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, 2004
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.
- --------------------------------------------------------------------------------
(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 [ ]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The registrant has 55,208,493 shares of its common stock, par value $0.01,
outstanding as of September 30, 2004.
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 2004
<table>
<caption>
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
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 8
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
ITEM 4 - CONTROLS AND PROCEDURES 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
</table>
Page 2
<page>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<table>
<caption>
September 30, December 31,
2004 2003
------------ ------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 83,619 $ 21,094
Accounts receivable, net 61,493 52,235
Amounts receivable from vendors, net 44,276 50,695
Inventory 612,699 554,309
Deferred income taxes 5,854 4,753
Other current assets 6,143 4,399
------------ ------------
Total current assets 814,084 687,485
Property and equipment, at cost 747,749 626,142
Accumulated depreciation and amortization 208,080 177,084
------------ ------------
Net property and equipment 539,669 449,058
Notes receivable, less current portion 22,082 24,313
Other assets, net 29,493 26,736
------------ ------------
Total assets $ 1,405,328 $ 1,187,592
============ ============
Liabilities and shareholders' equity
Current liabilities:
Income taxes payable $ 17,128 $ 6,872
Accounts payable 268,153 176,513
Accrued payroll 15,415 17,307
Accrued benefits and withholdings 36,979 27,368
Other current liabilities 26,032 16,883
Current portion of long-term debt 592 925
------------ ------------
Total current liabilities 364,299 245,868
Long-term debt, less current portion 100,469 120,977
Deferred income taxes 38,120 29,448
Other liabilities 7,770 7,014
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-
55,208,493 shares at September 30, 2004,
and 54,664,976 at December 31, 2003 552 547
Additional paid-in capital 320,050 302,691
Retained earnings 574,068 481,047
------------ ------------
Total shareholders' equity 894,670 784,285
------------ ------------
Total liabilities and shareholders' equity $ 1,405,328 $ 1,187,592
============ ============
<fn>
NOTE: The condensed consolidated balance sheet at December 31, 2003, has been
derived from the audited consolidated financial statements at that date, but
does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.
</fn>
</table>
See "Notes to Condensed Consolidated Financial Statements."
Page 3
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Product sales $ 455,162 $ 412,182 $ 1,293,623 $ 1,144,769
Cost of goods sold, including
warehouse and distribution expenses 259,314 236,529 740,679 662,457
----------- ----------- ----------- -----------
Gross profit 195,848 175,653 552,944 482,312
Operating, selling, general
and administrative expenses 142,039 127,291 402,798 355,883
----------- ----------- ----------- -----------
Operating income 53,809 48,362 150,146 126,429
Other expense, net (791) (1,179) (1,675) (4,594)
----------- ----------- ----------- -----------
Income before income taxes 53,018 47,183 148,471 121,835
Provision for income taxes 19,775 17,650 55,450 45,650
----------- ----------- ----------- -----------
Net income $ 33,243 $ 29,533 $ 93,021 $ 76,185
=========== =========== =========== ===========
Net income per common share - basic $ 0.60 $ 0.55 $ 1.69 $ 1.42
=========== =========== =========== ===========
Weighted-average common shares outstanding 55,140 54,090 54,923 53,711
=========== =========== =========== ===========
Net income per common share - assuming dilution $ 0.60 $ 0.54 $ 1.67 $ 1.40
=========== =========== =========== ===========
Adjusted weighted-average common
shares outstanding - assuming dilution 55,778 54,864 55,627 54,282
=========== =========== =========== ===========
</table>
See "Notes to Condensed Consolidated Financial Statements."
Page 4
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<table>
<caption>
Nine Months Ended
September 30,
------------------------
2004 2003
---------- ----------
Net cash provided by operating activities $ 196,276 $ 167,469
Investing activities:
Purchases of property and equipment (126,220) (100,047)
Proceeds from sale of property and equipment 1,248 1,099
Payments received on notes receivable 2,231 313
Investments in other assets (505) (588)
---------- ----------
Net cash used in investing activities (123,246) (99,223)
Financing activities:
Payments on long-term debt (20,841) (80,530)
Proceeds from issuance of common stock 10,336 15,996
---------- ----------
Net cash used in financing activities (10,505) (64,534)
Net increase in cash and cash equivalents 62,525 3,712
Cash and cash equivalents at beginning of period 21,094 29,333
---------- ----------
Cash and cash equivalents at end of period $ 83,619 $ 33,045
========== ==========
</table>
See "Notes to Condensed Consolidated Financial Statements."
