O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders
Selected Consolidated Financial Data
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
INCOME STATEMENT DATA:
Product sales $259,243 $201,492 $167,057 $137,164 $110,147 $94,937 $82,372 $71,935 $59,728
Cost of goods sold, including
warehouse and distribution
expenses 150,772 116,768 97,758 82,102 65,066 56,255 50,027 44,930 36,246
- --------------------------------------------------------------------------------------------------------------------
Gross profit 108,471 84,724 69,299 55,062 45,081 38,682 32,345 27,005 23,482
Operating, selling, general
and administrative expenses 79,620 62,687 52,142 42,492 35,204 29,961 26,750 23,231 19,281
- --------------------------------------------------------------------------------------------------------------------
Operating income 28,851 22,037 17,157 12,570 9,877 8,721 5,595 3,774 4,201
Other income (expense), net 1,182 236 376 216 204 (104) (566) (367) (245)
Provision for income taxes 11,062 8,182 6,461 4,556 3,686 3,167 1,837 1,269 1,437
- --------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before
cumulative effects of
changes in accounting
principles 18,971 14,091 11,072 8,230 6,395 5,450 3,192 2,138 2,519
Cumulative effects of
changes in accounting
principles - - - - (163) - - - -
- --------------------------------------------------------------------------------------------------------------------
Income from continuing
operations 18,971 14,091 11,072 8,230 6,232 5,450 3,192 2,138 2,519
Income (loss) from
discontinued operations - - - 48 129 (68) (186) (49) 22
- --------------------------------------------------------------------------------------------------------------------
Net income $18,971 $14,091 $11,072 $ 8,278 $ 6,361 $ 5,382 $ 3,006 $ 2,089 $ 2,541
====================================================================================================================
Income per share from
continuing operations
before cumulative effects
of changes in accounting
principles $ 1.82 $ 1.58 $ 1.28 $1.00 $ 0.87 $ 0.74 $ 0.44 $ 0.29 $ 0.35
====================================================================================================================
Income per share from
continuing operations $ 1.82 $ 1.58 $ 1.28 $ 1.00 $ 0.84 $ 0.74 $ 0.44 $ 0.29 $ 0.35
Income (loss) per share from
discontinued operations - - - 0.01 0.02 (0.01) (0.03) - -
- --------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.82 $ 1.58 $ 1.28 $ 1.01 $ 0.86 $ 0.73 $ 0.41 $ 0.29 $ 0.35
====================================================================================================================
Cash dividends per share $ - $ - $ - $ - $0.0017 $0.0015 $0.0015 $0.0015 $0.0014
Weighted average common
shares outstanding 10,432 8,910 8,655 8,235 7,359 7,327 7,311 7,306 7,238
1
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Selected Consolidated Financial Data (continued)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SELECTED
OPERATING DATA)
SELECTED OPERATING DATA:
Number of stores at year
end (a) 219 188 165 145 127 116 112 106 98
Total store square footage
at year end (000's) (b) 1,155 923 785 671 571 511 480 427 386
Weighted average product
sales per store
(000's) (b) $1,238.5 $1,101.2 $1,007.1 $948.9 $837.8 $759.1 $690.3 $637.2 $592.2
Weighted average product
sales per square foot (b) $242.2 $227.3 $215.4 $208.7 $187.2 $174.4 $166.2 $160.0 $150.5
Percentage increase in
same-store product
sales (c) 14.4% 8.9% 8.9% 14.9% 11.4% 9.2% 11.2% 8.5% *
BALANCE SHEET DATA:
Working capital $ 74,403 $ 80,471 $ 41,416 $ 41,193 $ 15,251 $13,434 $11,634 $ 9,853 $ 9,378
Total assets 183,623 153,604 87,327 73,112 58,871 49,549 46,148 45,200 31,620
Short-term debt 3,154 231 311 495 3,462 1,298 2,281 3,897 3,341
Long-term debt, less
current portion 237 358 461 732 2,668 3,326 5,082 5,684 5,475
Long-term debt related
to discontinued
operations, less current
portion - - - - 9,873 10,316 9,901 9,961 1,967
Stockholders' equity 155,782 133,870 70,224 57,805 29,281 22,881 17,480 14,471 12,346
* Because the Company was in the process of upgrading its accounting system,
certain data required to provide comparable store product sales information
for 1988 is not available.
