O’Reilly Automotive Annual Report 2000

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FY2000 Annual Report · O’Reilly Automotive

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O ’ R E I L L Y A U T O M O T I V E

2 0 0 0 A N N U A L R E P O R T

’

233 South Patterson
Springfield, Missouri 65802
417-862-3333
www.oreillyauto.com

10769_Covers 3/29/01 9:32 AM Page 2

O ’ R E I L L Y A U T O M O T I V E

2 0 0 0 A N N U A L R E P O R T

F I N A N C I A L H I G H L I G H T S

(In thousands, except per share and operating data)

Years ended December 31,

2000

1999

Percent Change

Operations

Product sales

Operating income

Net income

Financial position

Working capital

Total assets

Long-term debt

Shareholders’ equity

Net income per common

share (diluted)

Weighted average common

$ 890,421

$ 754,122

90,029

51,708

76,920

45,639

$ 296,272

$ 249,351

715,995

90,463

463,731

610,442

90,704

403,044

18.1%

17.0%

13.3%

18.8%

17.3%

–

15.1%

$ 1.00

$ 0.92

8.7%

shares outstanding (assuming dilution)

51,728

49,715

4.0%

Operating data

Stores at year end

Same-store sales gain

672

4.0%

571

9.6%

17.7%

-5.6%

T A B L E O F C O N T E N T S

O’Reilly Leadership – Charged . . . . . . . . . . . .page 4–5

Team O’Reilly – Revved . . . . . . . . . . . . . . . . .page 6–7

Dual Market Strategy – Fueled . . . . . . . . . . .page 8–9

Distribution – Geared . . . . . . . . . . . . . . . . . . .page 10–11

Financial Information

Selected Consolidated Financial Data . . . . . . . .page 13

Management’s Discussion and Analysis . . . . . .page 15

Consolidated Financial Statements . . . . . . . . . .page 20

Notes to Consolidated Financial Statements . . .page 24

Report of Independent Auditors . . . . . . . . . . . .page 33

Directors and Management . . . . . . . . . . . . . . .page 34

Shareholder Information . . . . . . . . . . . . . . . . .page 36

Certain statements contained in this document are forward-looking statements.

the economy in general, inflation, consumer debt levels, governmental approvals, our

These statements discuss, among other things, expected growth, store development

ability to hire and retain qualified employees and the weather. Actual results may

and expansion strategy, business strategies, future revenues and future performance.

materially differ from anticipated results described in these forward-looking statements.

These forward-looking statements are subject to risks, uncertainties and assumptions,

Please refer to the Risk Factors sections of the Company’s Form 10-K for the year

including, but not limited to, competition, product demand, the market for auto parts,

ended December 31, 2000, for more details.

2 0 0 0 Y E A R I N R E V I E W

January

Announced acquisition of Gateway

Auto Parts – 14 stores (12 net) in

Dallas/Fort Worth, Texas

February

Announced entry into E-Commerce,

selling parts at www.oreillyauto.com

April

Announced purchase of 14 (9 net)

KarPro stores in Arkansas and distribution

center (“DC”) in Little Rock, Arkansas

August

Announced formation of Internet

Autoparts, Inc.

December

Opened 672nd store (101 for

the year 2000), and opened Dallas

Distribution Center

Growth seems to be the word that best explains O’Reilly in

the year 2000. We opened 101 new stores and added our

sixth and seventh DCs. We added the opportunity for our

customers to purchase automotive parts and accessories via

their home computers and the Internet. We ended the year

with 1,300 additional team members, which means there

are nearly 11,000 people working in our stores, DCs and

corporate offices. O’Reilly Auto Parts truly is DRIVEN!

E A R N I N G S P E R S H A R E
( A S S U M I N G D I L U T I O N )

Our 10-year compound average growth

rate in earnings per share is 26%.

1999
$ .92

2000
$ 1.00

$ 1.00

1998
$ .71

$ .80

$ 1.20

$ .60

Earnings
Per Share

1997
$ .54

1996
$ .45

1995
$ .39

$ .40

$ .00

$ .20

N U M B E R O F S T O R E S
Our growth plans include opening

18%-20% new stores each year

2000
672

1999
571

1998
491

1000

800

1200

600

Number
of Stores

400

200

1997
259

1996
219

1995
188

T H E H I S T O R Y O F O ’ R E I L L Y A U T O M O T I V E

1957

C.F. & Chub O’Reilly open
O’Reilly Automotive with
10 additional employees.

1958

First-Year Sales:
$700,000.

1961

Sales: $1.3 million.

2000 AR

O ’ R E I L L Y S H A R E H O L D E R S

2 0 0 0 A N N U A L R E P O R T

To o u r s h a re h o l d e r s :

Team O’Reilly worked extremely hard to

stores by early 2001. This will allow us to

of technological advances in systems and

make 2000 another very successful year. We

continue expanding our stores in northern

programs will allow us to greatly improve

added 101 new stores, 43 through various

Texas, both to the east and west. Also

customer service with more value added to

acquisitions, including 12 Gateway Auto

included in the KarPro purchase was a

the O’Reilly shopping experience. Included in

Parts stores in Dallas/Ft. Worth, Texas, and

97,000 square-foot DC which will provide

these efforts are: an electronic transaction

nine KarPro stores in Little Rock, Arkansas.

quicker access and more product coverage

database, which allows easier and better

On the distribution front, we also had a

to our stores in Arkansas and will allow

access to customer purchase history;

very eventful year. The 338,140 square-foot

significant expansion in those markets.

improved product search capability to allow

distribution center (“DC”) in Dallas, Texas,

Our team members were very focused

stores to locate other O’Reilly stores and DCs

which was purchased a year ago, opened

on many projects designed to enhance the

that carry harder-to-find items; and a new

in December and will service over 100

level of service to our customers. A number

store inventory management system that

2000 AR

Left to right: Larry O’Reilly, Ted F. Wise,
Rosalie O’Reilly-Wooten, Charlie O’Reilly,
David O’Reilly and Greg Henslee.

1963

Charles H. “Charlie” O’Reilly, Jr.
joins the Company.

1965

Second O’Reilly Auto
Parts store opened.

1967

Sales: $2.2 million.

allows more specific inventory customization

margin in excess of 10% in 2000, and

distribution throughout the upcoming year.

focusing on improving turnover and return

have set our goal at 11% for 2001. This is

Many new enhancements to our store

on investment for our shareholders. Con-

aggressive but attainable if we collectively

displays and merchandising plans will

sequently, the list of improvements completed

execute our plan. With over 11,000 O’Reilly

continue to make O’Reilly a leading-edge

in 2000 and those rolling out in 2001 is

team members, we have placed a priority on

shopping experience. We will, as always,

extensive, but one improvement that is very

developing them, knowing that to function

focus our efforts on the commercial or

significant is the establishment of a Company

at our highest level, we must acknowledge

professional service technician segment,

Intranet. This will have a huge impact on our

the tremendous value that each and every

which requires a very experienced and

productivity, allowing our stores to operate

individual brings to our effort. We truly

informed staff in our stores. Our plan is to

nearly paperless by utilizing various electronic

embrace the philosophy that a “happy

stay tuned to our “dual market strategy,”

forms and reports. Immediate access to a

team” will make for satisfied customers.

with approximately 50% of our sales to

wealth of information through the Intranet

Our plans for 2001 include continued

the professional installer and 50% to the

will allow the stores to carry out their

growth, combining approximately 120 new

do-it-yourself (“DIY”) or retail trade. We

responsibilities much more efficiently, thereby

store installations with existing progress

feel this combination of business is right

allowing our managers and team members

toward increased same-store sales growth

for O’Reilly and allows us to differentiate

to focus more on customer service.

in the mid single-digit level. With these two

ourselves in product offering, professional

With product sales of $890 million in

concepts, we hope to grow our top-line

service to our customers and knowledgeable

2000, we are anxiously pursuing our goal

revenues by 18% or more and our operating

team members who are DRIVEN to succeed.

of over $1 billion in revenue in 2001. Our

profits by more than that with increased

In conclusion, we believe 2001 will be an

commitment to our shareholders is focused

efficiencies in our operations. No additional

excellent year with many challenges.

more than ever on operating efficiently

DCs will be needed in 2001 to accomplish

We are very prepared to meet the high

and, therefore, at better operating margins.

these objectives; therefore, we fully plan

expectations our shareholders have grown

We are very proud of achieving an operating

to leverage our existing investment in

to expect from Team O’Reilly.

Larry O’Reilly
Chief Operating
Officer &
Co-Chairman
of the Board

Ted F. Wise
Co-President

Rosalie O’Reilly-Wooten
Executive Vice
President

Charlie O’Reilly
Vice Chairman
of the Board

David O’Reilly
Chief Operating
Officer &
Co-Chairman
of the Board

Greg Henslee
Co-President

2000 AR

O ’ R E I L L Y L E A D E R S H I P

2 0 0 0 A N N U A L R E P O R T

Charged

Training new team members. Planning new store locations.
Researching new products.

Our Management is CHARGED with

that earn the trust and respect of fellow

Pooling the resourcefulness and creativity

the excitement of growth!

team members, our customers and our

of our 40 senior management leaders who

Successfully leading a growing company

shareholders. O’Reilly management meets

average more than 18 years of service

is a daunting challenge – one that requires

this challenge head-on with contagious

with O’Reilly, we are confident that we

skilled, innovative, experienced and visionary

enthusiasm and determination.

will attain the goals we’ve set. Installing

leaders. They are everyday people with

The O’Reilly family’s belief in and vision

warehouse and store systems for managing

extraordinary dedication and knowledge

for the Company are passed down through

and improving our inventory turns, while

the ranks from the strategic planning

still providing the broadbase of parts our

meetings to the Annual Managers’

customers have come to rely on, and wisely

Conference that is attended by more than

using our balance sheet and obtaining

1,000 store, district and sales managers.

capital with sale-leaseback and synthetic-

Charlie O’Reilly personally attends many

lease transactions, are a few ways to arrive

store grand openings – extending the

at our targets of 11% operating margin,

“family” welcome to new team members

reducing SG&A to 32%-32.5% of sales and

and demonstrating firsthand the O’Reilly

increasing our EPS by 22%-25% in 2001.

Culture! He’ll have many more

At O’Reilly … We’re looking back

opportunities with our plans to open

on a proud past and looking ahead

120 new stores in 2001.

to a great future!

2000 AR

Charged

1969

1970

Larry O’Reilly joins
the Company.

Fifth O’Reilly Auto
Parts store opened.

1972

David O’Reilly joins
the Company.

All O’Reilly supervisors, including store
managers, understand that the best way
to spread the Company’s vision and values
is by displaying these through one-on-
one contact with other team members.

