2012 Annual Report
IN-TUNE WITH CUSTOMERS
Driving top-notch service to the next level
Financial Highlights
In thousands, except earnings per share data and operating data
YEARS ENDED DECEMBER 31,
Store Count
2012
3,976
2011
3,740
2010
3,570
2009
3,421
2008
3,285
Percentage Increase in Same-Store Sales
3.8%
4.6%
8.8%
4.6%
1.5%
Sales
Operating Income
Net Income
$ 6,182,184
$ 5,788,816
$ 5,397,525
$ 4,847,062
$ 3,576,553
977,393
585,746
866,766
507,673
712,776
419,373
537,619
307,498
335,617
186,232
Accounts Payable to Inventory
84.7%
64.4%
44.3%
42.8%
46.9%
Working Capital
Total Assets
Total Debt
460,083
1,027,600
1,072,294
1,007,576
821,932
5,749,187
5,500,501
5,047,827
4,781,471
4,193,317
1,095,956
797,574
358,704
790,748
732,695
Shareholders’ Equity
2,108,307
2,844,851
3,209,685
2,685,865
2,282,218
Earnings Per Share (assuming dilution)
$
4.75
$
3.71
$
2.95
$
2.23
$
1.48
Weighted-Average Common Shares
Outstanding (assuming dilution)
123,314
136,983
141,992
137,882
125,413
“CUSTOMERS DON’T CARE WHAT YOU KNOW UNTIL
2 0 0 7
2 0 0 8
2 0 0 9
Comparison of Five-Year Cumulative Return
O’Reilly Automotive Inc.
NASDAQ Retail Trade Stocks
NASDAQ US Market
Standard and Poor’s S&P 500
The graph below shows the cumulative total shareholder return
assuming the investment of $100, on December 31, 2007, and the
reinvestment of dividends thereafter, in the common stock of O’Reilly
Automotive, Inc., the NASDAQ Retail Trade Stocks Total Return Index,
the NASDAQ United States Stock Market Total Returns Index and the
Standard and Poor’s S&P 500 Index.
$ 1 0 0
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O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
Same-Store Sales
(percentage increase)
Operating Income as a
Percentage of Sales
Diluted Earnings
Per Share
Free Cash Flow
(in millions)
Return on
Invested Capital
3.8%
15.8%
$4.75
$951
20.8%
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
08
09
10
11
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THEY KNOW THAT YOU CARE.” - CHARLIE O’REILLY
2 0 1 0
2 0 1 1
2 0 1 2
$276
$ 1 6 2
$ 1 2 4
$ 1 0 9
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O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
VALUES LIKE HONESTY, INTEGRITY AND HARD WORK WERE ESSENTIAL TO OUR FOUNDATION
19 57
It began with two men – C.F. and Chub O’Reilly
– who had the courage and confidence to set
out on their own. Along with a team of 11 others
who shared their values of honesty, integrity and
hard work, they established a Company whose
fundamental mission is providing outstanding
customer service, every day.
3
O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
THESE VALUES HAVE BEEN INSTRUMENTAL TO OUR SUCCESS
20 12
These key values of honesty, integrity and hard
work have been instilled in, and are lived by, our
Team Members every day. Our fundamental
mission of providing outstanding customer
service has resulted in 55 years of consistent,
strong and profitable growth.
4
O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
OUR VALUES WILL BE THE CATALYST TO OUR FUTURE SUCCESS
and Beyond
Our founding values have been instrumental to
our dynamic growth and will pave the way for our
future success. We are very proud of the strong
company we have built over the past 55 years and
are very excited about the opportunities to build
upon our past successes and continue our strong
profitable growth.
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O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
T O O U R S H A R E H O L D E R S :
On behalf of Team O’Reilly, it is a privilege to present outstanding
results for 2012, our fourth straight year of 25% or greater
adjusted earnings per share growth and our 20th consecutive
year of positive comparable store sales performance and record
operating income results since becoming a public company in
1993. Once again, our growth and success is the direct result
of our hard-working and dedicated Team Members who are
committed to providing unsurpassed levels of service to our
customers every day. Without their relentless focus on taking
care of every customer who calls or walks into our stores, we
could not have achieved our record-breaking results, and we
would like to thank each of our 53,000 Team Members for their
contributions to our continued success.
12 Our 12 Culture Values include: Commitment,
Dedication, Enthusiasm, Excellent Customer
Service, Expense Control, Hard Work, Honesty,
Professionalism, Respect, Safety, Teamwork
and Win-Win Attitude.
We began 2012, as we do every year, with our annual Managers’
Conference, where we had the opportunity to gather over
5,000 of our operations and sales team leaders together in one
place for three days of training, planning and Culture building
activities. Our conference theme was “O’Reilly Pride Is Alive
at 55” and that pride was on display during this forum where
we recognized our Company’s top performers, expressed our
appreciation to our managers for their ongoing commitment to
our success, provided training focused on providing even better
customer service and received feedback from our managers
on ways to continually improve upon our proven Dual Market
Strategy (our process of focusing equally on building and
maintaining relationships with both the do-it-yourself retail and
the do-it-for-me professional service provider customers). Most
importantly, our annual Managers’ Conference is an opportunity
to reinforce our fundamental Culture Values, which have been
the backbone of our success since the Company was formed in
1957. The high-energy conference was a tremendous success,
and our management team left fired up to execute our growth
plan and profitably grow market share.
Growing Market Share
The engine that will continue to drive our profitable growth,
and our number one priority as a Company, is our consistent,
unsurpassed customer service to both do-it-yourself and
professional service provider customers. Our relentless focus
on executing our proven Dual Market Strategy during 2012
generated a 3.8% increase in comparable store sales, which
was on top of a strong 4.6% increase in comparable store sales
during 2011 and a very robust 8.8% increase in comparable
store sales during 2010. Our top-line growth, delivered year after
year, is a testament to the strength of our team and a reflection
of our focus on customer service. We refuse to rest on our past
accomplishments and continually evaluate our competitive
position on a store-by-store basis, aggressively looking for ways
to enhance our customer service. Key initiatives we implemented
during 2012, aimed at improving upon our high levels of
customer service, included:
• The investment of over $150 million in inventory, all
positioned closest to our customers in our stores, improving
our already outstanding in-stock positions;
• The rollout of our proprietary, enhanced electronic catalog
to all our stores, allowing our parts professionals to more
quickly and easily respond to customer needs;
• An increase in the number of HUB stores in our service
network, augmenting our already robust distribution network
of 24 regional distribution centers and over 200 existing HUB
stores; and
Proven Dual Market Strategy
O’Reilly is dedicated to serving the needs of both DIY and
professional service provider customers. Our proven Dual
Market Strategy continues to set us apart from our competitors
and is key to our ongoing success. Our stores are staffed
with well-trained and technically proficient Team Members
dedicated to providing unsurpassed levels of customer service.
Our professional sales team of regional and territory sales
managers enhance the service provided by our experienced
in-store sales specialists and are responsible for establishing
and maintaining strong business partnerships with profes-
sional service provider customers to ensure O’Reilly is their
First Call for all auto parts needs.
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O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
• An increase in weekend deliveries to our stores from our
distribution centers and HUB stores, providing our stores with
seven-day-a-week access to a broader range of hard-to-find
parts, not available in most auto parts stores.
The investment in store-level inventories expands the wide
breadth of hard parts already stocked in all of our stores allowing
us to say “Yes” to our customers even more often and improves
upon the advantage we already have over our competitors who
carry fewer parts at the store level. The rollout of our enhanced
electronic catalog provides our parts professionals with an
expanded range of applications, improved product content
and specifications, easier search capabilities and an updated
interface that is easier to learn, providing one more important
tool our parts professionals can utilize to provide even higher
levels of service to our customers. We invested in the addition
of 48 HUB locations throughout our store network during 2012,
which represents a 25% increase over 2011. Our HUB stores,
which carry on average 20,000 more parts than a typical store
carries, further augment our 24 regional distribution centers,
which carry an average of 142,000 parts, by providing stores
improved same-day access to a much broader range of harder-
to-find parts. Expanded weekend availability to the hard-to-find
parts stocked in our distribution centers and HUB stores allows
our stores to provide the same high level of service over the
weekend we provide each business day, allowing us to put the
right part in our customers’ hands when they need it, seven
days a week. These initiatives, in addition to our dedication
to providing the highest levels of service in the industry and
our relentless focus on expense control, generated a record
15.8% operating margin for the year. Our 20 consecutive years
of record operating income results prove that by providing
consistent, unsurpassed customer service, we can profitably
grow our business in periods of both strong and more difficult
macroeconomic conditions.
Historically, key demand drivers for the automotive aftermarket
have been total miles driven, the average age of the vehicle fleet
and the size of the vehicle fleet. Prior to 2008, total miles driven
in the United States grew steadily every year; however from 2007
to 2011, the recession contributed to historically high levels of
unemployment, reducing the number of commuter miles driven
and resulting in a decrease in total miles driven over that period.
During 2012, unemployment levels improved and commuters
returned to the road, driving an increase in total miles driven for
42 The number of states where more than
53,000 dedicated Team Members work
hard to provide excellent customer
service every day.
the year. We are optimistic that these positive employment trends
and corresponding growth in total miles driven will continue in
2013, and will result in continued demand for our products. The
age of the fleet has increased every year for the past ten years,
primarily driven by improvements in manufacturing quality,
which allow vehicles, with proper maintenance, to be reliably
driven at much higher miles and remain on the road for longer
periods than ever before. These older vehicles go through
more routine maintenance cycles and typically require more
repairs than newer vehicles, driving demand for our products.
With extremely difficult economic times, the size of the vehicle
fleet has decreased slightly over the past three years as new
vehicle sales have been below historical levels and scrappage
rates have remained consistent. We are optimistic that as the
economy recovers, new vehicle sales will improve and scrappage
rates will remain at consistent levels, driving an increased fleet
size, comprised of high quality vehicles designed to stay on the
road for long periods of time, and resulting in continued strong
demand for our products. While we do expect our average
consumer to continue to be under pressure from an overall
difficult macroeconomic environment, we are confident that the
Growth from Coast to Coast
Store Counts
200-600
100-199
1-99
Distribution Centers •
We provide top-notch customer service to both professional ser-
vice provider and do-it-yourself customers in 42 states. During
2012, we opened 180 net, new stores staffed with well trained
teams eager to aggressively execute our proven Dual Market
Strategy. Our strategically located, regional distribution cen-
ters provide access to unsurpassed levels of parts availability to
our stores seven days a week. We will continue to expand our
O’Reilly brand, from coast to coast, in 2013, with the investment
in 190 net, new stores in both existing and new markets.
35
18
3
145
48
33
48
24
16
483
56
84
13
11
30
109
67
72
183
130
41
112
584
101
90
13
11
87
110
147
95
115
65
142
72
112
167
4
40
130
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O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
Enhanced Parts Availability
To improve upon our already outstanding customer
service, in 2012 we invested $150 million in store-
level inventory enhancements. We evaluated the
competitive position of all of our stores and stra-
tegically and systematically increased the breadth
of parts carried in our stores where it is closest to
our customers.
fundamental drivers for long-term growth in the automotive
aftermarket remain intact and our continued focus on
providing exceptional levels of service, each day, will continue
to enable us to profitably grow our market share.