Page 5
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2004
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 accounting principles generally accepted in the United States
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 accounting principles generally accepted in the United
States 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 nine months
ended September 30, 2004, may not be indicative of the results that may be
expected for the year ended December 31, 2004. 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, 2003.
2. Stock-based Compensation
The Company has elected to use the intrinsic value method of accounting for
stock options issued under our stock option plans and accordingly does not
record an expense for such stock options. For purposes of pro forma disclosures
under the fair value method, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information is as follows:
<table>
<caption>
For the three months For the nine months
ended September 30, ended September 30,
2004 2003 2004 2003
------------------- -------------------
(In thousands, except per share data)
Net income as reported......................... $ 33,243 $ 29,533 $ 93,021 $ 76,185
Stock-based compensation expense, net of
tax, as reported............................ - - - -
Stock-based compensation expense, net of
tax, under fair value method................ 3,559 2,322 9,646 6,563
------------------- -------------------
Pro forma net income........................... $ 29,684 $ 27,211 $ 83,375 $ 69,622
=================== ===================
Pro forma basic net income per share........... $ 0.54 $ 0.50 $ 1.52 $ 1.30
=================== ===================
Pro forma net income per share-
assuming dilution........................... $ 0.53 $ 0.50 $ 1.50 $ 1.28
=================== ===================
Earnings per share, as reported
Basic....................................... $ 0.60 $ 0.55 $ 1.69 $ 1.42
=================== ===================
Diluted..................................... $ 0.60 $ 0.54 $ 1.67 $ 1.40
=================== ===================
</table>
3. Synthetic Lease Facility
On June 26, 2003, we completed an amended and restated master agreement relating
to our properties leased from SunTrust Equity Funding, LLC ("the Facility"). The
terms of the amended and restated Facility provide for an initial lease period
of five years, a residual value guarantee of approximately $44.2 million at
September 30, 2004, and purchase options on the properties. The Facility also
contains a provision for an event of default whereby the lessor, among other
things, may require us to purchase any or all of the properties. One additional
renewal period of five years may be requested from the lessor, although the
lessor is not obligated to grant such renewal. The agreement with SunTrust
Equity Funding, LLC has been recorded and disclosed as an operating lease in
accordance with Financial Accounting Standards Board ("FASB") Statement No. 13
and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
and FASB Interpretation No. 46R.
Page 6
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2004
4. Income Per Common Share
The following table sets forth the computation of basic and diluted income per
common share:
<table>
<caption>
Three months Nine months
ended September 30, ended September 30,
2004 2003 2004 2003
------------------- -------------------
(In thousands, except per share data)
Numerator (basic & diluted):
Net income................................... $ 33,243 $ 29,533 $ 93,021 $ 76,185
=================== ===================
Denominator:
Denominator for basic income per common
share-weighted-average shares.............. 55,140 54,090 54,923 53,711
Effect of stock options...................... 638 774 704 571
------------------- -------------------
Denominator for diluted income per common
share-adjusted weighted-average shares
and assumed conversion..................... 55,778 54,864 55,627 54,282
=================== ===================
Basic net income per common share............... $ 0.60 $ 0.55 $ 1.69 $ 1.42
=================== ===================
Net income per common share-assuming
dilution..................................... $ 0.60 $ 0.54 $ 1.67 $ 1.40
=================== ===================
</table>
Page 7
<page>
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.
Critical Accounting Policies and Estimates
The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend the business activities of our
company. To aid in that understanding, management has identified our "critical
accounting policies." These policies have the potential to have a more
significant impact on our financial statements, either because of the
significance of the financial statement item to which they relate, or because
they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in nature.
o Cost of goods sold - Cost of goods sold includes warehouse and distribution
expenses and estimates of amounts due from vendors for certain merchandise
allowances and rebates. These estimates are consistent with historical
experience.
o Operating, selling, general and administrative expense (OSG&A) - Operating,
selling, general and administrative expense includes estimates for medical,
workers' compensation and other general liability obligations, which are
partially based on estimates of certain claim costs and historical
experience.
o Accounts receivable - Allowance for doubtful accounts is estimated based on
historical loss ratios and consistently has been within management's
expectations.
o Revenue - Over-the-counter retail sales are recorded when the customer
takes possession of merchandise. Sales to professional installers, also
referred to as "commercial sales," are recorded upon delivery of
merchandise to the customer, generally at the customer's place of business.
Wholesale sales to other retailers, also referred to as "jobber sales" are
recorded upon shipment of merchandise. All sales are recorded net of
estimated allowances and discounts.
o Vendor concessions - The Company receives concessions from its vendors
through a variety of programs and arrangements, including co-operative
advertising, allowances for warranties and volume purchase rebates.