Neat, well-stocked stores and friendly,
knowledgeable Professional Parts People
keep our customers coming back to
O’Reilly for all their parts and tool needs.

1975

1977

Groundbreaking for new
warehouse facility.

Sales: $7.0 million.

15th O’Reilly Auto
Parts store opened.

T E A M O ’ R E I L L Y

2 0 0 0 A N N U A L R E P O R T

Respect, honesty, teamwork, expense
control, hard work, professionalism,
enthusiasm, excellent customer service,
dedication, win-win attitude.

These 10 values are prominently

to fulfilling their responsibilities to fellow

displayed throughout the Company

team members and our customers.

on posters and, more importantly,

Whether at stores, distribution centers

in our REVVED team members!

or in corporate office support positions,

Successfully offering inspiration, motivation

everyone understands the need to step

The well-defined expectations for team

and opportunity are ways O’Reilly fosters

outside his or her designated role to give

members and the Company’s future goals

that old-fashioned family atmosphere

help to anyone who needs it. This may

offer endless opportunities for anyone

among our nearly 11,000 team members.

mean staying late, coming in early or

willing to work hard. There are countless

The day-to-day attitudes passed down by

simply answering a phone that’s ringing.

examples of current team members who

the O’Reilly family since 1957 have bred a

The success of O’Reilly depends on

started with the Company at counter sales,

fierce sense of pride throughout all levels

everyone seeing the big picture.

delivery or picking orders in a distribution

of the Company, and continue to be

We’re never disappointed and always

center and have, with determination and

instilled through weekly newsletters, the

inspired to see how O’Reilly pride comes

self-improvement, worked their way through

monthly “Team Spirit” publication and

through whenever our customers, commu-

the ranks to corporate management and

training and development meetings.

nities or fellow team members have a need.

even to president of the Company!

Team members are empowered to “do

We receive dozens of letters each and every

At O’Reilly … We take pride in our

whatever it takes” and the Company is

month praising the many team members who

team members, customer service,

rewarded by the loyalty of people dedicated

have gone above and beyond the call of duty.

work ethic and performance.

Revved

2000 AR

D U A L M A R K E T S T R A T E G Y

2 0 0 0 A N N U A L R E P O R T

FueledFueled
Fueled

Giving superior service. Giving extensive
product selection. Giving competitive pricing.

Our Unique Dual Market Strategy is

Now in our 44th year of operation, we

dedicated solely to calling upon and selling

FUELED to service do-it-yourself and

began selling to professional installers in

to professional installer customers, we

professional installer customers!

1957. From the mid-1960s to the mid-1970s

believe we will increase the former Hi-Lo

Successfully balancing the complex

needs of both DIY and professional installer

customers isn’t easy, as many of our

competitors have discovered. With eight

consecutive years of record revenues and

earnings for our shareholders, we may

have made it look simple, but there is a

lot of history behind our accomplishments.

we grew from one store to 15 stores, slowly

stores’ sales to the O’Reilly pre-acquisition

learning the strategies needed to serve DIY

level of approximately 50/50 DIY and

customers while continuing to develop

professional installer customers.

professional installer business. In 1986,

But why do we put so much emphasis on

we entered the large metropolitan markets.

serving a dual market? We believe targeting

From the mid-1980s through 1997 we

both types of customers allows us to operate

derived approximately 50% of our product

profitably in both large markets and less

sales from our DIY customers and approxi-

densely populated geographic areas which

mately 50% from our professional installer

typically attract fewer competitors. This

customers. With the 1998 acquisition of

strategy also enables us to target a larger

Hi-Lo Automotive, Inc. (189 stores, with

base of consumers of automotive aftermarket

approximately 65% of sales from DIY

parts and capitalize on our existing retail and

customers and approximately 35% from

distribution infrastructure. It enhances service

professional installer customers) our

levels to our DIY customers by offering a

traditional 50/50 blend of business

broad selection of stock keeping units

changed. For 2000, approximately 57%

(“SKUs”) and the extensive product

of sales were from DIY customers and

knowledge required by professional installers.

approximately 43% from professional

The bottom line is that the dual market

installer customers. As a result of our

strategy – as executed by O’Reilly – is

historical success in executing our

highly effective.

dual market strategy and more than

At O’Reilly … Our No. 1 priority

100 full-time sales representatives

is customer satisfaction.

2000 AR

1982

1980

First Managers’
Conference held.

Springfield warehouse
expanded by 50%.

Rosalie O’Reilly-Wooten
joins the Company

New 10,000-square-foot
office facility at Springfield
warehouse site.

1984

Sales: $45 million.

Ted Wise (current president)
promoted to vice president.

50th store opened in June.

1989

100th O’Reilly Auto
Parts store opened.

Deliveries to professional installer
customers are made throughout the
day when orders are placed by phone
or via computers we’ve installed at the
customer’s business.

Fueled

Modern technology, such as the rotating
carousels shown above, adds efficiency
in filling orders and speeding the
parts on the way for nightly delivery
to O’Reilly stores.

1993

O’Reilly goes public (IPO).

Kansas City DC opened.

Ranked among 200 best
small companies in the
U.S. by Forbes Magazine.

1995

1998

1999

2000

Oklahoma City DC opened.

O’Reilly purchases Hi/Lo
Auto Parts.

500th store opened.

Dallas DC opened.

Two-for-one stock split.

Little Rock DC opened.

Secondary stock offering.

D I S T R I B U T I O N N E T W O R K

2 0 0 0 A N N U A L R E P O R T

Serving more stores. Stocking more products.
Driving more vehicles.

Our Distribution System is GEARED

has given us the power to support overnight

for the job!

delivery to each of the 792 stores we plan

Successfully providing the availability of a

to have in operation by the end of 2001

broad range of products is a key competitive

and take us well into 2002. Product shipment

both our professional installer and DIY

advantage in satisfying customer demand

is expedited by the state-of-the-art rotating

customers expect the parts they order to

and generating repeat business. This is

carousels in the Des Moines, Iowa, DC, the

be delivered as promised, no excuses.

precisely why we are dedicated to the unique

computerized Warehouse Management

Making the whole operation work involves

philosophy of providing each of our stores

System that should be fully implemented

more than 1,900 DC team members – dock

with same-day or overnight access to over

in four DCs by second quarter 2001 and

workers, order pickers, quality control, route

100,000 stock keeping units (“SKUs”),

computer-assisted and satellite-based links

drivers, shipping supervisors and managers

many of which are hard-to-find items not

from stores to DCs. With more than $890

– all working together. Customers also rely

typically found at other parts retailers.

million in product sales in 2000, and with

on our fleet of over 100 trucks that averages

The opening of our sixth and seventh

a goal of over $1 billion for 2001, it will

nearly 752,000 miles per month to deliver

DCs in Little Rock, Arkansas, and Dallas,

take more than computers and carousels

products from our DCs to O’Reilly stores.

Texas, during the fourth quarter of 2000

to meet customer demand. We know that

At O’Reilly … You want it? We’ve got it!

Geared

2000 AR

O ’ R E I L L Y L O C A T I O N S

2 0 0 0 A N N U A L R E P O R T

Des Moines

Kansas City

Oklahoma City

Springfield

Little Rock

Dallas

Houston

K E Y
( a s o f M a rc h 1 , 2 0 0 1 )

Stars indicate the location of

When the year 2000 came to a close, the

distribution centers.

map showed 672 O’Reilly stores and seven

Arkansas . . . . . . . . . . . . . . . . 36 Stores

distribution centers (“DCs”). We opened an

Illinois . . . . . . . . . . . . . . . . . . . 3 Stores

additional 24 stores during the first two

Iowa . . . . . . . . . . . . . . . . . . . 57 Stores

months of 2001, bringing the total to 696 at

Kansas . . . . . . . . . . . . . . . . . . 51 Stores

March 1, 2001. By the close of 2001, we plan

Louisiana . . . . . . . . . . . . . . . . 30 Stores

to open a total of 120 stores. We will continue

Missouri . . . . . . . . . . . . . . . . 117 Stores

the successful O’Reilly strategy of expanding

Nebraska . . . . . . . . . . . . . . . . 24 Stores

into new, contiguous markets, keeping all

Oklahoma . . . . . . . . . . . . . . . 96 Stores

stores within a 150-mile to 200-mile radius

Texas . . . . . . . . . . . . . . . . . . 282 Stores

of an O’Reilly DC for easy nightly deliveries.

2000 AR

S E L E C T E D C O N S O L I D A T E D
F I N A N C I A L D A T A

O ’ R E I L L Y A U T O M O T I V E

Years ended December 31,
(In thousands, except per share data)

INCOME STATEMENT DATA:
Product sales
Cost of goods sold, including

warehouse and distribution
expenses

Gross profit

Operating, selling, general and
administrative expenses
Operating income

Other income (expense), net
Provision for income taxes

Income from continuing

operations before
cumulative effects
of changes in
accounting principles

Cumulative effects of changes in

accounting principles

Income from continuing

operations
Income (loss) from

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

$890,421 $ 754,122 $ 616,302 $ 316,399 $ 259,243 $ 201,492 $ 167,057 $ 137,164 $110,147 $ 94,937

507,720 428,832
382,701 325,290

358,439
257,863

181,789
134,610

150,772
108,471

116,768
84,724

97,758
69,299

82,102
55,062

65,066 56,255
45,081 38,682

292,672 248,370
76,920
(3,896)
27,385

90,029
(6,870)
31,451

200,962
56,901
(6,958)
19,171

97,526
37,084
472
14,413

79,620
28,851
1,182
11,062

62,687
22,037
236
8,182

52,142
17,157
376
6,461

42,492
12,570
216
4,556

35,204 29,961
8,721
(104)
3,167

9,877
204
3,686

51,708

45,639

30,772

23,143

18,971

14,091

11,072

8,230

6,395

5,450

–

(163)

–

51,708

45,639

30,772

23,143

18,971

14,091

11,072

8,230

6,232

5,450

discontinued operations

–

Net income

$ 51,708 $ 45,639 $ 30,772 $ 23,143 $ 18,971 $ 14,091 $ 11,072 $

48
8,278 $

129

(68)
6,361 $ 5,382

Basic Earnings Per Common

Income per share from

continuing operations before
cumulative effects of changes
in accounting principles

Income per share from

continuing operations

Income per share from

discontinued operations
Net income per share
Weighted-average common

1.01 $

0.94 $ 0.72 $

0.55 $ 0.45 $

0.40 $

0.32 $

0.25 $

0.22 $ 0.19

1.01 $

0.94 $ 0.72 $

0.55 $ 0.45 $

0.40 $

0.32 $

0.25 $

0.21 $ 0.19

–

–
1.01 $ 0.94 $ 0.72 $

–

0.55 $ 0.45 $

–
0.40 $

–
0.32 $

–
0.25 $

0.01
0.22 $

–
0.19

shares outstanding

51,168

48,674

42,476

42,086

41,728

35,640

34,620

32,940

29,436 29,308

Earnings Per Common Share –

Assuming Dilution:

