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, 2000
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
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
233 South Patterson
Springfield, Missouri 65802
- --------------------------------------------------------------------------------
(Address of principal executive offices, Zip code)
(417) 862-6708
- --------------------------------------------------------------------------------
(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 - 50,995,972 shares outstanding as of March 31,
2000
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 2000
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 7
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 9
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 10
EXHIBIT INDEX 11
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited) (Note)
(In thousands)
Assets
Current assets:
<S> <C> <C>
Cash $ 9,432 $ 9,791
Short-term investments 500 500
Accounts receivable, net 28,678 26,462
Amounts receivable from vendors 21,796 28,304
Inventory 307,947 293,924
Refundable income taxes -- 2,333
Deferred income taxes 1,433 1,776
Other current assets 2,019 1,263
------------ ------------
Total current assets 371,805 364,353
Property and equipment 313,855 292,806
Accumulated depreciation 61,256 56,289
------------ ------------
252,599 236,517
Other assets 9,131 9,572
------------ ------------
Total assets $ 633,535 $ 610,442
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ 5,000 $ 5,000
Income taxes payable 4,052 --
Accounts payable 61,651 64,885
Other current liabilities 28,703 30,759
Current portion of long-tem debt 14,523 14,358
------------ ------------
Total current liabilities 113,929 115,002
Long-term debt, less current portion 100,303 90,704
Deferred income taxes 1,546 1,215
Other liabilities 483 477
Shareholders' equity:
Commons stock, $.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-
50,995,972 shares at March 31, 2000
and 50,799,353 at December 31, 1999 510 508
Additional paid-in capital 224,289 221,628
Retained earnings 192,475 180,908
------------ ------------
Total shareholders' equity 417,274 403,044
------------ ------------
Total liabilities and shareholders' equity $ 633,535 $ 610,442
============ ============
</TABLE>
NOTE: The balance sheet at December 31, 1999 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,
------------------------------------
2000 1999
(In thousands, except per share data)
Product sales $ 195,758 $ 166,404
Cost of goods sold, including
warehouse and distribution expenses 111,046 95,447
Operating, selling, general and
administrative expenses 65,226 54,716
---------- ----------
176,272 150,163
---------- ----------
Operating income 19,486 16,241
Other expense, net (890) (2,296)
---------- ----------
Income before income taxes 18,596 13,945
Provision for income taxes 7,029 5,342
---------- ----------
Net income $ 11,567 $ 8,603
========== ==========
Basic income per share data:
Net income per common share $ 0.23 $ 0.20
========== ==========
Weighted average common shares
outstanding 50,828 42,720
========== ==========
Income per common share-assuming dilution:
Net income per common share-assuming dilution $ 0.23 $ 0.20
========== ==========
Adjusted weighted average common
shares outstanding 51,236 43,846
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
-----------------------------
March 31, March 31,
2000 1999
--------- ---------
(In thousands)
Net cash provided by operating activities $ 11,518 $ 18,324
Investing activities:
Purchases of property and equipment (21,988) (15,348)
Proceeds from sale of property and equipment 389 6,069
Payments received on notes receivable 164 767
Advances made on notes receivable -- (70)
---------- ----------
Net cash used in investing activities (21,435) (8,582)
Financing activities:
Borrowings on notes payable to banks 7,130 --
Payments on notes payable to banks (7,130) (5,000)
Proceeds from issuance of long-term debt 127,289 44,868
Payments on long-term debt (117,882) (160,085)
Net proceeds from secondary offering -- 106,780
Proceeds from issuance of common stock 151 5,197
---------- ----------
Net cash provided by (used in) financing activities 9,558 (8,240)
---------- ----------
Net increase (decrease) in cash (359) 1,502
Cash at beginning of period 9,791 1,728
---------- ----------
Cash at end of period $ 9,432 $ 3,230
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000
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, 2000, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. 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, 1999.
2. Restatement
All share and per share information included in the financial statements as of
March 31, 1999, and the three months then ended has been restated to reflect the
retroactive effect of the two-for-one stock split effected on November 30, 1999.
<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 2000 increased by $29.4 million, or
17.6%, over product sales for the first quarter of 1999. This increase was due
to the opening of 30 net, new O'Reilly stores during the last quarter of 1999
and the opening of 23 net, new stores during the first quarter of 2000, in
addition to a 5.0% increase in comparable store product sales. At March 31,
2000, we operated 594 stores compared to 500 stores at March 31, 1999.
Gross profit increased 19.4% from $71.0 million (or 42.6% of product sales) in
the first quarter of 1999 to $84.7 million (or 43.3% of product sales) in the
first quarter of 2000. The increase in gross profit margin was attributable to a
favorable product mix resulting primarily from the warm weather in January and
our increased buying power resulting from the increased volume of purchases.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $10.5 million from $54.7 million (or 32.9% of product sales) in the
first quarter of 1999 to $65.2 million (or 33.3% of product sales) in the first
quarter of 2000. The increase in OSG&A expenses resulted from the addition of
team members and resources in order to support the increased level of our
operations.
Other expense decreased by $1.4 million in the first quarter of 2000 compared to
the first quarter of 1999. The overall decrease in other expense in the first
quarter of 2000 is due to a substantial reduction in debt at the end of first
quarter of 1999 with the proceeds from the secondary offering, thereby reducing
interest expense in 2000 in comparison with 1999.
