Page 1 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, 2001 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 - 51,661,861 shares outstanding as of March 31, 2001
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES FORM 10-Q Quarter Ended March 31, 2001 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
PART I Financial Information ITEM 1. Financial Statements O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2001 2000 --------------- ---------------- (Unaudited) (Note) (In thousands) Assets Current assets: Cash $ 11,539 $ 9,204 Short-term investments 500 500 Accounts receivable, net 35,245 32,673 Amounts receivable from vendors 23,563 29,175 Inventory 383,136 372,069 Refundable income taxes 92 92 Deferred income taxes -- 1,402 Other current assets 3,854 4,089 -------------- ---------------- Total current assets 457,929 449,204 Property and equipment, at cost 334,641 323,021 Accumulated depreciation and amortization 82,517 76,167 -------------- ---------------- Net property and equipment 252,124 246,854 Notes receivable 2,664 2,836 Other assets 17,298 17,101 -------------- ---------------- Total assets $ 730,015 $ 715,995 ============== ================ Liabilities and shareholders' equity Current liabilities: Note payable to bank $ 10,000 $ 35,000 Income taxes payable 2,476 1,011 Accounts payable 62,612 68,947 Accrued payroll 8,751 9,309 Accrued benefits & withholdings 10,736 9,360 Other current liabilities 10,953 15,184 Current deferred income taxes 2,451 -- Current portion of long-tem debt 14,421 14,121 -------------- ---------------- Total current liabilities 122,400 152,932 Long-term debt, less current portion 119,784 90,463 Deferred income taxes 5,013 4,086 Other liabilities 4,733 4,783 Shareholders' equity: Common stock, $0.01 par value: Authorized shares-90,000,000 Issued and outstanding shares- 51,664,861 shares at March 31, 2001, and 51,544,879 at December 31, 2000 517 515 Additional paid-in capital 232,635 230,600 Retained earnings 244,933 232,616 -------------- ---------------- Total shareholders' equity 478,085 463,731 -------------- ---------------- Total liabilities and shareholders' equity $ 730,015 $ 715,995 ============== ================ NOTE: The balance sheet at December 31, 2000, 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.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, --------------------------------------- 2001 2000 --------------- ------------- (In thousands, except per share data) Product sales $ 239,063 $ 195,758 Cost of goods sold, including warehouse and distribution expenses 136,526 111,046 --------------- ------------- Gross profit 102,537 84,712 Operating, selling, general and administrative expenses 80,585 65,226 --------------- ------------- Operating income 21,952 19,486 Other expense, net (2,150) (890) --------------- -------------- Income before income taxes 19,802 18,596 Provision for income taxes 7,485 7,029 --------------- ------------- Net income $ 12,317 $ 11,567 =============== ============= Net income per common share $ 0.24 $ 0.23 =============== ============= Weighted average common shares outstanding 51,591 50,828 =============== ============= Net income per common share - assuming dilution $ 0.24 $ 0.23 =============== ============= Adjusted weighted average common shares outstanding - assuming dilution 52,047 51,236 =============== ============= See notes to condensed consolidated financial statements.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, March 31, 2001 2000 ---------------- ---------------- (In thousands) Net cash provided by operating activities $ 8,562 $ 11,229 Investing activities: Purchases of property and equipment (11,923) (21,988) Proceeds from sale of property and equipment 104 389 Payments received on notes receivable 156 164 Investment in other assets (720) 289 ---------------- ---------------- Net cash used in investing activities (12,383) (21,146) Financing activities: Borrowings on notes payable to banks -- 7,130 Payments on notes payable to banks (25,000) (7,130) Proceeds from issuance of long-term debt 82,485 127,289 Payments on long-term debt (52,865) (117,882) Proceeds from issuance of common stock 1,037 151 Payment on other liabilities 499 -- ---------------- ---------------- Net cash provided by financing activities 6,156 9,558 ---------------- ---------------- Net increase (decrease) in cash 2,335 (359) Cash at beginning of period 9,204 9,791 ---------------- ---------------- Cash at end of period $ 11,539 $ 9,432 ================ ================ See notes to condensed consolidated financial statements.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2001 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, 2001, are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000.