Income per share from continuing
operations before cumulative
effects of changes in
accounting principles

Income per share from

continuing operations

Income per share from

discontinued operations
Net income per share

Weighted-average common shares
outstanding – adjusted (e)

1.00 $ 0.92 $ 0.71 $

0.54 $ 0.45 $ 0.39 $

0.32 $

0.25 $

0.22 $ 0.19

1.00 $ 0.92 $ 0.71 $

0.54 $ 0.45 $

0.39 $

0.32 $

0.25 $

0.21 $ 0.19

–
1.00 $

–

0.92 $ 0.71 $

–
0.54 $

–
0.45 $

–
0.39 $

–
0.32 $

–
0.25 $

0.01
–
0.22 $ 0.19

51,728

49,715

43,204

42,554

42,064

35,804

34,778

33,046

29,436 29,308

2000 AR

S E L E C T E D C O N S O L I D A T E D
F I N A N C I A L D A T A continued …

O ’ R E I L L Y A U T O M O T I V E

Years ended December 31,
(In thousands, except selected operating data)

SELECTED OPERATING DATA:
Number of stores at

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

year-end (a)

672

571

491

259

219

Total store square footage at
year-end (in 000’s) (b)
Weighted-average product

4,491

3,777

3,172

1,454

1,155

188

923

165

785

145

671

127

571

116

511

sales per store (in 000’s) (b) $

1,412 $

1,423 $

1,368 $ 1,306

$ 1,239 $ 1,101 $ 1,007 $

949 $

838

$ 759

Weighted-average product

sales per square foot (b)(f) $

212.6 $

216.5 $

238.0 $ 235.8

$ 242.2 $ 227.3 $ 215.4 $ 208.7 $ 187.2 $ 174.4

Percentage increase in

same-store product sales
open two full periods (c)

Percentage increase in

same-store product sales
open one year (d)

BALANCE SHEET DATA:
Working capital

4.0%

9.6%

6.8%

6.8% 14.4%

8.9%

8.9% 14.9% 11.4%

9.2%

5.0%

$ 296,272 $249,351 $208,363 $93,763 $74,403 $ 80,471 $ 41,416 $ 41,193 $15,251

$13,434

Total assets

715,995

610,442

493,288

247,617

183,623

153,604

87,327

73,112

58,871

49,549

Short-term debt

49,121

19,358

13,691

130

3,154

231

311

495

3,462

1,298

Long-term debt, less
current portion

Long-term debt related to

discontinued operations,
less current portion

90,463

90,704

170,166

22,641

237

358

461

732

2,668

3,326

–

9,873

10,316

Shareholders’ equity

463,731

403,044

218,394

182,039

155,782

133,870

70,224

57,805

29,281

22,881

(a) The number of stores at year-end 1991 and 1992 are net of the combinations in each such year of two stores located within one mile of each other.
Two stores were closed during 1997, one was closed in 1998 and one was closed in 2000. No other stores were closed during the periods presented.
Additionally, seven former Hi/LO stores located in California were sold in 1998.

(b) Total square footage includes normal selling, office, stockroom and receiving space. Weighted-average product sales per store and per square foot are

weighted to consider the approximate dates of store openings or expansions.

(c) Same-store product sales data are calculated based on the change in product sales of only those stores open during both full periods being

compared. Percentage increase in same-store product sales is calculated based on store sales results, which exclude sales of specialty machinery, sales
by outside salesmen and sales to employees.

(d) Beginning January 2000, same-store product sales data are calculated based on the change in product sales of stores open at least one year.

Percentage increase in same-store product sales is calculated based on store sales results, which exclude sales of specialty machinery, sales by outside
salesmen and sales to employees.

(e) There was no additional dilution until 1993 when options were first granted.

(f) 1998 does not include stores aquired from Hi/LO. Consolidated weighted-average product sales per square foot were $207.3.

2000 AR

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

O ’ R E I L L Y A U T O M O T I V E

The following discussion of our financial condition, results of operations
and liquidity and capital resources should be read in conjunction
with our consolidated financial statements, related notes and other
financial information included elsewhere in this annual report.

periods being compared. We calculate the percentage increase in
both same-store product sales based on store sales results, which
exclude sales of specialty machinery, sales by outside salesmen and
sales to employees.

We are 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”) customers and
professional installers. Our stores carry an extensive product line
consisting of new and remanufactured automotive hard parts,
maintenance items and accessories, and a complete line of autobody
paint and related materials, automotive tools and professional
service equipment.

Beginning in January 2000, we calculate same-store product sales
based on the change in product sales for stores open at least one
year. We also calculate same-store product sales based on the
change in product sales of only those stores open during both full

Cost of goods sold consists primarily of product costs and warehouse
and distribution expenses. Cost of goods sold as a percentage of
product sales may be affected by variations in our product mix,
price changes in response to competitive factors and fluctuations
in merchandise costs and vendor programs.

Operating, selling, general and administrative expenses consist
primarily of store payroll, store occupancy, advertising expenses,
other store expenses and general and administrative expenses,
including salaries and related benefits of corporate employees,
administrative office occupancy expenses, data processing,
professional expenses and other related expenses.

1999
$ 45.6

2000
$ 51.7

$ 50

$ 40

$ 60

2000
$ 890.4

1999
$ 754.1

$ 1000

$ 800

$ 1200

1998
$ 30.8

$ 30

Net
Income

1998
$ 616.3

$ 600

Product
Sales

(millions)

$ 20

$ 0

$ 10

1997
$ 23.1

1996
$ 19.0

1995
$ 14.1

$ 1000

(millions)

$ 400

$ 0

$ 200

1997

$ 316.4 1996
$ 259.2

1995
$ 201.5

2000
$ 463.7

1999
$ 403.0

$ 500

2000
$ 716.0

1999
$ 610.4

$ 800

$ 1200

$ 400

$ 600

Total
Assets

$ 300

Share-
holders'
Equity

1998
$ 493.3

(millions)

$ 400

$ 0

$ 200

1997
$ 247.6

1996
$ 183.6

1995
$ 153.6

(millions)

$ 200

$ 0

1998
$ 218.4

$ 100

1997
$ 182.0 1996

$ 155.8 1995
$ 133.9

2000 AR

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S continued …

O ' R E I L L Y A U T O M O T I V E

Results of Operations
The following table sets forth certain income statement data as a
percentage of product sales for the years indicated:

Years ended December 31,
Product sales
Cost of goods sold, including
warehouse and distribution
expenses
Gross profit
Operating, selling, general

and administrative expenses

Operating income
Other expense, net
Income before income taxes
Provision for income taxes
Net income

2000

1999
100.0% 100.0% 100.0%

1998

57.0
43.0

32.9
10.1
(0.8)
9.3
3.5
5.8%

56.9
43.1

32.9
10.2
(0.5)
9.7
3.6
6.1%

58.2
41.8

32.6
9.2
(1.1)
8.1
3.1
5.0%

2000 Compared to 1999
Product sales increased $136.3 million, or 18.1% from $754.1 million
in 1999 to $890.4 million in 2000, due to 101 net additional stores
opened during 2000, and a $28.0 million, or 4.0% increase in
same-store product sales for stores opened in both full periods.
We believe that the increased product sales achieved by the existing
stores are the result of our offering a broader selection of products
in most stores, an increased promotional and advertising effort
through a variety of media and localized promotional events, and
continued improvement in the merchandising and store layouts
of most stores. Also, our continued focus on serving professional
installers contributed to increased sales.

Gross profit increased 17.6% from $325.3 million (or 43.1% of
product sales) in 1999 to $382.7 million (or 43.0% of product
sales) in 2000.

Operating, selling, general and administrative expenses increased
$44.3 million from $248.4 million (or 32.9% of product sales) in
1999 to $292.7 million (or 32.9% of product sales) in 2000. The
increase in these expenses in dollar amount was primarily attributable
to increased salaries and benefits, rent and other costs associated
with the addition of employees and facilities to support the
increased level of our operations.

Other expense, net, increased by $3.0 million from $3.9 million in
1999 to $6.9 million in 2000. The increase was primarily due to
interest expense on increased borrowings under our credit facility.

2000 AR

Provision for income taxes increased from $27.4 million in 1999
(37.5% effective tax rate) to $31.5 million in 2000 (37.8% effective
tax rate). The increase in the dollar amount was primarily due to
the increase of income before income taxes. The nominal increase
in the effective tax rate was primarily due to changes in the
apportionment of sales between states with differing tax rates.

Principally as a result of the foregoing, net income in 2000 was
$51.7 million (or 5.8% of product sales), an increase of $6.1 million
(or 13.3%) from net income in 1999 of $45.6 million (or 6.1% of
product sales).

1999 Compared to 1998
Product sales increased $137.8 million, or 22.4% from $616.3 million
in 1998 to $754.1 million in 1999, due to 80 net additional stores
opened during 1999, and a $56.4 million, or 9.6% increase in
same-store product sales. We believe that the increased product
sales achieved by the existing stores are the result of our offering
of a broader selection of products in most stores, an increased
promotional and advertising effort through a variety of media and
localized promotional events, and continued improvement in the
merchandising and store layouts of most stores. Also, our continued
focus on serving professional installers contributed to increased sales.

Gross profit increased 26.2% from $257.9 million (or 41.8% of
product sales) in 1998 to $325.3 million (or 43.1% of product
sales) in 1999. The increase in gross profit margin was primarily
attributable to the continued improvements in our product acquisition
programs and improved buying power due to the number of net
new stores opened in 1999.

Operating, selling, general and administrative expenses increased
$47.4 million from $201.0 million (or 32.6% of product sales) in
1998 to $248.4 million (or 32.9% of product sales) in 1999. The
increase in these expenses in dollar amount and as a percentage of
sales primarily resulted from higher costs for employee medical
and workers’ compensation benefits, the continued conversion of
Hi-Lo Automotive, Inc. (“Hi/LO”) stores and distribution center, as
well as the addition of employees and facilities to support the
increased level of our operations.

Other expense, net, decreased by $3.1 million from $7.0 million in
1998 to $3.9 million in 1999. The decrease was primarily due to
the decrease in interest expense as a result of repayments of
indebtedness under our syndicated credit facility with a portion of
the net proceeds of our secondary offering.

Our provision for income taxes was 37.5% and 38.4%, respectively,
of income before income taxes in 1999 and 1998. The decrease in
the effective tax rate primarily related to a higher percentage of our
sales occurring in states with lower income tax rates.

Principally as a result of the foregoing, net income in 1999 was
$45.6 million (or 6.1% of product sales), an increase of $14.9
million (or 48.3%) from net income in 1998 of $30.8 million
(or 5.0% of product sales).