(a) The number of stores at year end 1991 and 1992 are net of the combination
in each such year of two stores located within one mile of each other. No
other stores were closed during the periods presented.
(b) Total square footage includes normal selling, office, stockroom and
receiving space. Weighted average product sales per store and per square
foot are weighted to consider the approximate dates of store openings or
expansions.
(c) Same-store product sales data are calculated based on the change in product
sales of only those O'Reilly stores open during both full periods being
compared. Percentage increase in same-store product sales is calculated
based on O'Reilly store sales results, which exclude sales of specialty
machinery, sales by outside salesmen and sales to employees.
2
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
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. (the Company)) which are forward-
looking statements. Because such forward-looking statements include risks and
uncertainties, including those risks discussed in Exhibit 99.1 to the Company's
1996 Form 10-K, the Company's actual results could differ materially from those
discussed below.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the Company's financial condition, results of
operations and liquidity and capital resources should be read in conjunction
with the consolidated financial statements of the Company, related notes and
other financial information included elsewhere in this annual report.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data of the Company as a
percentage of product sales for the years included:
- --------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Product sales 100.0% 100.0% 100.0%
Cost of goods sold, including warehouse
and distribution expenses 58.2% 58.0% 58.5%
- --------------------------------------------------------------------------------
Gross profit 41.8% 42.0% 41.5%
Operating, selling, general and
administrative expenses 30.7% 31.1% 31.2%
- --------------------------------------------------------------------------------
Operating income 11.1% 10.9% 10.3%
Other income 0.5% 0.1% 0.2%
- --------------------------------------------------------------------------------
Income before income taxes 11.6% 11.0% 10.5%
Provision for income taxes 4.3% 4.0% 3.9%
- --------------------------------------------------------------------------------
Net income 7.3% 7.0% 6.6%
================================================================================
1996 COMPARED TO 1995
Product sales increased $57.8 million, or 28.7%, from $201.5 million in 1995 to
$259.2 million in 1996 due to the opening of 31 new O'Reilly stores during 1996
and a $25.8 million, or 14.4% increase in same store product sales. 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 by the Company during 1996 at
levels comparable to 1995, an increase in the broad selection of SKU's available
at the newer O'Reilly stores, the increase in inventory levels at most O'Reilly
stores, and the increasing penetration of the general geographic markets in
which the Company operates.
Gross profit increased 28.0% from $84.7 million (or 42.0% of product sales) in
1995 to $108.5 million (or 41.8% of product sales) in 1996. This decrease in
gross profit margin was primarily attributable to the continued price
competition among automotive parts retailers. The decrease was partially offset
by lower product costs resulting from increased volume discounts obtained by the
Company and other economies of scale achieved. Management believes that price
competition among national and regional automotive parts retailers will continue
to influence gross profit margins in 1997 and beyond.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $16.9 million from $62.7 million (or 31.1%
3
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
of product sales) in 1995 to $79.6 million (or 30.7% of product sales) in 1996.
The increased dollar amount of OSG&A expenses resulted primarily from the new
store openings and additions to administrative staff and facilities which
occurred during 1996 in order to support the increased level of the Company's
operations. The decrease in OSG&A expenses as a percent of product sales in 1996
compared to 1995 was primarily due to economies of scale resulting from
increased product sales.
The Company's provision for income taxes increased from 36.7% of income before
income taxes in 1995 to 36.8% in 1996. The increase in the effective income tax
rate was primarily due to more of the Company's sales occurring in states with
higher income tax rates.
