-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VCn5iJ5gejtDKTq27FDGayc5IT+qrO2G5yDGxSVV1YrpVu2ZqmVdhS3HzuUI5YVf g33y4fhw7JGcBIs0srlpeg== 0000898173-99-000013.txt : 19990517 0000898173-99-000013.hdr.sgml : 19990517 ACCESSION NUMBER: 0000898173-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: O REILLY AUTOMOTIVE INC CENTRAL INDEX KEY: 0000898173 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 440618012 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21318 FILM NUMBER: 99623976 BUSINESS ADDRESS: STREET 1: 233 S PATTERSON CITY: SPRINGFIELD STATE: MO ZIP: 65802 BUSINESS PHONE: 4178622674 MAIL ADDRESS: STREET 1: 233 SOUTH PATTERSON CITY: SPRINGFIELD STATE: MO ZIP: 65802 10-Q 1 O'REILLY AUTOMOTIVE, INC. 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. - -------------------------------------------------------------------------------- (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-24,727,562 shares outstanding as of March 31, 1999 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 PART I Financial Information ITEM 1. Financial Statements O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
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 ===================== ====================
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. O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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 ================== ===================
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, 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 ---------- ------------ Net cash provided by (used in) financing activities (8,240) 60,506 ---------- ------------ Net increase (decrease) in cash 1,502 (407) Cash at beginning of period 1,728 2,285 ---------- ------------ Cash at end of period $ 3,230 $ 1,878 ========== ============
See notes to condensed consolidated financial statements. 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 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. 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. 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 EXHIBIT INDEX Number Description Page - ------ ------------------------------------- ------ 27.1 Financial Data Schedule 13 99.1 Certain Risk Factors, filed herewith. 14 EX-27 2 FDS - O'REILLY AUTOMOTIVE, INC.
5 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. 0000898173 O'REILLY AUTOMOTIVE, INC. 1000 U. S. Dollars 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 $3,230 500 50,245 894 260,778 321,847 223,520 42,821 513,542 114,705 0 0 0 247 342,181 513,542 166,404 166,830 95,447 54,716 0 501 2,722 13,945 5,342 8,603 0 0 0 8,603 0.40 0.39
EX-99.1 3 CERTAIN RISK FACTORS 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. -----END PRIVACY-ENHANCED MESSAGE-----