New Store Growth
New store openings are a powerful component of our
long-term growth strategy, and in 2012 our new stores
outperformed our high expectations, supported by
well trained teams who are excited to deliver O’Reilly’s
outstanding customer service, In 2012, we opened 180 stores
across the country, in both new and existing markets, with
much of our expansion market growth occurring in Florida,
the Ohio Valley, and on the East and West Coasts. We were
able to capitalize on highly profitable backfill opportunities
across the country, where the attractive real estate market,
leverage on existing distribution and advertising expenses
and the outstanding reputation of the O’Reilly brand drove a
strong return on investment. We remain very committed to
driving profitable growth, and as we increase our geographic
footprint across a greater portion of the United States,
we are excited about the expanded selection of favorable,
prospective sites available for new store openings. We
continue to identify and mentor our future managers and
are very confident that we have built a strong bench of
effective leaders ready to provide industry leading customer
service. In 2013, we plan to invest in the opening of 190 new
stores from coast to coast, with aggressive expansion into
Florida, which will be supported by our new state-of-the-
art distribution center that is scheduled to open in the first
quarter of 2014. Our existing network of 24 strategically
located regional distribution centers has capacity to service
over 400 additional stores, and with this capacity spread
throughout the country, we can effectively support each
new store with a strong management team and drive the
continued, profitable investment in our store growth.
Integration of Acquired Parts Stores
Another key component of our profitable growth strategy
has been to act as an opportunistic industry consolidator
by targeting independently owned auto parts stores, as
well as multi-store auto parts chains, that strengthen
our position as the leading automotive aftermarket parts
supplier in our existing markets and provide building blocks
for growth into new markets. Acquisitions have historically
proven to be very accretive to our profitable growth and are
a powerful way to grow our brand awareness and expand
our market share, and we continue to be excited about
future acquisition opportunities. At the end of 2012, we
were pleased to announce our purchase of the auto parts
related assets of VIP Parts, Tires & Service (“VIP”), which
is a large privately held automotive parts, tires and service
chain in the northeast. This acquisition added 56 stores
and one distribution center to our Company, but more
importantly, it established a geographic footprint into the
northeast which will act as a springboard for our continued
growth in New England. During 2013, we will integrate these
acquired stores and distribution center into our systems
and programs, and we will begin to implement our Dual
Market Strategy as we prepare for future profitable growth
throughout this new market.
The automotive aftermarket remains a highly fragmented
market, with the ten largest auto parts chains in the
United States representing approximately only 45% of
the total market share. As we continue to monitor the
competitive environment, we are confident that further
accretive acquisition opportunities still exist; we will remain
disciplined in our approach to evaluating these opportunities,
and we will continue to be opportunistic buyers as we
diligently work to further consolidate our industry while
remaining focused on profitable growth.
8
O ’ R E I L L Y A U T O M O T I V E 2 0 1 2 A N N U A L R E P O R T
Experienced Management Team
With more than 285 years of automotive industry
experience, O’Reilly’s executive management team
provides something that not all companies can brag
about – proven leaders who know the ins and outs of
their business from having worked in virtually every
facet of the Company.
Front row, left to right: Tony Bartholomew,
Randy Johnson, Greg Henslee, Jeff Shaw, Tom McFall
Back row, left to right: David O’Reilly, Ted Wise,
Mike Swearengin, Greg Johnson, Steve Jasinski
Free Cash Flow and Share Repurchases
Through our focus on a combination of profitable growth and
increased productivity of our net inventory investment, we
generated a record $950 million in free cash flow during 2012,
which represented a 20% increase over our 2011 record free
cash flow of $791 million. This significant achievement is due in
large part to the execution of the comprehensive financing plan
we established at the beginning of 2011, when we received our
inaugural investment grade credit ratings and re-launched a
very attractive supplier financing program. We have been very
pleased with the success of the supplier financing program
over the past two years, which has allowed us to decrease our
working capital requirements by $781 million, and we will work
to continue to grow this program in the future.
In August of 2012, we issued $300 million in investment-grade,
credit-rated senior notes. This issuance was a component of our
comprehensive financing plan aimed at optimizing our capital
structure, and we will continue to incrementally increase our
leverage as we cautiously, but constructively, move closer to
our targeted leverage ratio of 2.00 to 2.25 times adjusted debt to
adjusted EBITDAR. We are steadfastly committed to maintaining
and improving our investment grade credit ratings, and will
ensure we maintain adequate liquidity to execute our profitable
growth plans.
By effectively executing our comprehensive financing plan and
generating record free cash flow, we have been able to directly
return $2.6 billion in value to our shareholders over the past two
years by repurchasing 34 million shares at an average price of
$76.37. These share repurchases, along with our strong top-line
sales growth and record 15.8% operating margin, generated
an outstanding 25% increase in 2012 adjusted diluted earnings
per share. After we have invested in our profitable growth and
exhausted any potentially accretive acquisition opportunities, we
expect to continue to directly return value to our shareholders in
2013 through share repurchases.
Looking Forward to 2013
As we look ahead to 2013, we are excited about the opportunities
to continue to profitably grow market share and enhance
shareholder value. We continue to identify and mentor the
next generation of store managers and are confident that the
190 new stores we will open from coast to coast will be staffed
with great leaders, supported by strong teams, who are ready
to provide industry leading customer service. We will continue
our growth into central Florida, which will be supported by a
new, state-of-the-art distribution center scheduled to open in
Lakeland, Florida, during the first quarter of 2014. Our recently
acquired VIP stores will be converted to our systems and signage
during the year, and we are anxious to begin implementing
our Dual Market Strategy as we use these acquired stores
as a springboard for expansion in the New England market.
Most importantly, we will continue to perpetuate our
Culture throughout the Company and remain focused on the
fundamental tool that has been the backbone to our success and
will be the catalyst of our future profitable growth - consistent,
superior customer service.
We are very grateful to each of our shareholders for your
ongoing support and are honored that you have placed your
trust in O’Reilly, and we remain committed to continuing our
long track record of strong and profitable growth. Finally, we
would like to again thank our Team Members for their many
contributions to our continued success. We are very proud of
our strong financial performance in 2012 and we look forward to
another great year in 2013.
GREG HENSLEE
Chief Executive Officer
and President
THOMA S MCFALL
Chief Financial Officer
and Executive Vice President of Finance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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(cid:31)(cid:30)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
(cid:29) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
OR
O'REILLY AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
000-21318
Commission file
Missouri
(State or other jurisdiction
of incorporation or organization)
number
27-4358837
(I.R.S. Employer
Identification No.)
233 South Patterson Avenue
Springfield, Missouri 65802
(Address of principal executive offices, Zip code)
(417) 862-6708
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on which Registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:31) No (cid:29)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:29) No
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:31) No (cid:29)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes (cid:31) No (cid:29)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained here, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (cid:29)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer (cid:31) Accelerated Filer (cid:29) Non-Accelerated Filer (cid:29) Smaller Reporting Company (cid:29)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:29) No (cid:31)
At February 25, 2013, an aggregate of 111,304,878 shares of common stock of the registrant was outstanding. As of that date, the
aggregate market value of the voting stock held by non-affiliates of the Company was approximately $11,280,749,385 based on the
last sale price of the common stock reported by The NASDAQ Global Select Market.
At June 30, 2012, an aggregate of 122,014,308 shares of the common stock of the registrant was outstanding. As of that date, the
aggregate market value of the voting stock held by non-affiliates of the Company was approximately $10,221,138,581 based on the
last price of the common stock reported by The NASDAQ Global Select Market.
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As indicated below, portions of the registrant's documents specified below are incorporated here by reference:
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy Statement for 2013 Annual Meeting
of Shareholders (to be filed pursuant to
Regulation 14A within 120 days of the end
of registrant's most recently completed fiscal
year)
Form 10-K Part
Part III
O'Reilly Automotive, Inc.
Form 10-K
For the Year Ended December 31, 2012
Table of Contents
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Legal Proceedings
Properties
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part II
Part III
Part IV
Item 15. Exhibits and Financial Statement Schedules
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As indicated below, portions of the registrant's documents specified below are incorporated here by reference:
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K Part
Part III
Document
Proxy Statement for 2013 Annual Meeting
of Shareholders (to be filed pursuant to
Regulation 14A within 120 days of the end
of registrant's most recently completed fiscal
year)
O'Reilly Automotive, Inc.
Form 10-K
For the Year Ended December 31, 2012
Table of Contents
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Part IV
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Forward-Looking Statements
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We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,”
“plan,” “intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this annual report that are not
historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store
development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking
statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such
statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market
for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, our increased debt levels, credit
ratings on public debt, our ability to hire and retain qualified employees, risks associated with the performance of acquired businesses,
weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or
implied in these forward-looking statements. Please refer to the “Risk Factors” section of this annual report on Form 10-K for the
year ended December 31, 2012, for additional factors that could materially affect our financial performance. Forward-looking
statements speak only as of the date they were made and we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Item 1.
Business
GENERAL INFORMATION
PART I
O'Reilly Automotive, Inc. and its subsidiaries, collectively “we”, “O’Reilly” or the “Company”, is one of the largest specialty retailers
of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, selling our products to both do-it-
yourself (“DIY”) and professional service provider customers, our “dual market strategy”. The business was founded in 1957 by
Charles F. O'Reilly and his son, Charles H. ''Chub'' O'Reilly, Sr. and initially operated from a single store in Springfield, Missouri.
Our common stock has traded on The NASDAQ Global Select Market under the symbol “ORLY” since April 22, 1993.
At the close of business on December 31, 2012, we completed an asset purchase of the auto-parts related assets of VIP Parts, Tires &
Service (“VIP”), which is a large privately held automotive parts, tires and service chain in New England, and operated 56 stores and
one distribution center located throughout Maine, New Hampshire and Massachusetts. The acquired assets of VIP are included in our
consolidated financial statements as of the acquisition date.
On December 29, 2010, we completed a corporate reorganization creating a holding company structure and during which O’Reilly
Automotive, Inc. was incorporated on December 27, 2010, which was implemented through an agreement and plan of merger under
Section 351.448 of The General Corporation Law of the State of Missouri, which did not require a vote of the shareholders. As a
result of this reorganization, the previous parent company and registrant, O’Reilly Automotive, Inc., was renamed O’Reilly
Automotive Stores, Inc. and is now a wholly-owned subsidiary of the new parent company and registrant, which was renamed
O’Reilly Automotive, Inc.
On July 11, 2008, we acquired CSK Auto Corporation (“CSK”), which was one of the largest specialty retailers of auto parts and
accessories in the western United States and one of the largest such retailers in the United States, based on store count at the date of
acquisition. At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts,
Schuck’s Auto Supply, Kragen Auto Parts and Murray’s Discount Auto Parts. The results of CSK’s operations have been included in
our consolidated financial statements since the acquisition date.
At December 31, 2012, we operated 3,976 stores in 42 states. Our stores carry an extensive product line, including the products
identified below:
•
new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components,
batteries, belts, hoses, temperature control, chassis parts and engine parts;
• maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and
•
accessories, such as floor mats, seat covers and truck accessories.