Principally as a result of the foregoing, net income in 1996 was $19.0 million
or 7.3% of product sales, an increase of $4.9 million (or 34.6%) from net income
in 1995 of $14.1 million, or 7.0% of product sales.
1995 COMPARED TO 1994
Product sales increased $34.4 million, or 20.6%, from $167.1 million in 1994 to
$201.5 million in 1995 due to the opening of 23 new O'Reilly stores during 1995
and a $12.9 million, or 8.9% increase in same store product sales. Management
believes that the consumer acceptance experienced by the new O'Reilly stores and
the increased product sales achieved by the existing O'Reilly stores resulted in
part from the increased use of media advertising by the Company during 1995.
Management also believes that these increases resulted in part from the
continued use of the new prototype store format which was introduced in 1994,
adjustments to the in-store SKU mix to reflect changes in consumer demand, and
the increase in inventory levels at most O'Reilly stores.
Gross profit increased 22.3% from $69.3 million (or 41.5% of product sales) in
1994 to $84.7 million (or 42.0% of product sales) in 1995. The increase in gross
profit margin was primarily attributable to lower product costs resulting from
increased volume discounts obtained by the Company and other economies of scale
achieved. These increases were partially offset by the continued price
competition among automotive parts retailers.
Operating, selling, general and administrative expenses increased $10.5 million
from $52.1 million (or 31.2% of product sales) in 1994 to $62.7 million (or
31.1% of product sales) in 1995. The increased dollar amount of OSG&A expenses
resulted primarily from the new store openings and additions to administrative
staff which occurred during 1995 in order to support the increased level of the
Company's operations.
The Company's provision for income taxes decreased from 36.9% of income from
continuing operations before income taxes in 1994 to 36.7% in 1995. The decrease
in the effective income tax rate was primarily due to more of the Company's
sales occurring in states with lower income tax rates.
Net income in 1995 was $14.1 million or 7.0% of product sales, an increase of
$3.0 million (or 27.3%) from net income in 1994 of $11.1 million, or 6.6% of
product sales.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.4 million in 1994, $.9 million
in 1995 and $4.9 million in 1996. The decrease in 1995 compared to 1994 is
principally the result of increases in accounts receivable, inventory and other
current assets partially offset by increases in net income and accounts payable.
The increase in inventory is primarily attributable to the addition of 23 new
stores, an increase in inventory levels at most O'Reilly stores and the
expansion of the Kansas City distribution center. The increase in 1996 compared
to 1995 is principally the result of increases in net income and accounts
payable, partially offset by increases in inventory and accounts receivable. The
increase in inventory is due to the addition of 31 new stores, an increase in
inventory levels at most O'Reilly stores and the opening of the Oklahoma City
distribution center.
Net cash used in investing activities was $8.3 million in 1994, $49.9 million in
1995 and $11.2 million in 1996. The increase in cash
4
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
used in 1995 was primarily the result of increased capital expenditures as well
as net purchases of short-term investments with a portion of the proceeds from
the Company's public offering of common stock which was completed in November,
1995. The decrease in cash used in 1996 was primarily due to an increase in the
net proceeds from the sale of short-term investments, net of purchases, offset
by increased capital expenditures.
Capital expenditures were $13.7 million in 1994, $28.6 million in 1995 and $34.5
million in 1996. These expenditures were primarily related to the opening of new
O'Reilly stores and remodeling existing O'Reilly stores. The Company opened 20
new stores and remodeled or relocated 18 stores during 1994. During 1995, the
Company opened 23 new stores and remodeled or relocated 21 stores. In 1996, the
Company opened 31 new stores and remodeled or relocated 32 stores. Also, in
1994, 1995 and 1996, the Company purchased real estate for new stores and store
relocations totaling approximately $3.5 million, $6.0 million and $7.8 million,
respectively. The Company purchased real estate for the Oklahoma City
distribution center totaling $.8 million in 1995. Construction costs for the
Oklahoma City distribution center, which was completed in March 1996, totaled
approximately $3.1 million.
