10-K 1 orly-20121231x10k.htm 10-K e790dd823be04c7

 

 

 

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

 

 

FORM 10-K

 

 

 

 

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

 

 

 

 

 

O'REILLY AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

Missouri

 

000-21318

 

27-4358837

(State or other jurisdiction

 

Commission file

 

(I.R.S. Employer

of incorporation or organization)

 

number

 

Identification No.)

 

 

 

 

 

233 South Patterson Avenue

Springfield, Missouri 65802

(Address of principal executive offices, Zip code)

(417) 862-6708

(Registrant's telephone number, including area code)

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

 

 

Name of Each Exchange on which Registered

Common Stock, $0.01 par value

 

 

 

The NASDAQ Stock Market LLC

 

 

 

 

(NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x  No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨  No  x

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  ¨ 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained here, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x  Accelerated Filer  ¨  Non-Accelerated Filer  ¨  Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x 

 

At February 25, 2013, an aggregate of 111,304,878 shares of common stock of the registrant was outstanding. As of that date, the aggregate market value of the voting stock held by non-affiliates of the Company was approximately $11,280,749,385 based on the last sale price of the common stock reported by The NASDAQ Global Select Market.

 

At June 30, 2012, an aggregate of 122,014,308 shares of the common stock of the registrant was outstanding. As of that date, the aggregate market value of the voting stock held by non-affiliates of the Company was approximately $10,221,138,581 based on the last price of the common stock reported by The NASDAQ Global Select Market. 

 

 

 

 

 

 

 

 

 

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE

As indicated below, portions of the registrant's documents specified below are incorporated here by reference:

Document

 

 

 

Form 10-K Part

Proxy Statement for 2013 Annual Meeting
of Shareholders (to be filed pursuant to Regulation 14A within 120 days of the end
of registrant's most recently completed fiscal year)

 

 

 

Part III

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2

 


 

 

 

 

 

 

 

 

 

O'Reilly Automotive, Inc.

Form 10-K

For the Year Ended December 31, 2012

 

 

 

Table of Contents

 

 

Page

Part I

 

Item 1.

Business

Item 1A.

Risk Factors

14 

Item 1B.

Unresolved Staff Comments

18 

Item 2.

Properties

19 

Item 3.

Legal Proceedings

20 

Item 4.

Mine Safety Disclosures

20 

 

 

 

Part II

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

21 

Item 6.

Selected Financial Data

22 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

25 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

42 

Item 8.

Financial Statements and Supplementary Data

43 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

69 

Item 9A.

Controls and Procedures

71 

Item 9B.

Other Information

72 

 

 

 

Part III

 

Item 10.

Directors, Executive Officers and Corporate Governance

72 

Item 11.

Executive Compensation

73 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

73 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

73 

Item 14.

Principal Accounting Fees and Services

73 

 

 

 

Part IV

 

Item 15.

Exhibits and Financial Statement Schedules

74 

 

 

 

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Forward-Looking Statements

 

We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,” “project,” “will” or similar words.  In addition, statements contained within this annual report that are not historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues and future performance.  These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results.  Such 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 regulations,  our increased debt levels, credit ratings on public debt, our ability to hire and retain qualified employees, risks associated with the performance of acquired businesses, weather, terrorist activities, war and the threat of war.  Actual results may materially differ from anticipated results described or implied in these forward-looking statements.  Please refer to the “Risk Factors” section of this annual report on Form 10-K for the year ended December 31, 2012, for additional factors that could materially affect our financial performance.    Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

PART I

Item 1.                        Business

 

GENERAL INFORMATION

 

O'Reilly Automotive, Inc. and its subsidiaries, collectively “we”, “O’Reilly” or the “Company”, is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, selling our products to both do-it-yourself (“DIY”) and professional service provider customers, our “dual market strategy”.  The business was founded in 1957 by Charles F. O'Reilly and his son, Charles H. ''Chub'' O'Reilly, Sr. and initially operated from a single store in Springfield, Missouri.  Our common stock has traded on The NASDAQ Global Select Market under the symbol “ORLY” since April 22, 1993.

 

At the close of business on December 31, 2012, we completed an asset purchase of the auto-parts related assets of VIP Parts, Tires & Service (“VIP”), which is a large privately held automotive parts, tires and service chain in New England, and operated 56 stores and one distribution center located throughout Maine, New Hampshire and Massachusetts.  The acquired assets of VIP are included in our consolidated financial statements as of the acquisition date.

 

On December 29, 2010, we completed a corporate reorganization creating a holding company structure and during which O’Reilly Automotive, Inc. was incorporated on December 27, 2010, which was implemented through an agreement and plan of merger under Section 351.448 of The General Corporation Law of the State of Missouri, which did not require a vote of the shareholders.  As a result of this reorganization, the previous parent company and registrant, O’Reilly Automotive, Inc., was renamed O’Reilly Automotive Stores, Inc. and is now a wholly-owned subsidiary of the new parent company and registrant, which was renamed O’Reilly Automotive, Inc. 

 

On July 11, 2008, we acquired CSK Auto Corporation (“CSK”), which was one of the largest specialty retailers of auto parts and accessories in the western United States and one of the largest such retailers in the United States, based on store count at the date of acquisition.  At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names:  Checker Auto Parts, Schuck’s Auto Supply, Kragen Auto Parts and Murray’s Discount Auto Parts.  The results of CSK’s operations have been included in our consolidated financial statements since the acquisition date.

 

At December 31, 2012, we operated 3,976 stores in 42 states.  Our stores carry an extensive product line, including the products identified below:

 

·

new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control, chassis parts and engine parts;

·

maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and

·

accessories, such as floor mats, seat covers and truck accessories.

 

Our stores offer many enhanced services and programs to our customers, such as those identified below:

 

·

used oil, oil filter and battery recycling

·

battery, wiper and bulb replacement

·

battery diagnostic testing

·

electrical and module testing

·

check engine light code extraction

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·

loaner tool program

·

drum and rotor resurfacing

·

custom hydraulic hoses

·

professional paint shop mixing and related materials

·

machine shops

 

See "Risk Factors" beginning on page 14 for a description of certain risks relevant to our business.  These risk factors include, among others, deteriorating economic conditions, the performance of acquired stores, increased debt levels, our acquisition strategies, competition in the automotive aftermarket business, our dependence upon key and other personnel, future growth assurance, our sensitivity to regional economic and weather conditions, the effect of sales of shares of our common stock eligible for future sale, unanticipated fluctuations in our quarterly results, the volatility of the market price of our common stock, our relationships with key vendors and availability of key products, a downgrade in our credit ratings, complications in our distribution centers (“DC”s), and environmental legislation and other regulations.

 

OUR BUSINESS

 

Our goal is to continue to achieve growth in sales and profitability by capitalizing on our competitive advantages and executing our growth strategy.  We remain confident in our ability to continue to gain market share in our existing markets and grow our business in new markets by focusing on our dual market strategy and the core O’Reilly values of customer service and expense control.  Our intent is to be the dominant auto parts provider in all the markets we serve, by providing superior customer service and significant value to both DIY and professional service provider customers.

 

Competitive Advantages

 

We believe our effective dual market strategy, superior customer service, strategic distribution systems and experienced management team make up our key competitive advantages that cannot be easily duplicated.

 

Proven Ability to Execute a Dual Market Strategy:

Over the past 30 years, we have established a track record of effectively serving, at a high level, both DIY and professional service provider customers.  We believe our proven ability to effectively execute a dual market strategy is a unique competitive advantage.  The execution of this strategy enables us to better compete by targeting a larger base of consumers of automotive aftermarket parts, capitalizing on our existing retail and distribution infrastructure, operating profitably in both large markets and less densely populated geographic areas that typically attract fewer competitors, and enhancing service levels offered to DIY customers through the offering of a broad inventory and the extensive product knowledge required by professional service providers.

 

In 2012, we derived approximately 59% of our sales from our DIY customers and approximately 41% of our sales from our professional service provider customers.  Prior to the acquisition of CSK, we derived approximately 50% of our sales from both our DIY and professional service provider customers.  As we continue to grow our commercial business in the acquired CSK markets, we expect that over time our DIY and professional service provider sales mix to approximate historical averages.  As a result of our historical success of executing our dual market strategy and our over 470 full-time sales staff dedicated solely to calling upon and servicing the professional service provider customer, we believe we will continue to increase our sales to professional service provider customers and will continue to have a competitive advantage over our retail competitors who continue to derive a higher concentration of their sales from the DIY market.

 

Superior Customer Service:

We seek to attract new DIY and professional service provider customers and to retain existing customers by offering superior customer service, the key elements of which are identified below:

 

·

superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”) using an advanced point-of-sale system

·

an extensive selection and availability of products

·

attractive stores in convenient locations

·

competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and value preferences

 

Technically Proficient Professional Parts People:

Our highly-motivated, technically-proficient Professional Parts People provide us with a significant competitive advantage, particularly over less specialized retail operators.  We require our Professional Parts People to undergo extensive and ongoing training and to be technically knowledgeable, particularly with respect to hard parts, in order to better serve the technically-oriented professional service provider customers with whom they interact on a daily basis.  Such technical proficiency also enhances the customer service we provide to our DIY customers who value the expert assistance provided by our Professional Parts People.