Our stores offer many enhanced services and programs to our customers, such as those identified below:
•
•
•
•
•
used oil, oil filter and battery recycling
battery, wiper and bulb replacement
battery diagnostic testing
electrical and module testing
check engine light code extraction
drum and rotor resurfacing
custom hydraulic hoses
loaner tool program
•
•
•
•
• machine shops
professional paint shop mixing and related materials
See "Risk Factors" beginning on page 14 for a description of certain risks relevant to our business. These risk factors include, among
others, deteriorating economic conditions, the performance of acquired stores, increased debt levels, our acquisition strategies,
competition in the automotive aftermarket business, our dependence upon key and other personnel, future growth assurance, our
sensitivity to regional economic and weather conditions, the effect of sales of shares of our common stock eligible for future sale,
unanticipated fluctuations in our quarterly results, the volatility of the market price of our common stock, our relationships with key
vendors and availability of key products, a downgrade in our credit ratings, complications in our distribution centers (“DC”s), and
environmental legislation and other regulations.
OUR BUSINESS
Our goal is to continue to achieve growth in sales and profitability by capitalizing on our competitive advantages and executing our
growth strategy. We remain confident in our ability to continue to gain market share in our existing markets and grow our business in
new markets by focusing on our dual market strategy and the core O’Reilly values of customer service and expense control. Our
intent is to be the dominant auto parts provider in all the markets we serve, by providing superior customer service and significant
value to both DIY and professional service provider customers.
Competitive Advantages
We believe our effective dual market strategy, superior customer service, strategic distribution systems and experienced management
team make up our key competitive advantages that cannot be easily duplicated.
Proven Ability to Execute a Dual Market Strategy:
Over the past 30 years, we have established a track record of effectively serving, at a high level, both DIY and professional service
provider customers. We believe our proven ability to effectively execute a dual market strategy is a unique competitive advantage.
The execution of this strategy enables us to better compete by targeting a larger base of consumers of automotive aftermarket parts,
capitalizing on our existing retail and distribution infrastructure, operating profitably in both large markets and less densely populated
geographic areas that typically attract fewer competitors, and enhancing service levels offered to DIY customers through the offering
of a broad inventory and the extensive product knowledge required by professional service providers.
In 2012, we derived approximately 59% of our sales from our DIY customers and approximately 41% of our sales from our
professional service provider customers. Prior to the acquisition of CSK, we derived approximately 50% of our sales from both our
DIY and professional service provider customers. As we continue to grow our commercial business in the acquired CSK markets, we
expect that over time our DIY and professional service provider sales mix to approximate historical averages. As a result of our
historical success of executing our dual market strategy and our over 470 full-time sales staff dedicated solely to calling upon and
servicing the professional service provider customer, we believe we will continue to increase our sales to professional service provider
customers and will continue to have a competitive advantage over our retail competitors who continue to derive a higher concentration
of their sales from the DIY market.
Superior Customer Service:
We seek to attract new DIY and professional service provider customers and to retain existing customers by offering superior
customer service, the key elements of which are identified below:
superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”) using an
advanced point-of-sale system
an extensive selection and availability of products
attractive stores in convenient locations
•
•
•
•
preferences
competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and value
Technically Proficient Professional Parts People:
Our highly-motivated, technically-proficient Professional Parts People provide us with a significant competitive advantage,
particularly over less specialized retail operators. We require our Professional Parts People to undergo extensive and ongoing training
and to be technically knowledgeable, particularly with respect to hard parts, in order to better serve the technically-oriented
professional service provider customers with whom they interact on a daily basis. Such technical proficiency also enhances the
customer service we provide to our DIY customers who value the expert assistance provided by our Professional Parts People.
4
5
Forward-Looking Statements
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,”
“plan,” “intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this annual report that are not
historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store
development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking
statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such
statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market
for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, our increased debt levels, credit
ratings on public debt, our ability to hire and retain qualified employees, risks associated with the performance of acquired businesses,
weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or
implied in these forward-looking statements. Please refer to the “Risk Factors” section of this annual report on Form 10-K for the
year ended December 31, 2012, for additional factors that could materially affect our financial performance. Forward-looking
statements speak only as of the date they were made and we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Item 1.
Business
GENERAL INFORMATION
PART I
O'Reilly Automotive, Inc. and its subsidiaries, collectively “we”, “O’Reilly” or the “Company”, is one of the largest specialty retailers
of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, selling our products to both do-it-
yourself (“DIY”) and professional service provider customers, our “dual market strategy”. The business was founded in 1957 by
Charles F. O'Reilly and his son, Charles H. ''Chub'' O'Reilly, Sr. and initially operated from a single store in Springfield, Missouri.
Our common stock has traded on The NASDAQ Global Select Market under the symbol “ORLY” since April 22, 1993.
At the close of business on December 31, 2012, we completed an asset purchase of the auto-parts related assets of VIP Parts, Tires &
Service (“VIP”), which is a large privately held automotive parts, tires and service chain in New England, and operated 56 stores and
one distribution center located throughout Maine, New Hampshire and Massachusetts. The acquired assets of VIP are included in our
consolidated financial statements as of the acquisition date.
On December 29, 2010, we completed a corporate reorganization creating a holding company structure and during which O’Reilly
Automotive, Inc. was incorporated on December 27, 2010, which was implemented through an agreement and plan of merger under
Section 351.448 of The General Corporation Law of the State of Missouri, which did not require a vote of the shareholders. As a
result of this reorganization, the previous parent company and registrant, O’Reilly Automotive, Inc., was renamed O’Reilly
Automotive Stores, Inc. and is now a wholly-owned subsidiary of the new parent company and registrant, which was renamed
O’Reilly Automotive, Inc.
On July 11, 2008, we acquired CSK Auto Corporation (“CSK”), which was one of the largest specialty retailers of auto parts and
accessories in the western United States and one of the largest such retailers in the United States, based on store count at the date of
acquisition. At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts,
Schuck’s Auto Supply, Kragen Auto Parts and Murray’s Discount Auto Parts. The results of CSK’s operations have been included in
our consolidated financial statements since the acquisition date.
At December 31, 2012, we operated 3,976 stores in 42 states. Our stores carry an extensive product line, including the products
identified below:
new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components,
batteries, belts, hoses, temperature control, chassis parts and engine parts;
• maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and
accessories, such as floor mats, seat covers and truck accessories.
Our stores offer many enhanced services and programs to our customers, such as those identified below:
•
•
•
•
•
•
•
used oil, oil filter and battery recycling
battery, wiper and bulb replacement
battery diagnostic testing
electrical and module testing
check engine light code extraction
loaner tool program
drum and rotor resurfacing
custom hydraulic hoses
professional paint shop mixing and related materials
•
•
•
•
• machine shops
k
-
0
1
M
R
O
F
See "Risk Factors" beginning on page 14 for a description of certain risks relevant to our business. These risk factors include, among
others, deteriorating economic conditions, the performance of acquired stores, increased debt levels, our acquisition strategies,
competition in the automotive aftermarket business, our dependence upon key and other personnel, future growth assurance, our
sensitivity to regional economic and weather conditions, the effect of sales of shares of our common stock eligible for future sale,
unanticipated fluctuations in our quarterly results, the volatility of the market price of our common stock, our relationships with key
vendors and availability of key products, a downgrade in our credit ratings, complications in our distribution centers (“DC”s), and
environmental legislation and other regulations.
OUR BUSINESS
Our goal is to continue to achieve growth in sales and profitability by capitalizing on our competitive advantages and executing our
growth strategy. We remain confident in our ability to continue to gain market share in our existing markets and grow our business in
new markets by focusing on our dual market strategy and the core O’Reilly values of customer service and expense control. Our
intent is to be the dominant auto parts provider in all the markets we serve, by providing superior customer service and significant
value to both DIY and professional service provider customers.
Competitive Advantages
We believe our effective dual market strategy, superior customer service, strategic distribution systems and experienced management
team make up our key competitive advantages that cannot be easily duplicated.
Proven Ability to Execute a Dual Market Strategy:
Over the past 30 years, we have established a track record of effectively serving, at a high level, both DIY and professional service
provider customers. We believe our proven ability to effectively execute a dual market strategy is a unique competitive advantage.
The execution of this strategy enables us to better compete by targeting a larger base of consumers of automotive aftermarket parts,
capitalizing on our existing retail and distribution infrastructure, operating profitably in both large markets and less densely populated
geographic areas that typically attract fewer competitors, and enhancing service levels offered to DIY customers through the offering
of a broad inventory and the extensive product knowledge required by professional service providers.
In 2012, we derived approximately 59% of our sales from our DIY customers and approximately 41% of our sales from our
professional service provider customers. Prior to the acquisition of CSK, we derived approximately 50% of our sales from both our
DIY and professional service provider customers. As we continue to grow our commercial business in the acquired CSK markets, we
expect that over time our DIY and professional service provider sales mix to approximate historical averages. As a result of our
historical success of executing our dual market strategy and our over 470 full-time sales staff dedicated solely to calling upon and
servicing the professional service provider customer, we believe we will continue to increase our sales to professional service provider
customers and will continue to have a competitive advantage over our retail competitors who continue to derive a higher concentration
of their sales from the DIY market.
Superior Customer Service:
We seek to attract new DIY and professional service provider customers and to retain existing customers by offering superior
customer service, the key elements of which are identified below:
•
•
•
•
superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”) using an
advanced point-of-sale system
an extensive selection and availability of products
attractive stores in convenient locations
competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and value
preferences
Technically Proficient Professional Parts People:
Our highly-motivated, technically-proficient Professional Parts People provide us with a significant competitive advantage,
particularly over less specialized retail operators. We require our Professional Parts People to undergo extensive and ongoing training
and to be technically knowledgeable, particularly with respect to hard parts, in order to better serve the technically-oriented
professional service provider customers with whom they interact on a daily basis. Such technical proficiency also enhances the
customer service we provide to our DIY customers who value the expert assistance provided by our Professional Parts People.
4
5
F
O
R
M
1
0
-
k
Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution network provides for superior replenishment and access to hard-
to-find parts and enables us to optimize product availability and inventory levels throughout our store network. Our strategic regional
tiered distribution network includes DCs and Hub stores. Our inventory management and distribution systems electronically link each
of our stores to one or more DCs, which provides for efficient inventory control and management. We currently operate 24 regional
DCs, which provide our stores with same-day or overnight access to an average of 142,000 stock keeping units (“SKU”s), many of
which are hard-to-find items not typically stocked by other auto parts retailers. To augment our robust DC network, we operate 240
Hub stores that also provide delivery service and same-day access to an average of 42,000 SKUs to other stores within the surrounding
area. We believe this timely access to a broad range of products is a key competitive advantage in satisfying customer demand and
generating repeat business.
Experienced Management Team:
Our Company philosophy is to “promote from within” and the vast majority of our senior management, district managers and store
managers have been promoted from within the Company. We augment this promote from within philosophy by pursuing strategic
hires with a strong emphasis on automotive aftermarket experience. We have a strong management team comprised of senior
management with 146 professionals who average 18 years of service; 273 corporate managers who average 15 years of service; and
386 district managers who average 13 years of service. Our management team has demonstrated the consistent ability to successfully
execute our business plan and growth strategy by generating 20 consecutive years of record revenues and earnings and positive
comparable store sales results since becoming a public company in April of 1993.