Liquidity and Capital Resources
Net cash provided by operating activities was $5.8 million in 2000
and $29.7 million in 1999. Net cash used in operating activities was
$19.1 million in 1998. The decrease in cash provided by operating
activities in 2000 compared to 1999 is the result of an increase in
inventory and to a lesser extent, increases in accounts receivable
and amounts receivable from vendors, partially offset by increases

in net income, accounts payable and accrued payroll. The increase
in net cash provided by operating activities in 1999 compared to
1998 is the result of increases in net income, accrued payroll, other
current liabilities and a larger tax benefit resulting from stock
option exercises, offset by increases in amounts receivable from
vendors and inventory.

Net cash used in investing activities was $40.5 million in 2000,
$77.8 million in 1999 and $100.8 million in 1998. The decrease
in cash used in 2000 was primarily due to the sale of 90 properties
for $52 million in a sale-leaseback transaction. The decrease in
cash used in 1999 was due to the Hi/LO acquisition in 1998 and
an increase in payments received on notes receivable, partially
offset by increased purchases of property and equipment. The
increase in cash used in 1998 was primarily due to the purchase
of Hi/LO and increased capital expenditures.

1996
$ 1,239

1995
$ 1,101

1997
$ 1,306

1998
$ 1,368

2000
$ 1,412

1999
$ 1,423

$ 1,250

$ 1,000

$ 1,500

$ 750

(thousands)

$ 500

$ 0

$ 250

Weighted
Average
Product
Sales
Per Store

1999
$ 217

1995
$ 227

2000
$ 213

$ 225

1997
$ 236

1998
$ 238

1996
$ 242

$ 200

$ 250

$ 175

(dollars)

$ 150

$ 100

$ 125

Weighted
Average
Product
Sales Per
Square Foot

1998
77.9%

80%

100%

60%

Long -Term
Debt to
Equity

(percent)

40%

20%

1999
22.5%

2000
19.5%

1997
12.4%

1995
0.2%

1996
0.3%

20%

1996
14.4%

16%

24%

Same-Store
Product
Sales
Growth

12%

(percent)

1999
9.6%

1995
8.9%

1997
6.8%

1998
6.8%

2000
4.0%

2000 AR

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S continued …

O ' R E I L L Y A U T O M O T I V E

On December 29, 2000, we completed a sale-leaseback transaction.
Under the terms of the transaction, we sold 90 properties, including
land, buildings and improvements, for $52.3 million. The lease, which
is being accounted for as an operating lease, provides for an initial
lease term of 21 years and may be extended for one initial ten-year
period and two additional successive periods of five years each. The
resulting gain of $4.5 million has been deferred and is being amortized
over the initial lease term. Net rent expense during the initial term
will be approximately $5.5 million annually and is included in the
table of future minimum annual rental commitments under non-
cancelable operating leases. Proceeds from the transaction were used
to reduce outstanding borrowings under our Revolving Credit Facility.

Capital expenditures were $82.0 million in 2000, $86.0 million in
1999 and $57.7 million in 1998. These expenditures were primarily
related to the opening of new stores, as well as the relocation or
remodeling of existing stores. We opened 101, 80 and 50 net stores
in 2000, 1999 and 1998, respectively. We remodeled or relocated
eight stores in both 2000 and in 1999, and 18 stores in 1998. Two
new distribution centers were acquired; one in October 2000, located
in Little Rock, Arkansas, and the other in December 1999, located
in Dallas, Texas.

On December 15, 2000, we entered into a $50 million Synthetic
Operating Lease Facility (“Synthetic Facility” or “the Facility”) with
a group of financial institutions. Under the Facility, the Lessor acquires
land to be developed for O’Reilly Auto Parts stores and funds our
development thereof as the Construction Agent and Guarantor.
We subsequently lease the property from the Lessor for an initial
term of five years with two additional successive renewal periods
of five years each. The Facility provides for a residual value guarantee
and purchase options on the properties. It also contains a provision
for an event of default whereby the Lessor, among other things, may
require us to purchase any or all of the properties. We plan to utilize
the Facility to finance a portion of our planned store growth for 2001.
Funding under the Facility at December 31, 2000, totaled $1.0 million.

Our continuing store expansion program requires significant capital
expenditures and working capital principally for inventory requirements.
The costs associated with the opening of a new store (including
the cost of land acquisition, improvements, fixtures, inventory and
computer equipment) are estimated to average approximately
$900,000 to $1.1 million; however, such costs may be significantly
reduced where we lease, rather than purchase, the store site.
Although the cost to acquire the business of an independently
owned parts store varies, depending primarily upon the amount
of inventory and the amount, if any, of real estate being acquired,
we estimate that the average cost to acquire such a business and

convert it to one of our stores is approximately $400,000. We plan
to finance our expansion program through cash expected to be
provided from operating activities and available borrowings under
our existing credit facilities and the Synthetic Facility.

On November 4, 1999, the Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend to all
shareholders of record as of November 15, 1999. The stock dividend
was paid on November 30, 1999.

In March 1999, we sold 7,002,000 shares of common stock
through a secondary public offering. The net proceeds from that
offering, which amounted to $124.6 million, were used to repay
a portion of our outstanding indebtedness under our bank credit
facilities and to fund our expansion.

In order to fund the Hi/LO acquisition, our continuing store expansion
program, and our working capital and general corporate needs,
we replaced our lines of credit in January 1998 with an unsecured,
five-year syndicated credit facility totaling $175 million. The facility
was reduced to $165 million in 1999 and further reduced to $152.5
million in 2000. The facility is comprised of a $125 million revolving
loan, a $5 million sublimit for the issuance of letters of credit and
a $27.5 million term loan. This credit facility is guaranteed by our
subsidiaries. At December 31, 2000, the effective interest rate on
the revolving and term loan portions, which each mature on
January 27, 2003, was 7.0% per annum. At December 31, 2000,
$50.2 million in borrowings was available under this credit facility.

We believe that our existing cash, short-term investments, cash
expected to be provided by operating activities, available bank credit
facilities and trade credit will be sufficient to fund both our short- and
long-term capital needs for the foreseeable future.

Inflation and Seasonality
We succeeded, in many cases, in reducing the effects of merchandise
cost increases principally by taking advantage of vendor incentive
programs, economies of scale resulting from increased volume of
purchases and selective forward buying. As a result, we do not
believe that our operations have been materially affected by inflation.

Our business is somewhat seasonal, primarily as a result of the
impact of weather conditions on store sales. Store sales and profits
have historically been higher in the second and third quarters (April
through September) of each year than in the first and fourth quarters.

2000 AR

Quarterly Results
The following table sets forth certain quarterly unaudited operating
data for fiscal 2000 and 1999. The unaudited quarterly information
includes all adjustments which management considers necessary
for a fair presentation of the information shown.

The unaudited operating data presented below should be read in
conjunction with our consolidated financial statements and related
notes included elsewhere in this annual report, and the other
financial information included here.

(In thousands, except per share data)

Fiscal 2000

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

New Accounting Standards
In 1998, the Financial Accounting Standards Board issued SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities,”
which is required to be adopted in years beginning after June 15,
2000. We do not anticipate that the adoption of SFAS No. 133 will
have a significant effect on the financial position or the results of
our operations.

Product sales
Gross profit
Operating income
Net income
Basic net income per
common share

Net income per

common share –
assuming dilution

$ 195,758 $ 226,359 $ 251,413 $ 216,891
94,865
16,945
9,210

105,863
28,805
16,572

84,712
19,486
11,567

97,261
24,793
14,359

0.23

0.28

0.32

0.18

0.23

0.28

0.32

0.18

(In thousands, except per share data)

Fiscal 1999

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 166,404 $ 196,107 $ 208,401 $ 183,210
84,509
18,818
11,855

88,001
22,231
13,412

81,823
19,630
11,769

70,957
16,241
8,603

Product sales
Gross profit
Operating income
Net income
Basic net income per
common share

Net income per

common share –
assuming dilution

0.20

0.23

0.26

0.23

0.20

0.23

0.26

0.23

2000 AR

C O N S O L I D A T E D B A L A N C E
S H E E T S

O ’ R E I L L Y A U T O M O T I V E

(In thousands)
December 31,
Assets
Current assets:

Cash
Short-term investments
Accounts receivable, less allowance for doubtful accounts of $135 in 2000 and $681 in 1999
Amounts receivable from vendors
Inventory
Refundable income taxes
Deferred income taxes
Other current assets

Total current assets

Property and equipment, at cost:

Land
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Vehicles

Accumulated depreciation and amortization

Net property and equipment

Notes receivable
Other assets
Total assets

Liabilities and shareholders’ equity
Current liabilities:

Notes payable to bank
Income taxes payable
Accounts payable
Accrued payroll
Accrued benefits and withholdings
Other current liabilities
Current portion of long-term debt

Total current liabilities

Long-term debt, less current portion
Deferred income taxes
Other liabilities

Shareholders’ equity:

Preferred stock, $0.01 par value:

Authorized shares – 5,000,000
Issued and outstanding shares – none

Common stock, $0.01 par value:

Authorized shares – 90,000,000
Issued and outstanding shares – 51,544,879 in 2000 and 50,799,353 in 1999

Additional paid-in capital
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying notes.

2000 AR

2000

1999

9,204
500
32,673
29,175
372,069
92
1,402
4,089
449,204

46,740
109,835
34,750
106,068
25,628
323,021
76,167
246,854

2,836
17,101
$ 715,995

$ 35,000
1,011
68,947
9,309
9,360
15,184
14,121
152,932

90,463
4,086
4,783

9,791
500
26,462
25,984
293,924
2,333
1,776
3,583
364,353

54,631
112,270
25,841
80,569
19,495
292,806
56,289
236,517

3,501
6,071
$ 610,442

5,000
–
64,885
6,278
10,382
14,099
14,358
115,002

90,704
1,215
477

–

515
230,600
232,616
463,731
$ 715,995

508
221,628
180,908
403,044
$ 610,442

C O N S O L I D A T E D S T A T E M E N T S
O F I N C O M E

O ’ R E I L L Y A U T O M O T I V E

(In thousands, except per share data)
Years ended December 31,
Product sales
Cost of goods sold, including warehouse and distribution expenses
Operating, selling, general and administrative expenses

Operating income
Other income (expense):
Interest expense
Interest income
Other, net

Income before income taxes
Provision for income taxes
Net income

Basic income per common share:
Net income per common share
Weighted-average common shares outstanding

Income per common share – assuming dilution:
Net income per common share – assuming dilution
Adjusted weighted-average common shares outstanding
See accompanying notes.