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Strategic Regional Tiered Distribution Network:

We believe our commitment to a robust, regional, tiered distribution network provides for superior replenishment and access to hard-to-find parts and enables us to optimize product availability and inventory levels throughout our store network.  Our strategic regional tiered distribution network includes DCs and Hub stores.  Our inventory management and distribution systems electronically link each of our stores to one or more DCs, which provides for efficient inventory control and management.  We currently operate 24 regional DCs, which provide our stores with same-day or overnight access to an average of 142,000 stock keeping units (“SKU”s), many of which are hard-to-find items not typically stocked by other auto parts retailers.  To augment our robust DC network, we operate 240 Hub stores that also provide delivery service and same-day access to an average of 42,000 SKUs to other stores within the surrounding area.  We believe this timely access to a broad range of products is a key competitive advantage in satisfying customer demand and generating repeat business.

 

Experienced Management Team:

Our Company philosophy is to “promote from within” and the vast majority of our senior management, district managers and store managers have been promoted from within the Company.  We augment this promote from within philosophy by pursuing strategic hires with a strong emphasis on automotive aftermarket experience.  We have a strong management team comprised of senior management with 146 professionals who average 18 years of service; 273 corporate managers who average 15 years of service; and 386 district managers who average 13 years of service.  Our management team has demonstrated the consistent ability to successfully execute our business plan and growth strategy by generating 20 consecutive years of record revenues and earnings and positive comparable store sales results since becoming a public company in April of 1993.    

 

Growth Strategy

 

Aggressively Open New Stores:

We intend to continue to consolidate the fragmented automotive aftermarket.  During 2012, we opened 180 net, new stores, acquired 56 stores and we plan to open approximately 190 net, new stores in 2013, which will increase our penetration in existing markets and allow for expansion into new, contiguous markets.  The sites for these new stores have been identified, and to date, we have not experienced significant difficulties in locating suitable sites for construction of new stores or identifying suitable acquisition targets for conversion to O'Reilly stores.  We typically open new stores either by (i) constructing a new facility or renovating an existing one on property we purchase or lease and stocking the new store with fixtures and inventory, (ii) acquiring an independently owned auto parts store, typically by the purchase of substantially all of the inventory and other assets (other than realty) of such store, or (iii) purchasing multi-store chains.  New store sites are strategically located in clusters within geographic areas that complement our distribution network in order to achieve economies of scale in management, advertising and distribution.  Other key factors we consider in the site selection process include population density and growth patterns, demographic lifestyle segmentation, age and per capita income, vehicle traffic counts, number and type of existing automotive repair facilities, competing auto parts stores within a pre-determined radius, and the operational strength of such competitors. 

 

We target both small and large markets for expansion of our store network.  While we have faced, and expect to continue to face, aggressive competition in the more densely populated markets, we believe we have competed effectively, and are well positioned to continue to compete effectively, in such markets and to achieve our goal of continued profitable sales growth within these markets.  We also believe that with our dual market strategy, we are better able to operate stores in less densely populated areas, which would not otherwise support a national chain store selling primarily to the retail automotive aftermarket.  Consequently, we continue to pursue opening new stores in less densely populated market areas as part of our growth strategy.

 

Grow Sales in Existing Stores:

Profitable same store sales growth is also an important part of our growth strategy.  To achieve improved sales and profitability at existing O'Reilly stores, we continually strive to improve the service provided to our customers.  We believe that while competitive pricing is an essential component of successful growth in the automotive aftermarket business, it is customer satisfaction, whether of the DIY consumer or professional service provider, resulting from superior customer service that generates increased sales and profitability.

 

Selectively Pursue Strategic Acquisitions:

Although the automotive aftermarket industry is still highly fragmented, we believe the ability of national auto parts chains, such as ourselves, to operate more efficiently and proficiently than smaller independent operators will result in continued industry consolidation.  Thus, our intention is to continue to selectively pursue acquisition targets that will strengthen our position as a leading automotive aftermarket parts supplier in existing markets and provide a springboard into new markets.

 

Continually Enhance Store Design and Location:

Our current prototype store design features enhancements such as optimized square footage, higher ceilings, more convenient interior store layouts, improved in-store signage, brighter lighting, increased parking availability and dedicated counters to serve professional service providers, each designed to increase sales and operating efficiencies and enhance customer service.  We continually update the location and condition of our store network through systematic renovation and relocation of our existing stores to enhance store

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performance.  During 2012, we relocated 32 stores and renovated 70 stores.  We believe that our ability to consistently achieve growth in same store sales is due in part to our commitment to maintaining an attractive store network, which is strategically located to best serve our customers. 

 

Continually Enhance the Growth and Functionality of Our E-Commerce Website:

Our user-friendly website, www.oreillyauto.com, allows our customers to search product and repair content, check our in-store availability of products, and place orders for either home delivery or in-store pickup. We continue to enhance the functionality of our website to provide our customers with a friendly and convenient shopping experience, as well as a robust product and repair content information resource, that will continue to build the O’Reilly Brand.

 

Team Members

 

As of January 31, 2013, we employed 53,615 Team Members (33,931 full-time Team Members and 19,684 part-time Team Members), of whom 45,180 were employed at our stores, 5,937 were employed at our DCs and 2,498 were employed at our corporate and regional offices.  A union represents 49 stores (527 Team Members) in the Greater Bay Area in California, and has for many years.  In addition, approximately 71 Team Members who drive over-the-road trucks in two of our DCs are represented by a labor union.  Except for these Team Members, our Team Members are not represented by labor unions.  Our tradition for 56 years has been to treat all of our Team Members with honesty and respect and to commit significant resources to instill in them our “Live Green” Culture, which emphasizes the importance of each Team Member’s contribution to the success of O’Reilly.  This focus on professionalism and fairness has created an industry-leading team and we consider our relations with our Team Members to be excellent.

 

Store Network

 

Store Locations and Size:

As a result of our dual market strategy, we are able to profitably operate in both large, densely populated markets and small, less densely populated areas that would not otherwise support a national chain selling primarily to the retail automotive aftermarket.  Our stores, on average, carry approximately 23,500 SKUs and average approximately 7,200 total square feet in size.  At December 31, 2012, we had a total of approximately 29 million square feet in our 3,976 stores.  Our stores are served primarily by the nearest DC, which averages 142,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 240 Hub stores, which, on average, carry approximately 42,000 SKUs and average approximately 10,000 square feet in size. 

 

We believe that our stores are ''destination stores'' generating their own traffic rather than relying on traffic created by the presence of other stores in the immediate vicinity.  Consequently, most of our stores are freestanding buildings and prominent end caps situated on or near major traffic thoroughfares, and offer ample parking, easy customer access and are generally located in close proximity to our professional service provider customers.

 

The following table sets forth the geographic distribution and activity of our stores as of December 31, 2012 and 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

2012 Net, New and
Acquired Stores

 

December 31, 2012

State

Store
Count

% of Total Store Count

 

Store
Change

% of Total Store Change

 

Store
Count

% of Total Store Count

Cumulative % of Total Store Count

Texas

563 
15.1% 

 

21 
8.9% 

 

584 
14.7% 
14.7% 

California

474 
12.7% 

 

3.8% 

 

483 
12.1% 
26.8% 

Missouri

181 
4.8% 

 

0.8% 

 

183 
4.6% 
31.4% 

Georgia

161 
4.3% 

 

2.5% 

 

167 
4.2% 
35.6% 

Illinois

141 
3.8% 

 

2.5% 

 

147 
3.7% 
39.3% 

Washington

141 
3.8% 

 

1.7% 

 

145 
3.6% 
42.9% 

Tennessee

138 
3.7% 

 

1.7% 

 

142 
3.6% 
46.5% 

Arizona

128 
3.4% 

 

0.8% 

 

130 
3.3% 
49.8% 

North Carolina

120 
3.2% 

 

10 
4.2% 

 

130 
3.3% 
53.1% 

Ohio

101 
2.7% 

 

14 
5.9% 

 

115 
2.9% 
56.0% 

Oklahoma

112 
3.0% 

 

 -

0.0% 

 

112 
2.8% 
58.8% 

Alabama

112 
3.0% 

 

 -

0.0% 

 

112 
2.8% 
61.6% 

Michigan

94 
2.5% 

 

16 
6.8% 

 

110 
2.8% 
64.4% 

Minnesota

106 
2.8% 

 

1.3% 

 

109 
2.7% 
67.1% 

Arkansas

99 
2.6% 

 

0.8% 

 

101 
2.5% 
69.6% 

Indiana

89 
2.4% 

 

2.5% 

 

95 
2.4% 
72.0% 

Louisiana

87 
2.3% 

 

1.3% 

 

90 
2.3% 
74.3% 

Wisconsin

78 
2.1% 

 

3.8% 

 

87 
2.2% 
76.5% 

Colorado

84 
2.2% 

 

 -

0.0% 

 

84 
2.1% 
78.6% 

Mississippi

71 
1.9% 

 

0.4% 

 

72 
1.8% 
80.4% 

Kansas

71 
1.9% 

 

0.4% 

 

72 
1.8% 
82.2% 

South Carolina

61 
1.6% 

 

11 
4.7% 

 

72 
1.8% 
84.0% 

Iowa

66 
1.8% 

 

0.4% 

 

67 
1.7% 
85.7% 

Kentucky

62 
1.7% 

 

