinois. Our stores carry an extensive
product line consisting of:

. new and remanufactured automotive hard parts, such as alternators,
starters, fuel pumps, water pumps, brake shoes and pads, chassis parts
and engine parts;

. maintenance items, such as oil, antifreeze, fluids, engine additives and
appearance products;

. accessories, such as floor mats and seat covers; and

. a complete line of autobody paint and related materials, automotive tools
and professional service equipment.

We do not sell tires or perform automotive repairs or installations.

We were founded in 1957 by Charles F. O'Reilly and his son, Charles H.
"Chub" O'Reilly, Sr. (one of our current directors), and initially operated
from a single store in Springfield, Missouri. The O'Reilly family has managed
the Company since our inception, during which time we have experienced
continued growth in sales and profitability.

Our goal is to continue to achieve growth in sales and profitability by
capitalizing on our competitive advantages and executing our growth and
expansion strategies.

Competitive Advantages

Proven Ability to Execute Dual Market Strategy. We have an established track
record of serving both DIY customers and professional installers. We believe
our ability to execute a dual market strategy is a competitive advantage which
enables us to:

. target a larger base of consumers of automotive aftermarket parts;

. capitalize on our existing retail and distribution infrastructure;

. profitably operate both in large markets and less densely populated
geographic areas which typically attract fewer competitors; and

. enhance service levels offered to our DIY customers by offering a broad
selection of stock keeping units ("SKUs") and extensive product knowledge
required by professional installers.

We have been committed to a dual market strategy for over 20 years and from
the mid-1980's through 1997 derived approximately 50% of our product sales from
our DIY customers and approximately 50% from our professional installer
customers. As a result of our acquisition of Hi-Lo, which derived approximately
65% of its sales from DIY customers and approximately 35% from professional
installers prior to the acquisition, for 1998 we derived approximately 57% of
our product sales from our DIY customers and approximately 43% from our
professional installer

customers. As a result of our historical success in executing our dual market
strategy and our over 70 full-time sales representatives dedicated solely to
calling upon and selling to the professional installer, we believe we will
increase the former Hi-Lo stores' sales to professional installers and have a
competitive advantage over our retail competitors who have only recently
entered and begun focusing on the professional installer market.

Superior Customer Service. We seek to attract new DIY and professional
installer customers and to retain existing customers by offering superior
customer service, the key elements of which include:

. superior in-store service through highly-motivated, technically
proficient store personnel ("Professional Parts People") using advanced
point-of-sale systems;

. an extensive selection of products;

. attractive stores in convenient locations; and

. competitive pricing, with a low price guarantee.

Technically Proficient Professional Parts People. Our highly proficient
Professional Parts People provide us with a significant competitive advantage,
particularly over less specialized retail operators. We require our
Professional Parts People to undergo extensive and ongoing training and to be
technically knowledgeable, particularly with respect to hard parts, in order to
better serve the technically-oriented professional installers with whom they
interact on a daily basis. Such technical proficiency also enhances the
customer service we provide to our DIY customers, who appreciate the expert
assistance provided by our Professional Parts People.

Strategic Distribution Systems. We believe that the geographic concentration
of our store network in nine contiguous states and the strategic locations of
our four distribution centers enable us to maintain optimum inventory levels
throughout our store network. In addition, our inventory management and
distribution systems electronically link each of our stores to a distribution
center, providing for efficient inventory control and management. Our
distribution system provides each of our stores with same day or overnight
access to over 100,000 SKUs, many of which are hard to find items not typically
stocked by other parts retailers. We believe the availability of a broad range
of products is a key competitive advantage in satisfying customer demand and
generating repeat business.

Experienced Management Team. Our management team has a demonstrated ability
to successfully execute our business plan, including the identification and
integration of strategic acquisitions. We have experienced 20 consecutive
quarters of year-to-year record sales and earnings growth. We have a strong
senior management team comprised of 37 professionals who average 20 years of
experience with O'Reilly. In addition, our 50 district managers average over 10
years of experience with us.

Growth and Expansion Strategies

Aggressively Open New Stores. We intend to continue to aggressively open new
stores in order to achieve greater penetration in existing markets and to
expand into new, contiguous markets. We plan to open approximately 80 stores in
1999 (including a net of seven stores to be acquired from Hinojosa Auto Parts
in April 1999) and approximately 100 stores in 2000. Nearly all of the sites
for our proposed 1999 store openings and a majority of the sites for our
proposed 2000 store openings have been identified. In selecting sites for new
stores, we seek to strategically locate store sites in clusters within
geographic areas in order to achieve economies of scale in areas such as
management, advertising and distribution.

Complete the Integration of Hi-Lo. We expect to continue realizing the
benefits of the nearly completed integration of the 182 net stores we acquired
through the acquisition of Hi-Lo in January 1998. We have updated the products
offered at the Hi-Lo stores with a product mix consistent with our existing
stores, converted the Hi-Lo stores to our MIS systems and, in some cases,
renovated or relocated Hi-Lo stores. Furthermore, we are increasingly
penetrating the professional installer market in Hi-Lo's service areas, and are
continuing to benefit from increased leverage in purchasing and reduced
overhead expenses. As evidence of our success in integrating Hi-Lo, same store
product sales for Hi-Lo stores increased 17.5% in the fourth quarter of 1998
compared to the prior year period.

Selectively Pursue Strategic Acquisitions. Although the automotive
aftermarket industry is still highly fragmented, we believe the ability of
national and regional specialty retail chains, such as O'Reilly, to operate
more efficiently than smaller independent operators or mass merchandisers will
result in continued industry consolidation. Thus, we intend to selectively
pursue acquisition targets that will strengthen our position as a leading
automotive products retailer.

Continually Enhance Store Design and Location. Our current prototype store
design features enhancements such as greater square footage, higher ceilings,
more convenient interior store layouts, brighter lighting, increased parking
availability and dedicated counters to serve professional installers, each
designed to increase product sales and operating efficiencies and enhance
customer service. We continually update the location and condition of our store
network through systematic renovation and relocation of our existing stores to
conform with our prototype store design. In 1998, we renovated or relocated 18
stores, and in 1999 plan to renovate or relocate approximately 19 stores. We
believe that our ability to consistently achieve significant growth in same
store product sales is due in part to our commitment to maintaining an
attractive store network which is strategically located to best serve our
customers.

Industry

Participants in our industry are engaged in the retail sale of automotive
aftermarket products. The term aftermarket distinguishes our products from
those items sold as part of the original sale of a car or truck. According to
industry estimates, in 1997 the size of the automotive aftermarket for
replacement parts, maintenance items and accessories was approximately $80
billion. Of this market, approximately $35 billion in sales was to DIY
customers and approximately $45 billion in sales was to professional
installers. In total, we believe the automotive aftermarket for these products
is growing, primarily as a result of increases in:

. the size and age of the automotive fleet in the United States;

. the number of miles driven annually per vehicle;

. the purchase price of new cars;

. the cost of replacement parts;

. the variety of vehicle types, as well as the sophistication of vehicles;
and

. labor costs associated with parts installation and maintenance.

While we have served the professional installer market since our inception,
this market has not traditionally been a focus of our leading retail
competitors. However, in the past few years we have seen increasing competition
in this market from such competitors. We believe our retail competitors are now
recognizing the attractive opportunities represented by the professional
installer market.

Although our industry continues to be highly fragmented, considerable
consolidation has occurred in recent years. As a result of this consolidation,
the top 10 industry participants accounted for approximately 21% of the total
stores operated by industry participants in 1998 versus 14% in 1995. We believe
the industry will continue to consolidate as national and regional specialty
chains gain market share at the expense of smaller independent retailers and
less specialized mass merchandisers. We believe that companies such as
O'Reilly, which have multiple locations in a given market area, are able to
achieve operating efficiencies in purchasing, distribution and advertising that
smaller competitors cannot achieve. In addition, the significant increase in
the variety of vehicle makes and models, as well as the increasing
sophistication of vehicles, have increased the number of automotive aftermarket
parts which must be carried to satisfy customer demand. We believe that this
trend is another factor increasing industry consolidation as larger operators,
such as O'Reilly, enjoy competitive advantages in distribution and inventory
management systems.

The Hi-Lo Acquisition

Effective January 31, 1998, we acquired Hi-Lo, a specialty retailer and
supplier of automotive aftermarket products headquartered in Houston, Texas.
Following the acquisition, we sold seven Hi-Lo stores located in California. Of
the 182 stores remaining after such sale, 165 are located in Texas and 17 are
located in Louisiana. Through the Hi-Lo acquisition, we also acquired a 425,000
square foot distribution center located in Houston. The Hi-Lo operations are
contiguous to our other operations, thereby creating a natural geographic
extension of our business. In addition, Hi-Lo was experienced in serving
professional installers, deriving approximately 35% of its revenues from such
customers. We acquired Hi-Lo for a cash purchase price of approximately $49.3
million. At the time of the acquisition, Hi-Lo had $43.2 million of existing
debt, which we assumed.

Products

Our stores offer DIY and professional installer customers a wide selection
of brand name and private label products for domestic and imported automobiles,
vans and trucks. We do not sell tires or perform automotive repairs or
installations. Our merchandise generally consists of nationally recognized,
well advertised, name brand products such as AC Delco, Moog, Wagner, Gates
Rubber, Federal Mogul, Monroe, Prestone, Quaker State, Pennzoil, Castrol,
Valvoline, STP, Armor All and Turtle Wax. In addition to name brand products,
our stores carry a wide variety of high-quality private label products under
the Parts Master(R) name brand and our O'Reilly Auto Parts(R), SuperStart(R),
BrakeBest(R), Ultima(R) and Omnispark(R) proprietary name brands. Because most of our
private label products are produced by nationally recognized manufacturers in
accordance with our specifications, we believe that the private label products
are generally of equal or, in some cases, better quality than comparable name
brand products, a characteristic which is important to our professional
installer clientele. We further believe that the private label products are
packaged attractively to promote customer interest and are generally priced
below comparable name brand products carried in our stores.