Co-operative advertising allowances that are incremental to our advertising
program, specific to a product or event and identifiable for accounting
purposes are reported as a reduction of advertising expense in the period
in which the advertising occurred. All other vendor concessions are
recognized as a reduction of cost of sales when recognized in the
consolidated statement of income.
o Stock-based compensation - We have elected to use the intrinsic value
method of accounting for stock options issued under our stock option plans
and accordingly do not record an expense for such stock options. For
purposes of pro forma disclosures under the fair value method, the
estimated fair value of the options is amortized to expense over the
options' vesting period. Our pro forma information is as follows:
<table>
<caption>
For the three months For the nine months
ended September 30, ended September 30,
2004 2003 2004 2003
------------------- -------------------
(In thousands, except per share data)
Net income as reported......................... $ 33,243 $ 29,533 $ 93,021 $ 76,185
Stock-based compensation expense, net of
tax, as reported............................ - - - -
Stock-based compensation expense, net of
tax, under fair value method................ 3,559 2,322 9,646 6,563
------------------- -------------------
Pro forma net income........................... $ 29,684 $ 27,211 $ 83,375 $ 69,622
=================== ===================
Pro forma basic net income per share........... $ 0.54 $ 0.50 $ 1.52 $ 1.30
=================== ===================
Pro forma net income per share-
assuming dilution........................... $ 0.53 $ 0.50 $ 1.50 $ 1.28
=================== ===================
Earnings per share, as reported
Basic....................................... $ 0.60 $ 0.55 $ 1.69 $ 1.42
=================== ===================
Diluted..................................... $ 0.60 $ 0.54 $ 1.67 $ 1.40
=================== ===================
</table>
Page 8
<page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Results of Operations
Product sales for the third quarter of 2004 were $ 455.2 million, an increase of
$43.0 million or 10.4% over product sales for the third quarter of 2003. Product
sales for the first nine months of 2004 were $1.29 billion, an increase of
$148.9 million or 13.0% over product sales for the first nine months of 2003.
These increases are primarily due to the opening of 35 net, new stores during
the third quarter of 2004 and 96 net, new stores during the first nine months of
2004, in addition to a 3.4% and 6.2% increase in comparable store product sales
(1) for the third quarter and first nine months of 2004, respectively. At
September 30, 2004, we operated 1,205 stores compared to 1,074 stores at
September 30, 2003.
Gross profit increased 11.5% from $175.7 million (or 42.6% of product sales) in
the third quarter of 2003 to $195.8 million (or 43.0% of product sales) in the
third quarter of 2004. Gross profit for the first nine months increased 14.6%
from $482.3 million (or 42.1% of product sales) in 2003 to $552.9 million (or
42.7% of product sales) in 2004. The increase in gross profit dollars is
primarily a result of the increase in the number of stores open during the third
quarter and first nine months of 2004 compared to the same periods in 2003, and
increased sales levels at existing stores. The increase in gross profit as a
percentage of product sales in the third quarter 2004 compared to 2003, is
primarily due to a reduction in the cost of merchandise from our vendors. The
increase in gross profit as a percentage of product sales for the first nine
months of 2004 compared to 2003, is primarily due to a reduction in the cost of
merchandise from vendors and a reduction in warehouse and delivery expenses as a
percentage of product sales.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $14.7 million from $127.3 million (or 30.9% of product sales) in the
third quarter of 2003 to $142.0 million (or 31.2% of product sales) in the third
quarter of 2004. OSG&A expenses increased $46.9 million from $355.9 million (or
31.1% of product sales) in the first nine months of 2003 to $402.8 million (or
31.1% of product sales) in the first nine months of 2004. The dollar increase in
OSG&A expenses resulted from the addition of team members and resources in order
to support the increased level of our operations. The increase in OSG&A as a
percentage of product sales in the third quarter of 2004 compared to 2003, is
primarily due to increased labor and benefit expenses and a lack of leverage due
to lower than anticipated sales.
Other expense decreased by $388,000 in the third quarter of 2004 compared to the
third quarter of 2003 and decreased by $2.9 million for the first nine months of
2004 compared to the first nine months of 2003. The decreases in both periods
being compared were primarily due to decreases in interest expense as a result
of lower borrowings under our credit facility.
Our estimated provision for income taxes increased $2.1 million and $9.8 million
for the third quarter and first nine months of 2004, respectively, compared to
the same periods in 2003, as a result of our increased taxable income. Our
effective tax rate was 37.3% of income before income taxes for the third quarter
and first nine months of 2004, compared with 37.4% and 37.5% for the same
periods of 2003, respectively.