1.3% 

 

65 
1.6% 
87.3% 

Florida

46 
1.2% 

 

12 
5.2% 

 

58 
1.5% 
88.8% 

Utah

55 
1.5% 

 

0.4% 

 

56 
1.4% 
90.2% 

Nevada

44 
1.2% 

 

1.7% 

 

48 
1.2% 
91.4% 

Oregon

44 
1.2% 

 

1.7% 

 

48 
1.2% 
92.6% 

New Mexico

39 
1.0% 

 

0.8% 

 

41 
1.0% 
93.6% 

Virginia

25 
0.7% 

 

15 
6.5% 

 

40 
1.0% 
94.6% 

Maine

 -

0.0% 

 

35 
14.9% 

 

35 
0.9% 
95.5% 

Idaho

30 
0.8% 

 

1.3% 

 

33 
0.8% 
96.3% 

Nebraska

30 
0.8% 

 

 -

0.0% 

 

30 
0.8% 
97.1% 

Montana

23 
0.6% 

 

0.4% 

 

24 
0.6% 
97.7% 

New Hampshire

 -

0.0% 

 

18 
7.6% 

 

18 
0.5% 
98.2% 

Wyoming

16 
0.4% 

 

 -

0.0% 

 

16 
0.4% 
98.6% 

North Dakota

13 
0.3% 

 

 -

0.0% 

 

13 
0.3% 
98.9% 

Alaska

12 
0.3% 

 

0.4% 

 

13 
0.3% 
99.2% 

Hawaii

11 
0.3% 

 

 -

0.0% 

 

11 
0.3% 
99.5% 

South Dakota

11 
0.3% 

 

 -

0.0% 

 

11 
0.3% 
99.8% 

West Virginia

0.0% 

 

1.3% 

 

0.1% 
99.9% 

Massachusetts

 -

0.0% 

 

1.3% 

 

0.1% 
100.0% 

Total

3,740 
100.0% 

 

236 
100.0% 

 

3,976 
100.0% 

 

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Store Layout:

We utilize a computer-assisted store layout system to provide a uniform and consistent retail merchandise presentation and customize our hard-parts inventory assortment to meet the specific needs of a particular market area.  Front room merchandise is arranged to provide easy customer access, maximum selling space and to prominently display high-turnover products and accessories to customers.  To ensure the best customer experience possible, we have selectively implemented bilingual in-store signage based on the demographics in each store’s geographic area.  Aisle displays and end caps are used to feature high-demand, seasonal merchandise, new items and advertised specials.

 

Store Automation:

To enhance store-level operations, customer service and reliability, we use Linux servers and IBM I-Series computer systems in our stores.  These systems are linked with the I-Series computers located in each of our DCs.  Our point-of-sale system provides immediate access to our electronic catalog, part images, schematics and pricing information by make, model and year of vehicle and use barcode scanning technology to price our merchandise.  This system speeds transaction times, reduces the customer’s checkout time, ensures accuracy and provides enhanced customer service.  Moreover, our store automation systems capture detailed sales information which assists in store management, strategic planning, inventory control and distribution efficiency.

 

New Store Site Selection:

In selecting sites for new stores, we seek to strategically locate store sites in clusters within geographic areas in order to achieve economies of scale in management, advertising and distribution.  Other key factors we consider in the site selection process are identified below:

 

·

population density;

·

demographics including age, ethnicity, life style and per capita income;

·

market economic strength, retail draw and growth patterns;

·

number, age and percent of makes and models of registered vehicles;

·

the number, type and sales potential of existing automotive repair facilities;

·

the number of auto parts stores and other competitors within a predetermined radius and the operational strength of such competitors;

·

physical location, traffic count, size, economics and presentation of the site;

·

financial review of adjacent existing locations; and

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·

the type and size of store that should be developed.

 

When entering new, more densely populated markets, we generally seek to initially open several stores within a short span of time in order to maximize the effect of initial promotional programs and achieve economies of scale.  After opening this initial cluster of new stores, we seek to begin penetrating the less densely populated surrounding areas.  This strategy enables us to achieve additional distribution and advertising efficiencies in each market.

 

Management Structure

 

Each of our stores is staffed with a store manager and one or more assistant managers, in addition to parts specialists, retail and/or installer service specialists and other positions required to meet the specific needs of each store.  Each of our 386 district managers has general supervisory responsibility for an average of 10 stores, which provides our stores with a strong amount of operational support.

 

Store and district managers complete a comprehensive training program to ensure each has a thorough understanding of customer service, leadership, inventory management and store profitability, as well as all other sales and operational aspects of our business model.  Store and district managers are also required to complete a structured training program that is specific to their position, including attending a week-long manager development program at the corporate headquarters in Springfield, Missouri.  Store and district managers also receive continuous training through on-line assignments, field workshops and regional meetings.

 

We provide financial incentives to all store Team Members through incentive compensation programs.  Under our incentive compensation programs, base salary is augmented by incentive compensation based upon their individual and/or store’s sales and profitability.  In addition, each of our district managers participate in our stock option program and store managers may be eligible for a quarterly bonus program based on their store’s performance.   We believe that our incentive compensation programs significantly increase the motivation and overall performance of our store Team Members and enhance our ability to attract and retain qualified management and other personnel.

 

Professional Parts People

 

We believe our highly trained team of Professional Parts People is essential in providing superior customer service to both DIY and professional service provider customers.  Because a significant portion of our business is from professional service provider customers, our Professional Parts People are required to be highly, technically proficient in automotive products.  In addition, we have found that the typical DIY customer often seeks assistance from a Professional Parts Person, particularly when purchasing hard parts.  The ability of our Professional Parts People to provide such assistance to the DIY customer creates a favorable impression and is a significant factor in generating repeat DIY business.

 

We screen prospective Team Members to identify highly motivated individuals who either have experience with automotive parts or repairs, or automotive aptitude.  New store Team Members go through a comprehensive orientation focused on the culture of our Company as well as the requirements for their specific job position.  Additionally, during their first year of employment, our parts specialists go through extensive automotive systems and product knowledge training to ensure they are able to provide the highest level of service to our customers.  Once all of the required training has been satisfied, our parts specialists become eligible to take the O’Reilly Certified Parts Professional test.  Passing the O’Reilly test helps prepare them to become certified by the National Institute for Automotive Service Excellence (ASE).

 

All of our stores have the ability to service professional service provider customers.  For this reason, select Team Members in each store complete extensive sales call training with their regional field sales manager.  Afterward, these Team Members spend at least one day per week calling on existing and potential professional service provider customers.  Additionally, each Team Member engaged in such sales activities participates in quarterly advanced training programs for sales and business development.

 

Customer Service

 

We seek to provide our customers with an efficient and pleasant in-store experience by maintaining attractive stores in convenient locations with a wide selection of automotive products.  We believe that the satisfaction of DIY and professional service provider customers is substantially dependent upon our ability to provide, in a timely fashion, the specific automotive products requested.  Accordingly, each O'Reilly store carries a broad selection of automotive products designed to cover a wide range of vehicle applications.  We continuously refine the inventory levels and assortments carried in each of our stores, based in large part on the sales movement tracked by our inventory control system, market vehicle registration data, failure rates and management's assessment of the changes and trends in the marketplace.  We have no material backorders for the products we sell.

 

Our online ordering service provides enhanced customer service capabilities to our DIY and professional service provider customers.  Our program allows customers to view available parts and prices online, purchase parts online and/or either ship these purchases to their location or have these parts available for pick up in our local store.

 

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Distribution Systems

 

We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while lowering our inventory carrying costs and controlling inventory.  Moreover, we believe that our ongoing, significant capital investments made in our DC network allows us to efficiently service new stores that are planned to open in contiguous market areas as well as servicing our existing store network.  Our distribution expansion strategy complements our new store opening strategy by supporting newly established clusters of stores located in the regions surrounding each DC.  We currently have a total growth capacity of over 400 stores in our distribution center network,  which will increase by 300 stores with the completion of our Lakeland, Florida DC in the first quarter of 2014.

 

Distribution Centers:

We currently operate 24 DCs comprised of approximately 8.6 million operating square feet (see the “Properties” table in Item 2 of this Form 10-K for a detailed listing of DC operating square footages).  Our DCs electronically receive orders from computers located in each of our stores.  Our DCs stock an average of 142,000 SKUs and most DCs are linked to multiple other regional DCs’ inventory.  Our DCs provide five-night-a-week delivery, primarily via a Company-owned fleet, to all of our stores in the continental United States.  In addition, stores within a DC metropolitan area receive multiple daily deliveries from our DC “city counters”, most of which receive this service seven days per week.  In addition, our Hub store network provides additional service throughout the week, and on weekends, to surrounding stores.

 

As part of our continuing efforts to enhance our distribution network in 2013 we plan to:

 

·

continue to implement a voice picking technology in additional DCs;

·

implement enhanced routing software to further enhance logistics efficiencies;

·

continue to implement labor management software to improve DC productivity and overall operating efficiency;

·

develop further automated paperless picking processes;

·

improve proof of delivery systems to further increase the accuracy of product movement to our stores;

·

continue to define and implement best practices in all DCs; and

·

make proven, return-on-investment based capital enhancements to material handling equipment in DCs including conveyor systems, picking modules and lift equipment.