Store Network

Store Locations. As a result of our dual market strategy, we are able to
profitably operate in both large, densely populated markets and less densely
populated areas which would not otherwise support a national or regional chain
selling to just one portion of the automotive aftermarket. The following table
sets forth the geographic distribution of our stores:

State Number of Stores

Texas.................................................... 174
Missouri................................................. 113
Oklahoma................................................. 87
Kansas................................................... 47
Iowa..................................................... 22
Arkansas................................................. 17
Louisiana................................................ 17
Nebraska................................................. 13
Illinois................................................. 1
---
Total................................................ 491
===

Our stores on average carry approximately 23,000 SKUs and average
approximately 6,500 total square feet in size. Our stores are served primarily
by the nearest distribution center, but also have access to the broader
selection of inventory available at one of our 49 Master Inventory Stores,
which on average carry approximately 40,000 SKUs and are approximately 10,000
square feet in size. Master Inventory Stores, in addition to serving DIY and
professional installer customers in their markets, also provide our other
stores within their areas access to a greater selection of SKUs on a same day
basis.

We believe that our stores are "destination stores" generating their own
traffic rather than relying on traffic created by the presence of other stores
in the immediate vicinity. Consequently, most of our stores are free-standing
buildings situated on or near major traffic thoroughfares, and offer ample
parking and easy customer access.

Store Layout. We utilize a computer-assisted "plan-o-grammed" store layout
system to provide a uniform and consistent merchandise presentation; however,
some variation occurs in order to meet the specific needs of a particular
market area. Merchandise is arranged to provide easy customer access and
maximum selling space, keeping high-turnover products and accessories within
view of the customer. Aisle displays are generally used to feature high-demand
or seasonal merchandise, new items and advertised specials.

Store Automation. To enhance store level operations and customer service, we
use IBM AS/400 computer systems in all of our stores. These systems are linked
with the IBM AS/400 computers located in each of our distribution centers. Our
point-of-sale terminals use bar code scanning technology to price our
merchandise and provide immediate access to our electronic catalog to display
parts and pricing information by make, model and year of vehicle. This system
speeds transaction times, reduces register lines and provides enhanced customer
service. Moreover, our store automation systems capture sales information which
assists in store management, strategic planning, inventory control and
distribution efficiency.

New Store Site Selection. In selecting sites for new stores, we seek to
strategically locate store sites in clusters within geographic areas in order
to achieve economies of scale in management,

advertising and distribution. Other key factors we consider in the site
selection process include:

. population density and growth patterns;

. age and per capita income;

. vehicle traffic counts;

. the number and type of existing automotive repair facilities; and

. the number of auto parts stores and other competitors within a pre-
determined radius and the operational strength of such competitors.

When entering new, more densely populated markets, we generally seek to
initially open several stores within a short span of time in order to maximize
the effect of initial promotional programs and achieve further economies of
scale. After opening this initial cluster of new stores, we seek to begin
penetrating the less densely populated surrounding areas. This strategy enables
us to achieve additional distribution and advertising efficiencies in each
market.

Distribution System

The following table sets forth the distribution centers we currently
operate:

Number of
Location Square Footage Stores Served

Houston, TX 424,823 183
Springfield, MO 254,720 118
Oklahoma City, OK 238,520 104
Kansas City, MO 128,064 86

In addition, adjacent to the Springfield, Missouri distribution center, we
operate a 36,000 square foot bulk merchandise warehouse used for the
distribution of bulk products such as motor oil, antifreeze, batteries,
lubricants and other fast moving bulk products, and an 18,000 square foot
facility where goods to be returned are stored.

Our distribution centers are equipped with highly automated conveyor systems
which expedite the movement of our products to loading areas for shipment to
individual stores on a nightly basis. The distribution centers utilize
computer-assisted technology to electronically receive orders from computers
located in each of our stores. In addition to the bar code system employed in
our stores, we have established a satellite-based data interchange system among
those stores in which high-speed data transmission technology is not readily
available, the distribution center which services such stores and our corporate
headquarters.

We believe that our distribution system assists us in lowering our
inventory-carrying costs, improving our store in-stock positions, and
controlling and managing our inventory. Moreover, we believe that our expanding
network of distribution centers allows us to more efficiently service existing
stores, as well as new stores planned for opening in contiguous market areas.
Our distribution center expansion strategy also complements our new store
opening strategy by supporting newly established clusters of stores located in
the regions surrounding each distribution center. As part of our continuing
efforts to enhance our distribution network, in 1999 we plan to:

. open a distribution center in Des Moines, Iowa;

. acquire a distribution center in McAllen, Texas as a result of the
planned Hinojosa acquisition;

. increase the service radius of the distribution center in Oklahoma City,
Oklahoma which we recently expanded; and

. implement a new warehouse management system in certain distribution
centers which will enhance the efficiency of our distribution network.

Marketing

Marketing to the DIY Customer. We aggressively promote sales to DIY
customers through an extensive advertising program which includes direct mail
and newspaper, radio and television advertising in selected markets. We believe
that our advertising and promotional activities have resulted in significant
name recognition in each of our market areas. Newspaper and radio
advertisements are generally directed towards specific product and price
promotions, frequently in connection with specific sale events and promotions.
To promote sales to car enthusiasts, who we believe on an individual basis
spend more on automotive products than the public generally, we sponsor over 35
motorsports shows at over 50 racetracks in nine states, including the O'Reilly
Auto Parts Mid-West Outlaw Mini-Sprints and the O'Reilly Oklahoma Legends Dirt
racing series, as well as three National Hotrod Racing Association races in
Houston and Dallas. We have found that the more progressive marketing concepts
utilized in the DIY portion of our business can also be applied to increase
sales to our professional installer customers.

Marketing to the Professional Installer. We have over 70 full-time O'Reilly
sales representatives strategically located in the more densely populated
market areas that we serve, and each is dedicated solely to calling upon and
selling to the professional installer. Moreover, each district manager and
store manager throughout our store network calls upon existing and potential
new professional installer customers on a regular basis. Our marketing strategy
with respect to professional installers emphasizes our ability to offer:

. prompt delivery using small trucks or vans operated by most of our
stores;

. a separate counter in most of our stores dedicated exclusively to serving
professional installers;

. trade credit for qualified professional installers;

. broad inventory of merchandise and competitive pricing;

. a professional installer computer system that connects directly to our
inventory system; and

. seminars concerning topics of interest to professional installers, such
as technical updates, safety and general business management.

Management Structure

Each of our stores is staffed with a store manager and an assistant manager,
in addition to the parts specialists and support staff required to meet the
specific needs of each store. Each of our 50 district managers has general
supervisory responsibility for an average of 10 stores within such manager's
district.

Each district manager receives comprehensive training on a monthly basis
focusing on management techniques, new product announcements, advanced
automotive systems and our policies and procedures. In turn, the information
covered at such monthly meetings is discussed in full by district managers at
monthly meetings with their store managers. All assistant managers and manager
trainees are required to successfully complete a six-month manager development
program, which includes 85 hours of classroom and field training, as a
prerequisite to becoming a store manager. This program covers operations
extensively, as well as principles of successful management.

We provide financial incentives to our district managers, store managers,
assistant managers and sales specialists through an incentive compensation
program. Under our incentive compensation

program, base salary is augmented by incentive compensation based upon the
achievement of sales and profitability goals. We believe that our incentive
compensation program significantly increases the motivation and overall
performance of our Professional Parts People and our ability to attract and
retain qualified management and other personnel.

Most of our current senior management, district managers and store managers
were promoted to their positions from within the Company. Our senior management
team averages 20 years of experience with the Company and district managers
have an average length of service with the Company of over 10 years.

Professional Parts People

We believe our highly trained team of Professional Parts People is essential
in providing superior service both to DIY and professional installer customers.
Each of our Professional Parts People is required to be technically proficient
in the workings and application of automotive products due to the significant
portion of our business represented by the professional installer. In addition,
we have found that the typical DIY customer often seeks assistance from sales
persons, particularly in connection with the purchase of hard parts. We believe
that the ability of our Professional Parts People to provide such assistance to
the DIY customer creates a favorable impression during a customer's visit to
our store and is a significant factor in generating repeat DIY business.

We screen prospective employees, whom we refer to as team members, to
identify highly motivated individuals either with experience in automotive
parts or repairs, or an aptitude for automotive knowledge. Each person who
becomes a team member first participates in an intensive two-day orientation
program designed to introduce the team member to our culture and his or her job
duties before being assigned specific job responsibilities. The successful
completion of additional training is required before a team member is deemed
qualified as a parts specialist and thus able to work at the parts counter of
one of our stores. All new counter people are required to successfully complete
a six-month basic automotive systems training course and are then enrolled in a
six-month advanced automotive systems course for certification by the National
Institute for Automotive Service Excellence ("ASE"), which administers national
exams for various automotive specialties and requires ASE certified specialists
to take recertification exams every five years.

Each of our stores participates in our sales specialist training program.
Under this program, selected team members complete two days of extensive sales
call training for business development, after which these team members will
spend one day per week calling on existing and new professional installer
customers. Additionally, each team member engaged in such sales activities will
participate in quarterly advanced training programs for sales and business
development.

Customer Service

We seek to provide our customers with an efficient and pleasant in-store
experience by maintaining attractive stores in convenient locations with a wide
selection of automotive products. We believe that the satisfaction of DIY and
professional installer customers is substantially dependent upon our ability to
provide, in a timely fashion, the specific automotive product requested.
Accordingly, each O'Reilly store carries a broad selection of automotive
products designed to cover a wide range of vehicle specifications. We
continuously refine the inventory levels carried in our stores, based in large
part on the sales movement shown by our computerized inventory control system
and on management's assessment of the changes and trends in the marketplace.

Pricing

We believe that a competitive pricing policy is essential within product
categories in order to compete successfully. Product pricing is generally
established to meet the pricing policies of competitors in the market area
served by each store. Most automotive products that we sell are priced at
discounts to the manufacturer suggested prices, and additional savings are
offered through volume discounts and special promotional pricing. Consistent
with our low price guarantee, each of our stores will match any verifiable
price on any in-stock product of the same or comparable quality offered by any
of our competitors.