Growth Strategy
Aggressively Open New Stores:
We intend to continue to consolidate the fragmented automotive aftermarket. During 2012, we opened 180 net, new stores, acquired
56 stores and we plan to open approximately 190 net, new stores in 2013, which will increase our penetration in existing markets and
allow for expansion into new, contiguous markets. The sites for these new stores have been identified, and to date, we have not
experienced significant difficulties in locating suitable sites for construction of new stores or identifying suitable acquisition targets
for conversion to O'Reilly stores. We typically open new stores either by (i) constructing a new facility or renovating an existing one
on property we purchase or lease and stocking the new store with fixtures and inventory, (ii) acquiring an independently owned auto
parts store, typically by the purchase of substantially all of the inventory and other assets (other than realty) of such store, or (iii)
purchasing multi-store chains. New store sites are strategically located in clusters within geographic areas that complement our
distribution network in order to achieve economies of scale in management, advertising and distribution. Other key factors we
consider in the site selection process include population density and growth patterns, demographic lifestyle segmentation, age and per
capita income, vehicle traffic counts, number and type of existing automotive repair facilities, competing auto parts stores within a
pre-determined radius, and the operational strength of such competitors.
We target both small and large markets for expansion of our store network. While we have faced, and expect to continue to face,
aggressive competition in the more densely populated markets, we believe we have competed effectively, and are well positioned to
continue to compete effectively, in such markets and to achieve our goal of continued profitable sales growth within these markets.
We also believe that with our dual market strategy, we are better able to operate stores in less densely populated areas, which would
not otherwise support a national chain store selling primarily to the retail automotive aftermarket. Consequently, we continue to
pursue opening new stores in less densely populated market areas as part of our growth strategy.
Grow Sales in Existing Stores:
Profitable same store sales growth is also an important part of our growth strategy. To achieve improved sales and profitability at
existing O'Reilly stores, we continually strive to improve the service provided to our customers. We believe that while competitive
pricing is an essential component of successful growth in the automotive aftermarket business, it is customer satisfaction, whether of
the DIY consumer or professional service provider, resulting from superior customer service that generates increased sales and
profitability.
Selectively Pursue Strategic Acquisitions:
Although the automotive aftermarket industry is still highly fragmented, we believe the ability of national auto parts chains, such as
ourselves, to operate more efficiently and proficiently than smaller independent operators will result in continued industry
consolidation. Thus, our intention is to continue to selectively pursue acquisition targets that will strengthen our position as a leading
automotive aftermarket parts supplier in existing markets and provide a springboard into new markets.
Continually Enhance Store Design and Location:
Our current prototype store design features enhancements such as optimized square footage, higher ceilings, more convenient interior
store layouts, improved in-store signage, brighter lighting, increased parking availability and dedicated counters to serve professional
service providers, each designed to increase sales and operating efficiencies and enhance customer service. We continually update the
location and condition of our store network through systematic renovation and relocation of our existing stores to enhance store
6
performance. During 2012, we relocated 32 stores and renovated 70 stores. We believe that our ability to consistently achieve growth
in same store sales is due in part to our commitment to maintaining an attractive store network, which is strategically located to best
serve our customers.
Continually Enhance the Growth and Functionality of Our E-Commerce Website:
Our user-friendly website, www.oreillyauto.com, allows our customers to search product and repair content, check our in-store
availability of products, and place orders for either home delivery or in-store pickup. We continue to enhance the functionality of our
website to provide our customers with a friendly and convenient shopping experience, as well as a robust product and repair content
information resource, that will continue to build the O’Reilly Brand.
Team Members
As of January 31, 2013, we employed 53,615 Team Members (33,931 full-time Team Members and 19,684 part-time Team
Members), of whom 45,180 were employed at our stores, 5,937 were employed at our DCs and 2,498 were employed at our corporate
and regional offices. A union represents 49 stores (527 Team Members) in the Greater Bay Area in California, and has for many
years. In addition, approximately 71 Team Members who drive over-the-road trucks in two of our DCs are represented by a labor
union. Except for these Team Members, our Team Members are not represented by labor unions. Our tradition for 56 years has been
to treat all of our Team Members with honesty and respect and to commit significant resources to instill in them our “Live Green”
Culture, which emphasizes the importance of each Team Member’s contribution to the success of O’Reilly. This focus on
professionalism and fairness has created an industry-leading team and we consider our relations with our Team Members to be
excellent.
Store Network
Store Locations and Size:
As a result of our dual market strategy, we are able to profitably operate in both large, densely populated markets and small, less
densely populated areas that would not otherwise support a national chain selling primarily to the retail automotive aftermarket. Our
stores, on average, carry approximately 23,500 SKUs and average approximately 7,200 total square feet in size. At December 31,
2012, we had a total of approximately 29 million square feet in our 3,976 stores. Our stores are served primarily by the nearest DC,
which averages 142,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 240 Hub
stores, which, on average, carry approximately 42,000 SKUs and average approximately 10,000 square feet in size.
We believe that our stores are ''destination stores'' generating their own traffic rather than relying on traffic created by the presence of
other stores in the immediate vicinity. Consequently, most of our stores are freestanding buildings and prominent end caps situated on
or near major traffic thoroughfares, and offer ample parking, easy customer access and are generally located in close proximity to our
professional service provider customers.
The following table sets forth the geographic distribution and activity of our stores as of December 31, 2012 and 2011:
December 31, 2011
2012 Net, New and
Acquired Stores
December 31, 2012
Store
Count
% of Total
Store Count
Store
Change
% of Total
Store Change
Store
Count
% of Total
Cumulative % of
Store Count
Total Store Count
State
Texas
California
Missouri
Georgia
Illinois
Washington
Tennessee
Arizona
North Carolina
Ohio
Oklahoma
Alabama
Michigan
Minnesota
Arkansas
Indiana
563
474
181
161
141
141
138
128
120
101
112
112
94
106
99
89
15.1%
12.7%
4.8%
4.3%
3.8%
3.8%
3.7%
3.4%
3.2%
2.7%
3.0%
3.0%
2.5%
2.8%
2.6%
2.4%
8.9%
3.8%
0.8%
2.5%
2.5%
1.7%
1.7%
0.8%
4.2%
5.9%
0.0%
0.0%
6.8%
1.3%
0.8%
2.5%
21
9
2
6
6
4
4
2
-
-
3
2
6
10
14
16
7
584
483
183
167
147
145
142
130
130
115
112
112
110
109
101
95
14.7%
12.1%
4.6%
4.2%
3.7%
3.6%
3.6%
3.3%
3.3%
2.9%
2.8%
2.8%
2.8%
2.7%
2.5%
2.4%
14.7%
26.8%
31.4%
35.6%
39.3%
42.9%
46.5%
49.8%
53.1%
56.0%
58.8%
61.6%
64.4%
67.1%
69.6%
72.0%
Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution network provides for superior replenishment and access to hard-
to-find parts and enables us to optimize product availability and inventory levels throughout our store network. Our strategic regional
tiered distribution network includes DCs and Hub stores. Our inventory management and distribution systems electronically link each
of our stores to one or more DCs, which provides for efficient inventory control and management. We currently operate 24 regional
DCs, which provide our stores with same-day or overnight access to an average of 142,000 stock keeping units (“SKU”s), many of
which are hard-to-find items not typically stocked by other auto parts retailers. To augment our robust DC network, we operate 240
Hub stores that also provide delivery service and same-day access to an average of 42,000 SKUs to other stores within the surrounding
area. We believe this timely access to a broad range of products is a key competitive advantage in satisfying customer demand and
Our Company philosophy is to “promote from within” and the vast majority of our senior management, district managers and store
managers have been promoted from within the Company. We augment this promote from within philosophy by pursuing strategic
hires with a strong emphasis on automotive aftermarket experience. We have a strong management team comprised of senior
management with 146 professionals who average 18 years of service; 273 corporate managers who average 15 years of service; and
386 district managers who average 13 years of service. Our management team has demonstrated the consistent ability to successfully
execute our business plan and growth strategy by generating 20 consecutive years of record revenues and earnings and positive
comparable store sales results since becoming a public company in April of 1993.
generating repeat business.
Experienced Management Team:
Growth Strategy
Aggressively Open New Stores:
We intend to continue to consolidate the fragmented automotive aftermarket. During 2012, we opened 180 net, new stores, acquired
56 stores and we plan to open approximately 190 net, new stores in 2013, which will increase our penetration in existing markets and
allow for expansion into new, contiguous markets. The sites for these new stores have been identified, and to date, we have not
experienced significant difficulties in locating suitable sites for construction of new stores or identifying suitable acquisition targets
for conversion to O'Reilly stores. We typically open new stores either by (i) constructing a new facility or renovating an existing one
on property we purchase or lease and stocking the new store with fixtures and inventory, (ii) acquiring an independently owned auto
parts store, typically by the purchase of substantially all of the inventory and other assets (other than realty) of such store, or (iii)
purchasing multi-store chains. New store sites are strategically located in clusters within geographic areas that complement our
distribution network in order to achieve economies of scale in management, advertising and distribution. Other key factors we
consider in the site selection process include population density and growth patterns, demographic lifestyle segmentation, age and per
capita income, vehicle traffic counts, number and type of existing automotive repair facilities, competing auto parts stores within a
pre-determined radius, and the operational strength of such competitors.
We target both small and large markets for expansion of our store network. While we have faced, and expect to continue to face,
aggressive competition in the more densely populated markets, we believe we have competed effectively, and are well positioned to
continue to compete effectively, in such markets and to achieve our goal of continued profitable sales growth within these markets.
We also believe that with our dual market strategy, we are better able to operate stores in less densely populated areas, which would
not otherwise support a national chain store selling primarily to the retail automotive aftermarket. Consequently, we continue to
pursue opening new stores in less densely populated market areas as part of our growth strategy.
Grow Sales in Existing Stores:
Profitable same store sales growth is also an important part of our growth strategy. To achieve improved sales and profitability at
existing O'Reilly stores, we continually strive to improve the service provided to our customers. We believe that while competitive
pricing is an essential component of successful growth in the automotive aftermarket business, it is customer satisfaction, whether of
the DIY consumer or professional service provider, resulting from superior customer service that generates increased sales and
profitability.
Selectively Pursue Strategic Acquisitions:
Although the automotive aftermarket industry is still highly fragmented, we believe the ability of national auto parts chains, such as
ourselves, to operate more efficiently and proficiently than smaller independent operators will result in continued industry
consolidation. Thus, our intention is to continue to selectively pursue acquisition targets that will strengthen our position as a leading
automotive aftermarket parts supplier in existing markets and provide a springboard into new markets.
Continually Enhance Store Design and Location:
Our current prototype store design features enhancements such as optimized square footage, higher ceilings, more convenient interior
store layouts, improved in-store signage, brighter lighting, increased parking availability and dedicated counters to serve professional
service providers, each designed to increase sales and operating efficiencies and enhance customer service. We continually update the
location and condition of our store network through systematic renovation and relocation of our existing stores to enhance store
6
performance. During 2012, we relocated 32 stores and renovated 70 stores. We believe that our ability to consistently achieve growth
in same store sales is due in part to our commitment to maintaining an attractive store network, which is strategically located to best
serve our customers.
