UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 27, 1998
O'Reilly Automotive, Inc.
(Exact name of registrant as specified in its charter)
Missouri 0-21318 44-0618012
- --------------- --------------------- ------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction) Identification No.
233 South Patterson, Springfield, Missouri 65802
Registrant's telephone number, including area code (417) 862-2674
ITEM 2. Acquisition or Disposition of Assets
On February 2, 1998, the Registrant filed a current report on Form 8-K and
reported under Item 2 that on January 27, 1998, the Registrant acquired
approximately 90.4 percent of the outstanding common stock of Hi-Lo Automotive,
Inc. Because it was impracticable to provide the required financial statements
for the acquired business and pro forma financial information related to the
transaction at the time of filing, such financial statements and pro forma
financial information were not included with that report on Form 8-K. Item 7
herein supplements the earlier filing by providing the required financial
statements and the pro forma financial information.
ITEM 7. Financial Statements
(a) Financial Statements of Business Acquired
The following financial statements for Hi-Lo Automotive, Inc., are listed
below and made a part hereof:
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information for O'Reilly Automotive, Inc.
are listed below and are made a part hereof:
Pro Forma Combined Condensed Balance Sheet (Unaudited)
Pro Forma Combined Condensed Statement of Operations (Unaudited)
Notes to Pro Forma Combined Condensed Financial Statements (Unaudited)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hi-Lo Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of Hi-Lo
Automotive, Inc., (a Delaware corporation) and subsidiaries, as of December 31,
1997 and 1996, and the related consolidated statements of income (loss),
stockholders' equity and cash flows for each of the three years ended December
31, 1997. 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 financial position of Hi-Lo Automotive, Inc., and
subsidiaries, as of December 31, 1997 and 1996, and the results of operations
and cash flow for each of the three years ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Arthur Anderson, LLP
- ------------------------
Arthur Anderson, LLP
Houston, Texas
January 27, 1998
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................ $ 1,334 $ 1,180
Accounts receivable--
Trade, net of allowance for
doubtful accounts of $768 and $929........... 6,743 5,651
Other......................................... 3,621 6,878
Inventories..................................... 84,223 91,401
Deferred taxes and other assets................. 3,476 3,281
------------------------
Total current assets................... 99,397 108,391
PROPERTY AND EQUIPMENT, net.......................... 29,250 31,980
DEFERRED TAXES AND OTHER............................. 3,596 3,717
------------ -----------
$ 132,243 $ 144,088
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............ $ 45,013 $ 750
Accounts payable and accrued liabilities........ 24,015 34,350
------------ -----------
Total current liabilities.............. 69,028 35,100
LONG-TERM DEBT, net of current maturities............ 24 45,612
OTHER LIABILITIES.................................... 4,182 4,082
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
5,000,000 shares authorized, none issued...... -- --
Common Stock, $.01 par value,
30,000,000 shares authorized, 10,810,763
and 10,775,109 shares issued and outstanding.. 108 108
Additional paid-in capital...................... 68,392 68,316
Retained earnings (deficit)..................... (9,491) (9,130)
------------ -----------
Total stockholders' equity............. 59,009 59,294
------------ ----------
$ 132,243 $ 144,088
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Sales ............................................ $238,320 $ 248,599 $ 262,486
Costs and expenses:
Cost of goods sold, buying
and distribution........................... 143,013 157,461 159,102
Operating, selling, general
and administrative......................... 87,689 99,102 94,955
Termination fee (1997) and provision for
asset impairment and store closings (1996). 4,000 51,352 --
----------- ----------- -----------
Operating income (loss)........................... 3,618 (59,316) 8,429
Interest expense.................................. 4,290 4,268 4,145
Other (income) expense, net....................... (51) 471 1,218
----------- ----------- -----------
Income (loss) before taxes on income.............. (621) (64,055) 3,066
Taxes on income (benefit from loss)............... (260) (10,332) 1,378
----------- ----------- -----------
Net income (loss)................................. $ (361) $ (53,723) $ 1,688
=========== =========== ===========
Earnings (loss) per common share:
Net income (loss) per common share
and per common and common equivalent share.. $ (.03) $ (4.99) $ .16
========== =========== ===========
Weighted average common and weighted average
common and common equivalent shares
outstanding................................. 10,775,000 10,756,000 10,733,000
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Retained
----------------------- Paid-In Earnings
Shares Amount Capital (Deficit)
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994........ 10,732,606 $ 107 $ 68,164 $ 42,905
Issuance of Common Stock..... 23,744 1 113 --
Net Income................... -- -- -- 1,688
---------- ---------- ---------- ---------
Balance, December 31, 1995........ 10,756,350 $ 108 $ 68,277 $ 44,593
Issuance of Common Stock..... 18,759 -- 39 --
Net Loss..................... -- -- -- (53,723)
---------- ---------- ---------- ----------
Balance, December 31, 1996........ 10,775,109 $ 108 $ 68,316 $ (9,130)
Issuance of Common Stock..... 35,654 -- 76 --
Net Loss..................... -- -- -- (361)
---------- ---------- ---------- ----------
Balance, December 31, 1997........ 10,810,763 $ 108 $ 68,392 $ (9,491)
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (361) $(53,723) $ 1,688
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization............................................ 4,410 6,588 6,737
Write-off of cost in excess of net assets acquired....................... -- 37,668 --
Provision for impairment of assets and other............................. -- 21,774 --
Deferred tax provision (benefit)......................................... (112) (9,134) 829
(Gain) loss on sales of fixed assets..................................... (58) (138) 96
Changes in assets and liabilities--