Purchasing

We purchase automotive products from approximately 400 vendors, the five
largest of which accounted for approximately 30% of our total purchases in
1998, after giving effect to the consolidation of several of our vendors which
occurred towards the end of the year. After such consolidation, our largest
vendor in 1998 accounted for approximately 13% of our total purchases and no
other vendor accounted for more than 5% of such purchases. We have no long-term
contractual purchase commitments with any of our vendors, nor have we
experienced difficulty in obtaining satisfactory alternative sources of supply
for automotive parts. We believe that alternative supply sources exist at
substantially similar costs, for substantially all automotive products that we
sell. It is our policy to take advantage of early payment and seasonal
purchasing discounts offered by our vendors, and to utilize extended dating
terms available from vendors due to volume purchasing. We consider our
relationships with our suppliers to be good.

Competition

We compete in both the DIY and professional installer portions of the
automotive aftermarket. We compete primarily with:

. national and regional retail automotive parts chains (such as AutoZone,
Inc., Advance Auto Parts and The Pep Boys-Manny, Moe and Jack, Inc.);

. independently owned parts stores;

. wholesalers or jobber stores (some of which are associated with national
automotive parts distributors or associations such as NAPA and CarQuest);

. automobile dealers; and

. mass merchandisers that carry automotive replacement parts, maintenance
items and accessories (such as Wal-Mart Stores, Inc.).

We compete on the basis of customer service, which includes merchandise
selection and availability, price, helpfulness of store personnel and store
layout and location.

Team Members

As of December 31, 1998, we had 6,330 full-time team members and 1,547 part-
time team members, of whom 6,081 were employed at our stores, 1,244 were
employed at our distribution centers and 552 were employed at our corporate and
administrative headquarters. Our team members are not subject to a collective
bargaining agreement. We consider our relations with our team members to be
excellent, and strive to promote good relations with our team members through
various programs designed for such purposes.

Properties

The following table provides certain information regarding our
administrative offices and distribution centers and offices as of December 31,
1998:

Square
Location Principal Use(s) Footage Interest

Springfield,
MO Distribution Center and Corporate Offices 274,920 Owned
Springfield,
MO Corporate Offices, Training and Technical Center 35,580 Leased(a)
Springfield,
MO Corporate Offices 13,780 Leased(b)
Kansas City,
MO Distribution Center and Offices 130,662 Owned
Oklahoma
City, OK Distribution Center and Offices 244,460 Owned
Houston, TX Distribution Center and Offices 446,104 Owned

- ---------------------
(a) Occupied under the terms of a lease expiring in 2007 with an unaffiliated
party, subject to renewal for three five-year terms at our option. To
facilitate construction, we loaned to the owner of the facility an
aggregate of approximately $2.5 million. The principal balance of such loan
bears interest at a rate of 6% per annum, is payable in equal monthly
installments through January 2005 and is secured by a first deed of trust.
(b) Occupied under the terms of a lease with an unaffiliated party expiring
March 31, 2001.

Of the 491 stores that we operated at December 31, 1998, 253 stores were
owned, 185 stores were leased from unaffiliated parties and 53 stores were
leased from one of two real estate investment partnerships formed by the
O'Reilly family. Leases with unaffiliated parties generally provide for payment
of a fixed base rent, payment of certain tax, insurance and maintenance
expenses, and an original term of 105 years, subject to one or more renewals at
our option. The original terms of 16 stores leased from unaffiliated parties
expire prior to the end of 1999. We have entered into separate master lease
agreements with each of the affiliated real estate investment partnerships for
the occupancy of the stores covered thereby. Such master lease agreements
expired on December 31, 1998 and were renewed through December 31, 2004. We
believe that the lease agreements with the affiliated real estate investment
partnerships are on terms comparable to those obtainable from third parties.

We believe that our present facilities are in good condition, are adequately
insured and together with those under construction, are suitable and adequate
for the conduct of our current operations.

Servicemarks and Trademarks

We have registered the servicemarks O'Reilly Automotive(R), O'Reilly Auto
Parts(R), Because It's Your Car We're Talking About(R) and Parts Payoff(R) and
the trademarks SuperStart(R), BrakeBest(R), Omnispark(R) and First Call(R).
Further, we are licensed to use the registered trademarks and servicemarks Auto
Value(R) and Parts Master(R) owned by Auto Value Associates in connection with
our marketing program. We believe that our business is not otherwise dependent
upon any patent, trademark, servicemark or copyright.

Legal Proceedings

We are currently involved in litigation as a result of a complaint filed
against Hi-Lo in May 1997 by Charles Beresky. The plaintiff in this lawsuit
sought to certify a class action on behalf of persons or entities in the States
of Texas, Louisiana and California that have purchased a battery from Hi-Lo
since May 1990. The complaint alleges that Hi-Lo offered and sold "old," "used"
and "out of warranty" batteries as if the batteries were new, resulting in
claims for violations of deceptive trade practices, breach of contract,
negligence, fraud, negligent misrepresentation and

breach of warranty. The plaintiff is seeking, on behalf of the class, an
unspecified amount of compensatory and punitive damages, as well as attorneys'
fees and pre- and post-judgment interest. On July 27, 1998, the Trial Court
certified this class. We appealed the decision to certify the class in the
Court of Appeals for the Ninth District of Texas. On February 25, 1999, the
Court of Appeals issued an opinion affirming the Trial Court's decision to
certify the class. We intend to contest this ruling by seeking a mandamus from
the Supreme Court of Texas. We believe that the accusations made in this case
are unfounded, and intend to defend this lawsuit vigorously. Although the
extent of damages suffered by any member of the class is arguably minimal, it
is difficult at this stage of the case to determine the likely outcome of the
case or to quantify the risk that we face from this litigation.

In addition, we and our subsidiaries are involved in various other legal
proceedings incidental to the conduct of our business. Although we cannot
ascertain the amount of liability that we may incur from any of these matters,
we do not currently believe that, in the aggregate, they will have a material
adverse effect on our consolidated financial position, results of operations or
cash flow.

Regulation

Although subject to various laws and governmental regulations relating to
our business, including those related to the environment, we do not believe
that compliance with such laws and regulations has a material adverse effect on
our operations. Further, we are unaware of any failure to comply with any such
laws and regulations which could have a material adverse effect on our
operations. No assurance can be given, however, that significant expenses would
not be incurred by us to comply with any such law or regulation in the future.

MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information with respect to our
directors and executive officers:

Name Age Position

Charles H. O'Reilly, Sr. . 86 Chairman Emeritus and Director
Charles H. O'Reilly, Jr. . 58 Chairman of the Board and Director
David E. O'Reilly......... 49 President, Chief Executive Officer and Director
Lawrence P. O'Reilly...... 52 President, Chief Operating Officer and Director
Rosalie O'Reilly Wooten... 5657 Executive Vice-President and Director
Ted F. Wise............... 48 Executive Vice-President
James R. Batten........... 36 Vice-President of Finance, Chief Financial Officer and Treasurer
Jay Burchfield............ 52 Director
Joe C. Greene............. 6263 Director

Charles H. O'Reilly, Sr. is the father of Charles H. O'Reilly, Jr., David
E. O'Reilly, Lawrence P. O'Reilly and Rosalie O'Reilly Wooten. Set forth below
are descriptions of the backgrounds of our executive officers and directors.

Charles H. O'Reilly, Sr. is our co-founder and has served as a director
since 1957. Prior to assuming the position of Chairman Emeritus in March 1993,
Mr. O'Reilly was our Chairman of the Board, a position he held since 1975.

Charles H. O'Reilly, Jr. has served as a director since 1966 and as
Chairman of the Board of Directors since March 1993. Mr. O'Reilly had served
as our President from 1975 until being elected to his current position.

David E. O'Reilly has served as a director since 1972 and as President and
Chief Executive Officer since March 1993. Mr. O'Reilly served as a Vice-
President from 1975 until being elected to his current position. Mr. O'Reilly
also serves as a director of Auto Value Associates, Inc., an industry trade
association and buying group in which we are a shareholder.

Lawrence P. O'Reilly has served as a director since joining us in 1968, and
as President and Chief Operating Officer since March 1993. Mr. O'Reilly served
as a Vice-President from 1979 until being elected to his current position.

Rosalie O'Reilly Wooten has served as a director and as Executive Vice-
President since 1980.

Ted F. Wise has served as Executive Vice-President since February 1997. Mr.
Wise served as our Senior Vice-President from March 1993 until being elected
to his current position.

James R. Batten, CPA, has served as Chief Financial Officer and Treasurer
since March 1994 and, in addition, as Vice-President of Finance since October
1997. Mr. Batten served as our Finance Manager from January 1993 until being
elected to his current position. From September 1986 until joining us in
January 1993, Mr. Batten was employed by the accounting firm of Whitlock,
Selim & Keehn.

Jay Burchfield has served as a director since August 1997. Mr. Burchfield
has served as the Chairman of the Board and a director of City Bancorp in
Springfield, Missouri from January 1997 to present. He was Chairman of the
Board and Chief Executive Officer of Boatmen's National Bank of Oklahoma in
Tulsa, Oklahoma from January 1996 to January 1997 and Chairman, President and
Chief Executive Officer of Boatmen's Bank of Southern Missouri in Springfield,
Missouri from April 1987 to 1996. Mr. Burchfield's career has spanned more than
24 years in the banking industry.

Joe C. Greene has served as a director since February 1993. Mr. Greene is
the managing partner of Greene & Curtis, a Springfield, Missouri law firm, and
has been engaged in the practice of law for over 30 years.

SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of February 28, 1999, and as
adjusted to reflect the sale of shares of common stock offered hereby, with
respect to each selling shareholder. We believe that the beneficial owners set
forth in the table have sole voting and investment power, except as otherwise
stated in the notes to the table.