Continually Enhance the Growth and Functionality of Our E-Commerce Website:
Our user-friendly website, www.oreillyauto.com, allows our customers to search product and repair content, check our in-store
availability of products, and place orders for either home delivery or in-store pickup. We continue to enhance the functionality of our
website to provide our customers with a friendly and convenient shopping experience, as well as a robust product and repair content
information resource, that will continue to build the O’Reilly Brand.
k
-
0
1
M
R
O
F
Team Members
As of January 31, 2013, we employed 53,615 Team Members (33,931 full-time Team Members and 19,684 part-time Team
Members), of whom 45,180 were employed at our stores, 5,937 were employed at our DCs and 2,498 were employed at our corporate
and regional offices. A union represents 49 stores (527 Team Members) in the Greater Bay Area in California, and has for many
years. In addition, approximately 71 Team Members who drive over-the-road trucks in two of our DCs are represented by a labor
union. Except for these Team Members, our Team Members are not represented by labor unions. Our tradition for 56 years has been
to treat all of our Team Members with honesty and respect and to commit significant resources to instill in them our “Live Green”
Culture, which emphasizes the importance of each Team Member’s contribution to the success of O’Reilly. This focus on
professionalism and fairness has created an industry-leading team and we consider our relations with our Team Members to be
excellent.
Store Network
Store Locations and Size:
As a result of our dual market strategy, we are able to profitably operate in both large, densely populated markets and small, less
densely populated areas that would not otherwise support a national chain selling primarily to the retail automotive aftermarket. Our
stores, on average, carry approximately 23,500 SKUs and average approximately 7,200 total square feet in size. At December 31,
2012, we had a total of approximately 29 million square feet in our 3,976 stores. Our stores are served primarily by the nearest DC,
which averages 142,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 240 Hub
stores, which, on average, carry approximately 42,000 SKUs and average approximately 10,000 square feet in size.
We believe that our stores are ''destination stores'' generating their own traffic rather than relying on traffic created by the presence of
other stores in the immediate vicinity. Consequently, most of our stores are freestanding buildings and prominent end caps situated on
or near major traffic thoroughfares, and offer ample parking, easy customer access and are generally located in close proximity to our
professional service provider customers.
The following table sets forth the geographic distribution and activity of our stores as of December 31, 2012 and 2011:
December 31, 2011
2012 Net, New and
Acquired Stores
December 31, 2012
State
Texas
California
Missouri
Georgia
Illinois
Washington
Tennessee
Arizona
North Carolina
Ohio
Oklahoma
Alabama
Michigan
Minnesota
Arkansas
Indiana
Store
Count
563
474
181
161
141
141
138
128
120
101
112
112
94
106
99
89
% of Total
Store Count
15.1%
12.7%
4.8%
4.3%
3.8%
3.8%
3.7%
3.4%
3.2%
2.7%
3.0%
3.0%
2.5%
2.8%
2.6%
2.4%
Store
Change
% of Total
Store Change
Store
Count
8.9%
3.8%
0.8%
2.5%
2.5%
1.7%
1.7%
0.8%
4.2%
5.9%
0.0%
0.0%
6.8%
1.3%
0.8%
2.5%
21
9
2
6
6
4
4
2
10
14
-
-
16
3
2
6
7
584
483
183
167
147
145
142
130
130
115
112
112
110
109
101
95
% of Total
Store Count
14.7%
12.1%
4.6%
4.2%
3.7%
3.6%
3.6%
3.3%
3.3%
2.9%
2.8%
2.8%
2.8%
2.7%
2.5%
2.4%
Cumulative % of
Total Store Count
14.7%
26.8%
31.4%
35.6%
39.3%
42.9%
46.5%
49.8%
53.1%
56.0%
58.8%
61.6%
64.4%
67.1%
69.6%
72.0%
F
O
R
M
1
0
-
k
Louisiana
Wisconsin
Colorado
Mississippi
Kansas
South Carolina
Iowa
Kentucky
Florida
Utah
Nevada
Oregon
New Mexico
Virginia
Maine
Idaho
Nebraska
Montana
New Hampshire
Wyoming
North Dakota
Alaska
Hawaii
South Dakota
West Virginia
Massachusetts
Total
87
78
84
71
71
61
66
62
46
55
44
44
39
25
-
30
30
23
-
16
13
12
11
11
1
-
3,740
2.3%
2.1%
2.2%
1.9%
1.9%
1.6%
1.8%
1.7%
1.2%
1.5%
1.2%
1.2%
1.0%
0.7%
0.0%
0.8%
0.8%
0.6%
0.0%
0.4%
0.3%
0.3%
0.3%
0.3%
0.0%
0.0%
100.0%
3
9
-
1
1
11
1
3
12
1
4
4
2
15
35
3
-
1
18
-
-
1
-
-
3
3
236
1.3%
3.8%
0.0%
0.4%
0.4%
4.7%
0.4%
1.3%
5.2%
0.4%
1.7%
1.7%
0.8%
6.5%
14.9%
1.3%
0.0%
0.4%
7.6%
0.0%
0.0%
0.4%
0.0%
0.0%
1.3%
1.3%
100.0%
90
87
84
72
72
72
67
65
58
56
48
48
41
40
35
33
30
24
18
16
13
13
11
11
4
3
3,976
2.3%
2.2%
2.1%
1.8%
1.8%
1.8%
1.7%
1.6%
1.5%
1.4%
1.2%
1.2%
1.0%
1.0%
0.9%
0.8%
0.8%
0.6%
0.5%
0.4%
0.3%
0.3%
0.3%
0.3%
0.1%
0.1%
100.0%
74.3%
76.5%
78.6%
80.4%
82.2%
84.0%
85.7%
87.3%
88.8%
90.2%
91.4%
92.6%
93.6%
94.6%
95.5%
96.3%
97.1%
97.7%
98.2%
98.6%
98.9%
99.2%
99.5%
99.8%
99.9%
100.0%
Store Layout:
We utilize a computer-assisted store layout system to provide a uniform and consistent retail merchandise presentation and customize
our hard-parts inventory assortment to meet the specific needs of a particular market area. Front room merchandise is arranged to
provide easy customer access, maximum selling space and to prominently display high-turnover products and accessories to
customers. To ensure the best customer experience possible, we have selectively implemented bilingual in-store signage based on the
demographics in each store’s geographic area. Aisle displays and end caps are used to feature high-demand, seasonal merchandise,
new items and advertised specials.
Store Automation:
To enhance store-level operations, customer service and reliability, we use Linux servers and IBM I-Series computer systems in our
stores. These systems are linked with the I-Series computers located in each of our DCs. Our point-of-sale system provides
immediate access to our electronic catalog, part images, schematics and pricing information by make, model and year of vehicle and
use barcode scanning technology to price our merchandise. This system speeds transaction times, reduces the customer’s checkout
time, ensures accuracy and provides enhanced customer service. Moreover, our store automation systems capture detailed sales
information which assists in store management, strategic planning, inventory control and distribution efficiency.
New Store Site Selection:
In selecting sites for new stores, we seek to strategically locate store sites in clusters within geographic areas in order to achieve
economies of scale in management, advertising and distribution. Other key factors we consider in the site selection process are
identified below:
population density;
demographics including age, ethnicity, life style and per capita income;
•
•
• market economic strength, retail draw and growth patterns;
•
•
•
number, age and percent of makes and models of registered vehicles;
the number, type and sales potential of existing automotive repair facilities;
the number of auto parts stores and other competitors within a predetermined radius and the operational strength of such
competitors;
physical location, traffic count, size, economics and presentation of the site;
financial review of adjacent existing locations; and
•
•
•
the type and size of store that should be developed.
When entering new, more densely populated markets, we generally seek to initially open several stores within a short span of time in
order to maximize the effect of initial promotional programs and achieve economies of scale. After opening this initial cluster of new
stores, we seek to begin penetrating the less densely populated surrounding areas. This strategy enables us to achieve additional
distribution and advertising efficiencies in each market.
Management Structure
Each of our stores is staffed with a store manager and one or more assistant managers, in addition to parts specialists, retail and/or
installer service specialists and other positions required to meet the specific needs of each store. Each of our 386 district managers has
general supervisory responsibility for an average of 10 stores, which provides our stores with a strong amount of operational support.
Store and district managers complete a comprehensive training program to ensure each has a thorough understanding of customer
service, leadership, inventory management and store profitability, as well as all other sales and operational aspects of our business
model. Store and district managers are also required to complete a structured training program that is specific to their position,
including attending a week-long manager development program at the corporate headquarters in Springfield, Missouri. Store and
district managers also receive continuous training through on-line assignments, field workshops and regional meetings.
We provide financial incentives to all store Team Members through incentive compensation programs. Under our incentive
compensation programs, base salary is augmented by incentive compensation based upon their individual and/or store’s sales and
profitability. In addition, each of our district managers participate in our stock option program and store managers may be eligible for
a quarterly bonus program based on their store’s performance. We believe that our incentive compensation programs significantly
increase the motivation and overall performance of our store Team Members and enhance our ability to attract and retain qualified
management and other personnel.
Professional Parts People
We believe our highly trained team of Professional Parts People is essential in providing superior customer service to both DIY and
professional service provider customers. Because a significant portion of our business is from professional service provider
customers, our Professional Parts People are required to be highly, technically proficient in automotive products. In addition, we have
found that the typical DIY customer often seeks assistance from a Professional Parts Person, particularly when purchasing hard parts.
The ability of our Professional Parts People to provide such assistance to the DIY customer creates a favorable impression and is a
significant factor in generating repeat DIY business.
We screen prospective Team Members to identify highly motivated individuals who either have experience with automotive parts or
repairs, or automotive aptitude. New store Team Members go through a comprehensive orientation focused on the culture of our
Company as well as the requirements for their specific job position. Additionally, during their first year of employment, our parts
specialists go through extensive automotive systems and product knowledge training to ensure they are able to provide the highest
level of service to our customers. Once all of the required training has been satisfied, our parts specialists become eligible to take the
O’Reilly Certified Parts Professional test. Passing the O’Reilly test helps prepare them to become certified by the National Institute
for Automotive Service Excellence (ASE).
All of our stores have the ability to service professional service provider customers. For this reason, select Team Members in each
store complete extensive sales call training with their regional field sales manager. Afterward, these Team Members spend at least
one day per week calling on existing and potential professional service provider customers. Additionally, each Team Member
engaged in such sales activities participates in quarterly advanced training programs for sales and business development.
Customer Service
We seek to provide our customers with an efficient and pleasant in-store experience by maintaining attractive stores in convenient
locations with a wide selection of automotive products. We believe that the satisfaction of DIY and professional service provider
customers is substantially dependent upon our ability to provide, in a timely fashion, the specific automotive products requested.
Accordingly, each O'Reilly store carries a broad selection of automotive products designed to cover a wide range of vehicle
applications. We continuously refine the inventory levels and assortments carried in each of our stores, based in large part on the sales
movement tracked by our inventory control system, market vehicle registration data, failure rates and management's assessment of the
changes and trends in the marketplace. We have no material backorders for the products we sell.
Our online ordering service provides enhanced customer service capabilities to our DIY and professional service provider customers.
Our program allows customers to view available parts and prices online, purchase parts online and/or either ship these purchases to
their location or have these parts available for pick up in our local store.