The Company's store expansion program requires significant capital expenditures
and working capital principally for inventory requirements. The Company plans to
finance this expansion through cash expected to be provided from operating
activities and available short-term bank borrowings.
In November 1995, the Company sold 1,600,000 shares of Common Stock through a
public offering. The net proceeds from that offering amounted to $47.7 million.
A portion of the proceeds were used to repay the Company's outstanding
indebtedness under its bank credit facilities and the remainder was used to fund
the Company's expansion program during 1995 and 1996.
The Company has available an unsecured line of credit with The 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 1.00% (6.53% as of December 31, 1996). At December 31,
1996, $2.5 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% (6.78%
at December 31, 1996) and matures in May 1997. At December 31, 1996, $.5 million
was outstanding under this credit facility.
The Company has entered into discussions with each of the banks providing such
credit facilities 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.
Management believes that the Company's existing cash and short-term investments,
cash expected to be provided by operating activities, current and future bank
credit facilities available 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.
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, management does not believe its
operations have been materially affected by inflation.
5
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
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.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The effect of applying SFAS No. 121 was immaterial.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which encourages (but does not require) companies to adopt a fair
value based method of accounting for stock-based compensation plans, in place of
the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees." If the fair value based method of accounting is not adopted, SFAS
No. 123 requires companies to disclose pro forma calculations in the notes to
their financial statements of net income and net income per share as if the fair
value based method of accounting had been applied. The Company accounts for
their stock-based compensation plan in accordance with APB Opinion No. 25. The
effect of applying the fair value method required by SFAS No. 123 to the
Company's stock option awards results in net income and net income per share
that are not materially different from amounts reported in the consolidated
statements of income.
6
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Balance Sheets
December 31, 1996 1995
- ------------------------------------------------------------------------------
(In Thousands, Except Share Data)
ASSETS
Current assets:
Cash $ 1,207 $ 2,833
Short-term investments (Note 2) 1,000 23,410
Accounts receivable, less allowance for doubtful
accounts of $444 in 1996 and $386 in 1995 11,296 9,460
Inventory 83,909 58,979
Deferred income taxes (Note 8) -- 530
Refundable income taxes 172 736
Other current assets 2,568 2,698
----------------------
Total current assets 100,152 98,646
----------------------
Property and equipment, at cost:
Land 19,954 12,400
Buildings 35,379 22,893
Leasehold improvements 8,082 6,194
Furniture, fixtures and equipment 29,311 21,281
Vehicles 8,494 5,623
----------------------
101,220 68,391
Accumulated depreciation 21,435 16,440
----------------------
79,785 51,951
Notes receivable 1,510 1,540
Other assets 2,176 1,467
----------------------
Total assets $183,623 $153,604
======================
7
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Balance Sheets (continued)
December 31, 1996 1995
- --------------------------------------------------------------------------------
(In Thousands, Except Share Data)
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks (Note 4) $ 3,000 $ --
Accounts payable 17,288 13,013
Accrued expenses 3,953 3,123
Accrued payroll 1,043 1,808
Deferred income taxes (Note 8) 311 --
Current portion of long-term debt (Note 5) 154 231
--------------------------
Total current liabilities 25,749 18,175
Long-term debt, less current portion (Note 5) 237 358
Postretirement benefit obligation (Note 7) 403 391
Deferred income taxes (Note 8) 1,452 810
Stockholders' equity (Note 9):
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 - 10,468,507 in 1996
and 10,362,170 in 1995 105 104
Additional paid-in capital 73,964 71,024
Retained earnings 81,713 62,742
--------------------------
Total stockholders' equity 155,782 133,870
--------------------------
Total liabilities and stockholders' equity $183,623 $153,604
--------------------------
See accompanying notes.
