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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, 1996
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 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
----------- -----------
Common stock, $0.01 par value - 10,453,668 shares outstanding as of September
30, 1996
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 1996
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
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
Note 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
</TABLE>
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Note)
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,686 $ 2,833
Short-term investments 7,194 23,410
Accounts receivable 11,858 9,460
Inventory 80,311 58,979
Other current assets 2,542 3,964
-------- --------
Total current assets 105,591 98,646
Property and equipment, at cost 91,452 68,391
Accumulated depreciation 19,864 16,440
-------- --------
71,588 51,951
Other assets 3,330 3,007
-------- --------
Total assets $180,509 $153,604
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,492 $ 13,013
Income taxes payable 1,622 -
Other current liabilities 6,946 4,931
Current portion of long-term debt 127 231
-------- --------
Total current liabilities 28,187 18,175
Long-term debt, less current portion 311 358
Other liabilities 1,183 1,201
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 30,000,000 Issued and
outstanding shares - 10,453,668 in 1996 and
10,362,170 in 1995 105 104
Additional paid-in capital 73,524 71,024
Retained earnings 77,199 62,742
-------- --------
Total stockholders' equity 150,828 133,870
-------- --------
Total liabilities and stockholders' equity $180,509 $153,604
======== ========
</TABLE>
NOTE: The balance sheet at December 31, 1995 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 note to condensed consolidated financial statements.
3
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1996 1995 1996 1995
------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Product sales $70,432 $57,181 $194,535 $150,591
Cost of goods sold, including warehouse
and distribution expenses 41,185 33,495 114,667 88,800
Operating, selling, general and
administrative expenses 20,953 17,009 57,742 45,108
------- ------- -------- --------
62,138 50,504 172,409 133,908
------- ------- -------- --------
Operating income 8,294 6,677 22,126 16,683
Other income (expense), net 259 (63) 822 74
------- ------- -------- --------
Income before income taxes 8,553 6,614 22,948 16,757
Provision for income taxes 3,131 2,475 8,491 6,258
------- ------- -------- --------
Net income 5,422 4,139 14,457 10,499
======= ======= ======== ========
Net income per share $ 0.52 $ 0.47 $ 1.39 $ 1.20
======= ======= ======== ========
Weighted average common shares outstanding 10,448 8,741 10,422 8,720
======= ======= ======== ========
</TABLE>
See note to condensed consolidated financial statements.
4
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
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(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 7,156 $ 263
Investing activities:
Purchases of property and equipment (24,204) (19,821)
Purchases of short-term investments (13,879) -
Proceeds from sale of short-term investments 30,095 1,075
Other 282 (72)
-------- --------
Net cash used in investing activities (7,706) (18,818)
Financing activities:
Borrowings on note payable to bank - 9,100
Borrowings under long-term credit facility - 8,500
Borrowings on long-term note - 108
Payments on long-term debt (151) (216)
Proceeds from issuance of common stock 1,554 818
-------- --------
Net cash provided by financing activities 1,403 18,310
-------- --------
Net increase (decrease) in cash 853 (245)
Cash at beginning of period 2,833 3,364
-------- --------
Cash at end of period $ 3,686 $ 3,119
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</TABLE>
See note to condensed consolidated financial statements.
5
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. Basis of Presentation
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 nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. 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, 1995.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
RESULTS OF OPERATIONS
Product sales for the third quarter of 1996 increased by $13.3 million, or
23.2%, over product sales for the third quarter of 1995 due to an 8.2% increase
in comparable store product sales for the quarter, the opening of 8 new O'Reilly
stores during the fourth quarter of 1995 and the opening of 22 new stores during
the first nine months of 1996. Product sales for the first nine months of 1996
increased by $43.9 million, or 29.2% over product sales for the first nine
months of 1995 due to a 15.6% increase in comparable store product sales and the
opening of new O'Reilly stores discussed above. 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 nine months of 1996 at the
levels set in 1995, an increase in the broad selection of stock keeping units
(SKU's) available at both new and existing O'Reilly stores and the increasing
penetration of the general geographic markets in which O'Reilly Automotive, Inc.
(the "Company") operates.
Gross profit increased 23.5% from $23.7 million (or 41.4% of product sales) in
the third quarter of 1995 to $29.2 million (or 41.5% of product sales) in the
third quarter of 1996. Gross profit for the first nine months increased 29.3%
from $61.8 (or 41.0% of product sales) in 1995 to $79.9 million (or 41.1% of
product sales) in 1996. The increased dollar amount of gross profit resulted
primarily from increased sales volume.
Operating, selling, general and administrative expenses (OSG&A expenses)
increased $4.0 million from $17.0 million (or 29.7% of product sales) in the
third quarter of 1995 to $21.0 million (or 29.7% of product sales) in the third
quarter of 1996. OSG&A expenses increased $12.6 million from $45.1 million (or
30.0% of product sales) in the first nine months of 1995 to $57.7 million (or
29.7% of product sales) in the first nine months of 1996. The increased dollar
amount of OSG&A expenses resulted primarily from the new stores opened during
the last quarter of 1995 and the first nine months of 1996 as well as additions
to administrative staff in order to support increased operations. The decrease
in OSG&A expenses as a percent of product sales in the first nine months of 1996
was primarily the result of increased product sales.
Other income (expense), net, increased by $322,000 in the third quarter of 1996
versus the third quarter of 1995 and increased by $748,000 for the first nine
months of 1996 compared to the first nine months of 1995. These increases were
primarily due to interest income resulting from increased cash and short-term
investment balances.
