SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number 0-21318
O'REILLY AUTOMOTIVE, INC.
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(Exact name of registrant as specified in its charter)
Missouri 44-0618012
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
233 South Patterson
Springfield, Missouri 65802
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(Address of principal executive offices, Zip code)
(417) 862-6708
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common stock, $0.01 par value - 52,552,813 shares outstanding as of
September 30, 2001.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 2001
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 7
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 9
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 10
EXHIBIT INDEX 11
PART I Financial Information
ITEM 1. Financial Statements
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
(Unaudited) (Note)
(In thousands)
Assets
Current assets:
Cash $ 33,279 $ 9,204
Short-term investments 500 500
Accounts receivable, net 39,109 32,673
Amounts receivable from vendors 34,766 29,175
Inventory 395,694 372,069
Refundable income taxes 10 92
Deferred income taxes 204 1,402
Other current assets 1,301 4,089
Total current assets 504,863 449,204
Property and equipment, at cost 365,038 323,021
Accumulated depreciation and amortization 96,357 76,167
Net property and equipment 268,681 246,854
Notes receivable 2,311 2,836
Other assets 14,135 17,101
Total assets $ 789,990 $ 715,995
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ -- $ 35,000
Income taxes payable 15,529 1,011
Accounts payable 67,566 68,947
Accrued payroll 10,106 9,309
Accrued benefits & withholdings 13,843 9,360
Other current liabilities 17,540 15,184
Current deferred income taxes 619 --
Current portion of long-term debt 15,241 14,121
Total current liabilities 140,444 152,932
Long-term debt, less current portion 104,309 90,463
Deferred income taxes 6,936 4,086
Other liabilities 4,636 4,783
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-
52,552,813 shares at
September 30, 2001, and 51,544,879
at December 31, 2000 526 515
Additional paid-in capital 250,079 230,600
Retained earnings 283,060 232,616
Total shareholders' equity 533,665 463,731
Total liabilities and shareholders'
equity $ 789,990 $ 715,995
NOTE: The balance sheet at December 31, 2000, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
(In thousands, except per share data)
Product sales $ 293,996 $ 251,413 $ 813,735 $ 673,530
Cost of goods sold,
including warehouse and
distribution expenses 168,520 145,550 467,795 385,700
Gross profit 125,476 105,863 345,940 287,830
Operating, selling, general
and administrative expenses 91,219 77,058 258,851 214,822
Operating income 34,257 28,805 87,089 73,008
Other expense, net (1,867) (2,076) (5,895) (4,530)
Income before income taxes 32,390 26,729 81,194 68,478
Provision for income taxes 12,250 10,157 30,750 25,986
Net income $ 20,140 $ 16,572 $ 50,444 $ 42,492
Net income per common share $ 0.38 $ 0.32 $ 0.97 $ 0.83
Net income per common share
- assuming dilution $ 0.38 $ 0.32 $ 0.96 $ 0.82
Weighted average common
shares outstanding 52,404 51,301 51,942 51,085
Adjusted weighted average
common shares outstanding
- - - assuming dilution 53,205 51,856 52,563 51,551
See notes to condensed consolidated financial statements.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30, September 30,
2001 2000
(In thousands)
Net cash provided by
operating activities $ 72,264 $ 18,687
Investing activities:
Purchases of property and equipment (46,465) (64,529)
Proceeds from sale of property and equipment 6,755 1,066
Payments received on notes receivable 479 442
Investment in other assets (977) (1,677)
Net cash used in investing activities (40,208) (64,698)
Financing activities:
Borrowings on notes
payable to banks -- 7,130
Payments on notes payable to banks (35,000) (7,130)
Proceeds from issuance of long-term debt 191,542 377,488
Payments on long-term debt (177,020) (331,747)
Proceeds from issuance of common stock 12,483 3,129
Borrowings (payments) of other liabilities 14 (381)
Net cash (used in) provided by financing
activities (7,981) 48,489
Net increase in cash 24,075 2,478
Cash at beginning of period 9,204 9,791
Cash at end of period $ 33,279 $ 12,269
See notes to condensed consolidated financial statements.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2001
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
O'Reilly Automotive, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2001, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
2. Acquisition
On August 9, 2001, the Company announced the signing of a definitive agreement
to acquire all of the outstanding stock of Mid-State Automotive Distributors,
Inc ("Mid-State"). The transaction closed October 1, 2001. Under the terms of
the agreement, the Company purchased all of the outstanding stock of Mid-State
for $19.5 million in cash and assumed approximately $26.7 million in debt.