Our estimated provision for income taxes decreased from 38.3% of income before
income taxes in the first three months of 1999 to 37.8% in the same period in
2000. The decrease 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 $8.6
million or 5.2% of product sales in the first quarter of 1999 to $11.6 million
or 5.9% of product sales in the first quarter of 2000.
Liquidity and Capital Resources
Net cash provided by operating activities decreased from $18.3 million for the
first three months in 1999 to $11.5 million for the first three months of 2000.
This decrease was principally the result of an increase in inventory and
decreases in accounts payable and accrued expenses, net of a decrease in
receivables. The increase in inventory was primarily attributable to new store
growth. The decreases in accounts payable, accrued expenses and receivables
were due to the timing of payments.
Net cash used in investing activities has increased from $8.6 million in 1999 to
$21.4 million in 2000 primarily due to the increased purchases of property and
equipment for the 23 net new stores opened in first quarter 2000 versus the 9
net new stores opened in the same period in 1999.
Cash used in financing activities was $8.2 million in the first three months of
1999. Cash provided by financing activities was $9.6 million in the first three
months of 2000. As discussed above, during the first three months of 1999, we
substantially reduced our credit facility with the proceeds from the secondary
offering and the issuance of common stock. The increase in cash provided by
financing activities in the first three months of 2000 was primarily due to the
proceeds from issuance of our long-term debt, partially offset by the scheduled
principal payments on debt.
Aside from the 23 net, new stores opened in the first three months of 2000, we
plan to open an additional 77 net new stores in 2000. The funds required for
such planned expansions are expected to be provided by operating activities,
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 our short and long-term
capital and liquidity needs for the foreseeable future.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
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 Issue
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of systems.
As a result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believe those systems successfully
responded to the Year 2000 date change. The total cost of the project was
approximately $217,000 during 1999 in connection with remediating our systems.
Of the total cost, approximately $38,000 represented the purchase of
replacements or upgrades of software and hardware, which were capitalized. The
remaining portion of the project cost was expensed as incurred during 1999. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, our internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
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 4. Submission of Matters to a Vote of Security Holders
(a) Our Annual Meeting of the Shareholders was held on May 5, 2000. Of the
50,816,921 shares entitled to vote at such meeting, 46,917,790 shares were
present at the meeting in person or by proxy.
(b) The two individuals listed below were elected as Class I Directors, and
with respect to each such Director, the number of shares voted for, against
and abstain were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Shares Voted
----------------------
Name of Nominee For Against Abstain
--------------- ---------- ------- -------
Charles H. O'Reilly, Sr. 46,220,145 0 697,645
Charles H. O'Reilly, Jr. 46,262,811 0 654,979
</TABLE>
The individuals listed below are Directors whose term of office continued after
the meeting:
David E. O'Reilly
Lawrence P. O'Reilly
Rosalie O'Reilly Wooten
Jay D. Burchfield
Joe C. Greene
Item 5. Other information
In January 2000, we announced we had entered into a definitive agreement to
purchase the assets of Gateway Auto Supply ("Gateway") which closed April 2000.
Under the terms of the agreement, we purchased the inventory, fixtures and
certain other assets for approximately $5 million in cash. Additionally, we did
not assume any liabilities of Gateway.
In April 2000, we announced we had entered into a definitive agreement to
purchase the assets of KarPro Auto Parts ("KarPro") which is expected to close
September 30, 2000. Under the terms of the agreement, we will purchase the
inventory, fixtures and certain other assets for approximately $14 million in
cash. Additionally, we will not assume any liabilities of KarPro.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page 11 hereof.
(b) No reports on Form 8-K were filed by us during the quarter ended March 31,
2000.
<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, 2000 /s/ David E. O'Reilly
- ----------------- ------------------------------------------------------
Date David E. O'Reilly, Chief Executive Officer
May 15, 2000 /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 12
99.1 Certain Risk Factors, filed herewith. 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets at March 31, 2000 (unaudited) and March
31, 1999 (restated) and the Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2000 (unaudited) and March 31, 1999 (restated) 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> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<EXCHANGE-RATE> 1 1
<CASH> $9,432 $3,230
<SECURITIES> 500 500
<RECEIVABLES> 29,585 50,245
<ALLOWANCES> 907 894
<INVENTORY> 307,947 260,778
<CURRENT-ASSETS> 371,805 321,847
<PP&E> 313,855 223,520
<DEPRECIATION> 61,256 42,821
<TOTAL-ASSETS> 633,535 513,542
<CURRENT-LIABILITIES> 113,929 114,705
<BONDS> 0 0
0 0
0 0
<COMMON> 510 247
<OTHER-SE> 416,764 342,181
<TOTAL-LIABILITY-AND-EQUITY> 633,535 513,542
<SALES> 195,758 166,404
<TOTAL-REVENUES> 196,424 166,830
<CGS> 111,046 95,447
<TOTAL-COSTS> 65,226 54,716
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 437 501
<INTEREST-EXPENSE> 1,556 2,722
<INCOME-PRETAX> 18,596 13,945
<INCOME-TAX> 7,029 5,342
<INCOME-CONTINUING> 11,567 8,603
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,567 8,603
<EPS-BASIC> 0.23 0.20
<EPS-DILUTED> 0.23 0.20
</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 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
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, Ted F. Wise, and Greg Henslee. The loss
of the services of one or more of these individuals could have a material
adverse effect on the 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 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.
