SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number 0-21318
O'REILLY AUTOMOTIVE, INC.
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(Exact name of registrant as specified in its charter)
Missouri 44-0618012
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
233 South Patterson
Springfield, Missouri 65802
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(Address of principal executive offices, Zip code)
(417) 862-6708
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common stock, $0.01 par value-24,727,562 shares outstanding
as of March 31, 1999
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 8
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 10
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE PAGE 11
EXHIBIT INDEX 12
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
--------------------- --------------------
(Unaudited) (Note)
(In thousands, except share data)
Assets
Current assets:
Cash $ 3,230 $ 1,728
Short-term investments 500 500
Accounts receivable, net 27,163 27,580
Amounts receivable from vendors 22,188 26,660
Inventory 260,778 246,012
Other current assets 7,988 8,402
--------------------- --------------------
Total current assets 321,847 310,882
Property and equipment 223,520 210,207
Accumulated depreciation 42,821 39,256
--------------------- --------------------
180,699 170,951
Other assets 10,996 11,455
--------------------- --------------------
Total assets $ 513,542 $ 493,288
===================== ====================
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ -- $ 5,000
Accounts payable 76,550 66,737
Other current liabilities 27,896 22,091
Current portion of long-term debt 10,259 8,691
--------------------- --------------------
Total current liabilities 114,705 102,519
Long-term debt, less current portion 55,728 170,166
Other liabilities 681 2,209
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares- 30,000,000
Issued and outstanding shares
24,727,562 shares at March 31, 1999
and 21,349,700 at December 31, 1998 247 213
Additional paid-in capital 198,055 82,658
Retained earnings 144,126 135,523
--------------------- --------------------
Total shareholders' equity 342,428 218,394
--------------------- --------------------
Total liabilities and shareholders' equity $ 513,542 $ 493,288
===================== ====================
</TABLE>
NOTE: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
-------------------------------------------
1999 1998
------------------ -------------------
(In thousands, except per share data)
Product sales $ 166,404 $ 118,269
Cost of goods sold, including
warehouse and distribution expenses 95,447 67,600
Operating, selling, general
and administrative expenses 54,716 40,067
------------------ -------------------
150,163 107,667
------------------ -------------------
Operating income 16,241 10,602
Other expense, net (2,296) (1,200)
------------------ -------------------
Income before income taxes 13,945 9,402
Provision for income taxes 5,342 3,583
------------------ -------------------
Net income $ 8,603 $ 5,819
================== ===================
Basic income per share data:
Net income per common share $ 0.40 $ 0.28
================== ===================
Weighted average common shares outstanding 21,360 21,146
================== ===================
Income per common share-assuming dilution:
Net income per common share - assuming dilution $ 0.39 $ 0.27
================== ===================
Adjusted weighted average common shares outstanding 21,854 21,408
================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended
March 31, March 31,
1999 1998
----------- ------------
(In thousands)
Net cash provided by operating activities $ 18,324 $ 3,726
Investing activities:
Purchases of property and equipment (15,348) (11,429)
Acquisition of Hi-Lo Automotive, Inc.,
net of cash acquired -- (53,241)
Proceeds from sale of property and equipment 6,069 14
Payments received on notes receivable 767 --
Advances made on notes receivable (70) --
Other -- 17
----------- ------------
Net cash used in investing activities (8,582) (64,639)
Financing activities:
Payments on notes payable to banks (5,000) --
Proceeds from issuance of long-term debt 44,868 82,496
Payments on long-term debt (160,085) (22,525)
Net proceeds from secondary offering 106,780 --
Proceeds from issuance of common stock 5,197 535
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Net cash provided by (used in)
financing activities (8,240) 60,506
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Net increase (decrease) in cash 1,502 (407)
Cash at beginning of period 1,728 2,285
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Cash at end of period $ 3,230 $ 1,878
========== ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
O'Reilly Automotive, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
2. Debt
In connection with the acquisition of Hi-Lo Automotive, Inc. ("Hi/LO") in
January 1998, the Company replaced its lines of credit with new, unsecured
credit facilities totaling $175 million. The facilities are comprised of a $125
million five-year revolving credit facility which includes a $5 million
sub-limit for the issuance of letters of credit and a $50 million five-year term
loan facility. These credit facilities are guaranteed by the subsidiaries of the
Company and currently bear interest at the London Interbank Offered Rate
("LIBOR") plus 0.50%. The Company is required to meet various financial
covenants as defined in the credit agreement.