2000
$ 890,421
507,720
292,672
800,392
90,029

(8,362)
439
1,053
(6,870)
83,159
31,451
$ 51,708

1999
$ 754,122
428,832
248,370
677,202
76,920

(5,343)
402
1,045
(3,896)
73,024
27,385
$ 45,639

1998
$ 616,302
358,439
200,962
559,401
56,901

(8,126)
396
772
(6,958)
49,943
19,171
$ 30,772

1.01
51,168

$ 0.94
48,674

0.72
42,476

1.00
51,728

$ 0.92
49,715

0.71
43,204

2000 AR

C O N S O L I D A T E D S T A T E M E N T S
O F S H A R E H O L D E R S ’ E Q U I T Y

O ’ R E I L L Y A U T O M O T I V E

(In thousands)

Balance at December 31, 1997

Issuance of common stock under

employee benefit plans

Issuance of common stock under

stock option plans

Tax benefit of stock options exercised

Net income

Balance at December 31, 1998

Issuance of common stock through

secondary offering

Issuance of common stock under

employee benefit plans

Issuance of common stock under stock

option plans

Tax benefit of stock options exercised
Two-for-one stock split
Net income

Balance at December 31, 1999

Issuance of common stock under

employee benefit plans

Issuance of common stock under

stock option plans

Tax benefit of stock options exercised
Net income

Balance at December 31, 2000
See accompanying notes.

Common Stock

Shares
42,250

Par Value
$ 211

Additional
Paid-In
Capital
$ 77,077

Retained
Earnings
$ 104,751

Total
$ 182,039

184

266
–

–
42,700

7,002

176

922
–
–
–
50,800

364

381
–
–
51,545

1
–

–
213

5
–
254
–
508

2,720

2,022
839

–
82,658

124,535

3,829

6,521
4,085
–
–
221,628

–

–
–

30,772
135,523

–

–
–
(254)
45,639
180,908

2,721

2,023
839

30,772
218,394

124,570

3,830

6,526
4,085
–
45,639
403,044

4,535

–

4,538

4
–
–
$ 515

3,460
977
–
$ 230,600

–
–
51,708
$ 232,616

3,464
977
51,708
$ 463,731

2000 AR

C O N S O L I D A T E D S T A T E M E N T S
O F C A S H F L O W S

O ’ R E I L L Y A U T O M O T I V E

(In thousands)
Years ended December 31,
Operating activities

Net income
Adjustments to reconcile net income to net cash provided by (used in)

operating activities:

Depreciation and amortization
Provision for doubtful accounts
Loss (Gain) on sale of property and equipment
Deferred income taxes
Common stock contributed to employee benefit plans
Tax benefit of stock options exercised
Post-retirement benefits
Changes in operating assets and liabilities,
net of the effects of the acquisition:

Accounts receivable
Amounts receivable from vendors
Inventory
Refundable income taxes
Other current assets
Other assets
Accounts payable
Income taxes payable
Accrued payroll
Accrued benefits and withholdings
Other current liabilities
Other liabilities

Net cash provided by (used in) operating activities

Investing activities
Purchases of property and equipment
Acquisition, net of cash acquired
Proceeds from sale of property and equipment
Proceeds from sale of short-term investments
Payments received on notes receivable
Advances made on notes receivable
Investment in other assets

Net cash used in investing activities

Financing activities
Borrowings on notes payable to bank
Payments on notes payable to bank
Proceeds from issuance of long–term debt
Principal payments on long–term debt
Net proceeds from secondary offering
Net proceeds from issuance of common stock

Net cash provided by financing activities

Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
See accompanying notes.

2000

1999

1998

$ 51,708

45,639

$ 30,772

24,812
1,235
220
3,245
2,648
977
–

(7,446)
(3,191)
(78,145)
2,241
(444)
–
4,062
1,011
3,031
(1,022)
870
20
5,832

(81,987)
–
52,861
–
604
–
(11,995)
(40,517)

17,902
961
(82)
5,455
2,339
4,085
12

157
(1,644)
(47,912)
693
734
(1,931)
(1,852)
–
1,479
2,038
3,386
(1,744)
29,715

(86,002)
–
7,039
–
1,265
(70)
–
(77,768)

30,000
–
431,159
(432,415)
–
5,354
34,098
(587)
9,791
$ 9,204

7,130
(7,130)
172,892
(249,363)
124,570
8,017
56,116
8,063
1,728
9,791

12,164
250
(134)
7,629
1,629
839
12

(5,809)
(21,691)
(53,328)
(5,527)
(179)
(1,753)
20,071
–

(3,533)
2,156
(2,681)
–

(19,113)

(57,732)
(49,296)
6,038
500
372
(650)
––

(100,768)

5,000
–
157,860
(46,651)

–
3,115
119,324
(557)
2,285
1,728

2000 AR

N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S

O ’ R E I L L Y A U T O M O T I V E

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
O’Reilly Automotive, Inc. (“the Company”) is a specialty retailer
and supplier of automotive aftermarket parts, tools, supplies
and accessories to both the DIY customer and the professional
installer throughout Arkansas, Illinois, Iowa, Kansas, Louisiana,
Missouri, Nebraska, Oklahoma and Texas.

Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated
in consolidation.

Revenue Recognition
The Company recognizes sales upon shipment of products.

Use of Estimates
The preparation of consolidated financial statements, in conformity
with accounting principles generally accepted in the United States
(“GAAP”), requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.

Inventory
Inventory, which consists of automotive hard parts, maintenance
items, accessories and tools, is stated at the lower of cost or
market. Cost has been determined using the last-in, first-out
(“LIFO”) method. If the first-in, first-out (“FIFO”) method of costing
inventory had been used by the Company, inventory would have
been $369,869,000 and $291,077,000 as of December 31, 2000,
and 1999, respectively.

Amounts Receivable from Vendors
Amounts receivable from vendors consist primarily of
amounts due the Company for changeover merchandise,
rebates and other allowances.

Property and Equipment
Property and equipment are carried at cost. Depreciation is
provided on straight-line and accelerated methods over the
estimated useful lives of the assets. Service lives for property
and equipment generally range from three to forty years.
Leasehold improvements are amortized over the terms of the
underlying leases. Maintenance and repairs are charged to expense
as incurred. Upon retirement or sale, the cost and accumulated

2000 AR

depreciation are eliminated and the gain or loss, if any, is included
in the determination of net income as a component of other
income (expense). The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable.

The Company capitalizes interest costs as a component of
construction in progress, based on the weighted-average rates
paid for long-term borrowings. Total interest costs capitalized
for the years ended December 31, 2000, 1999 and 1998, were
$1,354,000, $1,134,000 and $1,213,000, respectively.

Income Taxes
The Company accounts for income taxes using the liability method
in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 109. The liability method provides that deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.

Advertising Costs
The Company expenses advertising costs as incurred. Advertising
expense charged to operations amounted to $12,150,000,
$9,428,000 and $8,326,000 for the years ended December 31,
2000, 1999 and 1998, respectively.

Financial Instrument
The Company utilizes interest rate swap agreements to manage
interest rate risk on its floating rate debt. During 1998, the
Company entered into an interest-rate swap agreement to modify
the interest characteristics of its outstanding long-term debt from a
floating rate to a fixed rate basis. This agreement involves the
receipt of floating rate amounts in exchange for fixed rate interest
payments over the life of the agreement without an exchange of
the underlying principal amount. The differential to be paid or
received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related
amount payable to or receivable from the counterparty is included
in other liabilities or assets. The fair value of the swap agreement
is not recognized in the consolidated financial statements and
approximates its carrying cost.

Pre-opening Costs
Costs associated with the opening of new stores, which consist
primarily of payroll and occupancy costs, are charged to operations
as incurred.

NOTE 2 – ACQUISITION

Effective January 31, 1998, the Company acquired 100% of
the outstanding capital stock of Hi-Lo Automotive, Inc. and
its subsidiaries (“Hi/LO”). Hi/LO was a specialty retailer supplying
automotive aftermarket tools, supplies and accessories principally
throughout Texas and Louisiana. The purchase price was
approximately $49.3 million, including acquisition costs. The
purchase price was financed with long-term borrowings under
the Company’s credit facility. The acquisition was accounted for
using the purchase method of accounting and accordingly, the
results of operations of Hi/LO have been included in the Company’s
results of operations since the date of acquisition. The purchase
price was allocated to assets acquired and liabilities assumed based
on their estimated fair values. The excess of net assets acquired
over the purchase price, which totaled approximately $9.7 million,
has been applied as a reduction to the acquired property and
equipment. Additional purchase liabilities recorded included
approximately $5,622,000 for severance and certain costs associated
with the closure and consolidation of certain acquired stores, none
of which remained on the balance sheet at December 31, 1999.

The following unaudited pro forma financial information presents
the combined historical results of the Company and Hi/LO as if the
acquisition had occurred at January 1, 1998, after giving effect to
certain adjustments, including the application of the excess of net
assets acquired over the purchase price to the acquired property
and equipment and resulting effect on depreciation, increased
interest expense on long-term debt related to the acquisition,
and the related income tax effects.

(In thousands, except per share data)
Product sales
Net income
Net income per share-assuming dilution

1998
634,072
29,443
0.68

$
$
$

The pro forma combined results are not necessarily indicative of
the results that would have occurred if the acquisition had been
completed as of January 1, 1998.

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued

Stock Option Plans
The Company has elected to follow Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), and related interpretations in accounting for its
employee stock options because, as discussed in Note 11, the
alternative fair value accounting provided for under SFAS No. 123,
“Accounting for Stock-Based Compensation,” requires the use of
option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of
the Company’s stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

Concentration of Credit Risk
The Company grants credit to certain customers who meet the
Company’s pre-established credit requirements. Generally, the
Company does not require security when trade credit is granted
to customers. Credit losses are provided for in the Company’s
consolidated financial statements and consistently have been
within management’s expectations.

The Company has provided long-term financing to a company,
through a note receivable, for the construction of an office
building which is leased by the Company (see Note 7). The note
receivable, amounting to $2,066,000 and $2,137,000 at December
31, 2000 and 1999, respectively, bears interest at 6% and is due
in August 2017.

The carrying value of the Company’s financial instruments,
including cash, short-term investments, accounts receivable,
accounts payable and long-term debt, as reported in the
accompanying consolidated balance sheets, approximates
fair value.

Reclassifications
The reclassifications of certain amounts have been made to the
1999 and 1998 consolidated financial statements to conform to
the 2000 presentation.

New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued SFAS
No. 133, “Accounting for Derivative Instruments and Hedging
Activities” as deferred by SFAS No. 137, which is required to be
adopted in years beginning after June 15, 2000. The Company
does not anticipate that the adoption of SFAS No. 133 will have
a significant effect on its financial position or results of operations.