Principally, as a result of the foregoing, net income increased from $29.5
million (or 7.2% of product sales) in the third quarter of 2003 to $33.2 million
(or 7.3% of product sales) in the third quarter of 2004. Net income increased
from $76.2 million (or 6.7% of product sales) in the first nine months of 2003
to $93.0 million (or 7.2% of product sales) in the first nine months of 2004.
(1) Comparable store product sales are calculated based on the change in
product sales of stores open at least one year. Percentage increase in
comparable store product sales is calculated based on store sales results,
which exclude sales of specialty machinery, sales by outside salesmen and
sales to employees.
Page 9
<page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Liquidity and Capital Resources
Net cash provided by operating activities increased from $167.5 million for the
first nine months in 2003 to $196.3 million for the first nine months of 2004.
This increase was principally the result of increased net income, an increase in
accounts payable and a decrease in amounts receivable from vendors, partially
offset by increases in inventory and accounts receivable. The increase in
accounts payable is primarily attributable to the timing of payments and more
favorable payment terms from vendors. The increases in inventory and receivables
are primarily due to our increased product sales resulting from our continuing
store growth.
Net cash used in investing activities increased from $99.2 million during the
first nine months in 2003 to $123.2 million for the comparable period in 2004,
primarily due to the increased purchases of property and equipment resulting
from new store growth.
Net cash used in financing activities was $10.5 million in the first nine months
of 2004, compared to $64.5 million in the first nine months of 2003. The
decrease in net cash used in financing activities is primarily due to lower
repayments of long-term debt.
We have available an unsecured, three-year syndicated revolving credit facility
in the amount of $150 million. The credit facility is guaranteed by all of our
subsidiaries and may be increased to a total of $200 million, subject to
availability of such additional credit from either existing banks within the
syndicate or other banks. At September 30, 2004, none of the revolving credit
facility was outstanding. Letters of credit totaling $18.6 million were
outstanding at September 30, 2004. Accordingly, we have aggregate availability
for additional borrowings of $131.4 million under the revolving credit facility.
The revolving credit facility, which bears interest at LIBOR plus a spread
ranging from 0.875% to 1.375% (2.25% at September 30, 2004), expires in July
2005.
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,
exclusive of the cost of inventory. We plan to finance our expansion program
through cash expected to be provided from operating activities and available
borrowings under our existing credit facilities.
During the first nine months of 2004, 96 net, new stores were opened. The
Company plans to open 44 additional stores during the remainder of 2004. The
funds required for such planned expansions are expected to be provided by
operating activities and the existing and available bank credit facilities.
We believe that 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-term and long-term capital and
liquidity needs for the foreseeable future.
Page 10
<page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Inflation and Seasonality
We have 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, we do not believe our operations have been
materially affected by inflation.
Our 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.
Internet Address and Access to SEC Filings
Our Internet address is www.oreillyauto.com. Interested readers can access the
Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, through the Securities and Exchange Commission website, www.sec.gov.
Such reports are generally available on the day they are filed. Additionally,
the Company will furnish interested readers upon request and free of charge, a
paper copy of such reports.
Forward-Looking Statements
We claim the protection of the safe-harbor for forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Certain
statements contained within this filing discuss, among other things, expected
growth, store development and expansion strategy, business strategies, future
revenues and future performance. These forward-looking statements are based on
estimates, projections, beliefs and assumptions and are not guarantees of future
events and results. Such statements are subject to risks, uncertainties and
assumptions, including, but not limited to, 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,
risks associated with the integration of acquired businesses, 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 Exhibit 99.1 and the Risk Factors sections of the Company's Form 10-K for the
year ended December 31, 2003, for more details.
Page 11
<page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk to the extent we borrow against our
revolving credit facility with variable interest rates. Since no amounts were
outstanding under the revolving credit facility at September 30, 2004, changes
in interest rates would not have any effect. In the event of an adverse change
in interest rates and assuming the Company had amounts outstanding under the
credit facility, management would likely take actions that would mitigate our
exposure to interest rate risk particularly if our borrowing levels increase to
any significant extent.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, under the supervision and with the participation of
our chief executive officer and chief financial officer, has reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
as of September 30, 2004. Based on such review and evaluation, our chief
executive officer and chief financial officer have concluded that the disclosure
controls and procedures were effective as of September 30, 2004, to ensure that
the information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934, as amended, (a) is
recorded, processed, summarized and reported within the time period specified in
the SEC's rules and forms and (b) is accumulated and communicated to the
Company's management, including the officers, as appropriate to allow timely
decisions regarding required disclosure. There were no material changes in the
Company's internal controls over financial reporting during the third quarter of
2004 that have materially affected or are reasonably likely to materially affect
the Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibits:
<table>
<caption>
Number Description Page
- ------ ------------------------------------------------------------------------- -----
31.1 Certificate of the Chief Executive Officer pursuant to Section 302 of the 15
Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certificate of the Chief Financial Officer pursuant to Section 302 of the 16
Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certificate of the Chief Executive Officer pursuant to Section 906 of the 17
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certificate of the Chief Financial Officer pursuant to Section 906 of the 18
Sarbanes-Oxley Act of 2002, filed herewith.