 

Hub stores:

We currently operate 240 strategically placed Hub stores.  In addition to serving DIY and professional service provider customers in their markets, Hub stores also provide delivery service to our other stores within the surrounding area access to an expanded selection of SKUs on a same-day basis.  Our Hub stores average approximately 10,000 square feet and carry an average of 42,000 SKUs. 

 

Products and Purchasing

 

Our stores offer DIY and professional service provider customers a wide selection of brand name, house brands and private label products for domestic and imported automobiles, vans and trucks.  Our merchandise generally consists of nationally recognized, well-advertised, premium name brand products such as AC Delco, Armor All, Bosch, BWD, Cardone, Castrol, Gates Rubber, Monroe, Moog, Pennzoil, Prestone, Quaker State, STP, Turtle Wax, Valvoline, Wagner, and Wix.  In addition to name brand products, our stores carry a wide variety of high-quality house brands and private label products under our BestTest®, BrakeBest®, Import Direct®, Master Pro®, Micro-Gard®, Murray®,  Omnispark®, O’Reilly Auto Parts®, Precision®, Power Torque®, Super Start®, and Ultima® brands.  Our house brand and private label products are produced by nationally recognized manufacturers and meet or exceed original equipment manufacturer specifications and provide a great combination of quality and value – a characteristic important to our DIY customers. 

 

We have no long-term contractual purchase commitments with any of our vendors, nor have we experienced difficulty in obtaining satisfactory alternative supply sources for automotive parts.  We believe that alternative supply sources exist at substantially similar costs, for substantially all of the automotive products that we sell.  It is our policy to take advantage of payment and seasonal purchasing discounts offered by our vendors and to utilize extended dating terms available from vendors.  Again in 2012, we entered into various programs and arrangements with certain vendors that provided for extended dating and payment terms for inventory purchases.  As a whole, we consider our relationships with our vendors to be very good.

 

We purchase automotive products in substantial quantities from over 500 vendors, the five largest of which accounted for approximately 25% of our total purchases in 2012.  Our largest vendor in 2012 accounted for approximately 8% of our total purchases and the next four largest vendors each accounted for approximately 3% to 5% of such purchases. 

 

 

 

 

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Marketing

 

Marketing to the DIY Customer:

We use an integrated marketing program, which includes television, radio, direct mail and newspaper distribution, in-store and online promotions, and sports and event sponsorships to aggressively attract DIY customers.  The marketing strategy we employ is highly effective and has led to a measurable increase in awareness of the O’Reilly Brand across our geographic footprint.  We utilize a combination of brand and product/price messaging to drive retail traffic and purchases, which frequently coincide with key sales events.

 

To stimulate sales among racing enthusiasts, who we believe individually spend more on automotive products than the general public, we sponsored multiple nationally-televised races and over 1,500 grassroots, local, and regional motorsports events throughout 38 states during 2012.  We were the title sponsor of two National Association for Stock Car Racing (“NASCAR”) National series events in Texas and five National Hot Rod Association (“NHRA”) races from California to North Carolina.

 

During the fall and winter months, we strategically sponsor National Collegiate Athletic Association (“NCAA”) basketball and the National Football League (“NFL”).  Our relationships with over 50 NCAA teams and tournaments have resulted in prominently-displayed O’Reilly logos on TV-visible signs throughout the season.

 

Through an expanded use of Spanish language radio, print, and outdoor advertising, as well as sponsorships of over 45 local and regional festivals and events, we demonstrated our commitment to increasing marketing efforts that are targeted toward the Hispanic auto parts consumer.

 

In 2012, we continued our dedicated problem/solution communication strategy, which encourages vehicle owners to perform regular maintenance as a way to save money and protect their automotive investment over the long-term.  This highly relevant message resonates with consumers and establishes O’Reilly as their source for the parts they need and excellent customer service.

 

Marketing to the Professional Service Provider Customer:

We have over 470 full-time O’Reilly sales representatives strategically located across our market areas as part of our First Call® program.  Each sales representative is dedicated solely to calling upon, selling to and servicing our professional service provider customers.  Targeted marketing materials such as flyers, quick reference guides and catalogs are produced and distributed on a regular basis to professional service providers, paint and body shops and fleet customers.  Our industry-leading First Call program enables our sales representatives, district managers, and store managers to provide excellent customer service to each of our professional service provider accounts by providing the products and services identified below:

 

·

broad selection of merchandise at competitive prices

·

dedicated Professional Service Specialists in our stores

·

multiple, daily deliveries from our stores

·

same-day or overnight access to an average of 142,000 SKUs through seven day store inventory replenishments

·

separate service counter and phone line in our stores dedicated exclusively to service professional service providers

·

trade credit for qualified accounts

·

Mitchell shop management systems

·

First Call Online, a dedicated Internet based catalog and ordering system designed to connect professional service providers directly to our inventory system

·

training and seminars covering topics of interest, such as technical updates, safety and general business management

·

access to a comprehensive inventory of products and equipment needed to operate and maintain their shop

·

Certified Auto Repair Center Program, a program that provides professional service providers with business tools they can utilize to profitably grow and market their shops

 

Marketing to the Independently Owned Parts Store:

Along with the daily operation and management of the DCs and the distribution of automotive products to our stores, Ozark Automotive Distributors, Inc., our wholly owned subsidiary (“Ozark”), also sells automotive products directly to independently owned parts stores (“jobber stores”) throughout our trade areas.  These jobber stores are generally located in areas not directly serviced by an O'Reilly store.  Ozark administers a dedicated and distinct marketing program specifically targeted to jobber stores.

 

Approximately 185 jobber stores currently purchase automotive products from Ozark and participate in our Parts City Auto Parts program, our proprietary jobber service program.  As a participant in these programs, a jobber store, which meets certain financial and operational standards, is permitted to indicate its Parts City Auto Parts membership through the display of the respective logo that is owned by Ozark.  In return for a commitment to purchase automotive products from Ozark, we provide computer software for business management, competitive pricing, advertising, marketing and sales assistance to Parts City Auto Parts affiliate stores.

 

 

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Pricing

 

We believe that a competitive pricing policy is essential to successfully operate in the automotive aftermarket business.  Product pricing is generally established to compete with the pricing policies of competitors in the market area served by each store.  Most automotive products that we sell are priced based upon a combination of competitor price comparisons and internal gross margin targets and are generally sold at a discount to the manufacturer’s suggested retail price with additional savings offered through volume discounts and special promotional pricing.  Consistent with our low price guarantee, each of our stores will match any verifiable price on any in-stock product of the same or comparable quality offered by our competitors in the same market area.

 

Customer Payments and Returns Policy

 

Our stores accept cash, checks, debit and credit cards.  We also grant credit to many professional service provider customers who meet our pre-established credit requirements.  Some of the factors considered in our pre-established credit requirements include customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms.  No customer accounted for ten percent or more of our consolidated net sales, nor do we have any dependence on any single customer.

 

We accept product returns for new products, core products and warranty/defective products. 

 

INDUSTRY ENVIRONMENT

 

The automotive aftermarket industry includes all products and services purchased for light- and heavy-duty vehicles after the original sale.  The total size of the automotive aftermarket is estimated to be approximately  $231 billion, according to the Automotive Aftermarket Industry Association (“AAIA”).  This market is made up of four segments – labor share of professional service provider sales, auto parts share of professional service provider sales, DIY sales and tire sales.  O’Reilly’s addressable market within this industry is approximately $131 billion, which includes the auto parts share of professional service provider sales and DIY sales.  We do not sell tires or perform for-fee automotive repairs or installations.

 

Competition

 

We compete in both the DIY and professional service provider portions of the automotive aftermarket and are one of the largest specialty retailers within that market.  We compete primarily with the stores identified below:

 

·

national retail and wholesale automotive parts chains (such as AutoZone, Inc., Advance Auto Parts, NAPA, CARQUEST and the Pep Boys - Manny, Moe and Jack, Inc.)

·

regional retail and wholesale automotive parts chains

·

independently owned parts stores

·

wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as NAPA, CARQUEST, Bumper to Bumper and Auto Value)

·

automobile dealers

·

mass merchandisers that carry automotive replacement parts, maintenance items and accessories (such as Wal-Mart Stores, Inc.)

 

We compete on the basis of customer service, which includes merchandise selection and availability, technical proficiency and helpfulness of store personnel, price, store layout and convenient and accessible store locations.  Our dual market strategy requires significant capital expenditures to support, such as the capital expenditures required for the distribution network, store network and inventory levels necessary for providing products to both the DIY and professional service provider portions of the automotive aftermarket. 

 

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.  To the extent our acquisition cost increases due to base commodity price increases industry wide, we have typically been able to pass along these increased costs through higher retail prices for the affected products.  As a result, we do not believe our operations have been materially, adversely affected by inflation.

 

To some extent our business is seasonal, primarily as a result of the impact of weather conditions on customer buying patterns.  Store sales, profits and inventory levels have historically been higher in the second and third quarters (April through September) than in the first and fourth quarters (October through March) of the year.

 

 

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Regulations

 

We are subject to various federal, state and local laws and governmental regulations relating to our business, including those related to the handling, storage and disposal of hazardous substances, the recycling of batteries and used lubricants, and the ownership and operation of real property. 