3. Secondary Offering
On March 31, 1999, the Company completed a public offering of 3,340,000 shares
of common stock, 3,000,000 of which were issued by the Company resulting in net
proceeds of $106.8 million. A portion of the proceeds was used to repay a
significant amount of the outstanding indebtedness of the Company under its
credit facility. The remaining portion of the proceeds will be used to fund
future expansion. On April 7, 1999, the Company issued 501,000 shares of common
stock related to the Company's portion of the over-allotment option resulting in
net proceeds to the Company of $17.9 million.
4. Segments of an Enterprise and Related Information
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which established new
standards for the way public companies report information about operating
segments in annual and interim financial statements. The Company operates in a
single segment and accordingly, no segment disclosures are warranted for the
quarters ended March 31, 1999 and 1998.
5. Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" which established new rules for the reporting and display
of comprehensive income and its components. SFAS No. 130 had no impact on the
Company's financial statements.
6. Business Acquisition
Effective January 31, 1998, the Company acquired all of the outstanding common
shares of Hi-Lo Automotive, Inc. and its subsidiaries for $49.3 million or $4.35
per common share. This acquisition has been accounted for as a purchase by
recording the assets and liabilities of Hi/LO at their estimated fair values at
the acquisition date. The excess of net assets acquired over the purchase price,
which totaled approximately $9.7 million, has been applied as a reduction to the
acquired property and equipment.
The consolidated results of operations of the Company include the operations of
Hi/LO from the acquisition date. Unaudited Pro Forma consolidated results of
operations assuming the purchase was made at the beginning of each period are
shown below: (amounts in thousands, except per share data)
Three months ended March 31,
-------------------------------------
1999 1998
------------- ------------
Net sales $166,404 $136,039
Net income $8,603 $2,188
Net income per share $0.40 $0.10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Unless otherwise indicated, "we," "us," "our" and similar terms, as well as
references to the "Company" or "O'Reilly" refer to O'Reilly Automotive, Inc. and
its subsidiaries.
Results of Operations
Product sales for the first quarter of 1999 increased by $48.1 million, or
40.7%, over product sales for the first quarter of 1998. This is due to the
impact of opening 14 net, new O'Reilly stores during the last quarter of 1998
and opening 9 new stores during the first quarter of 1999, in addition to a
15.8% increase in comparable store product sales (O'Reilly stores increased
11.0% and Hi/LO stores increased 22.8%). At March 31, 1999, we operated 500
stores compared to 268 stores at March 31, 1998.
Gross profit increased 40.0% from $50.7 million (or 42.8% of product sales) in
the first quarter of 1998 to $71.0 million (or 42.7% of product sales) in the
first quarter of 1999.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $14.6 million from $40.1 million (or 33.9% of product sales) in the
first quarter of 1998 to $54.7 million (or 32.9% of product sales) in the first
quarter of 1999. The dollar amount increase of OSG&A expenses is due to the
addition of team members and resources in order to support the increased level
of our operations. The decrease in OSG&A expenses as a percentage of product
sales is primarily due to economies of scale resulting from increased product
sales.
Other expense, net, increased by $1.1 million in the first quarter of 1999
compared to the first quarter of 1998. This increase was primarily due to
increased interest expense from higher balances on long-term debt principally
resulting from the Hi/LO acquisition and growth in the scope of our operations.
Our estimated provision for income taxes increased from 38.1% of income before
income taxes in the first three months of 1998 to 38.3% in the same period in
1999. The increase in the effective income tax rate was primarily due to changes
in the mix of taxable income among the states in which we operate.