99.1 Certain Risk Factors, filed herewith. 19
</table>
Page 12
<page>
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 8, 2004 /s/ David E. O'Reilly
- ---------------- -----------------------------------------------------
Date David E. O'Reilly, Co-Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
November 8, 2004 /s/ James R. Batten
- ---------------- -----------------------------------------------------
Date James R. Batten, Executive Vice-President of Finance
and Chief Financial Officer (Principal Financial and
Accounting Officer)
Page 13
<page>
EXHIBIT INDEX
<table>
<caption>
Number Description Page
- ------ ------------------------------------------------------------------------- -----
31.1 Certificate of the Chief Executive Officer pursuant to Section 302 of the 15
Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certificate of the Chief Financial Officer pursuant to Section 302 of the 16
Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certificate of the Chief Executive Officer pursuant to Section 906 of the 17
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certificate of the Chief Financial Officer pursuant to Section 906 of the 18
Sarbanes-Oxley Act of 2002, filed herewith.
99.1 Certain Risk Factors, filed herewith. 19
</table>
Page 14
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 31.1 - CEO Certification
CERTIFICATIONS
I, David E. O'Reilly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of O'Reilly Automotive,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 8, 2004 /s/ David E. O'Reilly
- ---------------------- -----------------------------------------------------
David E. O'Reilly, Co-Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
Page 15
<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 31.2 - CFO Certification
CERTIFICATIONS
I, James R. Batten, certify that:
1. I have reviewed this quarterly report on Form 10-Q of O'Reilly Automotive,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 8, 2004 /s/ James R. Batten
- ---------------------- -----------------------------------------------------
James R. Batten, Executive Vice President of Finance
and Chief Financial Officer (Principal Financial and
Accounting Officer)
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<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 32.1 - CEO Certification
O'REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of O'Reilly Automotive, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
David E. O'Reilly, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ David E. O'Reilly
- -----------------------------------------
David E. O'Reilly
Chief Executive Officer
November 8, 2004
This certification is made solely for purposes of 18 U.S.C. Section 1350, and
not for any other purpose.
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<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 32.2 - CFO Certification
O'REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of O'Reilly Automotive, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James R. Batten, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ James R. Batten
- -----------------------------------------
James R. Batten
Chief Financial Officer
November 8, 2004
This certification is made solely for purposes of 18 U.S.C. Section 1350, and
not for any other purpose.
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<page>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors
Some of the information in this Form 10-Q contains and future reports and press
releases and other public information may contain 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. These
"forward-looking statements" are made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 (See Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.) 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 exhibit, as well as any cautionary language in
this Form 10-Q, 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, risks associated with the
integration of acquired business, weather, terrorist activities, war and the
threat of war. Actual results may materially differ from anticipated results
described in these forward-looking statements. You should be aware that the
occurrence of the events described in these risk factors and elsewhere in our
annual report on Form 10-K for the year ended December 31, 2003 (the "2003 Form
10-K") could have a material adverse effect on our business, operating results
and financial condition.
Competition
We compete with a large number of retail (DIY) and wholesale (professional
installers) automotive aftermarket product suppliers. The distribution of
automotive aftermarket products is a highly competitive industry, particularly
in the more densely populated market areas that we serve. 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 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 "Competition" section of Item 1 to
our 2003 Form 10-K.
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.
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 2004 and beyond will be achieved.
For a discussion of our growth strategies, see the ''Growth and Expansion
Strategies'' section of Item 1 to our 2003 Form 10-K.
Acquisitions May Not Lead to Expected Growth
We expect to continue to make acquisitions 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.
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors (continued)
Sensitivity to Regional Economic and Weather Conditions
All of our stores are located in the Central and Southern United States. In
particular, approximately 32% 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 O'Reilly, Ted Wise, Greg Henslee and Jim Batten. 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'' section
of Item 1 and Item 4a of our 2003 Form 10-K and our Proxy Statement on Schedule
14A for the 2004 Annual Meeting of Shareholders.
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.
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.
Shares Eligible for Future Sale
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.
Page 20