Accounts receivable, net of allowance for doubtful accounts ........... (198) (4) 118
Inventories............................................................ 7,178 2,694 (11,783)
Prepaids and other assets.............................................. (289) 380 (261)
Accounts payable and other accrued liabilities......................... (10,128) (741) 8,566
Income taxes receivable/payable........................................ 2,256 (3,206) (460)
----------- ----------- -----------
Total adjustments............................................................... 3,059 55,881 3,842
----------- ----------- -----------
Net cash provided by operating activities........................... 2,698 2,158 5,530
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................... (1,913) (4,301) (12,088)
Proceeds from sale-leaseback of real estate................................ -- -- 9,071
Payments for acquisitions, net of cash acquired ........................... -- -- (2,633)
Proceeds from assets sold.................................................. 649 240 --
----------- ----------- -----------
Net cash used in investing activities............................... (1,264) (4,061) (5,650)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) debt, net...................................... (1,208) 1,598 869
Proceeds from issuance of Common Stock..................................... 76 39 114
Repayments of capital lease obligations.................................... (118) (110) (97)
Payments for loan acquisition costs........................................ (30) (244) --
----------- ---------- -----------
Net cash provided by (used in) financing activities................... (1,280) 1,283 886
----------- ---------- -----------
INCREASE (DECREASE) IN CASH..................................................... 154 (620) 766
CASH AT BEGINNING OF YEAR....................................................... 1,180 1,800 1,034
----------- ---------- -----------
CASH AT END OF YEAR............................................................. $ 1,334 $ 1,180 $ 1,800
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Description of the Business and Merger with O'Reilly Automotive, Inc.
Hi-Lo Automotive, Inc., (a Delaware Corporation) and its subsidiaries (the
"Company"), sells automotive aftermarket parts, products and accessories for
domestic and imported cars, vans and light trucks to do-it-yourself ("DIY")
consumers and commercial auto repair outlets through its 189 stores located in
Texas, Louisiana and California. Since the opening of the first Hi/LO store in
the late 1950s, Hi/LO has targeted the DIY consumer by offering a large
selection of repair and replacement parts, friendly customer service and high
quality parts at low, discount prices. In recent years, Hi/LO has upgraded its
retail marketing effort by undertaking a store modernization program,
standardizing its merchandising layouts and store signage, and introducing
Company-wide sales promotion programs targeted at the DIY consumer.
On December 23, 1997, the Company and O'Reilly Automotive, Inc.
("O'Reilly") entered into an Agreement and Plan of Merger (the "O'Reilly Merger
Agreement") in which O'Reilly agreed to acquire all of the outstanding shares of
the Company for $4.35 per share in cash. The O'Reilly Merger Agreement was
approved by the Board of Directors of each company and was signed after the
Company terminated its previous Agreement and Plan of Merger (the "Discount
Merger Agreement") with Discount Auto Parts, Inc. ("Discount"). In accordance
with the terms and conditions of the Discount Merger Agreement, the Company paid
Discount a termination fee of $4.0 million. The termination fee was recorded as
an operating cost in the fourth quarter of 1997.
O'Reilly's Offer to Purchase for Cash all Outstanding Shares of Common
Stock (the "Tender Offer") commenced on December 24, 1997 and expired on January
26, 1998. As of the expiration date, 90.4% of the outstanding shares of the
Company's common stock were tendered under the terms of the Tender Offer and on
January 27, 1998 all of such shares were accepted by O'Reilly. Pursuant to the
terms and conditions of the O'Reilly Merger Agreement, the Company will be
merged with a wholly-owned subsidiary of O'Reilly with the Company being the
surviving corporation. Subsequent to the merger each remaining issued and
outstanding share will be converted into the right to receive $4.35, subject to
dissenters' rights. The merger with O'Reilly is a taxable transaction to the
Company's stockholders and will be accounted for as a purchase business
combination.
Concurrent with its acceptance of the shares tendered on January 27, 1998,
O'Reilly repaid all amounts outstanding under and terminated the Company's
credit facility described in Note J. The payoff amount was approximately $45.9
million. The transaction also resulted in the acceleration and payment to
optionees (who held Company stock options which had an exercise price less than
$4.35) of a cash amount equal to the difference between $4.35 and the exercise
price of each such stock option, multiplied by the number of shares subject to
such stock option and cancellation of all Company stock options then
outstanding.
<PAGE>
HI-LO AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
B. Summary of Significant Accounting Policies
Consolidated financial statements include all subsidiaries. All significant
intercompany transactions have been eliminated.
Cash includes cash on hand, cash held in banks and certificates of deposit
with an initial maturity of three months or less.
Accounts receivable - trade are for commercial accounts only and are
classified as current assets. Finance charges are not assessed on commercial
accounts.
Inventories are stated at the lower of cost or market. Substantially all
inventories represent finished goods, which are costed using the last-in,
first-out (LIFO) method.
Property and equipment are carried at cost. Maintenance, repairs and minor
renewals are expensed as incurred.
Impairment of Long-Lived Assets reflects that effective January 1, 1995,
Financial Accounting Standard (FAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, was adopted.
Accordingly, in the event that facts and circumstances indicate that the cost in
excess of net assets acquired or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset carrying amount to determine if a write-down to market value or
discounted cash flow value is required. See Note E for the impact of the
Company's impairment analysis for the year ended December 31, 1996.