Principally as a result of the foregoing, net income increased from $5.8 million
or 4.9% of product sales in the first quarter of 1998 to $8.6 million or 5.2% of
product sales in the first quarter of 1999.
Liquidity and Capital Resources
Net cash of $18.3 million was provided by operating activities for the first
three months of 1999 as compared to $3.7 million for the first three months of
1998. This increase was principally the result of increases in net income,
accounts payable and accruals and decreases in other assets, as offset by
increases in inventory and accounts receivable, including amounts receivable
from vendors. These increases are primarily due to the addition of new stores
and increased sales levels in existing and newly opened stores and the results
of product line conversions.
Net cash used in investing activities has decreased from $64.6 million in 1998
to $8.6 million in 1999 primarily due to the acquisition of Hi/LO in the first
three months of 1998, partially offset by an increase in purchases of property
and equipment.
Cash provided by financing activities has decreased from $60.5 million in the
first three months of 1998 to $8.2 million in cash used in financing in the
first three months of 1999. The decrease was primarily due to the scheduled
principal payments on debt as well as the substantial reduction of our credit
facility with the proceeds of the secondary offering and the issuance of common
stock during the first three months of 1999.
Aside from the 9 net, new stores opened in the first three months of 1999, we
plan to open an additional 71 net new stores in 1999. The funds required for
such planned expansions will be provided by operations, short-term investments
and the existing and available bank credit facilities.
Management believes that the cash expected to be generated from 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 for the foreseeable future.
Inflation and Seasonality
We have been successful, in many cases, in reducing the effects of merchandise
cost increases principally by taking advantage of vendor incentive programs,
economies of scale resulting from increased volume of purchases and selective
forward buying. As a result, we do not believe our operations have been
materially affected by inflation.
Our business is seasonal to some extent primarily as a result of the impact of
weather conditions on store sales. Store sales and profits have historically
been higher in the second and third quarters (April through September) of each
year than in the first and fourth quarters.
Year 2000 Readiness
We have appointed an internal Year 2000 issue project manager and remediation
team and have adopted a four phase approach of assessment, remediation, testing
and contingency planning. The scope of the project includes our review of all
internal software, hardware and operating systems and an assessment of the risk
to our business posed by any lack of vendor preparedness with respect to the
Year 2000 issue. We have completed the initial assessment of all internal
systems, are progressing with the remediation and testing phases, and have begun
contingency planning for information technology systems. We believe that this
approach of assessment (including prioritization by business risk), remediation
(including conversions to new software), testing of necessary changes, and
contingency planning will minimize the business risk of the Year 2000 issue from
internal systems.
We are utilizing internal personnel to correct, replace and test our software
and plan to complete the Year 2000 project no later than September 1, 1999. The
total cost of the Year 2000 project is estimated at $100,000. Of the total
project cost, approximately $25,000 represents the purchase of replacements or
upgrades of software and hardware, which will be capitalized. We will expense
the remaining portion of the project cost as incurred during 1999. As of March
31, 1999, we had spent approximately $60,000 on the Year 2000 project.
We have established ongoing communications with all our significant vendors to
monitor their progress in resolving their issues related to the Year 2000 issue.
Many of such vendors have informed us that they are making substantial progress
in resolving their Year 2000 issue. However, the most likely worst case scenario
for us would entail failure of one or more of our significant vendors to
continue operations (even temporarily) following transition to the year 2000. We
have also contacted suppliers of products significant to our operations
containing embedded chips to monitor their progress in resolving issues related
to the Year 2000 issue. No material issues have been identified to date as a
result of these contacts. We cannot guarantee that our business partners will
adequately address issues related to the Year 2000 issue in a timely manner or
that the failure of our business partners to correct these issues would not have
a material adverse effect on the company.
We have completed contingency plans to be used in the event of a business
interruption caused by the Year 2000 issue for some, but not all, of our
internal information technology systems. Such plans are being developed for some
of our other systems. Elements of our contingency plans include switching
vendors and utilizing back-up systems that do not rely on computers.