Mid-State operates 85 stores and 4 distribution centers in Indiana, Kentucky,
Tennessee, Mississippi, Alabama, Florida and Georgia. The results of operations
of Mid-State will be included in the results of operations of the Company
commencing on October 1, 2001. The acquisition expands the presence of O'Reilly
to 16 states, adds distribution capacity and increases O'Reilly's store count by
85 new stores.
3. New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other identifiable intangible assets will continue to be amortized over their
useful lives or if they have indefinite lives, such identifiable intangible
assets will not be amortized but will be subject to annual impairment tests.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2002. Application of
the provisions of the Statements are not expected to have a material impact on
the Company's financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Unless otherwise indicated, "we," "us," "our" and similar terms, as well as
references to the "Company" or "O'Reilly" refer to O'Reilly Automotive, Inc. and
its subsidiaries.
Results of Operations
Product sales for the third quarter of 2001 increased by $42.6 million, or
16.9%, over product sales for the third quarter of 2000. Product sales for the
first nine months of 2001 increased by $140.2 million, or 20.8% over product
sales for the first nine months of 2000. These increases were primarily due to
the opening of 32 net, new stores during the third quarter of 2001 and 92 net,
new stores during the first nine months of 2001, in addition to a 6.7% and 9.3%
increase in comparable store product sales for the third quarter and first nine
months of 2001, respectively. At September 30, 2001, the Company operated 764
stores compared to 650 stores at September 30, 2000.
Gross profit increased 18.5% from $105.9 million (or 42.1% of product sales) in
the third quarter of 2000 to $125.5 million (or 42.7% of product sales) in the
third quarter of 2001. Gross profit for the first nine months increased 20.2%
from $287.8 million (or 42.7% of product sales) in 2000 to $345.9 million (or
42.5% of product sales) in 2001. The increase in gross profit dollars was
primarily a result of the increase in the number of stores open during the third
quarter and first nine months of 2001 compared to the same period of 2000, and
increased sales levels at existing stores.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $14.2 million from $77.1 million (or 30.6% of product sales) in the
third quarter of 2000 to $91.2 million (or 31.0% of product sales) in the third
quarter of 2001. OSG&A expenses increased $44.0 million from $214.8 million (or
31.9% of product sales) in the first nine months of 2000 to $258.9 million (or
31.8% of product sales) in the first nine months of 2001. The increase in OSG&A
expenses resulted primarily from the addition of team members and resources in
order to support the increased level of the Company's operations, higher fuel
and utility costs, and increased rent expense due to the sale-leaseback
transaction completed in December 2000.
Other expense decreased by $209,000 in the third quarter of 2001 compared to the
third quarter of 2000 and increased by $1.4 million for the first nine months of
2001 compared to the first nine months of 2000. The decrease in other expense in
the third quarter of 2001 compared to the third quarter of 2000 is primarily due
to an increase in interest income as a result of increased levels of cash. The
overall increase in other expense in the first nine months of 2001 compared to
the first nine months of 2000 is primarily due to increased interest expense
resulting from a higher blended rate of interest paid on outstanding
indebtedness.
The Company's estimated provision for income taxes increased to $12.3 million
for the third quarter of 2001 from $10.2 million for the third quarter of 2000
as a result of the Company's increased taxable income. The Company's effective
tax rate was 37.8% and 38.0% of income before income taxes in the third quarter
of 2001 and the first nine months of 2001, respectively.
Principally, as a result of the foregoing, net income increased from $16.6
million or 6.6% of product sales in the third quarter of 2000 to $20.1 million
or 6.9% of product sales in the third quarter of 2001. Net income increased from
$42.5 million or 6.3% of product sales in the first nine months of 2000 to $50.4
million or 6.2% of product sales in the first nine months of 2001.
Liquidity and Capital Resources
Net cash provided by operating activities increased from $18.7 million for the
first nine months in 2000 to $72.3 million for the first nine months of 2001.
This increase was principally the result of increases in net income and income
taxes payable, partially offset by increases in inventory, accounts receivable,
amounts receivable from vendors and a decrease in accounts payable. The increase
in income taxes payable is primarily due to the timing of third quarter
estimated tax payments extended by changes in the tax law. The increase in
inventory and accounts receivable are primarily due to the addition of new
stores and increased sales levels in existing stores. The increase in amounts
receivable from vendors and the decrease in accounts payable are primarily due
to the timing of receipts and payments, respectfully.