2000 AR

N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S continued …

O ’ R E I L L Y A U T O M O T I V E

NOTE 3 – SHORT-TERM INVESTMENTS

The Company’s short-term investments are classified as available-
for-sale in accordance with SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and are carried at cost,
which approximates fair market value. At December 31, 2000, and
1999, short-term investments consisted of preferred equity securities.

NOTE 4 – RELATED PARTIES

The Company leases certain land and buildings related to its
O’Reilly Auto Parts stores under six-year operating lease agreements
with O’Reilly Investment Company and O’Reilly Real Estate
Company, partnerships in which certain shareholders of the
Company are partners. Generally, these lease agreements provide
for renewal options for an additional six years at the option of the
Company. Additionally, the Company leases certain land and buildings
related to its O’Reilly Auto Parts stores under 15-year operating
lease agreements with O’Reilly-Wooten 2000 LLC, which is owned
by certain shareholders of the Company. Generally, these lease
agreements provide for renewal options for two additional five-year
terms at the option of the Company (see Note 7). Rent expense
under these operating leases totaled $2,671,000, $2,647,000 and
$2,158,000 in 2000, 1999 and 1998, respectively.

NOTE 5 – NOTE PAYABLE TO BANK

At December 31, 2000, the Company had available short-term
unsecured bank lines of credit providing for maximum borrowings
of $10 million, all of which was outstanding at December 31,
2000, and $5 million of which was outstanding at December 31,
1999. The lines of credit bear interest at LIBOR plus 0.50% (7.25%
at December 31, 2000). Additionally, at December 31, 2000, the
Company had available a short-term line of credit in the amount of
$25 million, all of which was outstanding at December 31, 2000.
This line of credit was paid in full on January 9, 2001. The line of
credit bears interest at LIBOR plus 0.75% (7.45% at December 31,
2000). The weighted-average interest rate for all lines of credit for
the years ended December 31, 2000, and 1999 was 7.2% and
6.7%, respectively.

NOTE 6 – LONG-TERM DEBT

At December 31, 2000, the Company had available an unsecured
credit facility providing for maximum borrowings of $152.5 million.
The facility is comprised of a revolving credit facility of $125 million
and a term loan of $27.5 million. At December 31, 1999, the
Company had available a credit facility providing for maximum
borrowings of $165 million. The facility was comprised of a
$125 million revolving credit facility and a $40 million term loan.

2000 AR

At December 31, 2000, and 1999, $74,755,000 and $61,560,000,
respectively, of the revolving credit facility and $27.5 million and
$40 million, respectively, of the term loan were outstanding. The
credit facility, which bears interest at LIBOR plus 0.50% (7.0% at
December 31, 2000), expires in January 2003.

During 2000 and 1999, the Company leased certain computer
equipment under capitalized leases. The lease agreements are
three-year terms expiring from 2001 to 2003. At December 31,
2000, the monthly installments under these agreements were
approximately $180,000. The present value of the future minimum
lease payments under these agreements totaled $2,232,000 and
$3,362,000 at December 31, 2000, and 1999, respectively, which has
been classified as long-term debt in the accompanying consolidated
financial statements. During 2000 and 1999, the Company
purchased $800,000 and $2,676,000, respectively, of assets
under capitalized leases.

Additionally, the Company has various unsecured notes payable
to individuals, amounting to $97,000 and $140,000, at December
31, 2000, and 1999, respectively. The notes bear interest at rates
ranging from 7.75% to 9.0% and are due in monthly installments
of approximately $1,500 including interest. Only one note
remained at December 31, 2000, which matures in 2008.

Indirect borrowings under letters of credit provided by a
$5,000,000 sublimit of the revolving credit facility totaled
$648,510 and $1,275,000 at December 31, 2000, and 1999,
respectively. These letters of credit reduced availability of
borrowings at December 31, 2000, and 1999.

Principal maturities of long-term debt for each of the next five
years ending December 31 are as follows:

(In thousands)
2001
2002
2003
2004
2005
Thereafter

$ 14,121
11,715
78,684
13
14
37
$ 104,584

Cash paid by the Company for interest during the years ended
December 31, 2000, 1999 and 1998 amounted to $8,240,000,
$6,134,000 and $8,509,000, respectively.

NOTE 7 – COMMITMENTS

Lease Commitments
During 1999, the Company entered into a Master Lease Agreement
with O’Reilly-Wooten 2000 LLC (an entity owned by certain
shareholders of the Company) related to the sale and leaseback of
certain properties. The transaction closed on January 4, 1999, with
a purchase price of approximately $5.5 million. The lease calls for
an initial term of 15 years with two five-year renewal options.

On December 29, 2000, the Company completed a sale-leaseback
transaction. Under the terms of the transaction, the Company sold
90 properties, including land, buildings and improvements, for $52.3
million. The lease, which is being accounted for as an operating
lease, provides for an initial lease term of 21 years and may be
extended for one initial ten-year period and two additional successive
periods of five years each. The resulting gain of $4.5 million has
been deferred and is being amortized over the initial lease term.
Net rent expense during the initial term will be approximately
$5.5 million annually and is included in the table of future mini-
mum annual rental commitments under non-cancelable operating
leases. Proceeds from the transaction were used to reduce out-
standing borrowings under the Company’s Revolving Credit Facility.

On December 15, 2000, the Company entered into a $50 million
Synthetic Operating Lease Facility (“the Facility”) with a group of
financial institutions. Under the Facility, the Lessor acquires land to be
developed for O’Reilly Auto Parts stores and funds the development
thereof by the Company as the Construction Agent and Guarantor.
The Company subsequently leases the property from the Lessor for
an initial term of five years with two additional successive renewal
periods of five years each. The Facility provides for a residual value
guarantee and purchase options on the properties. It also contains
a provision for an event of default whereby the Lessor, among
other things, may require the Company to purchase any or all of
the properties. The Company plans to utilize the Facility to finance
a portion of its planned store growth for 2001. Funding under the
Facility at December 31, 2000, totaled $1.0 million.

The Company also leases certain office space, retail stores, property
and equipment under long-term, non-cancelable operating leases.
Most of these leases include renewal options and some include
options to purchase and provisions for percentage rent based on

sales. At December 31, 2000, future minimum rental payments
under all of the Company’s operating leases for each of the
next five years and in the aggregate are as follows:

(In thousands)
2001
2002
2003
2004
2005
Thereafter

Related
Parties

Non-related
Parties

Total
$ 2,032 $ 19,823 $ 21,855
20,196
18,239
18,034
16,874
16,437
15,436
13,938
13,273
117,880
112,305
$ 12,390 $ 195,950 $ 208,340

1,957
1,160
1,001
665
5,575

Rental expense amounted to $16,219,000, $14,122,000 and
$13,862,000 for the years ended December 31, 2000, 1999,
and 1998, respectively.

Other Commitments
The Company had construction commitments, which totaled
approximately $7.0 million, at December 31, 2000.

NOTE 8 – LEGAL PROCEEDINGS

The Company is currently involved in litigation as a result of a
complaint filed against Hi/LO in May 1997. The plaintiff in this
lawsuit sought to certify a class action on behalf of persons or
entities in the states of Texas, Louisiana and California that have
purchased a battery from Hi/LO since May 1990. The complaint
alleges that Hi/LO offered and sold “old,” “used” and “out of
warranty” batteries as if the batteries were new, resulting in claims
for violations of deceptive trade practices, breach of contract,
negligence, fraud, negligent misrepresentation and breach of
warranty. The plaintiff is seeking, on behalf of the class, an
unspecified amount of compensatory and punitive damages,
as well as attorneys’ fees and pre- and post-judgment interest.
On July 27, 1998, the Trial Court certified this class. The Company
appealed the decision to certify the class in the Court of Appeals
for the Ninth District of Texas. On February 25, 1999, the Court of
Appeals issued an opinion affirming the Trial Court’s decision to
certify the class. At that time, the Company appealed the opinion
by seeking a mandamus from the Supreme Court of Texas. On
April 6, 1999, the Supreme Court of Texas asked the plaintiff to

2000 AR

N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S continued …

O ’ R E I L L Y A U T O M O T I V E

NOTE 8 – LEGAL PROCEEDINGS
continued
file a response, which was filed on April 14, 1999. On May 3,
1999, the Company filed a reply to that response. On June 6,
2000, the Supreme Court of Texas denied the appeal for a
mandamus. On January 15, 2001, the Company reached a
favorable verbal settlement with the plaintiffs’ counsel. The
settlement documents are currently being prepared and will be
subject to the approval of the Trial Court. The Company believes
that this lawsuit will not have a material adverse effect on the
Company’s consolidated financial position, results of operations,
or cash flows.

In addition, the Company is involved in various other legal
proceedings incidental to the conduct of its business. 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, they will have a material adverse effect on the
consolidated financial position, results of operations or cash flows
of the Company.

NOTE 9 – INTEREST RATE RISK MANAGEMENT

The Company entered into an interest rate swap agreement to
effectively convert a portion of its floating rate long-term debt to a
fixed rate basis, thereby reducing the impact of interest rate changes
on future income. Pursuant to this pay-fixed swap agreement, the
Company agreed to exchange, at specified intervals, the difference
between the fixed and the floating interest amounts calculated on
the notional amount of the swap agreement which totaled $50 million,
$50 million and $100 million, respectively, at January 27, 2000,
December 31, 1999, and 1998. The Company’s fixed interest rate
under the swap agreement was 5.66% and the counterparty’s
floating rate was 6.20% at January 27, 2000, and December 31,
1999. The swap agreement expired on January 27, 2000.

NOTE 10 – EMPLOYEE BENEFIT PLANS

The Company sponsors a contributory profit sharing and savings
plan that covers substantially all employees who are 21 years of age
with at least six months of service. Employees may contribute up to
15% of their annual compensation subject to Internal Revenue Code
maximum limitations. The Company has agreed to make matching
contributions equal to 50% of the first 2% of each employee’s
contribution and 25% of the next 2% of each employee’s contribution.
Additional contributions to the plan may be made as determined
annually by the Board of Directors. After three years of service,
Company contributions and earnings thereon vest at the rate of 20%

per year. Company contributions charged to operations amounted
to $2,454,000 in 2000, $2,618,000 in 1999 and $1,818,000 in
1998. Company contributions, in the form of common stock, to the
profit sharing and savings plan to match employee contributions
during the years ended December 31 were as follows:

Year
Contributed
2000
1999
1998

Shares
49,891
29,481
31,438

Market
Value
$724,000
658,000
514,000

Profit sharing contributions accrued at December 31, 2000, 1999,
and 1998 funded in the next year through the issuance of shares
of the Company’s common stock were as follows:

Year
Funded
2000
1999
1998

Shares
132,890
60,640
72,386

Market
Value
$1,919,000
1,300,000
1,070,000

The Company also sponsors an unfunded non-contributory defined
benefit health care plan, which provides certain health benefits to
retired employees. According to the terms of this plan, retirees’
annual benefits are limited to $1,000 per employee starting at age
66 for employees with 20 or more years of service. Post-retirement
benefit costs for each of the years ended December 31, 2000,
1999, and 1998 amounted to $12,000.