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 2001 increased by $43.3 million, or 22.1%, over product sales for the first quarter of 2000. This increase was due to the opening of 30 net, new stores during the first quarter of 2001, in addition to a 9.3% increase in comparable store product sales. At March 31, 2001, we operated 702 stores compared to 594 stores at March 31, 2000. Gross profit increased 21.0% from $84.7 million (or 43.3% of product sales) in the first quarter of 2000 to $102.5 million (or 42.9% of product sales) in the first quarter of 2001. The increase in gross profit dollars was a result of the addition of 30 net, new stores and increased sales levels at existing stores. Operating, selling, general and administrative expenses ("OSG&A expenses") increased $15.4 million from $65.2 million (or 33.3% of product sales) in the first quarter of 2000 to $80.6 million (or 33.7% of product sales) in the first quarter of 2001. 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, higher fuel and utility costs, the costs of the two distribution centers opened in late 2000, and increased rent expense due to the recently completed sale-leaseback transaction involving 90 stores, being fully implemented in January 2001. Other expense increased by $1.3 million in the first quarter of 2001 compared to the first quarter of 2000. The overall increase in other expense in the first quarter of 2001 is due to increased interest expense due to higher debt levels to support our continuing store growth. Our estimated provision for income taxes increased to $7.5 million for the first three months of 2001 as a result of our increased taxable income. Our effective tax rate remained at 37.8% of income before income taxes. Principally, as a result of the foregoing, net income increased from $11.6 million or 5.9% of product sales in the first quarter of 2000 to $12.3 million or 5.2% of product sales in the first quarter of 2001. Liquidity and Capital Resources Net cash provided by operating activities decreased from $11.2 million for the first three months in 2000 to $8.6 million for the first three months of 2001. This decrease was principally the result of increases in accounts receivable and inventory and decreases in accrued payroll, accounts payable and other current liabilities. The changes in accounts payable and accrued payroll were primarily attributable due to the timing of payments. The increase in inventory and accounts receivable is primarily due to our continuing store growth. Net cash used in investing activities has decreased from $21.1 million in 2000 to $12.4 million in 2001, primarily due to the new stores in 2001 being acquired through the synthetic lease facility as compared to 2000 in which new stores were funded by the Company. The resulting decrease in net cash used in investing activities was partially offset by an increase in purchases of equipment for the 30 stores opened in the first three months of 2001 compared to the 23 stores opened in the first three months of 2000. Net cash provided by financing activities decreased from $9.6 million in the first three months of 2000 to $6.2 million in the first three months of 2001. The decrease in cash provided by financing activities in the first three months of 2001 compared to the first three months of 2000 was primarily due to decreases in proceeds from issuance of long-term debt, offset by the scheduled principal payments on debt. For the first three months of 2001, 30 net, new stores were opened. The Company plans to open an additional 90 stores during the remainder of 2001. The funds required for such planned expansions are expected to be provided by operating activities and the existing and available bank credit facilities, including a $100 million series private placement of debt expected to close during second quarter 2001. Management believes that the cash expected to be generated from operating activities, existing cash, existing bank credit facilities and trade credit, together with the expected proceeds from the private placement, will be sufficient to fund our short and long-term capital and liquidity needs for the foreseeable future.
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. 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 materially differ from anticipated results described in these forward-looking statements. Certain risks are discussed in Exhibit 99.1 hereto.
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 8, 2001. Of the 51,571,313 shares entitled to vote at such meeting, 45,884,939 shares were present at the meeting in person or by proxy. (b) The three individuals listed below were elected as Class II Directors, and with respect to each such Director, the number of shares voted for and withheld were as follows: Number of Shares Voted Name of Nominee For Withheld --------------- --- -------- Joe C. Greene 44,395,247 1,489,692 Lawrence P. O'Reilly 41,199,917 4,685,022 Rosalie O'Reilly Wooten 41,199,946 4,684,993 The individuals listed below are Directors whose term of office continued after the meeting: Charles H. O'Reilly, Sr. Charles H. O'Reilly, Jr. David E. O'Reilly Jay D. Burchfield Paul R. Lederer (c) The proposal to amend the Articles of Incorporation to eliminate certain director liability to the extent permitted by Missouri law was approved and the number of shares voted for, against and abstain were as follows: Number of Shares Voted For Against Abstain 45,584,712 245,164 55,063* *Consist entirely of broker non-votes. Item 5. Other Information There is no other information to report as of March 31, 2001 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, 2001.
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, 2001 /s/ David E. O'Reilly - - ------------- ------------------------------------------------------ Date David E. O'Reilly, Co-Chairman of the Board and Chief Executive Officer May 15, 2001 /s/ James R. Batten - - ------------- ------------------------------------------------------ Date James R. Batten, Vice-President of Finance and Chief Financial Officer
EXHIBIT INDEX Number Description Page 99.1 Certain Risk Factors, filed herewith. 13
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 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.