Preopening Expenses, which consist primarily of payroll and occupancy
costs, are expensed as incurred.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets or remaining lease lives,
whichever is shorter. Gains or losses on disposition of property and equipment
are included in income in the period of disposal. Loan costs are amortized using
the effective interest method over the life of the loan.
Deferred Income taxes payable represent deferred taxes arising from the
recognition of revenues and expenses in different periods for income tax and
financial statement purposes.
Net income (loss) per common share and per common and common equivalent
share reflects that effective December 31, 1997, the Company adopted FAS No.
128, Earnings per Share, which establishes standards for computing and
presenting earnings per share (EPS). It simplifies the standards for computing
EPS previously found in Accounting Principles Board (APB) Opinion No. 15,
Earnings per Share, makes them comparable to international EPS standards, and
replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS.
The EPS disclosures for the previous years have been restated to be in
conformity with FAS No. 128. For the years ended December 31, 1997 and 1996,
basic and diluted EPS are the same as the Company incurred a loss from
continuing operations. For the year ended December 31, 1995, basic and diluted
EPS are the same due to the fact that inclusion of the Company's stock options
in the calculation of diluted EPS would have an antidilutive effect on EPS.
Risks Due to Use of Estimates in the Financial Statements are inherent in
the preparation of financial statements in conformity with generally accepted
accounting principles which require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications have been made to the prior years financial
statements to be consistent with the presentation in the current year.
C. Supplemental Cash Flow Information
Cash interest paid was $4,436,000, $4,082,000 and $4,187,000 during the
years ended December 31, 1997, 1996 and 1995. Income tax payments were
$1,150,000, $0 and $1,039,000 during the years ended December 31, 1997, 1996 and
1995.
D. Inventories
The Company believes that the LIFO method of inventory valuation results in
a better matching of current costs and revenues. Current replacement cost of
inventories on hand was the same as recorded costs at December 31, 1997, 1996
and 1995.
E. Impairment of Assets
In the third quarter of 1996, the Company concluded that a short-term
recovery in sales volume and operating profits was unlikely. Therefore, the
Company, which incurred a net loss in the third quarter before such charges,
recorded pre-tax charges in the amount of $59.4 million.
These charges included a $37.7 million impairment charge, with no
associated tax benefit, relating primarily to cost in excess of net assets
acquired (goodwill); and a $13.7 million charge for future store closings, the
impairment of certain assets in underperforming stores and at the Company's
distribution center, and the write-down of the cost of real estate held for
future expansion.
The charge for store closings is for future occupancy and leasehold
improvement costs related to planned store closings of approximately 11 stores,
including six closed in 1997 and three in 1996. Certain store and distribution
center assets and real estate held for future expansion were written down to
their estimated realizable values.
In determining the amount of the asset reserves and impairment charges that
were made, the Company developed its best estimate of future operating cash
flows. Undiscounted cash flows were compared to the carrying value of the assets
to ascertain that an impairment had occurred. Estimated future cash flows,
excluding interest charges, then were discounted using an estimated 8.0%
discount rate. Sales were estimated to increase 2.0% annually, and operating
expenses were held constant as a percent of sales. These projections resulted in
discounted cash flows that supported the amounts recorded. These projections
were prepared solely to determine the appropriate amount of write-off, based on
assumptions that management believed to be reasonable at the time; however, no
assurance can be given that such projections will be accurate.
These analyses contain forward-looking information that involve a number of
risks, uncertainties and assumptions, including, but not limited to, customer
demand and trends in the auto parts, products and accessories industry, related
inventory risks due to shifts in customer demand, the effect of economic
conditions, the impact of competitors' locations and pricing, difficulties with
respect to new technologies such as point of sales systems, parts catalogs,
supply constraints or difficulties and the results of financing efforts. Should
one or more of these or other risks or uncertainties materialize or should the
underlying assumptions prove incorrect, actual outcomes could vary materially.
<PAGE>
Amortization of cost in excess of net assets acquired was $0, $872,000 and
$1,148,000 for the years ended December 31, 1997, 1996 and 1995.
F. Property and Equipment
The Company's property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
Asset -------------------------
Life 1997 1996
- -------------------------------------------------------------------------- -----------
<S> <C> <C>
5-30 years Land, buildings and improvements................ $ 38,306 $ 38,805
3-15 years Furniture and equipment......................... 38,179 36,738
Construction in progress........................ 534 1,105
----------- -----------
77,019 76,648
Accumulated depreciation and amortization....... (47,769) (44,668)
----------- -----------
$ 29,250 $ 31,980
=========== ===========
</TABLE>
Land, buildings and improvements included $1,975,000 leased under capital
leases at December 31, 1997 and 1996. Accumulated amortization under these
arrangements aggregated $1,856,000, $1,738,000 and $1,628,000 at December 31,
1997, 1996 and 1995. Depreciation and amortization of these assets was
$4,319,000, $5,673,000 and $5,558,000 for the years ended December 31, 1997,
1996 and 1995.
G. Intangible Assets and Other
The Company's intangible assets and other consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Loan acquisition costs............................... $ 274 $ 244
Investments - Real Estate............................ 880 1,147
Deferred Tax Assets.................................. 2,552 2,345
----------- ----------
3,706 3,736
Accumulated amortization............................. (110) (19)
----------- ----------
$ 3,596 $ 3,717
=========== ==========
</TABLE>
Amortization of loan acquisition costs was $91,000, $43,000 and $31,000 for
the years ended December 31, 1997, 1996 and 1995. In the third quarter of 1996,
the unamortized portion of the loan acquisition costs associated with the
Company's revolving credit agreement with prior lenders was written off.