8
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Statements of Income
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts)
Product sales $259,243 $201,492 $167,057
Cost of goods sold, including warehouse and distribution
expenses 150,772 116,768 97,758
Operating, selling, general and administrative expenses
(Note 3) 79,620 62,687 52,142
---------------------------------------------------------
230,392 179,455 149,900
---------------------------------------------------------
Operating income 28,851 22,037 17,157
Other income (expense):
Interest expense (37) (299) (85)
Interest income 676 342 245
Other, net 543 193 216
---------------------------------------------------------
1,182 236 376
---------------------------------------------------------
Income before income taxes 30,033 22,273 17,533
Provision for income taxes (Note 8) 11,062 8,182 6,461
---------------------------------------------------------
Net income $ 18,971 $ 14,091 $ 11,072
=========================================================
Net income per share $ 1.82 $ 1.58 $ 1.28
=========================================================
Weighted average common shares outstanding 10,432 8,910 8,655
=========================================================
See accompanying notes.
9
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Statements of Stockholders' Equity
Common Stock Additional
------------------- Paid-In Retained
Shares Par Value Capital Earnings Total
-----------------------------------------------------
(In Thousands)
Balance at December 31, 1993 8,623 $ 86 $20,140 $37,579 $ 57,805
Issuance of common stock under employee benefit plans 40 1 1,069 - 1,070
Issuance of common stock under stock option plans 16 - 277 - 277
Net income - - - 11,072 11,072
----- ---- ------- ------- --------
Balance at December 31, 1994 8,679 87 21,486 48,651 70,224
Issuance of common stock through public offering 1,600 16 47,696 - 47,712
Issuance of common stock under employee benefit plans 46 1 1,191 - 1,192
Issuance of common stock under stock option plans 37 - 651 - 651
Net income - - - 14,091 14,091
----- ---- ------- ------- --------
Balance at December 31, 1995 10,362 104 71,024 62,742 133,870
Issuance of common stock under employee benefit plans 47 - 1,509 - 1,509
Issuance of common stock under stock option plans 60 1 1,431 - 1,432
Net income - - - 18,971 18,971
----- ---- ------- ------- --------
Balance at December 31, 1996 10,469 $105 $73,964 $81,713 $155,782
====== ==== ======= ======= ========
See accompanying notes.
10
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Statements of Cash Flows
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $18,971 $14,091 $11,072
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,105 4,038 3,246
Provision for doubtful accounts 592 467 307
Gain on sale of property and equipment (281) (14) (84)
Deferred income taxes 1,483 937 (6)
Common stock contributed to employee benefit plans 1,028 867 762
Postretirement benefits 12 10 11
Changes in operating assets and liabilities:
Accounts receivable (2,428) (2,285) (1,395)
Inventory (24,930) (16,520) (7,639)
Refundable income taxes 564 (736) --
Other current assets 130 (2,078) 403
Other assets (709) (321) (275)
Accounts payable 4,275 2,678 (135)
Accrued expenses 830 449 831
Accrued payroll (765) 401 166
Income taxes payable -- (1,104) 1,104
-------------------------------------------------------------------
Net cash provided by operating activities 4,877 880 8,368
INVESTING ACTIVITIES
Purchases of property and equipment (34,459) (28,552) (13,708)
Proceeds from sale of property and equipment 801 119 105
Purchases of short-term investments (12,494) (32,410) (1,100)
Proceeds from sale of short-term investments 34,904 11,075 7,749
Payments received on notes receivable 51 47 10
Advances made on notes receivable (21) (195) (1,392)
-------------------------------------------------------------------
Net cash used in investing activities (11,218) (49,916) (8,336)
11
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Consolidated Statements of Cash Flows (continued)
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------
(In Thousands)
Financing activities
Borrowings on notes payable to banks $3,000 $ 9,100 $ --
Payments on notes payable to banks -- (9,100) --
Proceeds from issuance of long-term debt -- 15,776 --
Principal payments on long-term debt (198) (15,959) (455)
Net proceeds from issuance of common stock 1,913 48,688 585
------------------------------
Net cash provided by financing activities 4,715 48,505 130
------------------------------
Net increase (decrease) in cash (1,626) (531) 162
Cash at beginning of year 2,833 3,364 3,202
------------------------------
Cash at end of year $1,207 $ 2,833 $3,364
==============================
See accompanying notes.