8
9
Louisiana
Wisconsin
Colorado
Mississippi
Kansas
South Carolina
Iowa
Kentucky
Florida
Utah
Nevada
Oregon
Virginia
Maine
Idaho
Nebraska
Montana
New Mexico
New Hampshire
Wyoming
North Dakota
Alaska
Hawaii
South Dakota
West Virginia
Massachusetts
Total
Store Layout:
87
78
84
71
71
61
66
62
46
55
44
44
39
25
-
30
30
23
-
16
13
12
11
11
1
-
2.3%
2.1%
2.2%
1.9%
1.9%
1.6%
1.8%
1.7%
1.2%
1.5%
1.2%
1.2%
1.0%
0.7%
0.0%
0.8%
0.8%
0.6%
0.0%
0.4%
0.3%
0.3%
0.3%
0.3%
0.0%
0.0%
11
12
3
9
-
1
1
1
3
1
4
4
2
3
-
1
-
-
1
-
-
3
3
15
35
18
1.3%
3.8%
0.0%
0.4%
0.4%
4.7%
0.4%
1.3%
5.2%
0.4%
1.7%
1.7%
0.8%
6.5%
1.3%
0.0%
0.4%
7.6%
0.0%
0.0%
0.4%
0.0%
0.0%
1.3%
1.3%
14.9%
90
87
84
72
72
72
67
65
58
56
48
48
41
40
35
33
30
24
18
16
13
13
11
11
4
3
2.3%
2.2%
2.1%
1.8%
1.8%
1.8%
1.7%
1.6%
1.5%
1.4%
1.2%
1.2%
1.0%
1.0%
0.9%
0.8%
0.8%
0.6%
0.5%
0.4%
0.3%
0.3%
0.3%
0.3%
0.1%
0.1%
74.3%
76.5%
78.6%
80.4%
82.2%
84.0%
85.7%
87.3%
88.8%
90.2%
91.4%
92.6%
93.6%
94.6%
95.5%
96.3%
97.1%
97.7%
98.2%
98.6%
98.9%
99.2%
99.5%
99.8%
99.9%
100.0%
3,740
100.0%
236
100.0%
3,976
100.0%
We utilize a computer-assisted store layout system to provide a uniform and consistent retail merchandise presentation and customize
our hard-parts inventory assortment to meet the specific needs of a particular market area. Front room merchandise is arranged to
provide easy customer access, maximum selling space and to prominently display high-turnover products and accessories to
customers. To ensure the best customer experience possible, we have selectively implemented bilingual in-store signage based on the
demographics in each store’s geographic area. Aisle displays and end caps are used to feature high-demand, seasonal merchandise,
new items and advertised specials.
Store Automation:
To enhance store-level operations, customer service and reliability, we use Linux servers and IBM I-Series computer systems in our
stores. These systems are linked with the I-Series computers located in each of our DCs. Our point-of-sale system provides
immediate access to our electronic catalog, part images, schematics and pricing information by make, model and year of vehicle and
use barcode scanning technology to price our merchandise. This system speeds transaction times, reduces the customer’s checkout
time, ensures accuracy and provides enhanced customer service. Moreover, our store automation systems capture detailed sales
information which assists in store management, strategic planning, inventory control and distribution efficiency.
•
the type and size of store that should be developed.
When entering new, more densely populated markets, we generally seek to initially open several stores within a short span of time in
order to maximize the effect of initial promotional programs and achieve economies of scale. After opening this initial cluster of new
stores, we seek to begin penetrating the less densely populated surrounding areas. This strategy enables us to achieve additional
distribution and advertising efficiencies in each market.
k
-
0
1
M
R
O
F
Management Structure
Each of our stores is staffed with a store manager and one or more assistant managers, in addition to parts specialists, retail and/or
installer service specialists and other positions required to meet the specific needs of each store. Each of our 386 district managers has
general supervisory responsibility for an average of 10 stores, which provides our stores with a strong amount of operational support.
Store and district managers complete a comprehensive training program to ensure each has a thorough understanding of customer
service, leadership, inventory management and store profitability, as well as all other sales and operational aspects of our business
model. Store and district managers are also required to complete a structured training program that is specific to their position,
including attending a week-long manager development program at the corporate headquarters in Springfield, Missouri. Store and
district managers also receive continuous training through on-line assignments, field workshops and regional meetings.
We provide financial incentives to all store Team Members through incentive compensation programs. Under our incentive
compensation programs, base salary is augmented by incentive compensation based upon their individual and/or store’s sales and
profitability. In addition, each of our district managers participate in our stock option program and store managers may be eligible for
a quarterly bonus program based on their store’s performance. We believe that our incentive compensation programs significantly
increase the motivation and overall performance of our store Team Members and enhance our ability to attract and retain qualified
management and other personnel.
Professional Parts People
We believe our highly trained team of Professional Parts People is essential in providing superior customer service to both DIY and
professional service provider customers. Because a significant portion of our business is from professional service provider
customers, our Professional Parts People are required to be highly, technically proficient in automotive products. In addition, we have
found that the typical DIY customer often seeks assistance from a Professional Parts Person, particularly when purchasing hard parts.
The ability of our Professional Parts People to provide such assistance to the DIY customer creates a favorable impression and is a
significant factor in generating repeat DIY business.
We screen prospective Team Members to identify highly motivated individuals who either have experience with automotive parts or
repairs, or automotive aptitude. New store Team Members go through a comprehensive orientation focused on the culture of our
Company as well as the requirements for their specific job position. Additionally, during their first year of employment, our parts
specialists go through extensive automotive systems and product knowledge training to ensure they are able to provide the highest
level of service to our customers. Once all of the required training has been satisfied, our parts specialists become eligible to take the
O’Reilly Certified Parts Professional test. Passing the O’Reilly test helps prepare them to become certified by the National Institute
for Automotive Service Excellence (ASE).
All of our stores have the ability to service professional service provider customers. For this reason, select Team Members in each
store complete extensive sales call training with their regional field sales manager. Afterward, these Team Members spend at least
one day per week calling on existing and potential professional service provider customers. Additionally, each Team Member
engaged in such sales activities participates in quarterly advanced training programs for sales and business development.
In selecting sites for new stores, we seek to strategically locate store sites in clusters within geographic areas in order to achieve
economies of scale in management, advertising and distribution. Other key factors we consider in the site selection process are
Customer Service
the number of auto parts stores and other competitors within a predetermined radius and the operational strength of such
We seek to provide our customers with an efficient and pleasant in-store experience by maintaining attractive stores in convenient
locations with a wide selection of automotive products. We believe that the satisfaction of DIY and professional service provider
customers is substantially dependent upon our ability to provide, in a timely fashion, the specific automotive products requested.
Accordingly, each O'Reilly store carries a broad selection of automotive products designed to cover a wide range of vehicle
applications. We continuously refine the inventory levels and assortments carried in each of our stores, based in large part on the sales
movement tracked by our inventory control system, market vehicle registration data, failure rates and management's assessment of the
changes and trends in the marketplace. We have no material backorders for the products we sell.
Our online ordering service provides enhanced customer service capabilities to our DIY and professional service provider customers.
Our program allows customers to view available parts and prices online, purchase parts online and/or either ship these purchases to
their location or have these parts available for pick up in our local store.
9
New Store Site Selection:
identified below:
population density;
•
•
•
•
•
•
•
demographics including age, ethnicity, life style and per capita income;
• market economic strength, retail draw and growth patterns;
number, age and percent of makes and models of registered vehicles;
the number, type and sales potential of existing automotive repair facilities;
competitors;
physical location, traffic count, size, economics and presentation of the site;
financial review of adjacent existing locations; and
8
Distribution Systems
Marketing
F
O
R
M
1
0
-
k
We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while lowering
our inventory carrying costs and controlling inventory. Moreover, we believe that our ongoing, significant capital investments made
in our DC network allows us to efficiently service new stores that are planned to open in contiguous market areas as well as servicing
our existing store network. Our distribution expansion strategy complements our new store opening strategy by supporting newly
established clusters of stores located in the regions surrounding each DC. We currently have a total growth capacity of over 400
stores in our distribution center network, which will increase by 300 stores with the completion of our Lakeland, Florida DC in the
first quarter of 2014.
Distribution Centers:
We currently operate 24 DCs comprised of approximately 8.6 million operating square feet (see the “Properties” table in Item 2 of this
Form 10-K for a detailed listing of DC operating square footages). Our DCs electronically receive orders from computers located in
each of our stores. Our DCs stock an average of 142,000 SKUs and most DCs are linked to multiple other regional DCs’ inventory.
Our DCs provide five-night-a-week delivery, primarily via a Company-owned fleet, to all of our stores in the continental United
States. In addition, stores within a DC metropolitan area receive multiple daily deliveries from our DC “city counters”, most of which
receive this service seven days per week. In addition, our Hub store network provides additional service throughout the week, and on
weekends, to surrounding stores.
As part of our continuing efforts to enhance our distribution network in 2013 we plan to:
continue to implement a voice picking technology in additional DCs;
implement enhanced routing software to further enhance logistics efficiencies;
continue to implement labor management software to improve DC productivity and overall operating efficiency;
develop further automated paperless picking processes;
improve proof of delivery systems to further increase the accuracy of product movement to our stores;
continue to define and implement best practices in all DCs; and
•
•
•
•
•
•
• make proven, return-on-investment based capital enhancements to material handling equipment in DCs including conveyor
systems, picking modules and lift equipment.
Hub stores:
We currently operate 240 strategically placed Hub stores. In addition to serving DIY and professional service provider customers in
their markets, Hub stores also provide delivery service to our other stores within the surrounding area access to an expanded selection
of SKUs on a same-day basis. Our Hub stores average approximately 10,000 square feet and carry an average of 42,000 SKUs.
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of brand name, house brands and private label
products for domestic and imported automobiles, vans and trucks. Our merchandise generally consists of nationally recognized, well-
advertised, premium name brand products such as AC Delco, Armor All, Bosch, BWD, Cardone, Castrol, Gates Rubber, Monroe,
Moog, Pennzoil, Prestone, Quaker State, STP, Turtle Wax, Valvoline, Wagner, and Wix. In addition to name brand products, our
stores carry a wide variety of high-quality house brands and private label products under our BestTest®, BrakeBest®, Import Direct®,
Master Pro®, Micro-Gard®, Murray®, Omnispark®, O’Reilly Auto Parts®, Precision®, Power Torque®, Super Start®, and
Ultima® brands. Our house brand and private label products are produced by nationally recognized manufacturers and meet or
exceed original equipment manufacturer specifications and provide a great combination of quality and value – a characteristic
important to our DIY customers.
We have no long-term contractual purchase commitments with any of our vendors, nor have we experienced difficulty in obtaining
satisfactory alternative supply sources for automotive parts. We believe that alternative supply sources exist at substantially similar
costs, for substantially all of the automotive products that we sell. It is our policy to take advantage of payment and seasonal
purchasing discounts offered by our vendors and to utilize extended dating terms available from vendors. Again in 2012, we entered
into various programs and arrangements with certain vendors that provided for extended dating and payment terms for inventory
purchases. As a whole, we consider our relationships with our vendors to be very good.
We purchase automotive products in substantial quantities from over 500 vendors, the five largest of which accounted for
approximately 25% of our total purchases in 2012. Our largest vendor in 2012 accounted for approximately 8% of our total purchases
and the next four largest vendors each accounted for approximately 3% to 5% of such purchases.
Marketing to the DIY Customer:
We use an integrated marketing program, which includes television, radio, direct mail and newspaper distribution, in-store and online
promotions, and sports and event sponsorships to aggressively attract DIY customers. The marketing strategy we employ is highly
effective and has led to a measurable increase in awareness of the O’Reilly Brand across our geographic footprint. We utilize a
combination of brand and product/price messaging to drive retail traffic and purchases, which frequently coincide with key sales
events.