H. Accounts Payable and Accrued Liabilities
The Company's accounts payable and accrued liabilities consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Accounts payable..................................... $ 9,066 $ 16,685
Accrued salaries and bonuses......................... 3,988 3,294
Accrued property taxes............................... 4,190 4,294
Other accrued liabilities............................ 6,771 10,077
----------- -----------
$ 24,015 $ 34,350
=========== ===========
</TABLE>
The Company is insured for employee indemnity, automobile, general, and
product liability losses through a risk retention program. The Company accrues
for the estimated losses occurring from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data.
I. Leases
The Company leases store locations, certain equipment and office space
under noncancelable long-term capital and operating leases which extend through
2014.
Total rental expense on all operating leases was approximately $12,803,000,
$12,939,000 and $12,043,000 for the years ended December 31, 1997, 1996 and
1995.
<PAGE>
As of December 31, 1997, minimum commitments on all noncancelable long-term
leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Capital Operating
December 31, Leases Leases
- -------------- --------- ----------
<S> <C> <C> <C>
1998 ............................................ $ 104 14,146
1999 ............................................ 25 8,924
2000 ............................................ 0 8,243
2001 ............................................ 0 7,987
2002 ............................................ 0 7,036
Thereafter........................................ 0 34,452
---------- ----------
Total minimum lease payments...................... 129 $ 80,788
---------- ==========
Amount representing interest...................... 10
----------
Present value of net minimum lease payments....... 119
Less--Current portion....................... 95
----------
Long-term Capital lease obligations............... $ 24
==========
</TABLE>
J. Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Notes payable to a bank.............................. $ 44,918 $ 44,230
Long-term debt....................................... -- 1,895
Capital lease obligations............................ 119 237
----------- -----------
45,037 46,362
Less-Current maturities.............................. 45,013 750
----------- -----------
$ 24 $ 45,612
=========== ===========
</TABLE>
At December 31, 1997, the weighted average interest rate on the notes
payable to a bank was 8.3%. In connection with the merger with O'Reilly, the
outstanding balance of $44.9 million under the Notes payable to a bank was
repaid in January 1998 (see Note A).
On October 23, 1996, the Company entered into a financing agreement
with a new lender. Initial funding under this financing agreement was used to
repay amounts outstanding under the Company's prior credit facility. The new
financing agreement provides for a borrowing of up to $60.0 million of
availability under a revolving credit facility, which matures October 22, 1999,
with annual renewals at the option of the Company and the lender. Credit
availability is limited to 60% of the value of saleable inventory and 85% of
accounts receivable, subject to certain adjustments and reserves which may be
made at the discretion of the lender. The facility is secured by all
inventories, receivables and fixed assets of the Company and its subsidiaries.
The borrowings may be priced, at the Company's option, at the lenders' prime
rate, plus 1/4 of 1% or London Interbank Offered Rates (LIBOR) plus 2.25%. The
Company pays a commitment fee of 3/8 of 1% per annum on all unused portions of
the credit facility. Loan covenants relate to the Company's net worth, cash
flow, and restrict capital expenditures to $6.0 million for 1996, $5.9 million
for 1997, and $5.0 million for 1998 and 1999; and restrict operating lease
payments to $16.0 million per annum through 1999. The Company was in compliance
with this financing agreement as of December 31, 1997.
At December 31, 1997, the Company had $44.9 million outstanding under the
credit facility and total unutilized credit facilities of approximately $5.6
million.
The Company has established irrevocable letters of credit totaling
$1,660,000 as security for various insurance contracts.
The book values of cash, trade accounts receivables and accounts payable
approximate their fair values principally because of the short-term maturities
of these instruments. The estimated fair value of long-term debt approximates
the book value as the debt is priced based upon a floating rate.
K. Income Taxes
Federal and state income tax provision (benefit) consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Current provision (benefit)................ $ (148) $ (1,198) $ 549
Deferred provision (benefit)............... (112) (9,134) 829
---------- ----------- ----------
$ (260) $ (10,332) $ 1,378
========== =========== ==========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Income tax, statutory rate.................. (34)% (34)% 34%
Amortization of cost
in excess of net assets acquired.......... -- 20 10
Other, net.................................. (8) (2) 1
---------- ---------- ---------
Income tax, effective rate.................. (42)% (16)% 45%
========== ========== =========
</TABLE>
Deferred income taxes resulted from temporary differences as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996
---------- -----------
<S> <C> <C>
Inventories...................................... $ (320) $ (757)
Property and equipment........................... (1,859) (2,198)
Intangible assets and other...................... (1,621) 235
Accounts payable and accrued liabilities......... (2,220) (1,828)
----------- ----------
Deferred Income Tax ............................. $ (6,020) $ (4,548)
Valuation Allowance.............................. 1,360 --
----------- -----------
Net Asset........................................ $ (4,660) $ (4,548)
=========== ===========
</TABLE>
The Company has provided a valuation allowance of $1,360,000 on certain deferred
tax assets that may not be recoverable. Management believes the net deferred tax
asset of $4,660,000 is fully realizable based on net operating loss carry backs.
L. Stockholders' Equity
The Company has one stock option plan (the "1990 Stock Option Plan")
originally adopted on December 11, 1990 and amended thereafter, for which a
total of 1,400,000 shares of Common Stock have been reserved for issuance;
305,611 of those shares were available for grant to directors and associates of
the Company at December 31, 1997. The Plan provides for the granting of both
incentive and nonqualified stock options. Options granted under the Plan have a
maximum term of ten years and are exercisable under the terms of the respective
option agreements at fair market value of the Common Stock at the date of grant.