 

As part of our operations, we handle hazardous materials in the ordinary course of business and our customers may bring hazardous materials onto our property in connection with, for example, our oil and battery recycling programs. We currently provide a recycling program for batteries and the collection of used lubricants at certain of our stores as a service to our customers pursuant to agreements with third-party vendors. The batteries and used lubricants are collected by our associates, deposited into vendor-supplied containers and pallets, and then disposed of by the third-party vendors. In general, our agreements with such vendors contain provisions that are designed to limit our potential liability under applicable environmental regulations for any damage or contamination, which may be caused by the batteries and lubricants to off-site properties (including as a result of waste disposal) and to our properties, when caused by the vendor.

 

Compliance with any such laws and regulations has not had a material adverse effect on our operations to date.  We cannot give any assurance, however, that we will not incur significant expenses in the future in order to comply with any such laws or regulations.

 

EXECUTIVE OFFICERS OF THE REGISTRANT

 

The following paragraphs discuss information about our executive officers who are not also directors:

 

Greg Henslee, age 52, President and Chief Executive Officer, has been an O’Reilly Team Member for 28 years.  Mr. Henslee’s O’Reilly career started as a parts specialist, and during his first five years he served in several positions in retail store operations, including district manager.  From there he advanced to Computer Operations Manager, and over the next 15 years, he served as Director of Computer Operations/Loss Prevention, Vice President of Store Operations and as Senior Vice President.  In 1999, he became President of Merchandise, Distribution, Information Systems and Loss Prevention, and in 2005, he became Chief Executive Officer and Co-President.  Mr. Henslee continues to hold the position of Chief Executive Officer and as of January 1, 2013, he became President.

 

Thomas McFall,  age 42, Executive Vice President of Finance and Chief Financial Officer, has been an O’Reilly Team Member since 2006 and has held his position as Chief Financial Officer during this time.  Mr. McFall’s primary areas of responsibility are Finance, Accounting, Information Systems, Risk Management and Human Resources.  Prior to joining O’Reilly, Mr. McFall held the position of Chief Financial Officer – Midwest Operation for CSK, following CSK’s acquisition of Murray’s Discount Auto Stores (“Murray’s”).  Mr. McFall served Murray’s for eight years as Controller, Vice President of Finance, and Chief Financial Officer, with direct responsibility for finance and accounting, distribution and logistics operations.  Prior to joining Murray’s, Mr. McFall was an Audit Manager with Ernst & Young, LLP in Detroit, Michigan.

 

Jeff Shaw, age 50, Executive Vice President of Store Operations and Sales, has been an O'Reilly Team Member for 24 years.  Mr. Shaw's primary areas of responsibility are Store Operations and Sales.  His O'Reilly career started as a Parts Specialist, and has progressed through the roles of Store Manager, District Manager, Regional Manager and Vice President of the Southern division.  He advanced to Vice President of Sales and Operations in 2003 and Senior Vice President of Sales and Operations in 2004.  Mr. Shaw has held the position of Executive Vice President of Store Operations and Sales since January 1, 2013.

 

Ted F. Wise, age 62, Executive Vice President of Expansion, has been an O’Reilly Team Member for 42 years.  Mr. Wise’s primary area of responsibility is Real Estate.  He began his O’Reilly career in sales in 1970, was promoted to Store Manager in 1973 and became our first District Manager in 1977.  He continued his progression with O’Reilly as Operations Manager, Vice President, Senior Vice President of Operations and Sales, and Executive Vice President.  He has been President of Sales, Operations and Real Estate since 1999, and in 2005 became Chief Operating Officer and Co-President.  Mr. Wise has held the position of Executive Vice President of Expansion since January 1, 2013.

 

Tony Bartholomew, age 51, Senior Vice President of Professional Sales, has been an O’Reilly Team Member for 30 years.  Mr. Bartholomew’s primary area of responsibility is Professional Sales.  His O’Reilly career started as a Delivery Specialist and has progressed through Parts Specialist, Assistant Manager, Night Manager, Merchandising set up crew Supervisor, Equipment Sales Manager and Regional Field Sales Manager.  In 1998 Mr. Bartholomew became the Director of Southern Division Sales and then in 2003 assumed the role of Vice President of Professional Sales.  Mr. Bartholomew has held the position of Senior Vice President of Professional Sales since January 1, 2013.

 

Stephen L. Jasinski, age 47, Senior Vice President of Information Systems, has been an O’Reilly Team Member for 20 years.  Mr. Jasinksi’s primary area of responsibility is Information Systems.  His O’Reilly career started as a Programmer.  Mr. Jasinski advanced to Manager, responsible for retail, pricing and warehouse management programming development.  From there, he was promoted to Director of Systems Development and in early 2004, promoted to Vice President of Information Systems responsible for information

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systems, PC support, store support services and telecommunications.  Mr. Jasinski has held the position of Senior Vice President of Information Systems since January 1, 2013.

 

Gregory D. Johnson, age 47, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member for 30 years.  Mr. Johnson’s primary area of responsibility is Distribution and Logistics.  He began his O’Reilly career as a part-time stocker in the Nashville DC in 1982 and advanced with O’Reilly as Retail Systems Manager, WMS Systems Development Manager, Director of Distribution and Vice President of Distribution.  He has been in his current position as Senior Vice President since September 2007.

 

Randy Johnson, age 57, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 39 years.  Mr. Johnson’s primary area of responsibility is Inventory Management, Purchasing, Logistics, and Store Design.  He began his career in a DC in 1973, working in the stocking, shipping and will call counter departments, and was promoted to Customer Service Manager in 1976.  He continued to progress with the development of the inventory control department as Inventory Control Manager and Vice President of Store Inventory Management. He has been in his current position as Senior Vice President of Inventory Management since October 2010.

 

Michael Swearengin,  age 52, Senior Vice President of Merchandise, has been an O'Reilly Team Member for 19 years.  Mr. Swearengin's primary areas of responsibility are Merchandise, Pricing and Advertising.  His O'Reilly career started as an employee in a store later acquired by O’Reilly, he then became Product Manager, a position he held for four years.  From there he advanced to Senior Product Manager, Director of Merchandise and Vice President of Merchandise with responsibility for product mix and replenishment.  He has been in his current position as Senior Vice President since 2004.

 

SERVICE MARKS AND TRADEMARKS

 

We have registered, acquired and/or been assigned the following service marks and trademarks:  BESTEST®, BETTER PARTS. BETTER PRICES.®, BRAKEBEST®, CERTIFIED AUTO REPAIR®, CUSTOMIZE YOUR RIDE®, FIRST CALL®, FROM OUR STORE TO YOUR DOOR®, HI-LO®, IMPORT DIRECT®, IPOLITE®, MASTER PRO®, MASTER PRO REFINISHING®, MICRO-GARD®, MILES AHEAD®, MURRAY®, O®, OMNISPARK®, O’REILLY®, O’REILLY AUTO COLOR PROFESSIONAL PAINT PEOPLE®, O’REILLY AUTO PARTS®, O’REILLY AUTO PARTS PROFESSIONAL PARTS PEOPLE®, O’REILLY AUTOMOTIVE®, O’REILLY RACING®, PARTNERSHIP NETWORK®, PARTS CITY®, PARTS CITY AUTO COLOR PROFESSIONAL PAINT PEOPLE®, PARTS CITY AUTO PARTS®, PARTS CITY TOOL BOX®, PARTS PAYOFF®, POWER TORQUE®, PRECISION®, REAL WORLD TRAINING®, SERIOUS ABOUT YOUR CAR…SO ARE WE!®, SUPER START®, TOOLBOX®, ULTIMA®, CSK PROSHOP®, FLAG®, KRAGEN AUTO PARTS®, MURRAY’S AUTO PARTS®, PRIORITY PARTS®, PROXONE®, SCHUCK’S®, WE’RE THE PLACE WITH ALL THE PARTS®, MURRAY’S VIP PROGRAM®, PAY N $AVE®.  Some of the service marks and trademarks listed above may also have a design associated therewith.  Each of the service marks and trademarks are in duration for as long as we continue to use and seek renewal of such marks – the duration of each of these service marks and trademarks is typically between five and ten years per renewal.  We believe that our business is not otherwise dependent upon any patent, trademark, service mark or copyright.

 

Solely for convenience, our service marks and trademarks may appear in this report without the ® or ™ symbol, which is not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights or the right to these service marks and trademarks.

 

AVAILABLE INFORMATION

 

Our Internet address is www.oreillyauto.com.  Interested readers can access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the Securities and Exchange Commission website at www.sec.gov and searching with our ticker symbol “ORLY”.  Such reports are generally available the day they are filed.  Upon request, we will furnish interested readers a paper copy of such reports free of charge by contacting Mark Merz, Director of External Reporting and Investor Relations, at 233 South Patterson Avenue, Springfield, Missouri, 65802.

 

Item 1A.            Risk Factors

 

Our future performance is subject to a variety of risks and uncertainties.  Although the risks described below are the risks that we believe are material, there may also be risks of which we are currently unaware, or that we currently regard as immaterial based upon the information available to us that later may prove to be material.  Interested parties should be aware that the occurrence of the events described in these risk factors, elsewhere in this Form 10-K and in our other filings with the Securities and Exchange Commission could have a material adverse effect on our business, operating results and financial condition.  Actual results, therefore, may materially differ from anticipated results described in our forward-looking statements.