To stimulate sales among racing enthusiasts, who we believe individually spend more on automotive products than the general public,
we sponsored multiple nationally-televised races and over 1,500 grassroots, local, and regional motorsports events throughout 38
states during 2012. We were the title sponsor of two National Association for Stock Car Racing (“NASCAR”) National series events
in Texas and five National Hot Rod Association (“NHRA”) races from California to North Carolina.
During the fall and winter months, we strategically sponsor National Collegiate Athletic Association (“NCAA”) basketball and the
National Football League (“NFL”). Our relationships with over 50 NCAA teams and tournaments have resulted in prominently-
displayed O’Reilly logos on TV-visible signs throughout the season.
Through an expanded use of Spanish language radio, print, and outdoor advertising, as well as sponsorships of over 45 local and
regional festivals and events, we demonstrated our commitment to increasing marketing efforts that are targeted toward the Hispanic
auto parts consumer.
In 2012, we continued our dedicated problem/solution communication strategy, which encourages vehicle owners to perform regular
maintenance as a way to save money and protect their automotive investment over the long-term. This highly relevant message
resonates with consumers and establishes O’Reilly as their source for the parts they need and excellent customer service.
Marketing to the Professional Service Provider Customer:
We have over 470 full-time O’Reilly sales representatives strategically located across our market areas as part of our First Call®
program. Each sales representative is dedicated solely to calling upon, selling to and servicing our professional service provider
customers. Targeted marketing materials such as flyers, quick reference guides and catalogs are produced and distributed on a regular
basis to professional service providers, paint and body shops and fleet customers. Our industry-leading First Call program enables our
sales representatives, district managers, and store managers to provide excellent customer service to each of our professional service
provider accounts by providing the products and services identified below:
broad selection of merchandise at competitive prices
dedicated Professional Service Specialists in our stores
same-day or overnight access to an average of 142,000 SKUs through seven day store inventory replenishments
•
•
• multiple, daily deliveries from our stores
•
•
•
• Mitchell shop management systems
• First Call Online, a dedicated Internet based catalog and ordering system designed to connect professional service providers
separate service counter and phone line in our stores dedicated exclusively to service professional service providers
trade credit for qualified accounts
directly to our inventory system
training and seminars covering topics of interest, such as technical updates, safety and general business management
•
•
• Certified Auto Repair Center Program, a program that provides professional service providers with business tools they can utilize
access to a comprehensive inventory of products and equipment needed to operate and maintain their shop
to profitably grow and market their shops
Marketing to the Independently Owned Parts Store:
Along with the daily operation and management of the DCs and the distribution of automotive products to our stores, Ozark
Automotive Distributors, Inc., our wholly owned subsidiary (“Ozark”), also sells automotive products directly to independently owned
parts stores (“jobber stores”) throughout our trade areas. These jobber stores are generally located in areas not directly serviced by an
O'Reilly store. Ozark administers a dedicated and distinct marketing program specifically targeted to jobber stores.
Approximately 185 jobber stores currently purchase automotive products from Ozark and participate in our Parts City Auto Parts
program, our proprietary jobber service program. As a participant in these programs, a jobber store, which meets certain financial and
operational standards, is permitted to indicate its Parts City Auto Parts membership through the display of the respective logo that is
owned by Ozark. In return for a commitment to purchase automotive products from Ozark, we provide computer software for
business management, competitive pricing, advertising, marketing and sales assistance to Parts City Auto Parts affiliate stores.
10
11
Distribution Systems
Marketing
We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while lowering
our inventory carrying costs and controlling inventory. Moreover, we believe that our ongoing, significant capital investments made
in our DC network allows us to efficiently service new stores that are planned to open in contiguous market areas as well as servicing
our existing store network. Our distribution expansion strategy complements our new store opening strategy by supporting newly
established clusters of stores located in the regions surrounding each DC. We currently have a total growth capacity of over 400
stores in our distribution center network, which will increase by 300 stores with the completion of our Lakeland, Florida DC in the
Marketing to the DIY Customer:
We use an integrated marketing program, which includes television, radio, direct mail and newspaper distribution, in-store and online
promotions, and sports and event sponsorships to aggressively attract DIY customers. The marketing strategy we employ is highly
effective and has led to a measurable increase in awareness of the O’Reilly Brand across our geographic footprint. We utilize a
combination of brand and product/price messaging to drive retail traffic and purchases, which frequently coincide with key sales
events.
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first quarter of 2014.
Distribution Centers:
We currently operate 24 DCs comprised of approximately 8.6 million operating square feet (see the “Properties” table in Item 2 of this
Form 10-K for a detailed listing of DC operating square footages). Our DCs electronically receive orders from computers located in
each of our stores. Our DCs stock an average of 142,000 SKUs and most DCs are linked to multiple other regional DCs’ inventory.
Our DCs provide five-night-a-week delivery, primarily via a Company-owned fleet, to all of our stores in the continental United
States. In addition, stores within a DC metropolitan area receive multiple daily deliveries from our DC “city counters”, most of which
receive this service seven days per week. In addition, our Hub store network provides additional service throughout the week, and on
weekends, to surrounding stores.
As part of our continuing efforts to enhance our distribution network in 2013 we plan to:
•
•
•
•
•
•
continue to implement a voice picking technology in additional DCs;
implement enhanced routing software to further enhance logistics efficiencies;
continue to implement labor management software to improve DC productivity and overall operating efficiency;
develop further automated paperless picking processes;
improve proof of delivery systems to further increase the accuracy of product movement to our stores;
continue to define and implement best practices in all DCs; and
• make proven, return-on-investment based capital enhancements to material handling equipment in DCs including conveyor
systems, picking modules and lift equipment.
We currently operate 240 strategically placed Hub stores. In addition to serving DIY and professional service provider customers in
their markets, Hub stores also provide delivery service to our other stores within the surrounding area access to an expanded selection
of SKUs on a same-day basis. Our Hub stores average approximately 10,000 square feet and carry an average of 42,000 SKUs.
Hub stores:
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of brand name, house brands and private label
products for domestic and imported automobiles, vans and trucks. Our merchandise generally consists of nationally recognized, well-
advertised, premium name brand products such as AC Delco, Armor All, Bosch, BWD, Cardone, Castrol, Gates Rubber, Monroe,
Moog, Pennzoil, Prestone, Quaker State, STP, Turtle Wax, Valvoline, Wagner, and Wix. In addition to name brand products, our
stores carry a wide variety of high-quality house brands and private label products under our BestTest®, BrakeBest®, Import Direct®,
Master Pro®, Micro-Gard®, Murray®, Omnispark®, O’Reilly Auto Parts®, Precision®, Power Torque®, Super Start®, and
Ultima® brands. Our house brand and private label products are produced by nationally recognized manufacturers and meet or
exceed original equipment manufacturer specifications and provide a great combination of quality and value – a characteristic
important to our DIY customers.
We have no long-term contractual purchase commitments with any of our vendors, nor have we experienced difficulty in obtaining
satisfactory alternative supply sources for automotive parts. We believe that alternative supply sources exist at substantially similar
costs, for substantially all of the automotive products that we sell. It is our policy to take advantage of payment and seasonal
purchasing discounts offered by our vendors and to utilize extended dating terms available from vendors. Again in 2012, we entered
into various programs and arrangements with certain vendors that provided for extended dating and payment terms for inventory
purchases. As a whole, we consider our relationships with our vendors to be very good.
We purchase automotive products in substantial quantities from over 500 vendors, the five largest of which accounted for
approximately 25% of our total purchases in 2012. Our largest vendor in 2012 accounted for approximately 8% of our total purchases
and the next four largest vendors each accounted for approximately 3% to 5% of such purchases.
To stimulate sales among racing enthusiasts, who we believe individually spend more on automotive products than the general public,
we sponsored multiple nationally-televised races and over 1,500 grassroots, local, and regional motorsports events throughout 38
states during 2012. We were the title sponsor of two National Association for Stock Car Racing (“NASCAR”) National series events
in Texas and five National Hot Rod Association (“NHRA”) races from California to North Carolina.
During the fall and winter months, we strategically sponsor National Collegiate Athletic Association (“NCAA”) basketball and the
National Football League (“NFL”). Our relationships with over 50 NCAA teams and tournaments have resulted in prominently-
displayed O’Reilly logos on TV-visible signs throughout the season.
Through an expanded use of Spanish language radio, print, and outdoor advertising, as well as sponsorships of over 45 local and
regional festivals and events, we demonstrated our commitment to increasing marketing efforts that are targeted toward the Hispanic
auto parts consumer.
In 2012, we continued our dedicated problem/solution communication strategy, which encourages vehicle owners to perform regular
maintenance as a way to save money and protect their automotive investment over the long-term. This highly relevant message
resonates with consumers and establishes O’Reilly as their source for the parts they need and excellent customer service.
Marketing to the Professional Service Provider Customer:
We have over 470 full-time O’Reilly sales representatives strategically located across our market areas as part of our First Call®
program. Each sales representative is dedicated solely to calling upon, selling to and servicing our professional service provider
customers. Targeted marketing materials such as flyers, quick reference guides and catalogs are produced and distributed on a regular
basis to professional service providers, paint and body shops and fleet customers. Our industry-leading First Call program enables our
sales representatives, district managers, and store managers to provide excellent customer service to each of our professional service
provider accounts by providing the products and services identified below:
broad selection of merchandise at competitive prices
dedicated Professional Service Specialists in our stores
•
•
• multiple, daily deliveries from our stores
•
same-day or overnight access to an average of 142,000 SKUs through seven day store inventory replenishments
•
separate service counter and phone line in our stores dedicated exclusively to service professional service providers
•
trade credit for qualified accounts
• Mitchell shop management systems
• First Call Online, a dedicated Internet based catalog and ordering system designed to connect professional service providers
directly to our inventory system
training and seminars covering topics of interest, such as technical updates, safety and general business management
access to a comprehensive inventory of products and equipment needed to operate and maintain their shop
•
•
• Certified Auto Repair Center Program, a program that provides professional service providers with business tools they can utilize
to profitably grow and market their shops
Marketing to the Independently Owned Parts Store:
Along with the daily operation and management of the DCs and the distribution of automotive products to our stores, Ozark
Automotive Distributors, Inc., our wholly owned subsidiary (“Ozark”), also sells automotive products directly to independently owned
parts stores (“jobber stores”) throughout our trade areas. These jobber stores are generally located in areas not directly serviced by an
O'Reilly store. Ozark administers a dedicated and distinct marketing program specifically targeted to jobber stores.
Approximately 185 jobber stores currently purchase automotive products from Ozark and participate in our Parts City Auto Parts
program, our proprietary jobber service program. As a participant in these programs, a jobber store, which meets certain financial and
operational standards, is permitted to indicate its Parts City Auto Parts membership through the display of the respective logo that is
owned by Ozark. In return for a commitment to purchase automotive products from Ozark, we provide computer software for
business management, competitive pricing, advertising, marketing and sales assistance to Parts City Auto Parts affiliate stores.
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Pricing
Regulations
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We believe that a competitive pricing policy is essential to successfully operate in the automotive aftermarket business. Product
pricing is generally established to compete with the pricing policies of competitors in the market area served by each store. Most
automotive products that we sell are priced based upon a combination of competitor price comparisons and internal gross margin
targets and are generally sold at a discount to the manufacturer’s suggested retail price with additional savings offered through volume
discounts and special promotional pricing. Consistent with our low price guarantee, each of our stores will match any verifiable price
on any in-stock product of the same or comparable quality offered by our competitors in the same market area.