The cost and time estimated for the Year 2000 project are based on our best
current estimates. We cannot guarantee that these estimates will be achieved and
that planned results will be achieved.
Forward-Looking Statements
Certain statements contained in this quarterly report on Form 10-Q are
forward-looking statements. These statements discuss, among other things,
expected growth, store development and expansion strategy, business strategies,
future revenues and future performance. The forward-looking statements are
subject to risks, uncertainties and assumptions including, but not limited to
competitive pressures, demand for our products, the market for auto parts, the
economy in general, inflation, consumer debt levels and the weather. Actual
results may materially differ from anticipated results described in these
forward-looking statements. Certain risks are discussed in Exhibit 99.1 hereto.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk through derivative financial instruments and other
financial instruments is not material.
PART II - OTHER INFORMATION
Item 5. Other information
In October 1998, we announced we had entered into a definitive agreement to
purchase the assets of Hinojosa Auto Parts ("Hinojosa") which closed April 1,
1999. Under the terms of the agreement, we purchased the inventory, fixtures,
certain real estate and other assets for approximately $6 million. Additionally,
we did not assume any liabilities of Hinojosa.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 12 hereof
(b) No reports on Form 8-K were filed by the Company during the three month
period ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
O'REILLY AUTOMOTIVE, INC.
May 15, 1999 /s/ David E. O'Reilly
- ------------------- ------------------------------------------
Date David E. O'Reilly, President and
Chief Executive Officer
May 15, 1999 /s/ James R. Batten
- ------------------- ------------------------------------------
Date James R. Batten, Vice-President of Finance
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description Page
- ------ ------------------------------------- ------
27.1 Financial Data Schedule 13
99.1 Certain Risk Factors, filed herewith. 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1999 (unaudited) and the
Condensed Consolidated Statement of Income for the Three Months Ended March 31,
1999 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000898173
<NAME> O'REILLY AUTOMOTIVE, INC.
<MULTIPLIER> 1000
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> $3,230
<SECURITIES> 500
<RECEIVABLES> 50,245
<ALLOWANCES> 894
<INVENTORY> 260,778
<CURRENT-ASSETS> 321,847
<PP&E> 223,520
<DEPRECIATION> 42,821
<TOTAL-ASSETS> 513,542
<CURRENT-LIABILITIES> 114,705
<BONDS> 0
0
0
<COMMON> 247
<OTHER-SE> 342,181
<TOTAL-LIABILITY-AND-EQUITY> 513,542
<SALES> 166,404
<TOTAL-REVENUES> 166,830
<CGS> 95,447
<TOTAL-COSTS> 54,716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 501
<INTEREST-EXPENSE> 2,722
<INCOME-PRETAX> 13,945
<INCOME-TAX> 5,342
<INCOME-CONTINUING> 8,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,603
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors
The following factors could affect our actual results, including revenues,
expenses and net income, and could cause them to differ from any forward-looking
statements made by or on behalf of us.
Competition
We compete 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 us. 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 our competitors are larger
and have greater financial resources than us.
No Assurance of Future Growth
We believe that our ability to open additional stores at an accelerated rate
will be a significant factor in achieving our growth objectives for the future.
Our ability to accomplish this growth is dependent, in part, on matters beyond
our control, such as weather conditions, zoning and other issues related to new
store site development, the availability of qualified management personnel and
general business and economic conditions. No assurance can be given that our
current growth rate can be maintained.
Dependence Upon Key and Other Personnel
The success of our company has been largely dependent on the efforts of certain
key personnel, 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
our business and results of operations. Additionally, in order to successfully
implement and manage our growth strategy, we will be dependent upon our ability
to continue to attract and retain qualified personnel. There can be no assurance
that we will be able to continue to attract such personnel.
Concentration of Ownership by Management
Our executive officers and directors as a group beneficially own a substantial
percentage of the outstanding shares of the our common stock. These officers and
directors have the ability to exercise effective voting control of the company,
including the election of all of our directors, and to effectively determine the
vote on any matter being voted on by our shareholders, including any merger,
sale of assets or other change in control of the company.