 

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Deteriorating economic conditions may adversely impact demand for our products, reduce access to credit and cause our customers and others with which we do business to suffer financial hardship, all of which could adversely impact our business, results of operations, financial condition and cash flows.

In recent years, worldwide economic conditions have deteriorated significantly in many countries and regions, including the United States, and such conditions may worsen in the foreseeable future.  Although demand for many of our products is primarily non-discretionary in nature and tend to be purchased by consumers out of necessity, rather than on an impulse basis, our sales are impacted by constraints on the economic health of our customers. The economic health of our customers is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending.  Many of these factors are outside of our control.  Our customers’ purchases, including purchases of our products, could decline during periods when income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions.    If any of these events occur, or if unfavorable economic conditions challenge the consumer environment, our business, results of operations, financial condition and cash flows could be adversely affected.

Overall demand for products sold in the automotive aftermarket is dependent upon many factors including the total number of vehicle miles driven in the U.S., the total number of registered vehicles the U.S., the age and quality of these registered vehicles and the level of unemployment in the U.S.   Adverse changes in these factors could lead to a decreased level of demand for our products, which could negatively impact our business, results of operations, financial condition and cash flows.

In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings, bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial institutions which are counterparties to our credit facilities and interest rate swap transactions. Also, the ability of these third parties to overcome these difficulties may increase.  If third parties, on whom we rely for merchandise, are unable to overcome difficulties resulting from the deterioration in economic conditions and provide us with the merchandise we need, or if counterparties to our credit facilities do not perform their obligations, our business, results of operations, financial condition and cash flows could be adversely affected.

 

The automotive aftermarket business is highly competitive, and we may have to risk our capital to remain competitive.

Both the DIY and professional service provider portions of our business are highly competitive, particularly in the more densely populated areas that we serve.  Some of our competitors are larger than we are and have greater financial resources.  In addition, some of our competitors are smaller than we are, but have a greater presence than we do in a particular market.  We may have to expend more resources and risk additional capital to remain competitive.  For a list of our principal competitors, see the “Competition” section of Item 1 of this annual report on Form 10-K.

 

We are sensitive to regional economic and weather conditions that could impact our costs and sales.

Our business is sensitive to national and regional economic and weather conditions.  Unusually inclement weather, such as significant rain, snow, sleet, freezing rain, flooding, seismic activity and hurricanes, has historically discouraged our customers from visiting our stores during the affected period and reduced our sales, particularly to DIY customers.  Extreme weather conditions, such as extreme heat and extreme cold temperatures, may enhance demand for our products due to increased failure rates of our customers’ automotive parts, while temperate weather conditions may have a lesser impact on failure rates of automotive parts.  In addition, our stores and DCs located in coastal regions may be subject to increased insurance claims resulting from regional weather conditions and our results of operations and financial condition could be adversely affected.

 

We cannot assure future growth will be achieved.

We believe that our ability to open additional, profitable stores at a high growth rate will be a significant factor in achieving our growth objectives for the future.  Our ability to accomplish our growth objectives 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.  We cannot be sure that our growth plans for 2013 and beyond will be achieved.  Failure to achieve our growth objectives may negatively impact the trading price of our common stock.  For a discussion of our growth strategies, see the “Growth Strategy” section of Item 1 of this annual report on Form 10-K.

 

In order to be successful, we will need to retain and motivate key employees.

Our success has been largely dependent on the efforts of certain key personnel.  In order to be successful, we will need to retain and motivate executives and other key employees.  Experienced management and technical personnel are in high demand and competition for their talents is intense.  We must also continue to motivate employees and keep them focused on our strategies and goals.  Our business and results of operations could be materially adversely affected by the unexpected loss of the services of one or more of our key employees.  We cannot be sure that we will be able to continue to attract qualified personnel, which could cause us to be less efficient, and as a result, may adversely impact our sales and profitability.  For a discussion of our management, see the “Business” section of Item 1 of this annual report on Form 10-K.

 

 

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A change in the relationship with any of our key vendors or the unavailability of our key products at competitive prices could affect our financial health.

Our business depends on developing and maintaining close relationships with our vendors and on our vendors' ability or willingness to sell quality products to us at favorable prices and terms.  Many factors outside of our control may harm these relationships and the ability or willingness of these vendors to sell us products on favorable terms.  For example, financial or operational difficulties that our vendors may face could increase the cost of the products we purchase from them or our ability to source product from them.  In addition, the trend towards consolidation among automotive parts suppliers as well as the off-shoring of manufacturing capacity to foreign countries may disrupt or end our relationship with some vendors, and could lead to less competition and result in higher prices.  We could also be negatively impacted by suppliers who might experience work stoppages, labor strikes or other interruptions to or difficulties in the manufacture or supply of the products we purchase from them.

 

Risks associated with future acquisitions may not lead to expected growth and could result in increased costs and inefficiencies.

We expect to continue to make acquisitions as an element of our growth strategy.  Acquisitions involve certain risks that could cause our actual growth and profitability to differ from our expectations, examples of such risks include the following:

 

·

we may not be able to continue to identify suitable acquisition targets or to acquire additional companies at favorable prices or on other favorable terms;

·

our management’s attention may be distracted;

·

we may fail to retain key personnel from acquired businesses;

·

we may assume unanticipated legal liabilities and other problems;

·

we may not be able to successfully integrate the operations (accounting and billing functions, for example) of businesses we acquire to realize economic, operational and other benefits; and

·

we may fail or be unable to discover liabilities of businesses that we acquire for which we, the subsequent owner or operator, may be liable.

 

Business interruptions in our distribution centers or other facilities may affect our store hours, operability of our computer systems, and/or availability and distribution of merchandise, which may affect our business.

Weather, terrorist activities, war or other disasters or the threat of them, may result in the closure of our distribution centers (“DC”s) or other facilities or may adversely affect our ability to deliver inventory to our stores on a nightly basis.   This may affect our ability to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty.  Some of our merchandise is imported from other countries and these goods could become difficult or impossible to bring into the United States, and we may not be able to obtain such merchandise from other sources at similar prices.  Such a disruption in revenue could potentially have a negative impact on our results of operations and financial condition. 

 

We rely extensively on our computer systems to manage inventory, process transactions and timely provide products to our customers. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches or other catastrophic events.  If our systems are damaged or fail to function properly, we may experience loss of critical data and interruptions or delays in our ability to manage inventories or process customer transactions.  Such a disruption of our systems could negatively impact revenue and potentially have a negative impact on our results of operations and financial condition. 

 

Failure to achieve and maintain a high level of product and service quality may reduce our brand value and negatively impact our business.

We believe our Company has built an excellent reputation as a leading retailer in the automotive aftermarket industry.  We believe our continued success depends, in part, on our ability to preserve, grow and leverage the value of our brand.  Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, which can negatively impact these perceptions and lead to adverse affects on our business or Team Members.

 

Sales of shares of our common stock eligible for future sale could adversely affect our share price.

All of the shares of common stock currently held by our affiliates may be sold in reliance upon the exemptive provisions of Rule 144 of the Securities Act of 1933, as amended, subject to certain volume and other conditions imposed by such rule.  We cannot predict the effect, if any, which future sales of shares of common stock or the availability of such shares for sale will have on the market price of the common stock prevailing from time to time.  We believe sales of substantial amounts of common stock, or the perception that such sales might occur, could adversely affect the prevailing market price of the common stock.

 

Risks related to us and unanticipated fluctuations in our quarterly operating results, could affect our stock price.

We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful indicators of our future operating results and should not be relied on as an indication of future performance.  If our quarterly operating results fail to meet the expectations of analysts, the trading price of our common stock could be negatively affected.  We cannot be certain that our business strategy and our plans to integrate the operations of acquired businesses will be successful or that they will successfully meet the expectations of these analysts.  If we fail to adequately address any of these risks or difficulties, our business would likely suffer.

16

 


 

 

The market price of our common stock may be volatile and could expose us to securities class action litigation.

The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions.  The market price for our common stock may also be affected by our ability to meet analysts’ expectations.  Failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock.

 

In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies.  Downturns in the stock market may cause the price of our common stock to decline.  In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies.  If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have an adverse effect on our business.

 

Our increased debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.

We have in place,  an unsecured revolving credit facility and unsecured senior notes, which could have important consequences to our financial health.  For example, our level of indebtedness could, among other things:

 

·

make it more difficult to satisfy our financial obligations, including those relating to the notes and our credit facility;

·

increase our vulnerability to adverse economic and industry conditions;

·

limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a competitive disadvantage;

·

require us to dedicate a substantial portion of our cash flows to service the principal and interest on the debt, reducing the funds available for other business purposes, such as working capital, capital expenditures or other cash requirements;

·

limit our ability to incur additional debt on acceptable terms, if at all; and

·

expose us to fluctuations in interest rates.

 

In addition, the terms of the financing obligations include restrictions, such as affirmative and negative covenants, conditions on borrowing and subsidiary guarantees.  A failure to comply with these restrictions could result in a default under the financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions.  The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could have a material adverse effect on our business, financial condition or results of operations.

 

A downgrade in our credit rating would impact our cost of capital and could impact the market value of our unsecured senior notes as well as limit our access to attractive vendor financing programs.

