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 June 30, 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.
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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 - 51,192,179 shares outstanding as of June 30,
2000
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended June 30, 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 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 10
EXHIBIT INDEX 11
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PART I Financial Information
ITEM 1. Financial Statements
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(Unaudited (Note)
(In thousands, except share data)
Assets
Current Assets:
<S> <C> <C>
Cash $ 10,985 $ 9,791
Short-term investments 500 500
Accounts receivable, net 32,589 26,462
Amounts receivable from vendors 20,588 25,984
Inventory 328,143 293,924
Refundable income taxes 592 2,333
Deferred income taxes 1,052 1,776
Other current assets 3,902 3,583
----------- ------------
Total current assets 398,351 364,353
Property and equipment 334,397 292,806
Accumulated depreciation 66,482 56,289
----------- ------------
267,915 236,517
Other assets 10,722 9,572
----------- ------------
Total assets $ 676,988 $ 610,442
=========== ============
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ 5,000 $ 5,000
Income taxes payable 4,549 --
Accounts payable 67,126 64,885
Other current liabilities 31,211 30,759
Current portion of long-term debt 14,358 14,358
----------- ------------
Total current liabilities 122,244 115,002
Long-term debt, less current portion 118,236 90,704
Deferred income taxes 2,095 1,215
Other liabilities 488 477
Shareholders' equity:
Commons stock, $.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-
51,192,179 shares at June 30, 2000
and 50,799,353 at December 31, 1999 512 508
Additional paid-in capital 226,585 221,628
Retained earnings 206,828 180,908
----------- ------------
Total shareholders' equity 433,925 403,044
Total liabilities and shareholders' equity $ 676,988 $ 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.
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Product sales $ 266,359 $ 196,107 $ 422,117 $ 362,511
Cost of goods sold, including
warehouse and distribution expenses 129,098 114,284 240,150 209,731
Operating, selling, general and
administrative expenses 72,468 62,193 137,764 116,909
----------- ----------- ---------- -----------
201,566 176,477 377,914 326,640
----------- ----------- ---------- -----------
Operating income 24,793 19,630 44,203 35,871
Other expense, net (1,634) (557) (2,454) (2,853)
----------- ----------- ---------- -----------
Income before income taxes 23,159 19,073 41,749 33,018
Provision for income taxes 8,800 7,304 15,829 12,646
----------- ----------- ---------- -----------
Net income $ 14,359 $ 11,769 $ 25,920 $ 20,372
=========== ========== ========== ==========
Basic income per share data:
Net income per common share $ 0.28 $ 0.23 $ 0.51 $ 0.44
=========== ========== ========== ==========
Weighted average common shares outstanding 51,111 50,424 50,983 46,594
=========== ========== ========== ==========
Income per common share-assuming dilution
Net income per common share-assuming dilution $ 0.28 $ 0.23 $ 0.50 $ 0.43
=========== ========== ========== ==========
Adjusted weighted average
common shares outstanding 51,548 51,084 51,405 47,418
=========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 14,415 $ 16,689
---------- ----------
Investing activities:
Purchases of property and equipment (43,057) (32,377)
Proceeds from sale of property and equipment 545 6,659
Payments received on notes receivable 275 887
Advances made on notes receivable -- (70)
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Net cash used in investing activities (42,236) (24,901)
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Financing activities:
Borrowings on notes payable to banks 7,130 2,240
Payments on notes payable to banks (7,130) (5,000)
Proceeds from issuance of long-term debt 276,528 68,058
Payments on long-term debt (249,353) (185,984)
Net proceeds from secondary offering -- 124,944
Proceeds from issuance of common stock 1,839 6,340
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Net cash provided by financing activities 29,015 10,598
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Net increase in cash 1,194 2,386
Cash at beginning of period 9,791 1,728
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Cash at end of period $ 10,985 $ 4,114
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 and six months ended June 30, 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
June 30, 1999, and the three and six 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 second quarter of 2000 increased by $30.3 million, or
15.4%, over product sales for the second quarter of 1999. Product sales for the
first six months of 2000 increased by $59.6 million, or 16.4% over product sales
for the first six months of 1999. The increase is due to the opening of 55 net,
new stores during the first two quarters of 2000 compared to 24 net, new stores
opened in the first two quarters of 1999. Additionally, comparable store product
sales for stores open at least one year increased 3.1% and 4.0% for the second
quarter and first half of 2000. At June 30, 2000, we operated 626 stores
compared to 515 stores at June 30, 1999.