Net cash used in investing activities decreased from $64.7 million in the first
nine months of 2000 to $40.2 million in the first nine months of 2001, primarily
due to most of the Company's new stores in 2001 being funded through the
synthetic lease facility as compared to 2000 in which new stores were funded by
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Liquidity and Capital Resources (Continued)
Net cash used in financing activities was $8.0 million in the first nine months
of 2001. Net cash provided by financing activities was $48.5 million in the
first nine months of 2000. The decrease in cash provided by financing activities
during the first nine months of 2001 compared to the first nine months of 2000
is primarily due to an overall reduction in the Company's indebtedness and as a
result of the Company leasing a larger percentage of its new stores in 2001.
For the first nine months of 2001, 92 net, new stores were opened. The Company
plans to open an additional 28 stores during the remainder of 2001, plus the 85
stores acquired from Mid-State Automotive Distributors, Inc., effective October
1, 2001, for $19.5 million in cash and $26.7 million in assumed liabilities. The
funds required for such planned expansions are expected to be provided by cash
expected to be generated by operating activities, existing cash balances and the
existing, available bank credit facilities.
Management believes that the cash expected to be generated from operating
activities, existing cash, existing bank credit facilities and trade credit will
be sufficient to fund the Company's short and long-term capital and liquidity
needs for the foreseeable future.
Inflation and Seasonality
The Company has been successful, 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, the Company does not believe the
operations have been materially affected by inflation.
The Company's business is seasonal to some extent 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.
Forward-Looking Statements
Certain statements contained in this press release are forward-looking
statements. These statements discuss, among other things, expected growth, store
development and expansion strategy, business strategies, future revenues and
future performance. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, but not limited to, competition,
product demand, the market for auto parts, the economy in general, inflation,
consumer debt levels, governmental approvals, our ability to hire and retain
qualified employees, weather, terrorist activities, war and the threat of war.
Actual results may materially differ from anticipated results described in these
forward-looking statements. Please refer to the Risk Factors sections of the
Company's Form 10-K for the year ended December 31, 2000, for more details.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk through derivative financial instruments and other
financial instruments is not material.
PART II - OTHER INFORMATION
Item 5. Other Information
On August 9, 2001, the Company announced the signing of a definitive agreement
to acquire all of the outstanding stock of Mid-State Automotive Distributors,
Inc ("Mid-State"). The transaction closed October 1, 2001. Under the terms of
the agreement, the Company purchased all of the outstanding stock of Mid-State
for $19.5 million in cash and assumed approximately $26.7 million in debt.
Mid-State operates 85 stores and 4 distribution centers in Indiana, Kentucky,
Tennessee, Mississippi, Alabama, Florida and Georgia. The results of operations
of Mid-State will be included in the results of operations of the Company
commencing on October 1, 2001. The acquisition expands the presence of O'Reilly
to 16 states, adds distribution capacity and increases O'Reilly's store count by
85 new stores.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 11 hereof.
(b) No reports on Form 8-K were filed by us during the quarter ended
September 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
O'REILLY AUTOMOTIVE, INC.
November 13, 2001 /s/ David E. O'Reilly
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Date David E. O'Reilly, Co-Chairman of the Board and
Chief Executive Officer
November 13, 2001 /s/ James R. Batten
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Date James R. Batten, Vice-President of Finance and
Chief Financial Officer
EXHIBIT INDEX
Number Description Page
99.1 Certain Risk Factors, filed herewith. 14
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors
The following factors could affect our actual results, including revenues,
expenses and net income, and could cause them to differ from any forward-looking
statements made by or on behalf of us.
Competition
We compete with a large number of retail and wholesale automotive aftermarket
product suppliers. The distribution of automotive aftermarket products is a
highly competitive industry, particularly in the more densely populated market
areas served by us. Competitors include national and regional automotive parts
chains, independently owned parts stores (some of which are associated with
national auto parts distributors or associations), automobile dealerships, mass
or general merchandise, discount and convenience chains that carry automotive
products, independent warehouse distributors and parts stores and national
warehouse distributors and associations. Some of our competitors are larger and
have greater financial resources than us.
No Assurance of 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.
Our ability to accomplish this growth 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. No assurance can be given that our
current growth rate can be maintained.
Dependence Upon Key and Other Personnel
The success of our Company 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, Ted F. Wise and Greg Henslee. The loss
of the services of one or more of these individuals could have a material
adverse effect on the business and results of operations. Additionally, in order
to successfully implement and manage our growth strategy, we will be dependent
upon our ability to continue to attract and retain qualified personnel. There
can be no assurance that we will be able to continue to attract such personnel.
Concentration of Ownership by Management
Our executive officers and directors as a group beneficially own a substantial
percentage of the outstanding shares of our common stock. These officers and
directors have the ability to exercise effective voting control of the Company,
including the election of all of our directors, and to effectively determine the
vote on any matter being voted on by our shareholders, including any merger,
sale of assets or other change in control of the Company.