12
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
O'Reilly Automotive, Inc. (the Company) is a specialty retailer and supplier of
automotive after-market parts, tools, supplies and accessories to both the "Do-
It-Yourself" consumer and the professional installer throughout Kansas,
Missouri, Oklahoma and Arkansas.
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.
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 $91,011,000 and $68,666,000 as of December 31, 1996 and 1995,
respectively.
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. Maintenance and repairs are charged to expense as incurred.
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.
13
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense charged
to operations amounted to $3,156,000, $2,797,000 and $2,119,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
PREOPENING COSTS
Costs associated with the opening of new stores, which consist primarily of
payroll and occupancy costs, are charged to operations as incurred.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares of
common stock outstanding during each period. Common stock equivalents
outstanding during the periods are immaterial.
Supplementary income per share amounts for 1995, calculated to give effect to
the reduction of interest expense and the increase in the weighted average
number of shares outstanding sufficient to retire certain short and long-term
indebtedness, as if the secondary public offering in 1995 had occurred at the
beginning of the year, would not be materially different than reported per share
amounts.
CONCENTRATION OF CREDIT RISK
The Company grants credit to certain customers who meet the Company's
preestablished 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.
Since 1994, 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 6). The note receivable, amounting to $1,495,000 and
$1,519,000 at December 31, 1996 and 1995, respectively, bears interest at 6% and
is due in January 2005.
Additionally, the Company maintains cash balances at various financial
institutions. Cash balances uninsured by the Federal Deposit Insurance
Corporation totaled $783,000 and $3,552,000 at December 31, 1996 and 1995,
respectively.
14
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2. SHORT-TERM INVESTMENTS
In 1994, the Company adopted the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The effect of adopting SFAS
No. 115 was immaterial.
The Company's short-term investments are classified as available-for-sale in
accordance with SFAS No. 115 and are carried at cost, which approximates fair
market value. At December 31, 1996, short-term investments consisted of
preferred equity securities totaling $1,000,000. At December 31, 1995, short-
term investments consisted of tax-exempt municipal bonds totaling $22,410,000
and preferred equity securities totaling $1,000,000.
NOTE 3. RELATED PARTIES
The Company leases certain land and buildings related to its O'Reilly Auto Parts
stores, under six-year operating lease agreements from O'Reilly Investment
Company and O'Reilly Real Estate Company, partnerships in which certain
stockholders 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 6). Rent expense under these operating leases totaled
$1,729,000 in 1996, $1,701,000 in 1995, and $1,682,000 in 1994.
NOTE 4. NOTES PAYABLE TO BANKS
The Company has available a short-term unsecured bank line of credit providing
for maximum borrowings of $17 million under which $2,500,000 was outstanding at
December 31, 1996. The line of credit, which bears interest at LIBOR plus 1.00%
(6.53% at December 31, 1996), expires in June 1997.
The Company has available another unsecured revolving credit facility with a
bank providing for maximum borrowings of $15 million, under which $500,000 was
outstanding at December 31, 1996. This credit facility bears interest at LIBOR
plus 1.25% (6.78% at December 31, 1996) and matures in May 1997. This agreement
requires the Company to maintain various minimum financial ratios.
Indirect borrowings under letters of credit and guarantees of indebtedness of
others totaled $636,000 and $1,526,000 at December 31, 1996 and 1995,
respectively.
15
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 5. LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt consisted of unsecured notes
payable to various individuals, amounting to $391,000 and $589,000,
respectively. The unsecured notes payable bear interest at rates ranging from 6%
to 9% and are due in monthly installments of $23,000 including interest. The
notes mature in varying amounts between 1997 and 2000, and $155,000 of such
notes are guaranteed by certain stockholders of the Company.