Shares Owned Shares Owned
Prior to the After the
Offering Offering
-------------------- Shares -----------------
Number Percent Offered Number Percent

Charles H. O'Reilly, Jr......Jr....... 1,511,207(a) 7.0% 250,000(b) 1,261,207 5.1%100,000(b) 1,411,207 5.7%
Lawrence P. O'Reilly.........O'Reilly.......... 1,929,717(c) 9.0 195,000(d) 1,734,717 7.0100,000(d) 1,829,717 7.4
David E. O'Reilly............O'Reilly............. 1,865,569(e) 8.7 150,000(f) 1,715,569 6.9100,000(f) 1,765,569 7.2
Rosalie O'Reilly Wooten......Wooten....... 1,324,138(g) 6.2 140,000(h) 1,184,138 4.8
Charles H. O'Reilly, Sr.
Irrev. Trust FBO Lindsay
Sarah O'Reilly.............. 304,848 1.4 60,000 244,848 1.0
Charles H. O'Reilly, Sr.
Irrev. Trust FBO Charles R.
Wooten...................... 248,293 1.2 50,000 198,293 *
Charles H. O'Reilly Sr.
Irrev. Trust FBO Carrie E.
Wooten...................... 248,293 1.2 50,000 198,293 *
Charles H. O'Reilly, Sr.
Trust FBO Ryan C. O'Reilly.. 311,530 1.5 50,000 261,530 1.1
Charles H. O'Reilly, Sr.
Irrev. Trust FBO Austin
David Lee O'Reilly.......... 445,318 2.1 45,000 400,318 1.6
Charles H. O'Reilly, Sr.
Irrev. Trust FBO Matthew
David O'Reilly.............. 346,902 1.6 45,000 301,902 1.2
Lauren P. O'Reilly........... 326,494 1.5 35,000 291,494 1.2
Leigh Anne O'Reilly Flisher.. 203,497 1.0 35,000 168,497 *
Lawrence P. O'Reilly,
Custodian, Ragan O'Reilly
UTMA/MO..................... 96,632 * 35,000 61,632 *40,000(h) 1,284,138 5.2

- ---------------------
*Less than one percent.

(a) The stated number of shares includes 595,148 shares held through the
Charles H. O'Reilly, Jr. Rev. Trust, 515,265 shares controlled by Mr.
O'Reilly as trustee of a trust for the benefit of his children, 63,564
shares held by Mr. O'Reilly as custodian for his son, 196,418 shares
controlled by Mr. O'Reilly's wife pursuant to a voting trust, 35,000 shares
controlled by Mr. O'Reilly as a general partner of a family limited
partnership, 2,062 shares held in the O'Reilly Employee Savings Plus Plan
with Bankers TrustSunTrust Bank as trustee and 103,750 shares subject to options
exercisable within 60 days of February 28, 1999.

(b) Includes 150,000 shares being sold by the Charles H. O'Reilly, Jr. Trust,
Charles H. O'Reilly, Jr. Trustee, andRepresents 100,000 shares to be received following the exercise of options
expiring April 22, 1999.
(c) The stated number of shares includes 686,285 shares held through the
Lawrence P. O'Reilly Rev. Trust, 743,189 shares controlled by Mr. O'Reilly
as trustee of a trust for the benefit of his children, 96,632 shares held
by Mr. O'Reilly as custodian for his daughter, 253,894 shares controlled by
Mr. O'Reilly's wife pursuant to a voting trust, 2,217 shares held in the
O'Reilly Employee Savings Plus Plan and 147,500 shares subject to options
exercisable within 60 days of February 28, 1999.

(d) Includes 95,000 shares being sold by the Lawrence P. O'Reilly Rev. Trust,
Lawrence P. O'Reilly, Trustee, andRepresents 100,000 shares to be received following the exercise of options
expiring April 22, 1999.
(e) The stated number of shares includes 381,279 shares held through the David
O'Reilly, Rev. Trust, 1,097,068 shares controlled by Mr. O'Reilly as
trustee of two trusts for the benefit of his children, 238,406 shares held
by Mr. O'Reilly as custodian for two of his children, 1,316 shares held in
the O'Reilly Employee Savings Plus Plan and 147,500 shares subject to
options exercisable within 60 days of February 28, 1999.

(f) Includes 50,000 shares being sold by the David O'Reilly Rev. Trust, David
O'Reilly, Trustee andRepresents 100,000 shares to be received following the exercise of options
expiring April 22, 1999.

(g) The stated number of shares includes 471,389 shares held through the
Rosalie O'Reilly Wooten Rev. Trust, 496,586 shares controlled by Mrs.
Wooten as trustee of a trust for the benefit of her children, 135,230134,742
shares held by Mrs. Wooten as custodian for her daughter, 176,394 shares
controlled by Mrs. Wooten's husband as trustee for the benefit of Mrs.
Wooten's children and their descendants, 1,277 shares held in the O'Reilly
Employee Savings Plus Plan and 43,750 shares subject to options exercisable
within 60 days of February 28, 1999.

(h) Includes 100,000 shares being sold by the Rosalie O'Reilly Wooten Rev.
Trust, Rosalie O'Reilly Wooten, Trustee, andRepresents 40,000 shares to be received following the exercise of options
expiring April 22, 1999.

3433

DESCRIPTION OF CAPITAL STOCK

Authorized and Outstanding Capital Stock

Our Restated Articles of Incorporation ("Articles") provide for an
authorized capital of 35,000,000 shares consisting of 5,000,000 shares of
preferred stock, $0.01 par value per share, and 30,000,000 shares of common
stock, $0.01 par value per share. Based on shares outstanding as of December
31, 1998 plus 340,000 shares underlying options to be exercised in connection
with this offering, upon the consummation of this offering, 24,689,700 shares
of common stock and no shares of preferred stock will be outstanding. At our
regularly scheduled annual meeting on May 4, 1999, we will seek shareholder
approval of a proposal to increase the number of shares of common stock
authorized from 30 million to 90 million. The following summary description of
our capital stock is qualified in its entirety by reference to the Articles, a
copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part.

Common Stock

The holders of common stock are entitled to cast one vote for each share
held of record on all matters to be voted on by shareholders, including the
election of directors. There is no cumulative voting with respect to the
election of directors. As a result, the holders of common stock entitled to
exercise more than 50% of the voting rights in an election of directors can
elect all of the directors then standing for election if they choose to do so.
Our Articles and Bylaws provide for a classified board of directors with three
classes serving staggered three-year terms so that approximately one-third of
the directors will be elected at each annual meeting. This provision could have
the effect of delaying, deferring or preventing a change in control of the
Company. The holders of common stock are entitled to receive dividends when and
if declared by the board of directors out of legally available funds. In the
event of liquidation, dissolution or winding up of our affairs, the holders of
the common stock are entitled to share ratably in all remaining assets which
are available for distribution to them after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the common stock. Holders of shares of common stock, as such, have no
conversion, pre-emptive or other subscription rights and there are no
redemption provisions applicable to the common stock. All of the outstanding
shares of common stock are, and the shares of common stock offered hereby will
be, when issued for the consideration set forth in this prospectus, fully paid
and nonassessable.

Preferred Stock

The Articles authorize our board of directors to establish one or more
series of preferred stock and to determine, with respect to any series of
preferred stock, the terms, rights and preferences of such series including
voting, dividend, liquidation, conversion and other rights. The authorized
shares of preferred stock will be available for issuance without further action
by our shareholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although we have no present intent of so
doing, we could issue a series of preferred stock that could discourage,
impede, delay or prevent a transaction which would result in a change of
control of the Company, regardless of whether some of our shareholders might
believe such a transaction to be in their best interests.

Transfer Agent

The transfer agent and registrar for the common stock is UMB Bank N.A.,
Kansas City, Missouri.

3534

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement
dated March , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, George K. Baum & Company
and William Blair & Company, L.L.C. (the "Representatives"), have severally
agreed to purchase from the Company and the selling shareholders the number of
shares set forth opposite their names below.

Number of
Underwriters: Shares

Donaldson, Lufkin & Jenrette Securities Corporation..................
George K. Baum & Company.............................................
William Blair & Company, L.L.C.......................................
---------
Total............................................................... 4,140,0003,340,000
=========

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. Except for those shares covered by the over-
allotment option, the underwriters are obligated to purchase and accept
delivery of all the shares if they purchase any of the shares. The over-
allotment option is discussed below.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the underwriters may change the public offering price and
such concessions.

The Company has granted the underwriters an option, exercisable for 30 days
from the date of the underwriting agreement, to purchase up to 621,000501,000
additional shares at the public offering price less the underwriting fees. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

The Company and the selling shareholders have agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.

The Company, each of the selling shareholders and the executive officers and
directors of the Company have agreed that, for a period of 90 days from the
date of this prospectus, they will not, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation: (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock; or (2) enter into any swap or other arrangement that transfers
all or

3635

a portion of the economic consequences associated with the ownership of any
common stock (regardless of whether any of the transactions described in clause
(1) or (2) is to be settled by the delivery of common stock or such other
securities, in cash or otherwise). In addition, for a 90 day period the Company
has agreed not to file any registration statement with respect to, and each of
its executive officers, directors and certain shareholders of the Company
(including the selling shareholders) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.

The Representatives have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and reimbursement of expenses. The Representatives may, from time to time,
engage in transactions with and perform services for us in the ordinary course
of their business.

Other than in the United States, no action has been taken by the Company,
the selling shareholders or the underwriters that would permit a public
offering of the shares of common stock included in this offering in any
jurisdiction where action for that purpose is required. The shares included in
this offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisement in connection with
the offer and sale of any such shares be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of such jurisdiction. Persons who receive
this prospectus are advised to inform themselves about and to observe any
restrictions relating to the offering of the common stock and the distribution
of this prospectus. This prospectus is not an offer to sell or a solicitation
of an offer to buy any shares of common stock included in this offering in any
jurisdiction where that would not be permitted or legal.

In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring to these documents. The information
incorporated by reference is considered to be part of this prospectus, and
later information that we file with the Commission will automatically update
and supercede this information. This prospectus is part of a registration
statement that we filed with the Commission. We incorporate by reference the
documents listed below and any future filings made with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we sell all of the common stock.

. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997;

. The amendment to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997;

. The Company's Quarterly Report on Form 10-Q for the period ended March
31, 1998;

. The amendment to the Company's Quarterly Report on Form 10-Q/A for the
period ended March 31,
1998;

. The Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998;

. The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1998;

. The Company's Current ReportReports on Form 8-K, filed on February 2, 1998;

. The amendment to the Company's Current Report on Form 8-K/A, filed on
April 14, 1998;

. The Company's definitive proxy statement on Schedule 14A, filed April 6,
1998;1998 and
March 12, 1999; and

. The description of the common stock contained in the Company's
Registration Statement on Form 8-A filed pursuant to Section 12 of the
Exchange Act and all amendments thereto and reports filed for the purpose
of updating such description.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: 233 South Patterson, Springfield, MO
65802, Attention Investor Relations, Telephone: (417) 862-6708.