Payment of the exercise price must be made in cash, or, in whole or in part, by
delivery of shares of the Company's Common Stock.
Incentive stock options for 835,530 shares and nonqualified stock options
for 219,136 shares of the Company's Common Stock were outstanding at December
31, 1997. Additional information with respect to the 1990 Stock Option Plan is
as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------
Number Options
of Shares Price Per Share Exercisable
--------- ---------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994........ 908,566 $ 6.00 - 19.88 493,006
Granted...................... 488,000 4.94 - 10.63 --
Became exercisable........... -- 6.00 - 19.88 178,200
Exercised.................... (1,920) 10.25 (1,920)
Canceled..................... (132,480) 8.06 - 19.88 (73,860)
----------- ---------------- ---------
Balance, December 31, 1995........ 1,262,166 $ 4.94 - 19.31 595,426
Granted...................... 75,800 3.31 - 5.44 --
Became exercisable........... -- 4.94 - 19.31 255,760
Exercised.................... -- -- --
Canceled..................... (452,300) 3.31 - 19.31 (351,800)
----------- ---------------- ---------
Balance, December 31, 1996........ 885,666 $ 3.31 - 19.31 499,386
Granted...................... 450,200 2.56 - 3.44 --
Became exercisable........... -- 2.56 - 19.31 223,040
Exercised.................... -- -- --
Canceled..................... (281,200) 3.00 - 19.31 (155,560)
----------- ---------------- ---------
Balance, December 31, 1997........ 1,054,666 2.56 - 19.31 566,866
=========== =========
</TABLE>
As of December 31, 1997, the Company has two stock-based compensation
plans, its 1990 Stock Option Plan, which is described above, and its 1991
Associate Stock Purchase Plan, which is described in Note M below. The Company
applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its 1990 Stock Option Plan and its
stock purchase plan. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB Statement No.
123, Accounting for Stock-Based Compensation, the Company's net income (loss)
and net income (loss) per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -----------
<S> <C> <C> <C>
Net income (loss) As reported....... $(361) $(53,723) $1,688
Pro forma......... (763) (54,178) 1,391
Net income (loss) per share As reported....... (.03) (4.99) .16
Pro forma......... (.07) (5.04) .13
</TABLE>
<PAGE>
A summary of the status of the Company's 1990 Stock Option Plan as of
December 31, 1997 and 1996, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------
Weighted- Weighted-
Average Average
Shares Exercise Shares Exercise
Fixed Options (000) Price (000) Price
- ------------------------------------------ ----------- --------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 886 $9.41 1,262 $10.54
Granted.............................. 450 3.20 76 4.50
Exercised............................ -- -- -- --
Canceled............................. (281) 8.50 (452) 11.72
---------- ------
Outstanding at end of year........... 1,055 7.00 886 9.41
========== ======
Options exercisable at year-end...... 567 499
Weighted-average fair value of
options granted during the year.... $8.82 $10.26
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------- ----------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -------------------------------------------------------------------------- ----------------------------------
<S><C> <C> <C> <C> <C> <C>
1) $2.56- 5.94 448,400 4.0 years $3.41 105,02 $3.83
2) 6.00 60,666 3.0 6.00 60,666 6.00
3) 8.06-12.95 457,100 1.85 9.04 312,680 9.20
4) 13.13-19.88 88,500 .85 15.41 88,500 15.36
--------- -------
2.56-19.88 1,054,666 3.27 7.00 566,866 8.82
========= =======
</TABLE>
As further discussed in Note A and in connection with the merger with
O'Reilly, options that had an exercise price less than $4.35 were cashed in and
all other options were canceled.
The fair value of each grant was estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of nil for all years; expected volatility of 46, 49 and 32 percent; risk free
interest rates of 6.5% for all years; and expected lives of 5.5 for all years.
Preferred Share Purchase Rights
On August 23, 1996, the Company's Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan") to help assure that all of the Company's
stockholders receive fair and equal treatment in the event of certain changes of
control of the Company. The Rights Plan was effected by issuing one preferred
share purchase right for each outstanding share of Common Stock. These rights
are not currently exercisable and will become exercisable only upon the
occurrence of specified events related to a change in control of the Company.
When exercisable, each right will entitle the holder to purchase 1/1000 of a
share of the Company's Series A Junior Participating Preferred Stock at an
initial exercise price of $14.00 per right. The rights expire on September 2,
2006, unless extended or redeemed.
<PAGE>
The Rights Plan was amended effective October 17, 1997, to provide that it would
not be triggered as a result of the Company's entering into the Discount Merger
Agreement on that date with Discount or as a result of the consummation of the
merger contemplated by the Discount Merger Agreement. The Rights Plan was
further amended effective December 23, 1997, when the Company terminated the
Discount Merger Agreement and entered into the O'Reilly Merger Agreement with
O'Reilly. The December 23 amendment nullified the effect of the October 17,
1997, amendment to the Rights Plan and provided that the Rights Plan would not
be triggered as a result of the Company's entering into the O'Reilly Merger
Agreement, or as a result of the announcement or consummation of the Tender
Offer, or of the merger contemplated by the O'Reilly Merger Agreement.
.