Principal maturities of long-term debt for each of the next four years are as
follows (amounts in thousands):
Year ending
December 31,
------------
1997 $154
1998 96
1999 98
2000 43
Cash paid by the Company for interest during the years ended December 31, 1996,
1995 and 1994 amounted to $35,000, $581,000 and $77,000, respectively.
NOTE 6. COMMITMENTS
The Company leases certain office space, property and equipment under long-term,
noncancelable operating leases. Future minimum rental payments, including
commitments of $1,751,000 per year through 1998 and $555,000 in total thereafter
in connection with the related-party leases described in Note 3, for each of the
next five years ending December 31 and in the aggregate are as follows (amounts
in thousands):
1997 $ 3,276
1998 3,063
1999 1,316
2000 1,002
2001 785
Thereafter 3,375
------
$12,817
======
Rental expense amounted to $3,348,000, $3,316,000 and $3,007,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Construction commitments totaled approximately $3.1 million at December 31,
1996.
16
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 7. 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, $980,000 in
1995 and $887,000 in 1994. 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:
Market
Shares Value
-----------------------
1996 9,893 $344,000
1995 10,674 297,000
1994 10,198 273,000
Profit-sharing contributions accrued at December 31, 1995, 1994, and 1993 were
funded in the next year through issuance of shares of the Company's common stock
as follows:
Market
Year Funded Shares Value
----------------------------------------
1996 19,826 $684,000
1995 21,509 570,000
1994 16,939 489,000
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 will be 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, 1995
and 1994 were $12,000, $10,000 and $11,000, respectively.
17
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 1,000,000 shares of common stock are 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 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 five 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:
Number
Price per Share of Shares
------------------------------
Outstanding at December 31, 1994 $17.50 -$33.75 302,775
Granted 23.75 - 32.50 120,250
Exercised 17.50 - 26.00 (36,775)
Canceled 17.50 - 32.25 (4,750)
------------------------------
Outstanding at December 31, 1995 $17.50 -$33.75 381,500
Granted 28.75 - 40.00 25,750
Exercised 17.50 - 31.00 (60,150)
Canceled 26.50 - 39.08 (17,750)
------------------------------
Outstanding at December 31, 1996 $17.50 -$40.00 329,350
==============================
Options to purchase 318,850 shares were exercisable at December 31, 1996.
18
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25 (APB No. 25). Under APB No. 25, no compensation expense is
recognized because the exercise price of the Company's stock options equals or
exceeds the market price of the stock on the date of grant. The effect of
applying the fair value method required by SFAS No. 123 to the Company's stock
option awards results in net income and net income per share that are not
materially different from amounts reported in the consolidated statements of
income.
The Company also maintains a stock option plan for nonemployee directors of the
Company under which 50,000 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, 1994 $17.50 - $26.25 10,000
Granted 27.00 5,000
-----------------------------
Outstanding at December 31, 1995 $17.50 - $27.00 15,000
Granted 36.38 5,000
-----------------------------
Outstanding at December 31, 1996 $17.50 - $36.38 20,000
=============================
All options under this plan were exercisable at December 31, 1996.
Additionally, the Company has adopted a stock purchase plan covering an
aggregate of 250,000 shares of common stock under which approximately 200,000
shares of common stock are reserved for future issuance. Under the plan,
substantially all employees and nonemployee 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, 16,468 shares were issued at an
average price of $29.21 per share during 1996, 13,784 shares were issued at an
average price of $23.54 per share during 1995 and 13,499 shares were issued at
an average price of $22.81 per share during 1994.
The Company adopted a performance incentive plan for the Company's senior
management under which 100,000 shares of restricted stock are reserved for
future issuance. During 1996, 278 shares were issued under this plan. No shares
were issued under this plan in 1995.