ADDITIONAL INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the following locations:

. At the Public Reference Room of the Commission, Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549;

. At the public reference facilities at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661;

. By writing to the Commission, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549;

. At the offices of the National Association of Securities Dealers, Inc.,
Reports Sections, 1735 K Street, N.W., Washington, DC 20006; or

. From the Commission's web site at www.sec.gov.

Some of these locations may charge a prescribed or modest fee for copies.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
shares of common stock offered hereby. As permitted by the Commission, this
prospectus, which constitutes a part of the Registration Statement, does not
contain all the information included in the Registration Statement. Such
additional information may be obtained from the locations described above.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete. You should refer to the contract
or other document for all the details.

3837

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby will be
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom (Illinois).
Skadden, Arps, Slate, Meagher & Flom (Illinois) will rely upon the opinion of
Gallop, Johnson & Neuman, L.C., St. Louis, Missouri, as to certain matters of
Missouri law. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Katten Muchin & Zavis.

EXPERTS

The consolidated financial statements of O'Reilly Automotive, Inc. and
subsidiaries at December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, incorporated by reference in the O'Reilly
Automotive, Inc. Annual Report (Form 10-K) for the year ended December 31, 1998
and appearing in this prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, incorporated herein
by reference and appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.

The consolidated financial statements of O'Reilly Automotive, Inc.
incorporated by reference in the O'Reilly Automotive, Inc. Annual Report (Form
10-K) for the year ended December 31, 1997, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.

The consolidated financial statements of Hi-Lo Automotive, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, have been incorporated by reference herein in reliance upon
the report ofthis registration statement
have been audited by Arthur Andersen LLP, independent certified public accountants, incorporated by referenceas
indicated in their report with respect thereto, and are included herein andin
reliance upon the authority of said firm as experts in accounting and auditing.

39auditing
in giving said reports.

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Auditors............................................. F-3

Audited Consolidated Financial Statements

Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Income.......................................... F-6
Consolidated Statements of Shareholders' Equity............................ F-7
Consolidated Statements of Cash Flows...................................... F-8
Notes to Consolidated Financial Statements................................. F-9

F-1

(THIS PAGE INTENTIONALLY LEFT BLANK)

F-2

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
O'Reilly Automotive, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of O'Reilly
Automotive, Inc. and Subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of O'Reilly
Automotive, Inc. and Subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Kansas City, Missouri
March 2, 1999

F-3

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,
-----------------
1997 1998
-------- --------
(In thousands,
except share
data)

Assets
Current assets:
Cash....................................................... $ 2,285 $ 1,728
Short-term investments..................................... 1,000 500
Accounts receivable, less allowance for doubtful accounts
of $363 in 1997
and $613 in 1998.......................................... 12,469 27,580
Amounts receivable from vendors............................ 4,969 26,660
Inventory.................................................. 111,848 246,012
Refundable income taxes.................................... -- 3,026
Deferred income taxes...................................... 1,424 2,838
Other current assets....................................... 145 2,538
-------- --------
Total current assets................................... 134,140 310,882
Property and equipment, at cost:
Land....................................................... 28,000 40,131
Buildings.................................................. 53,507 81,770
Leasehold improvements..................................... 9,230 17,898
Furniture, fixtures and equipment.......................... 36,362 56,897
Vehicles................................................... 10,434 13,511
-------- --------
137,533 210,207
Accumulated depreciation and amortization.................. 29,093 39,256
-------- --------
108,440 170,951
Deferred income taxes........................................ -- 3,178
Notes receivable............................................. 2,280 4,137
Other assets................................................. 2,757 4,140
-------- --------
Total assets........................................... $247,617 $493,288
======== ========

F-4

December 31,
-----------------
1997 1998
-------- --------
(In thousands,
except share
data)

Liabilities and shareholders' equity
Current liabilities:
Note payable to bank....................................... $ -- $ 5,000
Accounts payable........................................... 29,713 66,737
Accrued expenses........................................... 6,386 18,446
Accrued payroll............................................ 1,647 3,645
Income taxes payable....................................... 2,501 --
Current portion of long-term debt.......................... 130 8,691
-------- --------
Total current liabilities................................ 40,377 102,519
Long-term debt, less current portion......................... 22,641 170,166
Other liabilities............................................ 415 2,209
Deferred income taxes........................................ 2,145 --

Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--none...................... -- --
Common stock, $.01 par value:
Authorized shares--30,000,000
Issued and outstanding shares--21,125,493 in 1997 and
21,349,700 in 1998...................................... 211 213
Additional paid-in capital................................. 77,077 82,658
Retained earnings.......................................... 104,751 135,523
-------- --------
Total shareholders' equity............................. 182,039 218,394
-------- --------
Total liabilities and shareholders' equity............. $247,617 $493,288
======== ========

See accompanying notes.

F-5

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
(In thousands, except per
share data)

Product sales.................................... $259,243 $316,399 $616,302
Cost of goods sold, including warehouse and
distribution expenses........................... 150,772 181,789 358,439
Operating, selling, general and administrative
expenses........................................ 79,620 97,526 200,962
-------- -------- --------
230,392 279,315 559,401
-------- -------- --------
Operating income................................. 28,851 37,084 56,901
Other income (expense):
Interest expense............................... (37) (139) (8,126)
Interest income................................ 676 198 396
Other, net..................................... 543 413 772
-------- -------- --------
1,182 472 (6,958)
-------- -------- --------
Income before income taxes....................... 30,033 37,556 49,943
Provision for income taxes....................... 11,062 14,413 19,171
-------- -------- --------
Net income....................................... $ 18,971 $ 23,143 $ 30,772
======== ======== ========
Basic income per common share:
Net income per common share...................... $ 0.91 $ 1.10 $ 1.45
======== ======== ========
Weighted average common shares outstanding....... 20,864 21,043 21,238
======== ======== ========
Income per common share--assuming dilution:
Net income per common share--assuming dilution... $ 0.90 $ 1.09 $ 1.42
======== ======== ========
Adjusted weighted average common shares
outstanding..................................... 21,032 21,277 21,602
======== ======== ========

See accompanying notes.

F-6

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock Additional
---------------- Paid-In Retained
Shares Par Value Capital Earnings Total
------ --------- ---------- -------- --------
(In thousands)

Balance at December 31, 1995.... 20,724 $104 $71,024 $ 62,742 $133,870
Issuance of common stock under
employee benefit plans....... 93 -- 1,509 -- 1,509
Issuance of common stock under
stock option plans........... 120 1 1,431 -- 1,432
Net income.................... -- -- -- 18,971 18,971
------ ---- ------- -------- --------
Balance at December 31, 1996.... 20,937 105 73,964 81,713 155,782
Two-for-one stock split....... -- 105 -- (105) --
Issuance of common stock under
employee benefit plans....... 73 -- 1,331 -- 1,331
Issuance of common stock under
stock option plans........... 115 1 1,481 -- 1,482
Tax benefit of stock options
exercised.................... -- -- 301 -- 301
Net income.................... -- -- -- 23,143 23,143
------ ---- ------- -------- --------
Balance at December 31, 1997.... 21,125 211 77,077 104,751 182,039
Issuance of common stock under
employee benefit plans....... 92 1 2,720 -- 2,721
Issuance of common stock under
stock option plans........... 133 1 2,022 -- 2,023
Tax benefit of stock options
exercised.................... -- -- 839 -- 839
Net income.................... -- -- -- 30,772 30,772
------ ---- ------- -------- --------
Balance at December 31, 1998.... 21,350 $213 $82,658 $135,523 $218,394
====== ==== ======= ======== ========

See accompanying notes.

F-7

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
(In thousands)

Operating activities
Net income...................................... $ 18,971 $ 23,143 $ 30,772
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 6,105 8,276 12,164
Provision for doubtful accounts............... 592 662 250
Gain on sale of property and equipment........ (281) (44) (134)
Deferred income taxes......................... 1,483 (1,042) 7,629
Common stock contributed to employee benefit
plans........................................ 1,028 1,331 1,629
Tax benefit of stock options exercised........ -- 301 839
Postretirement benefits....................... 12 12 12
Changes in operating assets and liabilities,
net of the effects of the acquisition:
Accounts receivable......................... (2,428) (1,835) (5,809)
Amounts receivable from vendors............. (473) (2,100) (21,691)
Inventory................................... (24,930) (27,939) (53,328)
Refundable income taxes..................... 564 172 (5,527)
Other current assets........................ 603 (446) (179)
Other assets................................ (709) (581) (1,753)
Accounts payable............................ 4,275 12,425 20,071
Accrued expenses............................ 830 2,433 (525)
Accrued payroll............................. (765) 604 (3,533)
Income taxes payable........................ -- 2,501 --
-------- -------- --------
Net cash provided by (used in) operating
activities............................... 4,877 17,873 (19,113)
Investing activities
Purchases of property and equipment............. (34,459) (37,180) (57,732)
Acquisition, net of cash acquired............... -- -- (49,296)
Proceeds from sale of property and equipment.... 801 293 6,038
Purchases of short-term investments............. (12,494) -- --
Proceeds from sale of short-term investments.... 34,904 -- 500
Payments received on notes receivable........... 51 898 372
Advances made on notes receivable............... (21) (1,668) (650)
-------- -------- --------
Net cash used in investing activities..... (11,218) (37,657) (100,768)
Financing activities
Borrowings on notes payable to bank............. 3,000 -- 5,000
Proceeds from issuance of long-term debt........ -- 20,500 157,860
Principal payments on long-term debt............ (198) (1,120) (46,651)
Net proceeds from issuance of common stock...... 1,913 1,482 3,115
-------- -------- --------
Net cash provided by financing activities. 4,715 20,862 119,324
-------- -------- --------
Net increase (decrease) in cash................. (1,626) 1,078 (557)
Cash at beginning of year....................... 2,833 1,207 2,285
-------- -------- --------
Cash at end of year............................. $ 1,207 $ 2,285 $ 1,728
======== ======== ========

See accompanying notes.

