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 March 31, 1997
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 65801
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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
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Common stock, $0.01 par value - 10,501,944 shares outstanding as of March 31,
1997
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION ........................................ Page
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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
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ......................... 9
SIGNATURE PAGE ......................................................... 10
EXHIBIT INDEX .......................................................... 11
2
PART I Financial Information
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ITEM 1. Financial Statements
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
(Unaudited) (Note)
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents ......................... $ 3,785 $ 1,207
Short-term investments ............................ 1,000 1,000
Accounts receivable ............................... 11,589 11,296
Inventory ......................................... 90,244 83,909
Other current assets .............................. 1,877 2,740
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Total current assets ................................... 108,495 100,152
Property and equipment, at cost ........................ 109,793 101,220
Accumulated depreciation ............................... 22,883 21,435
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86,910 79,785
Other assets ........................................... 3,940 3,686
-------- --------
Total assets ........................................... $199,345 $183,623
======== ========
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks ............................ $ 5,000 $ 3,000
Accounts payable .................................. 20,906 17,288
Income taxes payable .............................. 1,619 --
Other current liabilities ......................... 7,607 5,307
Current portion of long-term debt ................. 106 154
-------- --------
Total current liabilities .............................. 35,238 25,749
Long-term debt, less current portion ................... 246 237
Other liabilities ...................................... 1,933 1,855
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares- 30,000,000
Issued and outstanding shares - 10,501,944
in 1997 and 10,468,507 in 1996 ................ 105 105
Additional paid-in capital ........................ 75,103 73,964
Retained earnings ................................. 86,720 81,713
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Total stockholders' equity ............................. 161,928 155,782
-------- --------
Total liabilities and stockholders' equity ............. $199,345 $183,623
======== ========
NOTE: The balance sheet at December 31, 1996 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.
See notes to condensed consolidated financial statements.
3
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
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1997 1996
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(In thousands, except
per share data)
Product sales ...................................................... $68,472 $55,321
Cost of goods sold, including warehouse and distribution expenses .. 39,281 32,912
Operating, selling, general and administrative expenses ............ 21,263 16,255
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60,544 49,167
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Operating income ................................................... 7,928 6,154
Other income, net .................................................. 46 319
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Income before income taxes ......................................... 7,974 6,473
Provision for income taxes ......................................... 2,967 2,385
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Net income ......................................................... $ 5,007 $ 4,088
======== ========
Net income per share ............................................... $ 0.48 $ 0.39
======== ========
Weighted average common shares outstanding ......................... 10,478 10,380
======== ========
See notes to condensed consolidated financial statements.
4
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
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(In thousands)
Net cash provided by operating activities .......... $ 9,500 $ 3,761
Investing activities:
Purchases of property and equipment ........... (9,049) (7,528)
Proceeds from sale of property and equipment .. 25 137
Purchases of short-term investments ........... -- (6,456)
Proceeds from sale of short-term investments .. -- 9,110
Other ......................................... -- 9
-------- --------
Net cash used in investing activities .............. (9,024) (4,728)
Financing activities:
Borrowings on notes payable to banks .......... 2,000 --
Payments on long-term debt .................... (39) (55)
Proceeds from issuance of common stock ........ 141 1,001
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Net cash provided by financing activities .......... 2,102 946
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Net increase (decrease) in cash .................... 2,578 (21)
Cash at beginning of period ........................ 1,207 2,833
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Cash at end of period .............................. $ 3,785 $ 2,812
======== ========
See notes to condensed consolidated financial statements.
5
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
1. Basis of Presentation
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The accompanying unaudited condensed consolidated financial statements 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 months ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the O'Reilly Automotive,
Inc. and Subsidiaries' annual report on Form 10-K for the year ended December
31, 1996.
2. Earnings Per Share
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In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, O'Reilly Automotive, Inc. will be required to change the method
currently used to compute earnings per share and restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement No.
128 is not expected to be material to the calculation of primary and fully
diluted earnings per share for the quarters ended March 31, 1997 and 1996.
6
The information discussed below in Management's Discussion and Analysis of
Financial Condition and Results of Operations contains statements regarding
matters that are not historical facts (including statements as to beliefs or
expectations of O'Reilly Automotive, Inc.) which are forward-looking statements.
Because such forward-looking statements include risks and uncertainties,
including those risks discussed in Exhibit 99.1 hereto, the actual results could
differ materially from those discussed below.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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RESULTS OF OPERATIONS
Product sales for the first quarter of 1997 increased by $13.2 million, or
23.8%, over product sales for the first quarter of 1996 due to a 9.0% increase
in comparable store product sales for the quarter, the opening of 28 new
O'Reilly stores during the last three quarters of 1996 and the opening of 11 new
stores during the first quarter of 1997. Management believes that the consumer
acceptance experienced by these new O'Reilly stores and the increased product
sales achieved by the existing O'Reilly stores is the result of the continuation
of media advertising during the first three months of 1997 at the levels set in
1996, an increase in the broad selection of stock keeping units (SKU's)
available at both new and existing O'Reilly stores, the increase in inventory
levels at most O'Reilly stores and the increasing penetration of the general
geographic markets in which O'Reilly Automotive, Inc. (the "Company") operates.
