SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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
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Common stock, $0.01 par value - 51,391,188 shares outstanding as of September
30, 2000
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
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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>
September 30, December 31,
2000 1999
--------------------- ---------------------
(Unaudited) (Note)
(In thousands, except share data)
Assets
Current Assets:
<S> <C> <C>
Cash $ 12,269 $ 9,791
Short-term investments 500 500
Accounts receivable, net 36,190 26,462
Amounts receivable from vendors 27,550 25,984
Inventory 347,922 293,924
Refundable income taxes 592 2,333
Deferred income taxes 642 1,776
Other current assets 3,496 3,583
--------------- ----------------
Total current assets 429,161 364,353
Property and equipment, at cost 354,862 292,806
Accumulated depreciation and amortization 72,240 56,289
--------------- ----------------
282,622 236,517
Other assets 10,224 9,572
--------------- ----------------
Total assets $ 722,007 $ 610,442
=============== ================
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ 5,000 $ 5,000
Income taxes payable 3,267 --
Accounts payable 72,471 64,885
Accrued payroll 8,847 6,278
Accrued benefits and withholdings 10,486 10,382
Other current liabilities 14,926 14,099
Current portion of long-term debt 14,177 14,358
--------------- ----------------
Total current liabilities 129,174 115,002
Long-term debt, less current portion 136,983 90,704
Deferred income taxes 3,222 1,214
Other liabilities 448 478
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-51,391,188
shares at September 30, 2000
and 50,799,353 at December 31, 1999 514 508
Additional paid-in capital 228,266 221,628
Retained earnings 223,400 180,908
--------------- ----------------
Total shareholders' equity 452,180 403,044
--------------- ----------------
Total liabilities and shareholders' equity $ 722,007 $ 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 Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2000 1999 2000 1999
-------------- ------------ ------------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Product sales $ 251,413 $ 208,401 $ 673,530 $ 570,912
Cost of goods sold, including warehouse and distribution expenses 145,550 120,400 385,700 330,130
Operating, selling, general and administrative expenses 77,058 65,770 214,822 182,679
------------ ----------- ------------ -----------
222,608 186,170 600,522 512,809
------------ ----------- ------------ -----------
Operating income 28,805 22,231 73,008 58,103
Other expense, net (2,076) (564) (4,530) (3,417)
------------ ----------- ------------ -----------
Income before income taxes 26,729 21,667 68,478 54,686
Provision for income taxes 10,157 8,255 25,986 20,901
------------ ----------- ------------ -----------
Net income $ 16,572 $ 13,412 $ 42,492 $ 33,785
============ =========== ============ ===========
Basic income per share data:
Net income per common share $ 0.32 $ 0.26 $ 0.83 $ 0.70
============ =========== ============ ===========
Weighted average common shares outstanding 51,301 50,692 51,085 47,974
============ =========== ============ ===========
Income per common share-assuming dilution:
Net income per common share-assuming dilution $ 0.32 $ 0.26 $ 0.82 $ 0.69
Adjusted weighted average common shares outstanding 51,856 51,178 51,551 48,686
============ =========== ============ ===========
</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>
Nine Months Ended September 30,
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2000 1999
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(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 17,379 $ 33,483
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Investing activities:
Purchases of property and equipment (64,529) (54,138)
Proceeds from sale of property and equipment 1,066 6,775
Payments received on notes receivable 442 1,061
Advances made on notes receivable -- (70)
Other (750) --
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Net cash used in investing activities (63,771) (46,372)
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Financing activities:
Borrowings on notes payable to banks 7,130 5,000
Payments on notes payable to banks (7,130) (5,000)
Proceeds from issuance of long-term debt 377,488 84,013
Payments on long-term debt (331,747) (201,976)
Net proceeds from secondary offering -- 124,890
Net proceeds from issuance of common stock 3,129 6,963
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Net cash provided by financing activities 48,870 13,890
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Net increase in cash 2,478 1,001
Cash at beginning of period 9,791 1,728
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Cash at end of period $ 12,269 $ 2,729
=================== ================
</TABLE>
See notes to condensed consolidated financial statements.
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 nine months ended September 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
September 30, 1999, and the three and nine months then ended has been restated
to reflect the retroactive effect of the two-for-one stock split effected on
November 30, 1999.
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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 third quarter of 2000 increased by $43.0 million, or
20.6%, over product sales for the third quarter of 1999. Product sales for the
first nine months of 2000 increased by $102.6 million, or 18.0% over product
sales for the first nine months of 1999. These increases are primarily due to
the opening of 24 and 79 net, new stores during the third quarter and first nine
months of 2000, respectively. Additionally, comparable store product sales for
stores open at least one year increased 6.22% and 4.80% for the third quarter
and first nine months of 2000, respectively. At September 30, 2000, a total of
650 stores were in operation compared to 541 stores at September 30, 1999.
Gross profit increased 20.3% to $105.9 million (or 42.1% of product sales) in
the third quarter of 2000 compared to $88.0 million (or 42.2% of product sales)
in the third quarter of 1999. Gross profit for the first nine months of 2000
increased 19.5% to $287.8 million (or 42.7% of product sales) compared to $240.8
million (or 42.2% of product sales) in 1999. These increases in gross profit
dollars are primarily due to the opening of new stores and the related increase
in product sales.