Gross profit increased 18.9% from $81.8 million (or 41.7% of product sales) in
the second quarter of 1999 to $97.3 million (or 43.0% of product sales) in the
second quarter of 2000. Gross profit for the first six months increased 19.1%
from $152.8 million (or 42.1% of product sales) in 1999 to $182.0 million or
(43.1% of product sales) in 2000. The increase in gross profit margin was
primarily attributable to continued improvement in our product acquisition
programs.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $10.3 million from $62.2 million (or 31.7% of product sales) in the
second quarter of 1999 to $72.5 million (or 32.0% of product sales) in the
second quarter of 2000. OSG&A expenses increased $20.9 million from $116.9
million (32.2% of product sales) in the first six months of 1999 to $137.8
million (or 32.6% of product sales) in the first six months of 2000. The dollar
amount 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 increased by $1.1 million in the second quarter of 2000 compared
to the second quarter of 1999 and decreased by $400,000 for the first six months
of 2000 compared to the first six months of 1999. The increase in other expense
for the second quarter of 2000 is primarily due to increased interest expense as
a result of additional borrowings under our revolving credit facility and higher
interest rates.
Our estimated provision for income taxes decreased from 38.3% of income before
income taxes in the second quarter and the first six months of 1999 to 38.0% and
37.9%, respectively in the same periods 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 $11.8
million or 6.0% of product sales in the second quarter of 1999 to $14.4 million
or 6.3% of product sales in the second quarter of 2000 and from $20.4 million or
5.6% of products sales in the first six months of 1999 to $25.9 million or 6.1%
of product sales in the first six months of 2000.
Liquidity and Capital Resources
Net cash of $14.4 million was provided by operating activities for the first six
months of 2000 as compared to $16.7 million of cash provided by operating
activities for the first six months of 1999. This decrease was principally the
result of smaller increases in accounts payable and other current liabilities,
net of increases in accounts receivable. These changes were due to the timing of
payments.
Net cash used in investing activities has increased to $42.2 million in 2000
from $24.9 million in 1999 primarily due to increased purchases of property and
equipment to support the Company's current level of store growth.
Cash provided by financing activities has increased to $29.0 million in the
first six months of 2000 from $10.6 million in the first six months of 1999. The
increase was primarily due to increased net borrowings under the Company's
credit facilities during the first six months of 2000.
Aside from the 55 net, new stores opened in the first six months of 2000, we
plan to open an additional 45 net new stores during 2000. The funds required for
such planned expansions will be provided by operating activities, short-term
investments and existing and available bank credit facilities.
Management believes that the cash expected to be generated from operating
activities, existing bank credit facilities, trade credit and available real
estate financing opportunities 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.
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.
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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 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
on 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.
In August 2000, we announced the formation of Internet Autoparts, Inc. ("IAP"),
a new Internet company that will provide a Web-based catalog program and sell
automotive aftermarket parts. IAP is primarily owned by General Parts, Inc.,
O'Reilly and Middle Atlantic Warehouse Distributor, Inc.; by CCI/Triad, a
provider of technology solutions in our industry; and by Hicks, Muse, Tate &
Furst Incorporated, a private investment firm. IAP's primary focus is to create
a business-to-business internet service from the professional installer to local
auto parts stores and warehouses.
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 the Company during the quarter ended
June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
O'REILLY AUTOMOTIVE, INC.
August 14, 2000 /s/ David E. O'Reilly
------------------- ------------------------------------------------
Date David E. O'Reilly, Chief Executive Officer
August 14, 2000 /s/ James R. Batten
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Date James R. Batten, Vice-President of Finance and
Chief Financial Officer
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EXHIBIT INDEX
Number Description Page
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27.1 Financial Data Schedule 12
99.1 Certain Risk Factors, filed herewith. 13