F-8

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1996, 1997 and 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

O'Reilly Automotive, Inc. ("the Company") is a specialty retailer and
supplier of automotive aftermarket parts, tools, supplies and accessories to
both the "do-it-yourself" customer and the professional installer throughout
Texas, Missouri, Oklahoma, Kansas, Iowa, Arkansas, Louisiana, Nebraska and
Illinois.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes sales upon shipment of products.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Inventory

Inventory, which consists of automotive hard parts, maintenance items,
accessories and tools, is stated at the lower of cost or market. Cost has been
determined using the last-in, first-out ("LIFO") method. If the first-in,
first-out ("FIFO") method of costing inventory had been used by the Company,
inventory would have been $119,135,000 and $246,402,000 as of December 31, 1997
and 1998, respectively.

Amounts Receivable from Vendors

Amounts receivable from vendors consist primarily of amounts due the Company
for rebates and other allowances.

Property and Equipment

Property and equipment are carried at cost. Depreciation is provided on
straight-line and accelerated methods over the estimated useful lives of the
assets. Service lives for property and equipment generally range from three to
40 years. Leasehold improvements are amortized over the terms of the underlying
leases. Maintenance and repairs are charged to expense as incurred. Upon
retirement or sale, the cost and accumulated depreciation are eliminated and
the gain or loss, if any, is included in the determination of net income as a
component of other income (expense). The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable.

F-9

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The company capitalizes interest costs as a component of construction in
progress, based on the weighted average rates paid for long-term borrowings.
Total interest costs capitalized for the years ended December 31, 1997 and
1998, were $527,000 and $1,213,000, respectively. There were no interest costs
capitalized during the year ended December 31, 1996.

Income Taxes

The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
The liability method provides that deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense
charged to operations amounted to $3,156,000, $3,437,000 and $8,326,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.

Financial Instrument

The Company utilizes interest rate swap agreements to manage interest rate
risk on its floating rate debt. During 1998, the Company entered into an
interest-rate swap agreement to modify the interest characteristics of its
outstanding long-term debt from a floating rate to a fixed rate basis. This
agreement involves the receipt of floating rate amounts in exchange for fixed
rate interest payments over the life of the agreement without an exchange of
the underlying principal amount. The differential to be paid or received is
accrued as interest rates change and recognized as an adjustment to interest
expense related to the debt. The related amount payable to or receivable from
the counterparty is included in other liabilities or assets. The fair value of
the swap agreement is not recognized in the consolidated financial statements
and approximates its carrying cost.

Preopening Costs

Costs associated with the opening of new stores, which consist primarily of
payroll and occupancy costs, are charged to operations as incurred.

Stock Option Plans

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed in Note 11, the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.

F-10

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concentration of Credit Risk

The Company grants credit to certain customers who meet the Company's pre-
established credit requirements. Generally, the Company does not require
security when trade credit is granted to customers. Credit losses are provided
for in the Company's consolidated financial statements and consistently have
been within management's expectations.

The Company has provided long-term financing to a company, through a note
receivable, for the construction of an office building which is leased by the
Company (see Note 7). The note receivable, amounting to $2,271,000 and
$2,203,000 at December 31, 1997 and 1998, respectively, bears interest at 6%
and is due in January 2005.

The carrying value of the Company's financial instruments, including cash,
short-term investments, accounts receivable, accounts payable and long-term
debt, as reported in the accompanying consolidated balance sheets, approximates
fair value.

New Accounting Pronouncements

As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which established new rules for the reporting and display
of comprehensive income and its components. SFAS No. 130 had no impact on the
Company's financial statements.

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" which established new
standards for the way public companies report information about operating
segments in annual and interim financial statements. The Company operates in a
single segment and accordingly, no segment disclosures are warranted for the
years ended December 31, 1996, 1997 and 1998.

Reclassifications

Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation.

F-11

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 2--ACQUISITION

Effective January 31, 1998, the Company acquired 100% of the outstanding
capital stock of Hi-Lo Automotive, Inc. and its subsidiaries (Hi-Lo). Hi-Lo was
a specialty retailer supplying automotive aftermarket tools, supplies and
accessories principally throughout Texas and Louisiana. The purchase price was
approximately $49.3 million, including acquisition costs. The purchase price
was financed with long-term borrowings under the Company's credit facility. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the results of operations of Hi-Lo have been included in the
Company's results of operations since the date of acquisition. The purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair values. The excess of net assets acquired over the purchase
price, which totaled approximately $9.7 million, has been applied as a
reduction to the acquired property and equipment. Additional purchase
liabilities recorded included approximately $5,622,000 for severance and
certain costs associated with the closure and consolidation of certain acquired
stores. At December 31, 1998, approximately $2,005,000 of the consolidation
related costs remained on the accompanying balance sheet. The Company expects
to complete its consolidation of facilities during 1999.

The following unaudited pro forma financial information presents the
combined historical results of the Company and Hi-Lo as if the acquisition had
occurred at the beginning of 1997 and 1998, after giving effect to certain
adjustments, including the application of the excess of net assets acquired
over the purchase price to the acquired property and equipment and resulting
effect on depreciation, increased interest expense on long-term debt related to
the acquisition, and the related income tax effects.

1997 1998
--------- ---------
(In thousands,
except
per share data)

Product sales........................................ $ 554,719 $ 634,072
Net income........................................... $ 22,782 $ 29,443
Net income per share--assuming dilution.............. $ 1.07 $ 1.36

The pro forma combined results are not necessarily indicative of the results
that would have occurred if the acquisition had been completed as of the
beginning of each of the years presented, nor are they necessarily indicative
of future consolidated results.

NOTE 3--SHORT-TERM INVESTMENTS

The Company's short-term investments are classified as available-for-sale in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and are carried at cost, which approximates fair market
value. At December 31, 1997 and 1998, short-term investments consisted of
preferred equity securities.

NOTE 4--RELATED PARTIES

The Company leases certain land and buildings related to its O'Reilly Auto
Parts stores under six-year operating lease agreements with O'Reilly Investment
Company and O'Reilly Real Estate Company, partnerships in which certain
shareholders of the Company are partners. Generally, these lease agreements
provide for renewal options for an additional six years at the option of the
Company (see Note 7). Rent expense under these operating leases totaled
$1,729,000 in 1996, $2,122,000 in 1997 and $2,158,000 in 1998.

F-12

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 5--NOTE PAYABLE TO BANK

The Company had available a short-term unsecured bank line of credit
providing for maximum borrowings of $5,000,000, all of which was outstanding at
December 31, 1998. There were no borrowings outstanding at December 31, 1997.
The line of credit bears interest at LIBOR plus 1.00% (6.63% at December 31,
1998). The line of credit was renewed and extended at January 28, 1999, and
expires on April 28, 1999.

NOTE 6--LONG-TERM DEBT

At December 31, 1998, the Company had available a credit facility providing
for maximum borrowings of $173 million. The facility is comprised of a
revolving credit facility of $125 million, and a term loan of $48 million. At
December 31, 1998, $121,401,000 of the revolving credit facility and $48
million of the term loan was outstanding. The credit facility, which bears
interest at LIBOR plus 0.50% (6.22% at December 31, 1998), expires in January
2003. In January 1999, the Company amended the credit facility to increase the
amount of available borrowings under the revolving credit facility by $35
million (see Note 16). In addition, the Company had outstanding borrowings
totaling $7,705,000 under its non-binding advised line of credit at December
31, 1998. This line of credit, which bears interest at 6.6%, was refinanced in
connection with the Company's amendment of its credit facility in January 1999.
At December 31, 1997, the Company had outstanding borrowings under its then
existing revolving credit facilities amounting to $22,500,000.

During 1998, the Company leased certain office equipment under capitalized
leases. Pursuant to the terms of the lease agreements, the Company has
committed to pay approximately $57,000 per month over three years. The present
value of the future minimum lease payments under these agreements totaled
$1,496,000 at December 31, 1998, which has been classified as long-term debt in
the accompanying consolidated financial statements.

Additionally, the Company has various unsecured notes payable to
individuals, amounting to $271,000 and $255,032, at December 31, 1997 and 1998,
respectively. The notes bear interest at rates ranging from 8% to 9% and are
due in monthly installments of approximately $2,600 including interest. The
notes mature in varying amounts between 1999 and 2000.

Indirect borrowings under letters of credit and guarantees of indebtedness
of others totaled $633,000 and $1,990,000 at December 31, 1997 and 1998,
respectively.

Principal maturities of long-term debt for each of the next five years
ending December 31 are as follows (amounts in thousands):

1999................................ $ 8,691
2000................................ 13,164
2001................................ 12,657
2002................................ 15,011
2003................................ 129,118
Thereafter.......................... 216
--------
$178,857
========

F-13

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Cash paid by the Company for interest during the years ended December 31,
1996, 1997 and 1998 amounted to $35,000, $642,000 and $8,509,000, respectively.

NOTE 7--COMMITMENTS

Lease Commitments

The Company leases certain office space, property and equipment under long-
term, noncancelable operating leases. Future minimum rental payments, including
commitments of $2,250,200 per year through 2004 in connection with the related-
party leases described in Note 4, for each of the next five years ending
December 31 and in the aggregate are as follows (amounts in thousands):

1999............................. $11,824
2000............................. 10,695
2001............................. 10,281
2002............................. 9,030
2003............................. 7,675
Thereafter....................... 34,000
-------
$83,505
=======

A portion of the Company's retail stores and certain equipment are leased.
Most of these leases include renewal options and some include options to
purchase and provisions for percentage rent based on sales.

Rental expense amounted to $3,348,000, $4,136,000 and $13,862,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.

Other Commitments

During October 1998, the Company announced that it had entered into a
definitive agreement to purchase substantially all of the assets of Hinojosa
Auto Parts ("Hinojosa") effective April 1, 1999. Hinojosa is a specialty
retailer of auto parts which operates 10 stores and a distribution center in
the Rio Grande Valley along the Texas/Mexico border. Under the terms of the
agreement, the Company will pay approximately $6 million in cash. The Company
will not assume any liabilities of Hinojosa.