Credit ratings are an important part of our cost of capital.  The evaluations are based upon, among other factors, our financial strength.  Our current credit ratings provide us with the ability to borrow funds at favorable rates.  A downgrade in our current credit rating from either rating agency could adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our credit facility.  A downgrade could also adversely affect the market price and/or liquidity of our notes, preventing a holder from selling the notes at a favorable price, as well as adversely affect our ability to issue new notes in the future.  In addition, a downgrade could limit the financial institutions willing to commit funds to our vendor financing programs at attractive rates.  Decreased participation in our vendor financing programs would lead to an increase in working capital needed to operate the business adversely affecting our cash flow.

 

A breach of customer,  Team Member or Company information could damage our reputation or result in substantial additional costs or possible litigation.

Our business involves the storage of personal information about our customers and Team Members.  We have taken reasonable and appropriate steps to protect this information; however, if we experience a significant data security breach, we could be exposed to damage to our reputation, additional costs, lost sales or possible regulatory action.  The regulatory environment related to information security and privacy is constantly changing, and compliance with those requirements could result in additional costs.  There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches, and such a breach could potentially have a negative impact on our results of operations and financial condition.  

 

Litigation, governmental proceedings, environmental legislation and regulations and employment laws and regulations may affect our business, financial condition and results of operations.

We are, and in the future may become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings, arising out of the ordinary course of our business.  The damages sought against us in some of these litigation proceedings may be material and may adversely affect our business, results of operations and financial condition

 

Environmental legislation and regulations, like the initiatives to limit greenhouse gas emissions and bills related to climate change, could adversely impact all industries.  While it is uncertain whether these initiatives will become law, additional climate change

17

 


 

related mandates could potentially be forthcoming and these matters, if enacted, could adversely impact our costs, including, among other things, increasing fuel prices.

 

Our business is subject to employment laws and regulations, including requirements related to minimum wage.  Our success depends, in part, on our ability to manage operating costs and to look for opportunities to reduce costs.  Our ability to meet labor needs, while controlling costs is subject to external factors such as minimum wage legislation.  A violation of or change in such laws and/or regulations could have a material adverse effect on our business, results of operations and financial condition.

 

Healthcare reform legislation could have a negative impact on our business, financial condition and results of operations.

The enacted Patient Protection and Affordable Care Act, as well as other healthcare reform legislation considered by Congress and state legislators, could significantly impact our healthcare cost structure and increase our healthcare-related expensesWe are currently evaluating the potential impact the healthcare reform legislation will have on our business and the steps necessary to mitigate the impacts, including potential modifications to our current benefit plans, operational changes to minimize the impact of the legislation to our cost structure and increases to selling prices to mitigate the expected increase in healthcare-related expenses.  If we cannot effectively modify our programs and operations in response to the new legislation, our results of operations, financial condition and cash flows may be adversely impacted. 

 

Item 1B.            Unresolved Staff Comments

 

Not applicable.

 

18

 


 

Item 2.            Properties

 

Distribution centers, stores, and other properties

We currently operate 24 regional distribution centers (“DC”s).  As of December 31, 2012, we leased nine DCs (2.9 million operating square footage) and owned 15 DCs (5.7 million operating square footage) for total DC square footage of 8.6 million.  The following table provides information regarding our DCs, returns facilities and corporate offices as of December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location

 

Principal Use(s)

Operating Square Footage (1)

 

Nature of Occupancy

Lease Term Expiration

Atlanta, GA

 

Distribution Center

492,350 

 

Leased

10/31/2024

Belleville, MI

 

Distribution Center

333,262 

 

Leased

2/28/2015

Billings, MT

 

Distribution Center

108,300 

 

Leased

1/31/2031

Dallas, TX

 

Distribution Center

442,000 

 

Owned

 

Denver, CO

 

Distribution Center

321,242 

 

Owned

 

Des Moines, IA

 

Distribution Center

253,886 

 

Owned

 

Greensboro, NC

 

Distribution Center

441,600 

 

Owned

 

Houston, TX

 

Distribution Center

532,615 

 

Owned

 

Indianapolis, IN

 

Distribution Center

657,603 

 

Owned

 

Kansas City, MO

 

Distribution Center

299,018 

 

Owned

 

Knoxville, TN

 

Distribution Center

150,766 

 

Owned

 

Lewiston, ME

 

Distribution Center

131,184 

 

Leased

12/31/2014

Little Rock, AR

 

Distribution Center

122,969 

 

Leased

3/31/2017

Lubbock, TX

 

Distribution Center

276,896 

 

Owned

 

Mobile, AL

 

Distribution Center

301,068 

 

Leased

12/31/2022

Moreno Valley, CA

 

Distribution Center

547,478 

 

Owned

 

Nashville, TN

 

Distribution Center

315,977 

 

Leased

12/31/2018

Oklahoma City, OK

 

Distribution Center

320,667 

 

Owned

 

Phoenix, AZ

 

Distribution Center

383,570 

 

Leased

6/22/2015

Salt Lake City, UT

 

Distribution Center

294,932 

 

Owned

 

Seattle, WA

 

Distribution Center

533,790 

 

Owned

 

Springfield, MO

 

Distribution Center

293,015 

 

Owned

 

St. Paul, MN

 

Distribution Center

324,668 

 

Owned

 

Stockton, CA

 

Distribution Center

720,836 

 

Leased

6/30/2025

Auburn, WA

 

Bulk Facility

81,761 

 

Leased

6/30/2018

Commerce, CA

 

Bulk Facility

75,000 

 

Leased

8/31/2013

McAllen, TX

 

Bulk Facility

24,560 

 

Leased (2)

4/30/2017

Springfield, MO

 

Bulk Facility

35,200 

 

Owned

 

Springfield, MO

 

Return/Deconsolidation Facility

290,598 

 

Owned

 

Phoenix, AZ

 

Corporate Offices

12,327 

 

Leased

11/30/2022

Springfield, MO

 

Corporate Offices

435,600 

 

Owned

 

Springfield, MO

 

Corporate Offices

46,970 

 

Leased

8/31/2024

Springfield, MO

 

Corporate Offices, Training and Technical Center

22,000 

 

Owned

 

 

Total operating square footage

9,623,708 

 

 

 

 

 

 

 

 

 

 

(1) Includes floor and mezzanine operating square footage, excludes subleased square footage.

(2) Occupied under the terms of a lease with an affiliated party.

 

19

 


 

Of the 24 DCs that we operated at December 31, 2012, 15 were owned and nine were leased.  The leased facilities typically require a fixed base rent, payment of certain tax, insurance and maintenance expense and have an original term of, at a minimum, 20 years, subject to one five-year renewal at our option.  One of our bulk facilities is leased from an entity owned by an affiliated director’s immediate family.  This lease requires payment of a fixed base rent, payment of certain tax, insurance and maintenance expenses and an original term of 15 years, subject to three five-year renewals at our option.  We believe that this lease agreement with the affiliated entity is on terms comparable to those obtainable from third parties.

 

Of the 3,976 stores that we operated at December 31, 2012, 1,359 stores were owned, 2,540 stores were leased from unaffiliated parties and 77 stores were leased from entities in which certain of our affiliated directors, members of our affiliated director’s immediate family, or our executive officers, are affiliated.  Leases with unaffiliated parties generally provide for payment of a fixed base rent, payment of certain tax, insurance and maintenance expenses and an original term of, at a minimum, 10 years, subject to one or more renewals at our option.  We have entered into separate master lease agreements with each of the affiliated entities for the occupancy of the stores covered thereby.  Such master lease agreements with two of the eight affiliated entities have been modified to extend the term of the lease agreement for specific stores.  The master lease agreements or modifications thereto expire on dates ranging from March 31, 2013, to September 30, 2031.  We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third parties.

 

We believe that our present facilities are in good condition, are adequately insured and are adequate for the conduct of our current operations.  The store servicing capability of our 24 existing DCs is approximately 4,425 stores, providing a growth capacity of more than 400 stores, which will increase by 300 stores with the completion of our Lakeland, Florida, DC, which is scheduled to open in the first quarter of 2014 and provide distribution system support for store growth into southern Florida.  We believe the growth capacity in our 24 existing DCs, along with the additional capacity of our new Lakeland, Florida, DC will provide us with the DC infrastructure needed for near-term expansion.  However, as we expand our geographic footprint, we will continue to evaluate our existing distribution system infrastructure and will adjust our distribution system capacity as needed to support our future growth.    

 

Item 3.  Legal Proceedings

 

O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business.  The Company records reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably estimate the probable loss.  The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters.  Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period. 

 

In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s former officers and other litigation, prior to its acquisition by O’Reilly, as described below.

 

As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have concluded.  All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”), have concluded.

 

Under Delaware law, the charter documents of the CSK entities and certain indemnification agreements, CSK may have certain indemnification obligations.  As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former employees.  Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity and scope, the final outcome cannot be predicted at this time.  O’Reilly has a remaining reserve, with respect to the indemnification obligations of $13.7 million at December 31, 2012, which relates to the payment of those legal fees and costs already incurred.  It is possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period.  However, at this time, management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

 

 

 

 

 

20

 


 

PART II

 

Item 5.         Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Common stock:

Shares of O’Reilly Automotive, Inc. (the “Company”) common stock are traded on The NASDAQ Global Select Market (“Nasdaq”) under the symbol “ORLY”.  The Company’s common stock began trading on April 22, 1993; no cash dividends have been declared since that time, and we do not anticipate paying any cash dividends in the foreseeable future. 