Gross profit increased 30.3% from $22.4 million (or 40.5% of product sales) in
the first quarter of 1996 to $29.2 million (or 42.6% of product sales) in the
first quarter of 1997. The increase in gross profit resulted primarily from
improvements in the Company's product acquisition programs and changes in the
product sales mix. The Company's product acquisition programs have resulted in
lower product costs due to increased buying power and promotional programs and
allowances offered by the Company's vendors.
Operating, selling, general and administrative expenses (OSG&A expenses)
increased $5.0 million from $16.3 million (or 29.4% of product sales) in the
first quarter of 1996 to $21.3 million (or 31.1% of product sales) in the first
quarter of 1997. OSG&A expenses increased in dollar amount and as a percent of
product sales primarily from the new store openings during the last three
quarters of 1996 and the first quarter of 1997, additions to administrative
staff and facilities in order to support the increased level of the Company's
operations and increased medical claims under the Company's insurance program.
Other income, net, decreased by $273,000 in the first quarter of 1997 compared
to the first quarter of 1996. The decrease was primarily due to reduced interest
income from short-term investments and increased interest expense from higher
balances on short-term borrowings.
The Company's estimated provision for income taxes increased from 36.8% of
income before income taxes in the first quarter of 1996 to 37.2% in the first
quarter of 1997. The increase in the effective income tax rate was primarily due
to the decrease in tax-exempt investment income and increased sales occurring in
states with higher income tax rates.
7
Principally as a result of the foregoing, net income increased from $4.1 million
or 7.4% of product sales in the first quarter of 1996 to $5.0 million or 7.3% of
product sales in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $9.5 million was provided by operating activities for the first
three months of 1997 as compared to $3.8 million net cash provided by operating
activities for the first three months of 1996. This increase was principally the
result of increases in net income, accounts payable, depreciation and income
taxes payable offset by an increase in inventory. The increases in accounts
payable and inventory are primarily due the addition of new stores and increased
sales levels in existing and newly opened stores.
Net cash used in investing activities has increased from $4.7 million in 1996 to
$9.0 million in 1997 primarily due to an increase in purchases of property and
equipment as a result of the Company's accelerated store growth program.
Cash provided by financing activities has increased from $0.9 million in the
first three months of 1996 to $2.1 million in the first three months of 1997.
The increase was primarily due to increased borrowings under the Company's
credit facilities during the first three months of 1997.
The Company has available an unsecured line of credit with Boatmen's Bank of
Southern Missouri. Under the terms thereof, the Company may borrow up to $17.0
million until June 1997. Borrowings outstanding under the line of credit bear
interest at LIBOR plus 1% (6.69% as of March 31, 1997). At March 31, 1997, $4.0
million was outstanding under the line of credit.
The Company also has available an unsecured revolving credit facility with
Commerce Bank, N.A. of Springfield, Missouri. Under terms of this agreement, the
Company may borrow up to $15 million upon compliance with various minimum
financial ratios. This credit facility bears interest at LIBOR plus 1.25% (6.94%
at March 31, 1997) and matures in May 1997. At March 31, 1997, $1.0 million was
outstanding under this credit facility.
The Company has entered into discussions with each of the banks providing such
credit facilities described above to extend the terms and the amounts available
under the facilities. Management believes it can obtain an extension of the
terms and an increase in the maximum borrowings available under such credit
facilities. However, no assurances can be made that terms satisfactory to the
Company can be obtained.
The Company plans to open an additional 30 stores in 1997 (for a net total of
40). The funds required for such planned expansions will be provided by the cash
expected to be generated from operating activities, short-term investments and
existing and future bank credit facilities.
Management believes that the cash expected to be generated from operating
activities, existing cash and short-term investments, existing and future bank
credit facilities and trade credit will be sufficient to fund both the short and
long-term capital and liquidity needs of the Company for the foreseeable future.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Not applicable
Item 2. Changes in Securities
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Not applicable
Item 3. Defaults Upon Senior Securities
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Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable
Item 5. Other information
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Not applicable
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits: See Exhibit Index on page 11 hereof
(b) Reports on Form 8-K: No reports on Form 8-K were filed by
the Registrant during the three months ended March 31, 1997.
9
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.
May 14, 1997 /s/ David E. O'Reilly
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Date David E. O'Reilly, President and Chief Executive
Officer
May 14, 1997 /s/ James R. Batten
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Date James R. Batten, Chief Financial Officer (Principal
Financial Officer)
May 14, 1997 /s/ Chris Stange
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Date Chris Stange, Corporate Controller (Principal
Accounting Officer)
10
EXHIBIT INDEX
Number Description Page
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27.1 Financial Data Schedule, filed herewith. 12
99.1 Certain Risk Factors, filed herewith. 13
11