The Company also had construction commitments which totaled approximately
$12.4 million at December 31, 1998.

NOTE 8--LEGAL PROCEEDINGS

The Company is currently involved in litigation as a result of a complaint
filed against Hi-Lo in May 1997. The plaintiff in this lawsuit sought to
certify a class action on behalf of persons or entities in the states of Texas,
Louisiana and California that have purchased a battery from Hi-Lo since May
1990. The complaint alleges that Hi-Lo offered and sold "old," "used" and "out
of warranty" batteries as if the batteries were new, resulting in claims for
violations of deceptive trade practices,

F-14

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

breach of contract, negligence, fraud, negligent misrepresentation and breach
of warranty. The plaintiff is seeking, on behalf of the class, an unspecified
amount of compensatory and punitive damages, as well as attorneys' fees and
pre- and post-judgment interest. On July 27, 1998, the Trial Court certified
this class. The Company appealed the decision to certify the class in the Court
of Appeals for the Ninth District of Texas. On February 25, 1999, the Court of
Appeals issued an opinion affirming the Trial Court's decision to certify the
class. The Company intends to contest this ruling by seeking a mandamus from
the Supreme Court of Texas. The Company believes that the accusations made in
this case are unfounded, and intends to defend this lawsuit vigorously.
Although it is difficult at this stage to determine the likely outcome of the
case, the Company believes that this lawsuit will not have a material adverse
effect on the Company's results of operations or financial position.

In addition, the Company and its subsidiaries are involved in various other
legal proceedings incidental to the conduct of its business. Although the
Company cannot ascertain the amount of liability that it may incur from any of
these matters, it does not currently believe that, in the aggregate, they will
have a material adverse effect on the consolidated financial position, results
of operations or cash flow of the Company.

NOTE 9--INTEREST RATE RISK MANAGEMENT

During 1998, the Company entered into an interest rate swap agreement to
effectively convert a portion of its floating rate long term debt to a fixed
rate basis, thereby reducing the impact of interest rate changes on future
income. Pursuant to this pay-fixed swap agreement, the Company agreed to
exchange, at specified intervals, the difference between the fixed and the
floating interest amounts calculated on the notional amount of the swap
agreement which totaled $100 million at December 31, 1998. The Company's fixed
interest rate under the swap agreement was 5.69% and the counterparty's
floating rate was 5.45% at December 31, 1998.

NOTE 10--EMPLOYEE BENEFIT PLANS

The Company sponsors a contributory profit sharing and savings plan that
covers substantially all employees who are 21 years of age with at least six
months of service. Employees may contribute up to 15% of their annual
compensation subject to Internal Revenue Code maximum limitations. The Company
has agreed to make matching contributions equal to 50% of the first 2% of each
employee's contribution and 25% of the next 2% of each employee's contribution.
Additional contributions to the plan may be made as determined annually by the
Board of Directors. After three years of service, Company contributions and
earnings thereon vest at the rate of 20% per year of service with the Company.
Company contributions charged to operations amounted to $1,229,000 in 1996,
$1,485,000 in 1997 and $1,818,000 in 1998. Company contributions, in the form
of common stock, to the profit-sharing and savings plan to match employee
contributions during the years ended December 31 were as follows:

Year Market
Contributed Shares Value
----------- ------ --------

1996 19,786 $344,000
1997 20,913 415,000
1998 15,719 514,000

F-15

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Profit-sharing contributions accrued at December 31, 1996, 1997 and 1998
were funded in the next year through issuance of shares of the Company's common
stock as follows:

Year Market
Funded Shares Value
------ ------ ----------

1996 39,652 $ 684,000
1997 49,540 884,000
1998 36,193 1,070,000

The Company also sponsors an unfunded noncontributory defined benefit health
care plan, which provides certain health benefits to retired employees.
According to the terms of this plan, retirees' annual benefits are limited to
$1,000 per employee starting at age 66 for employees with 20 or more years of
service. Postretirement benefit costs for each of the years ended December 31,
1996, 1997 and 1998 amounted to $12,000.

Additionally, the Company has adopted a stock purchase plan under which
500,000 shares of common stock are reserved for future issuance. Under the
plan, substantially all employees and non-employee directors have the right to
purchase shares of the Company's common stock monthly at a price equal to 85%
of the fair market value of the stock. Under the plan, 32,936 shares were
issued at an average price of $14.61 per share during 1996, 32,584 shares were
issued at an average price $17.49 per share during 1997 and 37,316 shares were
issued at an average price of $30.09 per share during 1998.

The Company adopted a performance incentive plan for the Company's senior
management under which 200,000 shares of restricted stock are reserved for
future issuance. Under the plan, 556, 1,386 and 2,679 shares were issued during
1996, 1997 and 1998, respectively.

NOTE 11--STOCK OPTION PLANS

The Company has a stock option plan under which incentive stock options or
nonqualified stock options may be granted to officers and key employees. An
aggregate of 3,000,000 shares of common stock is reserved for future issuance
under this plan. The exercise price of options granted shall not be less than
the fair market value of the stock on the date of grant and the options will
expire no later than 10 years from the date of grant. Options granted pursuant
to the plan become exercisable no sooner than six months from the date of
grant. In the case of a stockholder owning more than 10% of the outstanding
stock of the Company, the exercise price of an incentive option may not be less
than 110% of the fair market value of the stock on the date of grant, and such
options will expire no later than 10 years from the date of grant. Also, the
aggregate fair market value of the stock with respect to which incentive stock
options are exercisable for the first time by any individual in any calendar
year may not exceed $100,000. A summary of outstanding stock options is as
follows:

Price per Number
Share of Shares
------------- ---------

Outstanding at December 31, 1995................. $ 8.75-$16.88 763,000
Granted........................................ 14.38- 20.00 51,500
Exercised...................................... 8.75- 15.50 (120,300)
Canceled....................................... 13.25- 19.54 (35,500)
--------

F-16

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Price per Number
Share of Shares
------------- ---------

Outstanding at December 31, 1996................. $ 8.75-$20.00 658,700
Granted........................................ 15.63- 28.00 755,000
Exercised...................................... 8.75- 18.38 (71,500)
Canceled....................................... 8.75- 17.88 (6,000)
---------
Outstanding at December 31, 1997................. 8.75- 28.00 1,336,200
Granted........................................ 24.75- 45.81 411,875
Exercised...................................... 8.75- 32.13 (119,300)
Canceled....................................... 8.75- 41.75 (34,350)
Forfeitures.................................... 8.75 (2,500)
---------
Outstanding at December 31, 1998................. $12.13-$45.81 1,591,925
=========

Options to purchase 637,700, 521,700 and 799,550 shares of common stock were
exercisable at December 31, 1996, 1997 and 1998, respectively.

The Company also maintains a stock option plan for non-employee directors of
the Company under which 150,000 shares of common stock are reserved for future
issuance. All director stock options are granted at fair market value on the
date of grant and expire on the earlier of termination of service to the
Company as a director or seven years. Options granted under this plan become
exercisable six months from the date of grant. A summary of outstanding stock
options is as follows:

Number
Price per Share of Shares
--------------- ---------

Outstanding at December 31, 1995................ $ 8.75-$13.50 30,000
Granted....................................... 18.19 10,000
-------
Outstanding at December 31, 1996................ 8.75- 18.19 40,000
Granted....................................... 18.56- 28.88 15,000
Exercised..................................... 8.75- 18.19 (20,000)
Canceled...................................... 18.56 (5,000)
-------
Outstanding at December 31, 1997................ 8.75- 18.19 30,000
Granted....................................... 27.00 10,000
Exercised..................................... 8.75 (5,000)
Canceled...................................... -- --
-------
Outstanding at December 31, 1998................ $13.13-$27.00 35,000
=======

All options under this plan were exercisable at December 31, 1996, 1997 and
1998.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee and non-employee director stock options under the
fair value method of that SFAS.

The fair values for these options were estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998, respectively: risk-free interest rates of
5.39%, 5.53% and 4.74%; volatility factors of the expected market price of the
Company's common stock of .200, .200 and .221; and weighted-average expected

F-17

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

life of the options of 3.5, 6.4 and 8.0 years. The Company assumed a 0%
dividend yield over the expected life of the options. The weighted-average
fair values of options granted during the years ended December 31, 1996, 1997
and 1998 were $4.79, $8.28, and $12.88, respectively. The weighted-average
remaining contract life at December 31, 1998 for all outstanding options under
the Company's stock option plans is 6.95 years. The weighted average exercise
price for all outstanding options under the Company's stock option plans was
$21.74 at December 31, 1998.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected
stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of its
employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects
of applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future
years. The Company's pro forma information follows:

1996 1997 1998
------- ------- -------
(In thousands, except
per share data)

Pro forma net income............................. $18,494 $22,432 $29,242
======= ======= =======
Pro forma basic net income per share............. $ 0.89 $ 1.07 $ 1.38
======= ======= =======
Pro forma net income per share--
assuming dilution............................... $ 0.88 $ 1.05 $ 1.35
======= ======= =======

NOTE 12--INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted income
per common share:

Year ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
(In thousands, except
per share data)

Numerator (basic and diluted):
Net income........................................... $18,971 $23,143 $30,772
======= ======= =======
Denominator:
Denominator for basic income per common share--
Weighted-average shares............................. 20,864 21,043 21,238
Effect of employee stock options (Note 11)........... 168 234 364
------- ------- -------
Denominator for diluted income per common share
adjusted weighted-average shares and assumed
conversions......................................... 21,032 21,277 21,602
======= ======= =======
Basic net income per common share...................... $ 0.91 $ 1.10 $ 1.45
======= ======= =======
Net income per common share--assuming dilution ........ $ 0.90 $ 1.09 $ 1.42
======= ======= =======

F-18

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 13--INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows at December
31:

1997 1998
------ ------
(In
thousands)