M. Associate Stock Purchase Plan
The Company's 1991 Associate Stock Purchase Plan (the "Purchase Plan")
assists associates in acquiring stock ownership in the Company. Under the
Purchase Plan, an eligible associate authorizes payroll deductions to be made
during a 12-month period (the "Option Period"), which amounts are used at the
end of the Option Period to acquire shares of Common Stock at 85% of the fair
market value of the Common Stock on the first or the last day of the Option
Period, whichever is lower. Associates who have completed one year of service as
of the commencement date of an applicable Option Period may participate in the
Purchase Plan. Associates have discretion to determine the amount of their
payroll deduction under the Purchase Plan, subject to certain limitations. The
Purchase Plan terminates on April 4, 2001, and the maximum number of shares of
Common Stock that may be issued under the Purchase Plan is 175,000.
At the close of the 1994 Option Period, an aggregate of 29,090 shares of
Common Stock was acquired by 137 participants at a price of $8.29 per share. At
the close of the 1995 Option Period, an aggregate of 22,169 shares of Common
Stock was acquired by 71 participants at a price of $4.36 per share. At the
close of the 1996 Option Period, an aggregate of 18,759 shares of Common Stock
was acquired by 31 participants at a price of $2.13 per share. At the close of
the 1997 Option Period, an aggregate of 35,654 shares of Common Stock was
acquired by 47 associates at a price of $2.13 per share, and 7,076 shares
remained available for issuance under the Purchase Plan.
N. Commitments and Contingencies
Insurance
The Company maintains insurance for on the job injuries to its associates
and other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible"
policies in which the Company, in many cases, is responsible for the payment of
incurred claims up to specified individual and aggregate limits, over which a
third party insurer is contractually liable for any additional payment of such
claims. Accordingly, the Company bears certain economic risks related to these
coverages. On a continual basis, and as of each balance sheet date, the Company
records an accrual equal to the estimated costs expected to result from incurred
claims plus an estimate of claims incurred but not reported as of such date
based on the best available information at such date. However, the nature of
these claims is such that actual development of the claims may vary from the
estimated accruals. All changes in the accrual estimates are accounted for on a
prospective basis and could have a significant impact on the Company's financial
position or results of operations.
<PAGE>
Litigation
In July 1997, the Company's operating subsidiary, Hi-Lo Auto Supply, L.P.
("Hi/LO") was served with a purported class action petition styled "Charles
Beresky vs. Hi-Lo Auto Supply, L.P., "Cause No. B-157-070 in the District Court
of Jefferson County, Texas, 60th Judicial District. The petition alleges that
Hi/LO developed a scheme to promote, offer and sell "old," "used" and "out of
warranty" batteries as if the batteries were new and seeks certification as a
class action on behalf of all persons and entities in the United States that
have purchased a battery from Hi/LO during the period May 5, 1990 to the
present. In the petition, the plaintiffs purport to state causes of action for
deceptive trade practices violations, breach of contract, negligence, fraud,
negligent misrepresentation and breach of warranty, and the plaintiffs seek
actual damages, treble damages, punitive damages, attorneys' fees and pre and
post-judgement interest.
The lawsuit is similar to class action litigation brought against a number
of retail auto parts chains and other retailers of aftermarket automotive
batteries. While it is too early to predict the impact of this litigation,
management believes the claims are without merit and intends to vigorously
defend this action.
The Company is also party to various routine claims and lawsuits arising in
the normal course of the Company's business. The Company does not believe that
such claims and lawsuits, individually or in the aggregate, will have a material
adverse effect on the Company's results of operations or financial position.
Profit-Sharing and Salary Deferral Plan
The Company has a combination profit-sharing and salary deferral plan
("401(k) plan") for the benefit of its associates. The 401(k) plan covers
substantially all associates who have completed one year of service and are at
least 19 years old. Under the salary deferral portion of the 401(k) plan,
participants may defer up to 15% of their eligible compensation, and the Company
may, at the discretion of the Board of Directors, elect to match a portion of
the deferred compensation. During the years ended December 31, 1997, 1996 and
1995, associates deferred $571,000, $632,000 and $630,000 and the Company made
matching contributions totaling $112,000, $127,000 and $130,000.
Under the profit-sharing portion of the 401(k) plan, the Company may, at
the discretion of the Board of Directors, contribute to the 401(k) plan from its
profits. The Company had no profit-sharing contributions for the years ended
December 31, 1997, 1996 and 1995.
Incentive Compensation Plans
The Company has various incentive compensation plans covering officers and
other key associates which are based upon the achievement of specified earnings
goals. All awards are payable in cash. Charges to expense for current and future
distributions under the plans amounted to $673,000, $254,000, and $168,000 for
the years ended December 31, 1997, 1996 and 1995.
<PAGE>
N. Quarterly Financial Information (unaudited)
Summarized quarterly financial data for the Company for the years ended
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ---------- ---------- -----------
(In thousands, except share data)
1997
<S> <C> <C> <C> <C>
Sales.................................................... $ 55,505 $ 63,760 $ 65,294 $ 53,761
Gross profit............................................. 22,376 25,124 25,864 21,943
Net income (loss) ..................................... $ (480) $ 1,098 $ 1,314 $ (2,293)
============ ========== ========== ===========
Net income (loss) per common share and per
common and common equivalent share.................... $ (0.04) $ 0.10 $ 0.12 $ (0.21)
Weighted average common and weighted average
common and common equivalent shares
outstanding........................................... 10,775,000 10,775,000 10,775,000 10,775,000
1996
Sales.................................................... $ 60,835 $ 67,092 $ 64,396 $ 56,276
Gross profit............................................. 23,762 26,008 19,731 21,637
Net income (loss) ..................................... $ (431) $ 185 $ (51,659) $ (1,818)
============ ========== ========== ============
Net income (loss) per common share and per
common and common equivalent share.................... $ (.04) $ .02 $ (4.80) $ (.17)
============ ========== ========== ============
Weighted average common and weighted average
common and common equivalent shares
outstanding........................................... 10,756,000 10,756,000 10,756,000 10,756,000
</TABLE>
The Company's business is seasonal in nature, primarily as a result of the
impact of weather conditions. Sales and gross profits have historically been
higher in the second and third quarters (April through September) of each year
than in the first and fourth quarters. Weather extremes tend to enhance sales by
causing a higher incidence of parts failures and increasing sales of seasonal
products. Rainy weather, however, tends to reduce sales by causing deferral of
elective maintenance.