Additionally, the Company has adopted a stock purchase plan
under which 1,000,000 shares of common stock are reserved for
future issuance. Under the plan, substantially all employees and
non-employee directors have the right to purchase shares of the
Company’s common stock monthly at a price equal to 85% of the
fair market value of the stock. Under the plan, 147,315 shares were
issued at a weighted-average price of $12.83 per share during
2000, 78,927 shares were issued at a weighted-average price of
$18.90 per share during 1999, and 74,632 shares were issued at
a weighted-average price of $15.05 per share during 1998.

The Company has in effect a performance incentive plan for the
Company’s senior management under which 400,000 shares of
restricted stock are reserved for future issuance. Under the plan,
12,164 shares, 6,796 shares and 5,358 shares were issued during
2000, 1999 and 1998, respectively.

2000 AR

NOTE 11 – STOCK OPTION PLANS

The Company has a stock option plan under which incentive stock
options or non-qualified stock options may be granted to officers
and key employees. An aggregate of 6,000,000 shares of common
stock is reserved for future issuance under this plan. The exercise
price of options granted shall not be less than the fair market
value of the stock on the date of grant and the options will expire
no later than 10 years from the date of grant. Options granted
pursuant to the plan become exercisable no sooner than six months
from the date of grant. In the case of a shareholder owning more
than 10% of the outstanding stock of the Company, the exercise
price of an incentive option may not be less than 110% of the fair
market value of the stock on the date of grant, and such options
will expire no later than 10 years from the date of grant. Also,
the aggregate fair market value of the stock with respect to
which incentive stock options are exercisable for the first time
by any individual in any calendar year may not exceed $100,000.
A summary of outstanding stock options is as follows:

Outstanding at
December 31, 1997

Granted
Exercised
Canceled
Forfeitures
Outstanding at
December 31, 1998

Granted
Exercised
Canceled
Forfeitures
Outstanding at
December 31, 1999

Granted
Exercised
Canceled
Outstanding at
December 31, 2000

Price
per Share

Number
of Shares

$ 4.38 – 14.00
12.38 – 22.91
4.38 – 16.07
4.38 – 20.88
4.38

5.94 – 22.91
18.44 – 26.75
5.94 – 18.75
6.75 – 26.38
6.07

6.07 – 26.75
10.56 – 24.38
6.07 – 22.75
10.00 – 25.88

2,672,400
823,750
(238,600)
(68,700)
(5,000)

3,183,850
1,148,000
(948,620)
(35,750)
(1,000)

3,346,480
581,250
(361,875)
(206,625)

$ 8.00 – 26.75

3,359,230

Options to purchase 1,729,033, 1,171,888 and 855,100 shares of
common stock were exercisable at December 31, 2000, 1999, and
1998, respectively.

The Company also maintains a stock option plan for non-employee
directors of the Company under which 300,000 shares of common
stock are reserved for future issuance. All director stock options are
granted at fair market value on the date of grant and expire on the

earlier of termination of service to the Company as a director or
seven years. Options granted under this plan become exercisable
six months from the date of grant. A summary of outstanding
stock options is as follows:

Outstanding at
December 31, 1997

Granted
Exercised
Canceled
Outstanding at
December 31, 1998

Granted
Exercised
Canceled
Outstanding at
December 31, 1999

Granted
Exercised
Canceled
Outstanding at
December 31, 2000

Price
per Share

$ 4.38 – 9.10
13.50
4.38
–

6.56 – 13.50
23.91
–
–

6.56 – 23.91
12.44
6.56 – 6.75
–

Number
of Shares

60,000
20,000
(10,000)
–

70,000
20,000
–
–

90,000
20,000
(20,000)
–

$ 9.09 – 23.91

90,000

All options under this plan were exercisable at December 31,
2000, 1999, and 1998.

Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if
the Company had accounted for its employee and non-employee
director stock options under the fair value method of that SFAS.

The fair values for these options were estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2000, 1999 and 1998, respectively:
risk-free interest rates of 5.02%, 6.54% and 4.74%; volatility factors
of the expected market price of the Company’s common stock of
.442, .247, .221; and weighted-average expected life of the
options of 8.9, 8.0 and 8.0 years. The Company assumed a 0%
dividend yield over the expected life of the options. The weighted-
average fair values of options granted during the years ended
December 31, 2000, 1999, and 1998 were $9.24, $10.22 and
$6.44, respectively. The weighted-average remaining contractual
life at December 31, 2000, for all outstanding options under the
Company’s stock option plans is 7.1 years. The weighted-average
exercise price for all outstanding options under the Company’s
stock option plans was $16.12 at December 31, 2000.

2000 AR

N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S continued …

O ’ R E I L L Y A U T O M O T I V E

NOTE 11 – STOCK OPTION PLANS
continued
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company’s stock
options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management’s
opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options’ vesting period.
The effects of applying SFAS No. 123 for pro forma disclosures are
not likely to be representative of the effects on reported net
income or losses for future years. The Company’s pro forma informa-
tion follows:

(In thousands, except per share data)

Pro forma net income
Pro forma basic net
income per share
Pro forma net income
per share – assuming
dilution

2000

1999

1998

$ 48,177

$ 43,501

$ 29,242

$ 0.94

$ 0.89

$ 0.69

$ 0.93

$ 0.88

$ 0.67

NOTE 12 – INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted
income per common share:

(In thousands, except per share data)
Years ended December 31,
Numerator (basic and

2000

1999

1998

diluted):
Net income
Denominator:

Denominator for basic

income per common
share – weighted-
average shares

Effect of stock

options (Note 11)
Denominator for diluted
income per common
share – Adjusted
weighted-average
shares and assumed
conversion
Basic net income

per common share
Net income per common
share – assuming
dilution

$ 51,708

$ 45,639

$ 30,772

51,168

48,674

42,476

560

1,041

728

51,728

49,715

43,204

$ 1.01

$ 0.94

$ 0.72

$ 1.00

$ 0.92

$ 0.71

2000 AR

NOTE 13 – INCOME TAXES

The provision for income taxes consists of the following:

Deferred income taxes reflect the net tax effects of temporary dif-
ferences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred tax
assets and liabilities are as follows at December 31:

(In thousands)

Deferred tax assets:

Current:

Allowance for doubtful

accounts
Other accruals

Noncurrent:
Other
Total deferred tax assets

Deferred tax liabilities:

Current:

2000

1999

51
2,960
3,011

834
3,845

$ 226
3,586
3,812

1,306
5,118

(In thousands)

2000:

Federal
State

1999:

Federal
State

1998:

Federal
State

Current

Deferred

Total

$ 25,120
3,086
$ 28,206

$ 2,946
299
$ 3,245

$ 28,066
3,385
$ 31,451

$ 19,934
1,996
$ 21,930

$ 4,959
496
$ 5,455

$ 24,893
2,492
$ 27,385

$ 10,386
1,156
$ 11,542

$ 6,852
777
$ 7,629

$ 17,238
1,933
$ 19,171

A reconciliation of the provision for income taxes to the amounts
computed at the federal statutory rate is as follows:

Inventory carrying value

1,609

2,036

(In thousands)

Noncurrent:

Property and equipment
Total deferred tax liabilities
Net deferred tax assets (liabilities)

4,920
6,529
$ (2,684)

2,521
4,557
561

2000

1999

1998

Federal income taxes
at statutory rate
State income taxes,

net of federal tax benefit

Other items, net

$ 29,106

$ 25,558

$ 17,480

2,200
145
$ 31,451

1,625
202
$ 27,385

1,256
435
$ 19,171

The tax benefit associated with the exercise of non-qualified stock
options has been reflected as additional paid-in capital in the
accompanying consolidated financial statements.

During the years ended December 31, 2000, 1999, and 1998,
cash paid by the Company for income taxes amounted to
$24,244,000, $17,151,000 and $16,229,000, respectively.

2000 AR

N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S continued …

O ’ R E I L L Y A U T O M O T I V E

NOTE 14 – STOCK SPLIT

NOTE 16 – QUARTERLY FINANCIAL DATA – UNAUDITED

On November 8, 1999, the Company’s Board of Directors declared
a two-for-one stock split to be effected in the form of a 100%
stock dividend payable to all shareholders of record as of
November 15, 1999. The stock dividend was paid on November
30, 1999. Accordingly, this stock split has been recognized by
reclassifying $254,000, the par value of the additional shares
resulting from the split, from retained earnings to common stock.

All share and per share information included in the accompanying
consolidated financial statements has been restated to reflect the
retroactive effect of the stock split for all periods presented.

NOTE 15 – PUBLIC OFFERING OF COMMON STOCK

In March 1999, the Company completed a secondary public offer-
ing of 7,002,000 shares of common stock. Pursuant to this offer-
ing, the Company issued 7,002,000 shares of common stock
resulting in net proceeds to the Company of $124,570,000. A por-
tion of the proceeds was used to repay the Company’s outstanding
indebtedness under its bank credit facilities. The remaining portion
of the proceeds was used to fund the Company’s expansion.

(In thousands, except per share data)
Year ended
First
Quarter
December 31, 2000

Second
Quarter

Third
Quarter

Fourth
Quarter

Product sales
Gross profit
Operating
income
Net income
Basic net income
per share
Net income

per share –
assuming
dilution

$ 195,758
84,712

$ 226,359
97,261

$ 251,413 $ 216,891
94,865

105,863

19,486
11,567

24,793
14,359

28,805
16,572

16,945
9,210

0.23

0.28

0.32

0.18

0.23

0.28

0.32

0.18

(In thousands, except per share data)
First
Year ended
Quarter
December 31, 1999

Second
Quarter

Third
Quarter

Fourth
Quarter

Product sales
Gross profit
Operating
income
Net income
Basic net income
per share
Net income

per share –
assuming
dilution

$ 166,404
70,957

$ 196,107
81,823

$ 208,401 $ 183,210
84,509

88,001

16,241
8,603

19,630
11,769

22,231
13,412

18,818
11,855

0.20

0.23

0.26

0.23

0.20

0.23

0.26

0.23

The above quarterly financial data is unaudited, but in the opinion
of management, all adjustments necessary for a fair presentation of the
selected data for these interim periods presented have been included.

2000 AR

R E P O R T O F I N D E P E N D E N T
A U D I T O R S

O ’ R E I L L Y A U T O M O T I V E

The Board of Directors and Shareholders
O’Reilly Automotive, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of O’Reilly Automotive, Inc. and Subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
O’Reilly Automotive, Inc. and Subsidiaries at December 31, 2000, and 1999, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.