The Company's estimated provision for income taxes decreased from 37.4% of
income before income taxes in the third quarter of 1995 to 36.6% in the third
quarter of 1996 and decreased from 37.3% in the first nine months of 1995 to
37.0% in the first nine months of 1996. 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.
7
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Net income increased from $4.1 million or 7.2% of product sales in the third
quarter of 1995 to $5.4 million or 7.7% of product sales in the third quarter
and from $10.5 million or 7.0% of product sales in the first nine months of 1995
to $14.5 million or 7.4% of product sales in the first nine months of 1996, due
primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $7.2 million was provided by operating activities for the first nine
months of 1996 as compared to $0.3 million net cash provided by operating
activities for the first nine months of 1995 principally as a result of
increases in net income, accounts payable and accrued expenses and decreases in
other current assets offset by an increase in accounts receivable and inventory.
The increases in accounts payable and inventory are primarily due to the
addition of the Oklahoma City distribution center in March 1996, the addition of
new stores and increased sales levels in existing and newly opened stores.
Net cash used in investing activities has decreased from $18.8 million in 1995
to $7.7 million in 1996 primarily as a result of a $15.1 million increase in net
proceeds from sales of short-term investments offset by a $4.4 million increase
in purchases of property and equipment.
Cash provided by financing activities has decreased from $18.3 million in the
first nine months of 1995 to $1.4 million in the first nine months of 1996. The
decrease was primarily due to no borrowings under the Company's credit
facilities during the first nine months of 1996.
The Company has available a short-term 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 September 1997. Borrowings outstanding under the line of
credit bear interest at LIBOR plus 1% (6.47% as of September 30, 1996). At
September 30, 1996, no amounts were outstanding under the line of credit.
The Company also has available a long-term 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% (6.72% at September 30, 1996) and matures in May 1997. At September 30,
1996, no amounts were outstanding under this credit facility.
The Company plans to open an additional eight stores in 1996 (for a total of
30). The funds required for such planned expansions will come from the cash
provided by operating activities, short-term investments and existing bank
credit facilities.
Management believes that the cash expected to be provided by operating
activities, existing cash and short-term investments, existing 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.
The above discussion contains statements regarding matters that are not
historical facts (including statements as to beliefs or expectations of the
Company) which are forward-looking statements. Because such forward-looking
statements include risks and uncertainties, the Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those factors
discussed in Exhibit 99.1.
8
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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 September 30, 1996.
9
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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 12, 1996 David E. O'Reilly
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Date David E. O'Reilly, President and
Chief Executive Officer
November 12, 1996 James R. Batten
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Date James R. Batten, Chief Financial Officer
(Principal Financial and Accounting Officer)
10
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EXHIBIT INDEX
Number Description Page
- ------ ----------- ----
27.1 Financial Data Schedule, filed herewith. 12
99.1 Certain Risk Factors, filed herewith. 13
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Condensed Consolidated Balance Sheet at September 30, 1996 (Unaudited) and
the Condensed Consolidated Statement of Income for the Nine Months Ended
September 30, 1996 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,686
<SECURITIES> 7,194
<RECEIVABLES> 11,858
<ALLOWANCES> 386
<INVENTORY> 80,311
<CURRENT-ASSETS> 2,542
<PP&E> 91,452
<DEPRECIATION> 19,864
<TOTAL-ASSETS> 180,509
<CURRENT-LIABILITIES> 28,187
<BONDS> 0
<COMMON> 105
0
0
<OTHER-SE> 150,723
<TOTAL-LIABILITY-AND-EQUITY> 180,509
<SALES> 194,535
<TOTAL-REVENUES> 195,357
<CGS> 114,667
<TOTAL-COSTS> 57,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 467
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 22,948
<INCOME-TAX> 8,491
<INCOME-CONTINUING> 14,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,457
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 0
</TABLE>
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors
The following factors could affect the Company's actual results, including its
revenues, expenses and net income, and could cause them to differ from any
forward-looking statements made by or on behalf of the Company.
Competition
The Company competes with a large number of retail and wholesale automotive
aftermarket product suppliers. The distribution of automotive aftermarket
products is a highly competitive industry, particularly in the more densely
populated market areas served by the Company. 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 the
Company's competitors are larger than the Company and have greater financial
resources than the Company.
No Assurance of Future Growth
Management believes that the Company's ability to open additional stores at an
accelerated rate will be a significant factor in achieving its growth objectives
for the future. The ability of the Company to accomplish its growth is
dependent, in part, on matters beyond the Company's control, such as weather
conditions, zoning and other issues related to new store site development, the
availability of qualified management personnel and general business and economic
conditions. No assurance can be given that the Company's current growth rate can
be maintained.
Dependence Upon Key and Other Personnel
The success of the Company has been largely dependent on the efforts of certain
key personnel of the Company, including David E. O'Reilly, Lawrence P. O'Reilly,
Charles H. O'Reilly, Jr., Rosalie O'Reilly Wooten and Ted F. Wise. The loss of
the services of one or more of these individuals could have a material adverse
effect on the Company's business and results of operations. Additionally, in
order to successfully implement and manage its growth strategy, the Company will
be dependent upon its ability to continue to attract and retain qualified
personnel. There can be no assurance that the Company will be able to continue
to attract such personnel.
Concentration of Ownership by Management
The Company's executive officers and directors as a group beneficially own a
substantial percentage of the outstanding shares of the Company's common stock.
These officers and directors have the ability to exercise effective voting
control of the Company, including the election of all of the Company's
directors, and to effectively determine the vote on any matter being voted on by
the Company shareholders, including any merger, sale of assets or other change
in control of the Company.
13