Operating, selling, general and administrative expenses ("OSG&A expenses") for
the third quarter of 2000 increased 17.1% to $77.1 million (or 30.6% of product
sales) compared to $65.8 million (or 31.6% of product sales) in the third
quarter of 1999. OSG&A expenses for the first nine months of 2000 increased
17.6% to $214.8 million (or 31.9% of product sales) compared to $182.7 million
(or 32.0% of product sales) in the first nine months of 1999. The dollar amount
increase in OSG&A expenses for both the three and nine months ended September
30, 2000, is primarily due to the addition of team members and resources to
support the increased level of our operations. The decrease in OSG&A as a
percent of product sales for the third quarter is primarily due to the company
improving its operating efficiency through expense control.
Other expense, net increased $1.5 or 268.1% and $1.1 million or 32.6% for the
three and nine month periods ended September 30, 2000, respectively. The
increase in other expense for the three and nine month periods ended September
30, 2000, is primarily due to increased interest expense as a result of
additional borrowings under our long-term credit facility.
Estimated provision for income taxes increased $1.9 million and $5.1 million for
the three and nine month periods ended September 30, 2000, respectively,
consistent with the overall growth in the Company's earnings. The estimated
provision for income taxes resulted in an effective income tax rate of 38.0% and
37.9% for the three and nine month periods ended September 30, 2000,
respectively compared to 38.1% and 38.2% for the same periods in 1999.
Net income increased $3.2 million or 23.6% and $8.7 million or 25.8% for the
three and nine month periods ended September 30, 2000, respectively. As a
percent of product sales net income increased to 6.6% and 6.3% for the three and
nine months ended September 30, 2000, respectively compared to 6.4% and 5.9% for
the same periods in 1999. Growth in net income for both the three and nine month
periods ended September 30, 2000, is primarily due to the increases in product
sales and other factors noted above.
Liquidity and Capital Resources
Net cash of $17.4 million was provided by operating activities for the first
nine months of 2000 as compared to $33.5 million of cash provided by operating
activities for the first nine months of 1999. This decrease was primarily due to
increased accounts receivable and increased inventory. The increases in accounts
receivable and inventory are the result of the addition of new stores and
increased sales levels in existing stores. Inventory installed at the new
distribution center in Dallas, TX (opening in the fourth quarter 2000) also
contributed to the increase in inventory.
Net cash used in investing activities for the first nine months ended September
30, 2000, increased from $46.4 million in 1999 to $63.8 million in 2000. The
increase is primarily due to the addition of new stores and a distribution
center in Dallas, Texas.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Cash provided by financing activities for the first nine months ended September
30, 2000, increased from $13.9 million in 1999 to $48.9 million in 2000. The
increase is primarily related to the issuance of long-term debt under the
Company's credit facility.
In September 2000, the Company solicited bids from unaffiliated parties on a
proposed $50.0 million sale/leaseback whereby the Company would sell and
subsequently lease back approximately 90 of its current properties. The
sale/leaseback is expected to close in the fourth quarter of 2000. Additionally,
the Company has planned to execute a $50.0 million synthetic lease facility
during the first half of 2001. The net proceeds from the sale/leaseback will be
used to pay down existing borrowings under the Company's credit facility. The
synthetic lease facility will be used to fund a portion the Company's continued
growth.
For the first nine months of 2000, 79 net, new stores were opened. The Company
plans to open an additional 21 stores during the fourth quarter of 2000 and 120
new stores in 2001. Additionally, two new distribution centers will be
operational during the fourth quarter of 2000. The funds required for such
planned expansions will be provided by operating activities, short-term
investments, existing bank credit facilities and the sale/leaseback and
synthetic lease transactions noted above.
Management believes it has adequate internal and external resources available to
finance its ongoing operating requirements, including capital expenditures and
business development. These resources include but are not limited to cash
expected to be generated from operating activities, existing bank credit
facilities, trade credit and the sale/leaseback and synthetic lease transactions
noted above.
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
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes, and future filings by the Company on Form 10-K and Form 8-K
and future oral and written statements by the Company and its management may
include, certain forward-looking statements. These statements discuss, among
other things, expected growth, store development and expansion strategy,
business strategies, future revenues and future performance. These
forward-looking statements are subject to risks, uncertainties and assumptions
including, but not limited to competition, product demand, the market for auto
parts, the economy in general, inflation, consumer debt levels, governmental
approvals, our ability to hire and retain qualified employees and the weather.
Actual results may differ materially from anticipated results described in these
forward-looking statements. Certain risks are discussed in Exhibit 99.1 hereto
and in the Risk Factors sections of the Company's annual report on Form 10-K for
the year ended December 31, 1999.
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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 April 2000, the Company announced the signing of a definitive agreement to
purchase certain assets of KarPro Auto Parts ("KarPro") for approximately $14.0
million in cash. The transaction, which closed on October 2, 2000, will add nine
net, new stores and a distribution center in Arkansas. Under the terms of the
agreement, the Company purchased inventory, furniture and fixtures and certain
other assets. The Company did not assume any liabilities of KarPro.
In August 2000, the Company 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.
On October 24, 2000, the Company announced the signing of a definitive agreement
to purchase certain assets of Rankin Automotive Group, Inc. (Nasdaq: RAVE) for
approximately $1.3 million in cash. The transaction, which is expected to close
November 30, 2000, will add four new stores located in southeast Louisiana. The
Company will not assume any liabilities of Rankin.
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
September 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.
November 13, 2000 /s/ David E. O'Reilly
-------------------- -----------------------------------------------
Date David E. O'Reilly, Chief Executive Officer
November 13, 2000 /s/ James R. Batten
-------------------- -----------------------------------------------
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
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