Kansas City, Missouri
February 23, 2001

2000 AR

D I R E C T O R S A N D E X E C U T I V E C O M M I T T E E

Chub O’Reilly
Chairman of the Board Emeritus

and Director

Charlie O’Reilly
Vice Chairman of the Board and Director

David O’Reilly (1)
Co-Chairman of the Board and

Chief Executive Officer and Director

Larry O’Reilly
Co-Chairman of the Board and Chief

Operating Officer and Director

Rosalie O’Reilly Wooten
Executive Vice President and Director

Ted Wise
President of Sales/Operations/Real Estate

Greg Henslee
President of Merchandise/

Systems/Distribution

Paul Lederer (1)
Director
Director R & B, Inc.
Director Woods Equipment Co.
Director FPM, Inc.
Director Trans-Pro, Inc.

Advisory Board Richco, Inc.
Advisory Board Turtlewax, Inc.
Advisory Board Ampere Products
Advisory Board The Wine Discount Center
(Director 1993 – July 1997; Feb. 2001)

Jay Burchfield (1)(2)
Director
Chairman of the Board of City Bancorp
Chairman of the Board of Trust Company

of the Ozarks

President of Oklahoma City Bakery, Inc.
Director of The Primary Care Network
(Director since 1997)

Joe C. Greene (1)(2)
Director
Managing Partner of Greene & Curtis,

LLP, attorneys

(Director since 1993)

Jim Batten
Vice President of Finance/
Chief Financial Officer

Ron Byerly
Vice President of Marketing,
Advertising and Training

Alan Fears
Vice President of Expansion

and Acquisitions

Tricia Headley
Vice President of Corporate Services/

Corporate Secretary

Pat O’Reilly
Vice President of Distribution

Steve Pope
Vice President of Human Resources

Larry Pryor
Vice President of Merchandise

Jeff Shaw
Vice President of Southern Division

Jerry Skaggs
Vice President of Sales

Mike Williams
Vice President of Information Systems

(1) Member of Audit Committee

(2) Member of Compensation

Committee

O P E R A T I N G M A N A G E M E N T

SENIOR MANAGEMENT

Allen Alexander
Director of Des Moines Region

Keith Childers
Director of Little Rock Region

Jack House
Director of Customer Services

Barry Sabor
Director of Loss Prevention

Buddy Ball
Director of Kansas City Region

Ken Cope
Director of Dallas Rural Region

Randy Johnson
Director of Inventory Control

Denny Smith
Director of Springfield Region

Tony Bartholomew
Director of Southern Division Sales

Charlie Downs
Director of Store Expansion

Brad Knight
Director of Pricing

Bert Bentley
Director of Houston Region

Phyllis Evans
Director of Store Administration

Doug Bragg
Director of Oklahoma Region

Michelle Bright
Director of Finance

Mary Brown
Director of Human Resources

John Grassham
Director of Dallas Region

Joe Hankins
Director of Store Design

Jaime Hinojosa
Director of Valley Region

2000 AR

Jim Maynard
Director of Employment/Team
Member Relations

Dick Smith
Director of Construction
and Real Estate Development

Charlie Stallcup
Director of Training

Kim Mesenbrink
Director of Accounting

David Strom
Director of Houston Region

Wayne Price
Director of Risk Management

Mike Swearengin
Director of Merchandise

Steve Rice
Director of Credit and Collections

Danny Woods
Director of Installer Marketing

O P E R A T I N G M A N A G E M E N T continued …

CORPORATE MANAGEMENT

Tom Allen
Computer Operations Manager

Keith Asby
National Accounts Manager

Jeanene Asher
Telecommunications Manager

Mike Ballard
PC Development Manager

Yvonne Ballew
Payroll Manager

Cecil Davis
Assistant Distribution Center Manager

Joe Edwards
Store Installations Manager

Paula Eyman
Accounting Office Manager

Beck Fincher
Advertising Manager

Kevin Ford
Regional Distribution Center Manager

Bob Bealert
Springfield Distribution Center Manager

Randy Freund
Regional Field Sales Manager

Greg Beck
Purchasing Manager

Doug Bennett
Sales Department Manager

Steve Berger
Safety Manager

Ron Biegay
Southern Division Training Manager

Larry Blundell
Regional Field Sales Manager

Rob Bodenhamer
Database Development Manager

David Furr
Service Equipment Sales Manager

David Glore
Ozark Sales Manager

Larry Gregory
Store Maintenance Manager

Mike Hauk
Central Division Training Manager

Brett Heintz
Store Procedures Manager

Doy Hensley
Store Help Support Manager

Larry Boevers
Oklahoma City Distribution Center Manager

Julie Hibler
Corporate Services Manager

Tom Bollinger
Regional Field Sales Manager

Bridget Brashears
PC Support Manager

John Bush
Regional Field Sales Manager

Julie Carroll
Des Moines Distribution Center Manager

Diana Hicks
Internal Communications Manager

Mark Hoehne
Regional Field Sales Manager

Lori Holden
Customer Service Manager

Doug Hopkins
Distribution Systems Manager

Stan Clingan
Regional Field Sales Manager

Vicki Hume
Corporate Administration/Travel Manager

Doug Hutchison
Inventory Control Project Manager

Steve Jasinski
Systems Development Manager

Gene Johnson
Property Manager

David Jordan
Kansas City Distribution Center Manager

Les Keeth
Supplier Credits Manager

Julie Langley
Finance Controller

Steve Lines
Sales Training Manager

Jeff Main
Jobber Systems Sales Manager

Ed Martinez
Houston Distribution Center Manager

David McCready
Regional Distribution Center Manager

Bryan Mescher
Regional Field Sales Manager

Brad Oplotnik
Systems Networking Manager

Steve Phillips
Southern Division Regional
Loss Prevention Manager

Art Rodriguez
Regional Field Sales Manager

Chuck Rogers
Installer Systems Manager

Mary Sabor
Distribution Center Administrative
Services Manager

Rick Samsel
Inventory Control Manager

Joyce Schultz
Southern Division Office Manager

Tom Seboldt
Product Manager

Darren Shaw
PBE Sales Manager

Tim Smith
Credit Manager

Dwayne Snow
Regional Field Sales Manager

Paul Stinson
Regional Field Sales Manager

Mary Stratton
Human Resources Records Manager

Cliff Tomerlin
Regional Field Sales Manager

Jeff Watts
Regional Field Sales Manager

Kathy Prainito
Real Estate Contract Administration Manager

Larry Wiles
A/V Communications Manager

Ed Randall
Real Estate Acquisition Manager

Shari Reaves
Benefits Manager

Jeanetta Redden
Dallas Distribution Center Manager

Saundra Wilkinson
Store Support Manager

Joe Winterberg
Product Manager

DISTRICT CORPORATE MANAGERS

Chuck Avis

Emmitt Barina

Brad Beckham

Steve Beil

Tim Brakebill

Pat Brown

Dan Dowell

Tommy Dunn

Dallas Engel

Ron England

Bill Fellows

Kirk Frazier

Mike Hollis

David House

Jeff Howard

Jeff Jennings

B. J. Jones

Chad Keel

Chris Lewis

Rick Lorenzen

Kenny Martin

Rodger McClary

Kevin McCurry

Marc McGehee

Pernell Peters

Marvin Swaim

David Pilat

Mike Platt

Will Reger

Alan Riddle

Larry Roof

Bert Tamez

Randy Tanner

Rick Tearney

Greg Thomas

Dallas Thompson

Darryl Thompson

Mike Chapman

Terry Grimmett

Butch Kelton

Wayne McKinney

Juan Salinas

David Chavis

Rick Hedges

Todd Kemper

Chris Meade

Jim Scott

Justin Tracy

Ken Coda

Kenny Criss

Bruce Dowell

Gerry Hendrix

Perry Hess

Brad Hilker

Jim Koehn

John Krebs

Dave Leonhart

Curt Miles

Ciro Moya

Ron Papay

Steve Severe

Mark Smith

Mark Van Hoecke

Brett Warstler

Brian Stecklein

Rob Weiskirch

John Wells

Allen Wise

Dexter Woods

Mike Yates

Jason York

2000 AR

S H A R E H O L D E R I N F O R M A T I O N

O ’ R E I L L Y A U T O M O T I V E

Corporate Address
233 South Patterson
Springfield, Missouri 65802
417-862-3333
Web site – www.oreillyauto.com

Registrar and Transfer Agent
UMB Bank
928 Grand Boulevard
Kansas City, Missouri 64141-0064

Inquiries regarding stock transfers, lost certificates or address
changes should be directed to UMB Bank at the above address.

Independent Auditors
Ernst & Young LLP
One Kansas City Place
Kansas City, Missouri 64105-2143

Legal Counsel
Gallop Johnson & Neuman, L.C.
101 South Hanley Road, Suite 1600
St. Louis, Missouri 63105

Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606

Annual Meeting
The annual meeting of shareholders of O’Reilly Automotive, Inc.
will be held at 10:00 a.m. local time on May 8, 2001, at the
University Plaza Convention Center, 333 John Q. Hammons
Parkway in Springfield, Missouri. Shareholders of record as of
February 28, 2001, will be entitled to vote at this meeting.

Form 10–K Report
The Form 10-K Report of O’Reilly Automotive, Inc. filed with
the Securities and Exchange Commission and our quarterly press
releases are available without charge to shareholders upon written
request. These requests and other investor contacts should be
directed to James R. Batten, Vice President of Finance/Chief
Financial Officer, at the corporate address.

2000 AR

Trading Symbol
The Company’s common stock is traded on The Nasdaq Stock
Market (National Market) under the symbol ORLY.

Number of Shareholders
As of February 28, 2001, O’Reilly Automotive, Inc. had approximately
19,500 shareholders based on the number of holders of record
and an estimate of the number of individual participants represented
by security position listings.

Analyst Coverage
The following analysts provide research coverage of O’Reilly
Automotive, Inc.

Credit Suisse First Boston – Gary Balter
William Blair & Co. – Ellen Baras
A.G. Edwards – Mark Johnson
Merrill Lynch – Douglas Neviera
Advest – Brett Jordan
Smith Moore & Co. – John Rast

Market Prices and Dividend Information
The prices in the table below represent the high and low sales
price for O’Reilly Automotive, Inc. common stock as reported by
the Nasdaq Stock Market.

The common stock began trading on April 22, 1993. No cash
dividends have been declared since 1992, and the Company does
not anticipate paying any cash dividends in the foreseeable future.

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

For the Year

2000

1999

High

Low

High

Low

$ 221⁄8

81⁄4

$ 263⁄8

$ 125⁄8

157⁄16

161⁄8

271⁄4

113⁄4

131⁄ 8

81⁄4

253⁄4

275⁄16

243⁄8

275⁄16

177⁄8

197⁄16

177⁄8

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