<PAGE>
O'Reilly Automotive, Inc. and Subsidiaries
Pro Forma Combined Condensed Financial Statements (Unaudited)
December 31, 1997
Effective January 31, 1998, O'Reilly Automotive, Inc. and subsidiaries (the
"Company") acquired all of the issued and outstanding shares of common stock of
Hi-Lo Automotive, Inc. and subsidiaries ("Hi/LO") for a cash purchase price of
$47.0 million, or $4.35 per common share, plus acquisition costs of
approximately $2.2 million. The Company funded the purchase price principally
from borrowings under its newly acquired credit facility.
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger (the "Merger") of the Company
with Hi/LO, using the purchase method of accounting, with the net assets
acquired and liabilities assumed recorded at fair values, and the results of
Hi/LO's operations included in the Company's consolidated financial statements
from the date of acquisition.
The unaudited pro forma combined condensed financial statements are based
on the historical consolidated financial statements of the respective companies.
These unaudited pro forma combined condensed financial statements, including the
notes thereto, are qualified in their entirety by reference to, and should be
read in conjunction with, the audited financial statements, including the notes
thereto, of the Company, as filed as Exhibit 13.1 to the Registrant's Annual
Shareholders' Report on Form 10-K for the year ended December 31, 1997, and
Hi/LO which are included herein.
The unaudited pro forma combined condensed balance sheet as of December 31,
1997, gives effect to the Merger as if it had occurred on December 31, 1997, and
combines the audited consolidated balance sheet of the Company with the audited
consolidated balance sheet of Hi/LO as of December 31, 1997.
The unaudited pro forma combined condensed statement of operations for the
year ended December 31, 1997, reflects the combination of the consolidated
statement of income of the Company for the year ended December 31, 1997, and the
consolidated statement of operations of Hi/LO for the year ended December 31,
1997.
The purchase accounting information included herein is preliminary and has
been made solely for the purposes of developing the unaudited pro forma combined
condensed financial information. The unaudited pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations which would have actually been
reported had the Merger occurred as of December 31, 1997, or January 1, 1997,
nor is it necessarily indicative of future financial position or results of
operations. Although cost savings and other benefits from the synergies of the
combined companies are expected, no such benefits are reflected in these pro
forma combined condensed financial statements.
<PAGE>
O'Reilly Automotive, Inc. and Subsidiaries
Pro Forma Combined Condensed Balance Sheet (Unaudited)
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Hi-Lo O'Reilly Pro forma Pro forma
Automotive, Inc. Automotive, Inc. Adjustments Combined
------------------ ------------------- ----------------- -----------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash $ 1,334 $ 2,285 (d) ($ 736) $ 2,883
Short-term investments -- 1,000 -- 1,000
Accounts receivable 10,364 12,469 (a) (900) 21,933
Inventories 84,223 111,848 -- 196,071
Deferred income taxes 2,108 1,424 (e) 2,052 5,584
Assets held for resale (b) 600 600
Prepaid and other current assets 1,368 5,114 -- 6,482
------------------ ----------------- ------------------ -----------------
Total current assets 99,397 134,140 1,016 234,553
Property and equipment, net 29,250 108,440 (b) (4,100) 129,990
(c) (3,600)
Deferred income taxes 2,552 2,757 (e) 2,866 8,175
Other assets 1,044 2,280 (d) 736 4,060
------------------ ----------------- ------------------ -----------------
Total assets $132,243 $247,617 ($3,082) $376,778
================== ================= ================== =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,066 $ 36,099 $ $ 45,165
Other current liabilities 14,949 1,647 (f) 2,800 23,296
(g) 2,200
(h) 1,700
Current maturities of long-term debt 45,013 130 (k) (45,013) 130
Income taxes payable -- 2,501 -- 2,501
------------------ ----------------- ------------------ -----------------
Total current liabilities 69,028 40,377 (38,313) 71,092
Long-term debt 24 22,641 (k) 94,240 116,905
Deferred income taxes -- 2,145 -- 2,145
Other liabilities 4,182 415 -- 4,597
------------------ ----------------- ------------------ -----------------
Total liabilities 73,234 65,578 55,927 194,739
------------------ ----------------- ------------------ -----------------
Stockholders' equity:
Preferred stock -- -- -- --
Common stock 108 211 (j) (108) 211
Additional paid-in capital 68,392 77,077 (j) (68,392) 77,077
Retained earnings (deficit) (9,491) 104,751 (j) 9,491 104,751
------------------ ----------------- ------------------ -----------------
59,009 182,039 (59,009) 182,039
------------------ ----------------- ------------------ -----------------
Total liabilities and stockholders' equity $132,243 $247,617 ($ 3,082) $376,778
================== ================= ================== =================
</TABLE>
See the accompanying
Notes to the (Unaudited) Pro Forma Combined Condensed Financial Statements
<PAGE>
O'Reilly Automotive, Inc. and Subsidiaries
Pro Forma Combined Condensed Statement of Operations (Unaudited)
For the Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Hi-Lo O'Reilly Pro Forma Pro Forma
Automotive, Inc. Automotive, Inc. Adjustments Combined
----------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales $238,320 $316,399 $ -- $554,719
Cost of goods sold, including