 

As of February 20, 2013, the Company had approximately 96,000 shareholders of common stock based on the number of holders of record and an estimate of individual participants represented by security position listings.

The prices in the following table represent the high and low sales price for the Company’s common stock as reported by Nasdaq.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

2011

 

High

 

Low

 

High

 

Low

First Quarter

$

91.51 

 

$

78.15 

 

$

60.69 

 

$

54.42 

Second Quarter

 

106.71 

 

 

81.34 

 

 

65.51 

 

 

55.38 

Third Quarter

 

94.56 

 

 

80.37 

 

 

71.72 

 

 

56.91 

Fourth Quarter

 

94.08 

 

 

79.92 

 

 

81.70 

 

 

64.97 

For the Year

 

106.71 

 

 

78.15 

 

 

81.70 

 

 

54.42 

 

Sales of unregistered securities:

There were no sales of unregistered securities during the year ended December 31, 2012. 

 

Issuer purchases of equity securities:

The following table identifies all repurchases during the fourth quarter ended December 31, 2012, of any of the Company’s securities registered under Section 12 of the Exchange Act, as amended, by or on behalf of the Company or any affiliated purchaser (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

Total Number of Shares Purchased

 

Average Price Paid per Share

 

Total Number of Shares Purchased as Part of Publicly Announced Programs

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (1)

October 1, 2012, to October 31, 2012

1,531 

 

$

83.49 

 

1,531 

 

$

262,544 

November 1, 2012, to November 30, 2012

631 

 

 

89.82 

 

631 

 

 

705,834 

December 1, 2012, to December 31, 2012

1,392 

 

 

91.39 

 

1,392 

 

 

578,635 

Total as of December 31, 2012

3,554 

 

$

87.71 

 

3,554 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Under our share repurchase program, as approved by our Board of Directors in January of 2011, we may, from time to time, repurchase shares of our common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market conditions not to exceed a dollar limit authorized by the Board of Directors.  Our Board of Directors approved resolutions to increase the authorization under the share repurchase program by additional $500 million increments on August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to $3.0 billion.  The current authorization under the share repurchase program is scheduled to expire on November 12, 2015.  No other share repurchase programs existed during the three months ended December 31, 2012.

 

The Company repurchased a total of 16.2 million shares of its common stock under its publicly announced share repurchase program during the year ended December 31, 2012, at an average price per share of $89.20.  Subsequent to December 31, 2012, and up to and including February 28, 2013, the Company repurchased an additional 2.1 million shares of its common stock at an average price per share of $90.09, for a total investment of $185.6 million, excluding fees and commissions.  The Company repurchased a total of 34.1 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 through February 28, 2013, at an average price of $76.37, for a total aggregate investment of $2.6 billion.

 

Stock performance graph:

The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 29, 2007, and the reinvestment of dividends thereafter, in the Company’s common stock versus the Nasdaq Retail Trade Stocks Total Return Index, Nasdaq United States Stock Market Total Returns Index (“Nasdaq US”) and the Standard and Poor’s S&P 500 Index (“S&P 500”)

 

21

 


 

Item 5_Cumulative Return Graph JPEG.JPG

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company/Index 

 

Dec. 29, 2007

 

Dec. 31, 2008

 

Dec. 31, 2009

 

Dec. 31, 2010

 

Dec. 31, 2011

 

Dec. 30, 2012

O'Reilly Automotive, Inc.

$

100 

$

95 

$

118 

$

186 

$

247 

$

276 

Nasdaq Retail Trade Stocks

 

100 

 

70 

 

97 

 

121 

 

137 

 

162 

Nasdaq US

 

100 

 

61 

 

88 

 

104 

 

105 

 

124 

S&P 500

 

100 

 

63 

 

80 

 

92 

 

94 

 

109 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 


 

Item 6.                Selected Financial Data

 

The table below compares O’Reilly Automotive, Inc.’s (the Company’s”) selected financial data over a ten-year period.  In 2005 and 2008, the Company acquired Midwest Auto Parts Distributors and CSK Auto Corporation (“CSK”), respectively.  The 2005 Midwest acquisition added 72 stores and the 2008 CSK acquisition added 1,342 stores to the O’Reilly store count.  Financial results for these acquired companies have been included in the Company’s consolidated financial statements from the dates of the acquisitions forward. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

$

6,182,184 

$

5,788,816 

$

5,397,525 

$

4,847,062 

$

3,576,553 

$

2,522,319 

$

2,283,222 

$

2,045,318 

$

1,721,241 

$

1,511,816 

Cost of goods sold, including warehouse and distribution expenses

 

3,084,766 

 

2,951,467 

 

2,776,533 

 

2,520,534 

 

1,948,627 

 

1,401,859 

 

1,276,511 

 

1,152,815 

 

978,076 

 

873,481 

Gross profit

 

3,097,418 

 

2,837,349 

 

2,620,992 

 

2,326,528 

 

1,627,926 

 

1,120,460 

 

1,006,711 

 

892,503 

 

743,165 

 

638,335 

Selling, general and administrative expenses

 

2,120,025 

 

1,973,381 

 

1,887,316 

 

1,788,909 

 

1,292,309 

 

815,309 

 

724,396 

 

639,979 

 

552,707 

 

473,060 

Former CSK officer clawback

 

-

 

(2,798)

 

 -

 

 -

 

 -

 

-

 

-

 

-

 

-

 

 -

Legacy CSK DOJ investigation charge

 

-

 

 -

 

20,900 

 

 -

 

 -

 

-

 

-

 

-

 

-

 

 -

Operating income

 

977,393 

 

866,766 

 

712,776 

 

537,619 

 

335,617 

 

305,151 

 

282,315 

 

252,524 

 

190,458 

 

165,275 

Write-off of asset-based revolving credit agreement debt issuance costs

 

-

 

(21,626)

 

 -

 

 -

 

 -

 

-

 

-

 

-

 

-

 

 -

Termination of interest rate swap agreements

 

-

 

(4,237)

 

 -

 

 -

 

 -

 

-

 

-

 

-

 

-

 

 -

Gain on settlement of note receivable

 

-

 

 -

 

11,639 

 

 -

 

 -

 

-

 

-

 

-

 

-

 

 -

Other income (expense), net

 

(35,872)

 

(25,130)

 

(35,042)

 

(40,721)

 

(33,085)

 

2,337

 

(50)

 

(1,455)

 

(2,721)

 

(5,233)

Total other income (expense)

 

(35,872)

 

(50,993)

 

(23,403)

 

(40,721)

 

(33,085)

 

2,337

 

(50)

 

(1,455)

 

(2,721)

 

(5,233)

Income before income taxes and cumulative effect of accounting change

 

941,521 

 

815,773 

 

689,373 

 

496,898 

 

302,532 

 

307,488 

 

282,265 

 

251,069 

 

187,737 

 

160,042 

Provision for income taxes

 

355,775 

 

308,100 

 

270,000 

 

189,400 

 

116,300 

 

113,500 

 

104,180 

 

86,803 

 

70,063 

 

59,955 

Income before cumulative effect of accounting change

 

585,746 

 

507,673 

 

419,373 

 

307,498 

 

186,232 

 

193,988 

 

178,085 

 

164,266 

 

117,674 

 

100,087 

Cumulative effect of accounting change, net of tax (a)

 

-

 

 -

 

 -

 

 -

 

 -

 

-

 

-

 

-

 

21,892 

 

 -

Net income

$

585,746 

$

507,673 

$

419,373 

$

307,498 

$

186,232 

$

193,988 

$

178,085 

$

164,266 

$

139,566 

$

100,087 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before cumulative effect of accounting change

$

4.83 

$

3.77 

$

3.02 

$

2.26 

$

1.50 

$

1.69 

$

1.57 

$

1.47 

$

1.07 

$

0.93 

Cumulative effect of accounting change (a)

 

-

 

 -

 

 -

 

 -

 

 -

 

-

 

-

 

-

 

0.20 

 

 -

Earnings per share – basic

$

4.83 

$

3.77 

$

3.02 

$

2.26 

$

1.50 

$

1.69 

$

1.57 

$

1.47 

$

1.27 

$

0.93 

Weighted-average common shares outstanding – basic

 

121,182 

 

134,667 

 

138,654 

 

136,230 

 

124,526 

 

114,667 

 

113,253 

 

111,613 

 

110,020 

 

107,816 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE-ASSUMING DILUTION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before cumulative effect of accounting change

$

4.75 

$

3.71 

$

2.95 

$

2.23 

$

1.48 

$

1.67 

$

1.55 

$

1.45 

$

1.05 

$

0.92 

Cumulative effect of accounting change (a)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

0.20 

 

-

Earnings per share – assuming dilution

$

4.75 

$

3.71 

$

2.95 

$

2.23 

$

1.48 

$

1.67 

$

1.55 

$

1.45 

$

1.25 

$

0.92 

Weighted-average common shares outstanding – assuming dilution

 

123,314 

 

136,983 

 

141,992 

 

137,882 

 

125,413 

 

116,080 

 

115,119 

 

113,385 

 

111,423 

 

109,060 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRO FORMA INCOME STATEMENT DATA: (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,511,816 

Cost of goods sold, including warehouse and distribution expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

872,658 

Gross profit