19
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 8. 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
(amounts in thousands):
1996 1995
---------------------
Deferred tax assets:
Current:
Allowance for doubtful accounts $ 168 $ 147
Vacation accrual 481 439
Other accruals 152 114
---------------------
801 700
Noncurrent:
Postretirement benefit obligation 153 150
---------------------
Total deferred tax assets 954 850
---------------------
Deferred tax liabilities:
Current:
Inventory carrying value 1,112 170
---------------------
1,112 170
Noncurrent:
Depreciation 1,605 960
---------------------
Total deferred tax liabilities 2,717 1,130
---------------------
Net deferred tax liabilities $(1,763) $ (280)
=====================
20
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 8. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following (amounts in thousands):
Current Deferred Total
-----------------------------
1996:
Federal $8,502 $1,316 $ 9,818
State 1,077 167 1,244
-----------------------------
$9,579 $1,483 $11,062
=============================
1995:
Federal $6,473 $ 837 $ 7,310
State 772 100 872
-----------------------------
$7,245 $ 937 $ 8,182
=============================
1994:
Federal $5,840 $ (5) $ 5,835
State 627 (1) 626
-----------------------------
$6,467 $ (6) $ 6,461
=============================
A reconciliation of the provision for income taxes to the amounts computed at
the federal statutory rate is as follows (amounts in thousands):
1996 1995 1994
------------------------------
Federal income taxes at statutory rate $10,512 $7,796 $6,137
State income taxes, net of federal tax benefit 809 567 407
Other items, net (259) (181) (83)
------------------------------
$11,062 $8,182 $6,461
==============================
During the years ended December 31, 1996, 1995 and 1994, cash paid by the
Company for income taxes amounted to $9,015,000, $9,085,000, and $5,395,000,
respectively.
21
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Notes to Consolidated Financial Statements (continued)
NOTE 9. PUBLIC OFFERING OF COMMON STOCK
On November 20, 1995, the Company completed a public offering of 2,600,000
shares of common stock. Pursuant to this offering, the Company issued 1,600,000
shares of common stock resulting in net proceeds to the Company of $47,712,000.
A portion of the proceeds was used to repay the Company's outstanding
indebtedness under its bank credit facilities. The remaining portion of the
proceeds was used to fund the Company's expansion and for the purchase of
short-term investments.
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------------------------------------
(In Thousands, Except Per Share Data)
Year ended December 31, 1996
Product sales $55,321 $68,782 $70,432 $64,708
Gross profit 22,409 28,212 29,247 28,603
Operating income 6,154 7,678 8,294 6,725
Net income 4,088 4,947 5,422 4,514
Net income per share: .39 .47 .52 .43
Year ended December 31, 1995
Product sales $42,766 $50,644 $57,181 $50,901
Gross profit 17,556 20,549 23,686 22,933
Operating income 4,562 5,444 6,677 5,354
Net income 2,913 3,447 4,139 3,592
Net income per share: .34 .39 .47 .38
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.
22
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
Report of Independent Auditors
The Board of Directors and Stockholders
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, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Kansas City, Missouri
February 14, 1997
23
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 13.1 - Portions of the 1996 Annual Report to Shareholders (continued)
NUMBER OF STOCKHOLDERS
As of December 31, 1996, O'Reilly Automotive, Inc. has approximately 5,500
stockholders based on the number of holders of record and an estimate of the
number of individual participants represented by security position listings.
MARKET PRICES AND DIVIDEND INFORMATION
The prices in the table below represent the high and low sales prices for
O'Reilly Automotive, Inc. common stock as reported by the Nasdaq Stock Market.
The common stock began trading on April 22, 1993. No cash dividends have been
declared since 1992, and the Company does not anticipate paying any cash
dividends in the foreseeable future.
1996 1995
High Low High Low
----------------------------------------
First Quarter 35.500 28.750 28.125 23.000
Second Quarter 40.750 35.000 28.500 24.750
Third Quarter 38.250 34.250 31.000 28.000
Fourth Quarter 37.000 31.000 33.625 27.500
For The Year 40.750 28.750 33.625 23.000
24