warehouse and distribution costs 143,013 181,789 -- 324,802
Operating, selling, general and
administrative expenses 87,689 97,526 (l) (1,000) 184,415
Termination fee 4,000 -- (i) (4,000) --
----------------- ---------------- ---------------- ------------
Operating income 3,618 37,084 5,000 45,302
Other income (expense):
Interest expense (4,290) (139) (m) (2,600) (7,229)
(n) (200)
Interest income -- 198 -- 198
Other, net 51 413 -- 464
----------------- ---------------- --------------- -------------
Income (loss) before taxes (621) 37,556 2,200 39,135
Income tax provision (benefit) (260) 14,413 (e) 836 14,989
-------------------- ---------------- --------------- -------------
Net income (loss) ($ 361) $ 23,143 $ 1,364 $ 24,146
==================== ================ =============== =============
Basic earnings (loss) per share ($0.03) $1.10 $1.15
Weighted average shares 10,775 21,043 21,043
Diluted earnings (loss) per share ($0.03) $1.09 $1.13
Weighted average shares (adjusted) 10,775 21,277 21,277
</TABLE>
See the accompanying
Notes to the (Unaudited) Pro Forma Combined Condensed Financial Statements
<PAGE>
O'Reilly Automotive, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Acquisition cost and the preliminary purchase accounting adjustments are
set forth below (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase price $47,027
Transaction costs 2,200
---------
Total acquisition costs 49,227
Book value of net assets acquired $59,009
Purchase price adjustments
Write down of amounts due from vendors ( 900)
Reserve for store closures ( 2,800)
Reserve for employee severance ( 2,200)
Write down of property and equipment ( 3,500)
Other assumed liabilities ( 1,700)
Deferred tax assets 4,918
---------
Book value of net assets acquired after
preliminary purchase accounting adjustments 52,827
Net excess of net assets acquired over
acquisition cost
Write down of property and equipment (3,600)
--------------------------
$49,227 $49,227
=========== ===========
</TABLE>
The purchase price is based on the purchase of 100% of the outstanding
shares, or 10,810,763 shares of Hi-Lo Automotive, Inc. Common Stock at $4.35 per
share, plus the related transaction costs.
The Company incurred approximately $2.2 million in the aggregate for
transaction costs in association with the Merger. These transaction costs
included legal, printing, accounting and financial advisory services as well as
other related expenses attributable to such transactions.
(a) Reflects the write off of certain amounts receivable from vendors in
connection with the remerchandising of Hi/LO's product lines to conform with the
Company's merchandising strategy. This conversion will entail the elimination of
certain Hi/LO product lines which are not carried in the Company's product
lines.
<PAGE>
O'Reilly Automotive, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(b) Reflects the write down of certain existing Hi/LO property and
equipment to fair value and the reclassification of property and equipment to
assets held for sale.
(c) Reflects the write down of property and equipment due to the fair value
of net assets acquired exceeding total acquisition cost.
(d) Reflects the net effect of the write off of Hi/LO deferred loan costs
applicable to Hi/LO debt and the addition of deferred loan costs applicable to
the Company's debt to be incurred as a result of this Merger.
(e) Represents the related income tax effect of the pro forma adjustments
utilizing a combined statutory federal and state tax rate of 38%.
(f) Reflects the estimated cost of closure of certain existing Hi/LO
stores.
(g) Reflects the estimated cost of employee severance related to employees
that are expected to be terminated subsequent to the Merger.
(h) Reflects adjustment of certain acquired operating leases to fair value,
write off of certain accounts payable debit balances and reserve for certain
litigation costs and expenses.
(i) Reflects the elimination of Hi/LO accruals for termination fee incurred
as a result of termination of the merger agreement between Hi/LO and Discount
Auto Parts.
(j) Reflects the elimination of the historical stockholders' equity of
Hi/LO.
(k) Reflects the issuance of additional debt by the Company for repayment
of existing Hi/LO indebtedness and to fund the purchase of 100% of the
outstanding Hi/LO Common Stock in conjunction with the Merger.
(l) Reflects the estimated reduction in depreciation of property and
equipment based on the reduction in historical cost as a result of the purchase
accounting adjustments.
(m) Reflects the net effect of the estimated reduction in interest expense
resulting from the refinancing of Hi/LO debt with borrowings by the Company and
the estimated increase in interest expense due to the issuance of debt by the
Company to fund the purchase of 100% of the outstanding Hi/LO Common Stock, at
an assumed interest rate of 6.5%.
(n) Reflects an increase in interest expense due to the amortization of
deferred loan cost.
<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 of the
undersigned hereunto duly authorized.
Date ________________________ By ____________________________________
Name: David O'Reilly
Title: President and
Chief Executive Officer
O'Reilly Automotive, Inc.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated January 27, 1998, in this Form 8-K. It should be noted that we have
not audited any financial statements of Hi-Lo Automotive, Inc. and subsidiaries
subsequent to December 31, 1997 or performed any audit procedures subsequent to
the date of our report.
/s/ Arthur Anderson, LLP
- ------------------------
April 10, 1998
Houston, Texas