Deferred tax assets:
Current:
Allowance for doubtful accounts....................... $ 138 $ 225
Vacation accrual...................................... 567 852
Inventory carrying value.............................. 636 --
Other accruals........................................ 83 3,031
------ ------
1,424 4,108
Noncurrent:
Property and equipment................................ -- 1,843
Other................................................. 158 1,335
------ ------
158 3,178
------ ------
Total deferred tax assets................................. 1,582 7,286
Deferred tax liabilities:
Current:
Inventory carrying value.............................. -- 1,270
------ ------
-- 1,270
Noncurrent:
Property and equipment................................ 2,273 --
Other accruals........................................ 30 --
------ ------
Total deferred tax liabilities............................ 2,303 1,270
------ ------
Net deferred tax assets (liabilities)............... $ (721) $6,016
====== ======

The provision for income taxes consists of the following:

Current Deferred Total
------- -------- -------
(In thousands)

1996:
Federal........................................ $ 8,502 $ 1,316 $ 9,818
State.......................................... 1,077 167 1,244
------- ------- -------
$ 9,579 $ 1,483 $11,062
======= ======= =======
1997:
Federal........................................ $13,562 $ (915) $12,647
State.......................................... 1,893 (127) 1,766
------- ------- -------
$15,455 $(1,042) $14,413
======= ======= =======
1998:
Federal........................................ $10,386 $ 6,852 $17,238
State.......................................... 1,156 777 1,933
------- ------- -------
$11,542 $ 7,629 $19,171
======= ======= =======

F-19

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation of the provision for income taxes to the amounts computed
at the federal statutory rate is as follows:

1996 1997 1998
------- ------- -------
(In thousands)

Federal income taxes at statutory rate........... $10,512 $13,145 $17,480
State income taxes, net of federal tax benefit... 809 1,148 1,256
Other items, net................................. (259) 120 435
------- ------- -------
$11,062 $14,413 $19,171
======= ======= =======

The tax benefit associated with the exercise of non-qualified stock options
has been reflected as additional paid-in capital in the accompanying
consolidated financial statements.

During the years ended December 31, 1996, 1997 and 1998, cash paid by the
Company for income taxes amounted to $9,015,000, $12,168,000 and $16,229,000,
respectively.

NOTE 14--STOCK SPLIT

On July 8, 1997, the Company's Board of Directors declared a two-for-one
stock split to be effected in the form of a 100% stock dividend payable to all
shareholders of record as of July 31, 1997. The stock dividend was paid on
August 31, 1997. Accordingly, the stock split has been recognized by
reclassifying $105,000, the par value of the additional shares resulting from
the split, from retained earnings to common stock. All share and per share
information included in the accompanying consolidated financial statements has
been restated to reflect the retroactive effect of the stock split for all
periods presented.

NOTE 15--QUARTERLY FINANCIAL DATA--UNAUDITED

First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share
data)

Year ended December 31, 1997
Product sales............................. $ 68,472 $ 82,448 $ 87,517 $ 77,962
Gross profit.............................. 29,191 34,715 36,531 34,173
Operating income.......................... 7,928 9,493 10,467 9,196
Net income................................ 5,007 6,082 6,621 5,433
Basic net income per share................ 0.24 0.29 0.31 0.26
Net income per share--assuming dilution... 0.24 0.29 0.31 0.25
Year ended December 31, 1998
Product sales............................. $118,269 $165,242 $172,784 $160,007
Gross profit.............................. 50,669 66,201 69,345 71,648
Operating income.......................... 10,602 13,745 15,435 17,119
Net income................................ 5,819 7,672 8,361 8,920
Basic net income per share................ 0.28 0.36 0.39 0.42
Net income per share--assuming dilution... 0.27 0.36 0.39 0.41

F-20

O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The above quarterly financial data is unaudited, but in the opinion of
management, all adjustments necessary for a fair presentation of the selected
data for these interim periods presented have been included.

NOTE 16--SUBSEQUENT EVENTS

Effective January 4, 1999, the Company entered into a Master Lease Agreement
with O'Reilly-Wooten 2000 LLC (an entity owned by certain shareholders of the
Company) related to the sale and leaseback of certain properties. The
transaction closed on January 4, 1999 with a purchase price of approximately
$5.5 million. The lease calls for an initial term of 15 years with two five-
year renewal options.

In January 1999, the Company amended its syndicated credit facility. Under
the terms of the amendment, the commitment under the revolving credit facility
was increased to $160,000,000 from $125,000,000. This $35,000,000 increase
terminates July 31, 1999 or upon the occurrence of a "capital markets event"
(as defined). The Company believes that the completion of the offering
discussed below will constitute a capital markets event. Advances under this
amendment bear interest at the rates provided for in the original credit
agreement.

On March 5, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for a secondary offering of 4,140,000 shares
of common stock, 3,000,000 of which are to be offered by the Company. The net
proceeds from this offering will be used to repay certain of the outstanding
indebtedness of the Company under its credit facility.

F-21

[Inside Back Cover]

[Picture of inside of O'Reilly store showing rows of automotive products.]

Our stores offer an average of 23,000 SKUs.

[Picture of outside of O'Reilly store including O'Reilly sign.]

Our stores typically are free-standing locations averaging 6,500 square feet
in size.

[Picture of team member using bar scanner to price merchandise that a customer
is buying.]

Our technically proficient Professional Parts People provide enhanced
customer service.

[Picture of outside of distribution center and O'Reilly distribution trucks.]

We serve our stores from four strategically located distribution centers.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

, 1999

[Logo]

4,140,0003,340,000 Shares of Common Stock

---------------------

PROSPECTUS
---------------------

Donaldson, Lufkin & Jenrette

George K. Baum & Company

William Blair & Company

- -------------------------------------------------------------------------------

We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the
Company have not changed since the date hereof.
- -------------------------------------------------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses expected to be
incurred in connection with the issuance and distribution of the shares being
registered, other than the underwriting discounts and commissions.

Securities and Exchange Commission filing fee................... $ 57,120
NASD review fee................................................. 21,360
Nasdaq listing fee.............................................. 17,500
Printing and engraving expenses................................. 50,000
Legal fees and expenses......................................... 150,000
Accounting fees and expenses.................................... 100,000
Transfer Agent Fees............................................. 5,000
Miscellaneous................................................... 24,020
--------
Total....................................................... $425,000
========

Item 15. Indemnification of Directors and Officers

Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that, in the case of an action or suit by or in
the right of the corporation, the corporation may not indemnify such persons
against judgments and fines and no person shall be indemnified as to any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the court in which the action or suit was
brought determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that, to
the extent that a director, officer, employee or agent of the corporation has
been successful in the defense of any such action, suit or proceeding or any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred in connection with
such action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by a
shareholder-approved bylaw or agreement, and provided further that no person
shall thereby be indemnified against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or
which involve an accounting for profits pursuant to Section 16(b) of the
Securities Exchange Act of 1934. Article IX of the Restated Articles of
Incorporation permits the registrant to enter into agreements with its
directors, officers, employees and agents providing such indemnification as
deemed appropriate, up to the maximum extent

II-1

permitted by law. Article IX of the Restated Articles of Incorporation of the
registrant provides that the registrant shall extend to its directors and
executive officers the indemnification specified in subsections (1) and (2) and
the additional indemnification authorized in subsection (7) and that it may
extend to other officers, employees and agents such indemnification and
additional indemnification.

Pursuant to Section 8(b) of the Underwriting Agreement directors and
executive officers of the registrant also may be entitled to indemnification
from the Underwriters under certain circumstances.

Item 16. Exhibits and Financial Statement Schedules

Exhibits:

Exhibit
Number Description

1.1 Form of Underwriting AgreementAgreement*
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of our Registration Statement on Form S-
1, File No. 33-58948)
4.1 Form of Stock Certificate for Common Stock (incorporated by
reference to Exhibit 4.1 of our Registration Statement on Form S-
1, File No. 33-58948)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)*
5.2 Opinion of Gallop, Johnson & Neuman, L.C. (with respect to certain
matters of Missouri law)*
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Arthur Andersen, LLP, Independent Auditors
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(included in Exhibit 5.1)*
23.4 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit
5.2)*
24.1 Power of Attorney (included on the signature page hereto)*
27.1 Financial Data Schedule*

- ---------------------
*Previously filed

Item 17. Undertakings

1. The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual

II-2

report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by registrant
of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Springfield and State of Missouri on this 10th25th day
of March, 1999.

O'Reilly Automotive, Inc.

/s/ David E. O'Reilly
By: _________________________________
David E. O'Reilly
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 10th25th day of March, 1999.

Signature Title

* Chairman Emeritus and
____________________________________ Director
Charles H. O'Reilly, Sr.

* Chairman of the Board and
____________________________________ Director
Charles H. O'Reilly, Sr.

* Chairman of the Board and
____________________________________ Director
Charles H. O'Reilly, Jr.

/s/ David E. O'Reilly President, Chief Executive
____________________________________ Officer and Director
David E. O'Reilly (Principal Executive
Officer)

* President, Chief Executive
____________________________________ Officer and Director
David E. O'Reilly (Principal Executive
Officer)

* President, Chief Executive
____________________________________ Operating Officer and
Lawrence P. O'Reilly Director

* Executive Vice-President and
____________________________________ Director
Rosalie O'Reilly Wooten

* Vice-President of Finance,
____________________________________ Chief Financial Officer and
James R. Batten Treasurer (Principal
Financial and Accounting
Officer)

* Director
____________________________________
Jay Burchfield

* Director
____________________________________
Joe C. Greene

/s/ David E. O'Reilly
By: _________________________________________________
David E. O'Reilly
Attorney-in-Fact

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EXHIBIT INDEX

Exhibit
No. Description of Exhibit

1.1 Form of Underwriting AgreementAgreement*
3.1 Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit 4.1 of our Registration Statement on
Form S-1, File No. 33-58948)
4.1 Form of Stock Certificate for Common Stock (incorporated by
reference to Exhibit 3.1 of our Registration Statement on Form
S-1, File No. 33-58948)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)*
5.2 Opinion of Gallop, Johnson & Neuman, L.C. (with respect to
certain matters of Missouri law)*
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Arthur Andersen, LLP, Independent Auditors
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(included in Exhibit 5.1)*
23.4 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit
5.2)*
24.1 Power of Attorney (included on the signature page hereto)*Attorney*
27.1 Financial Data Schedule*

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*Previously filed