Customer Payments and Returns Policy
Our stores accept cash, checks, debit and credit cards. We also grant credit to many professional service provider customers who meet
our pre-established credit requirements. Some of the factors considered in our pre-established credit requirements include customer
creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment
terms. No customer accounted for ten percent or more of our consolidated net sales, nor do we have any dependence on any single
customer.
We accept product returns for new products, core products and warranty/defective products.
INDUSTRY ENVIRONMENT
The automotive aftermarket industry includes all products and services purchased for light- and heavy-duty vehicles after the original
sale. The total size of the automotive aftermarket is estimated to be approximately $231 billion, according to the Automotive
Aftermarket Industry Association (“AAIA”). This market is made up of four segments – labor share of professional service provider
sales, auto parts share of professional service provider sales, DIY sales and tire sales. O’Reilly’s addressable market within this
industry is approximately $131 billion, which includes the auto parts share of professional service provider sales and DIY sales. We
do not sell tires or perform for-fee automotive repairs or installations.
Competition
We compete in both the DIY and professional service provider portions of the automotive aftermarket and are one of the largest
specialty retailers within that market. We compete primarily with the stores identified below:
•
national retail and wholesale automotive parts chains (such as AutoZone, Inc., Advance Auto Parts, NAPA, CARQUEST and the
Pep Boys - Manny, Moe and Jack, Inc.)
regional retail and wholesale automotive parts chains
independently owned parts stores
•
•
• wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as
NAPA, CARQUEST, Bumper to Bumper and Auto Value)
automobile dealers
•
• mass merchandisers that carry automotive replacement parts, maintenance items and accessories (such as Wal-Mart Stores, Inc.)
We compete on the basis of customer service, which includes merchandise selection and availability, technical proficiency and
helpfulness of store personnel, price, store layout and convenient and accessible store locations. Our dual market strategy requires
significant capital expenditures to support, such as the capital expenditures required for the distribution network, store network and
inventory levels necessary for providing products to both the DIY and professional service provider portions of the automotive
aftermarket.
Inflation and Seasonality
We have been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of
vendor incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the
extent our acquisition cost increases due to base commodity price increases industry wide, we have typically been able to pass along
these increased costs through higher retail prices for the affected products. As a result, we do not believe our operations have been
materially, adversely affected by inflation.
To some extent our business is seasonal, primarily as a result of the impact of weather conditions on customer buying patterns. Store
sales, profits and inventory levels have historically been higher in the second and third quarters (April through September) than in the
first and fourth quarters (October through March) of the year.
We are subject to various federal, state and local laws and governmental regulations relating to our business, including those related to
the handling, storage and disposal of hazardous substances, the recycling of batteries and used lubricants, and the ownership and
operation of real property.
As part of our operations, we handle hazardous materials in the ordinary course of business and our customers may bring hazardous
materials onto our property in connection with, for example, our oil and battery recycling programs. We currently provide a recycling
program for batteries and the collection of used lubricants at certain of our stores as a service to our customers pursuant to agreements
with third-party vendors. The batteries and used lubricants are collected by our associates, deposited into vendor-supplied containers
and pallets, and then disposed of by the third-party vendors. In general, our agreements with such vendors contain provisions that are
designed to limit our potential liability under applicable environmental regulations for any damage or contamination, which may be
caused by the batteries and lubricants to off-site properties (including as a result of waste disposal) and to our properties, when caused
by the vendor.
Compliance with any such laws and regulations has not had a material adverse effect on our operations to date. We cannot give any
assurance, however, that we will not incur significant expenses in the future in order to comply with any such laws or regulations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following paragraphs discuss information about our executive officers who are not also directors:
Greg Henslee, age 52, President and Chief Executive Officer, has been an O’Reilly Team Member for 28 years. Mr. Henslee’s
O’Reilly career started as a parts specialist, and during his first five years he served in several positions in retail store operations,
including district manager. From there he advanced to Computer Operations Manager, and over the next 15 years, he served as
Director of Computer Operations/Loss Prevention, Vice President of Store Operations and as Senior Vice President. In 1999, he
became President of Merchandise, Distribution, Information Systems and Loss Prevention, and in 2005, he became Chief Executive
Officer and Co-President. Mr. Henslee continues to hold the position of Chief Executive Officer and as of January 1, 2013, he became
President.
Thomas McFall, age 42, Executive Vice President of Finance and Chief Financial Officer, has been an O’Reilly Team Member since
2006 and has held his position as Chief Financial Officer during this time. Mr. McFall’s primary areas of responsibility are Finance,
Accounting, Information Systems, Risk Management and Human Resources. Prior to joining O’Reilly, Mr. McFall held the position
of Chief Financial Officer – Midwest Operation for CSK, following CSK’s acquisition of Murray’s Discount Auto Stores
(“Murray’s”). Mr. McFall served Murray’s for eight years as Controller, Vice President of Finance, and Chief Financial Officer, with
direct responsibility for finance and accounting, distribution and logistics operations. Prior to joining Murray’s, Mr. McFall was an
Audit Manager with Ernst & Young, LLP in Detroit, Michigan.
Jeff Shaw, age 50, Executive Vice President of Store Operations and Sales, has been an O'Reilly Team Member for 24 years. Mr.
Shaw's primary areas of responsibility are Store Operations and Sales. His O'Reilly career started as a Parts Specialist, and has
progressed through the roles of Store Manager, District Manager, Regional Manager and Vice President of the Southern division. He
advanced to Vice President of Sales and Operations in 2003 and Senior Vice President of Sales and Operations in 2004. Mr. Shaw has
held the position of Executive Vice President of Store Operations and Sales since January 1, 2013.
Ted F. Wise, age 62, Executive Vice President of Expansion, has been an O’Reilly Team Member for 42 years. Mr. Wise’s primary
area of responsibility is Real Estate. He began his O’Reilly career in sales in 1970, was promoted to Store Manager in 1973 and
became our first District Manager in 1977. He continued his progression with O’Reilly as Operations Manager, Vice President,
Senior Vice President of Operations and Sales, and Executive Vice President. He has been President of Sales, Operations and Real
Estate since 1999, and in 2005 became Chief Operating Officer and Co-President. Mr. Wise has held the position of Executive Vice
President of Expansion since January 1, 2013.
Tony Bartholomew, age 51, Senior Vice President of Professional Sales, has been an O’Reilly Team Member for 30 years. Mr.
Bartholomew’s primary area of responsibility is Professional Sales. His O’Reilly career started as a Delivery Specialist and has
progressed through Parts Specialist, Assistant Manager, Night Manager, Merchandising set up crew Supervisor, Equipment Sales
Manager and Regional Field Sales Manager. In 1998 Mr. Bartholomew became the Director of Southern Division Sales and then in
2003 assumed the role of Vice President of Professional Sales. Mr. Bartholomew has held the position of Senior Vice President of
Professional Sales since January 1, 2013.
Stephen L. Jasinski, age 47, Senior Vice President of Information Systems, has been an O’Reilly Team Member for 20 years. Mr.
Jasinksi’s primary area of responsibility is Information Systems. His O’Reilly career started as a Programmer. Mr. Jasinski advanced
to Manager, responsible for retail, pricing and warehouse management programming development. From there, he was promoted to
Director of Systems Development and in early 2004, promoted to Vice President of Information Systems responsible for information
12
13
Pricing
Regulations
We believe that a competitive pricing policy is essential to successfully operate in the automotive aftermarket business. Product
pricing is generally established to compete with the pricing policies of competitors in the market area served by each store. Most
automotive products that we sell are priced based upon a combination of competitor price comparisons and internal gross margin
targets and are generally sold at a discount to the manufacturer’s suggested retail price with additional savings offered through volume
discounts and special promotional pricing. Consistent with our low price guarantee, each of our stores will match any verifiable price
on any in-stock product of the same or comparable quality offered by our competitors in the same market area.
Customer Payments and Returns Policy
Our stores accept cash, checks, debit and credit cards. We also grant credit to many professional service provider customers who meet
our pre-established credit requirements. Some of the factors considered in our pre-established credit requirements include customer
creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment
terms. No customer accounted for ten percent or more of our consolidated net sales, nor do we have any dependence on any single
We accept product returns for new products, core products and warranty/defective products.
customer.
INDUSTRY ENVIRONMENT
The automotive aftermarket industry includes all products and services purchased for light- and heavy-duty vehicles after the original
sale. The total size of the automotive aftermarket is estimated to be approximately $231 billion, according to the Automotive
Aftermarket Industry Association (“AAIA”). This market is made up of four segments – labor share of professional service provider
sales, auto parts share of professional service provider sales, DIY sales and tire sales. O’Reilly’s addressable market within this
industry is approximately $131 billion, which includes the auto parts share of professional service provider sales and DIY sales. We
do not sell tires or perform for-fee automotive repairs or installations.
Competition
We compete in both the DIY and professional service provider portions of the automotive aftermarket and are one of the largest
specialty retailers within that market. We compete primarily with the stores identified below:
national retail and wholesale automotive parts chains (such as AutoZone, Inc., Advance Auto Parts, NAPA, CARQUEST and the
• wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as
• mass merchandisers that carry automotive replacement parts, maintenance items and accessories (such as Wal-Mart Stores, Inc.)
We compete on the basis of customer service, which includes merchandise selection and availability, technical proficiency and
helpfulness of store personnel, price, store layout and convenient and accessible store locations. Our dual market strategy requires
significant capital expenditures to support, such as the capital expenditures required for the distribution network, store network and
inventory levels necessary for providing products to both the DIY and professional service provider portions of the automotive
aftermarket.
Inflation and Seasonality
We have been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of
vendor incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the
extent our acquisition cost increases due to base commodity price increases industry wide, we have typically been able to pass along
these increased costs through higher retail prices for the affected products. As a result, we do not believe our operations have been
materially, adversely affected by inflation.
To some extent our business is seasonal, primarily as a result of the impact of weather conditions on customer buying patterns. Store
sales, profits and inventory levels have historically been higher in the second and third quarters (April through September) than in the
first and fourth quarters (October through March) of the year.
•
•
•
Pep Boys - Manny, Moe and Jack, Inc.)
regional retail and wholesale automotive parts chains
independently owned parts stores
NAPA, CARQUEST, Bumper to Bumper and Auto Value)
•
automobile dealers
12
We are subject to various federal, state and local laws and governmental regulations relating to our business, including those related to
the handling, storage and disposal of hazardous substances, the recycling of batteries and used lubricants, and the ownership and
operation of real property.
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As part of our operations, we handle hazardous materials in the ordinary course of business and our customers may bring hazardous
materials onto our property in connection with, for example, our oil and battery recycling programs. We currently provide a recycling
program for batteries and the collection of used lubricants at certain of our stores as a service to our customers pursuant to agreements
with third-party vendors. The batteries and used lubricants are collected by our associates, deposited into vendor-supplied containers
and pallets, and then disposed of by the third-party vendors. In general, our agreements with such vendors contain provisions that are
designed to limit our potential liability under applicable environmental regulations for any damage or contamination, which may be
caused by the batteries and lubricants to off-site properties (including as a result of waste disposal) and to our properties, when caused
by the vendor.
Compliance with any such laws and regulations has not had a material adverse effect on our operations to date. We cannot give any
assurance, however, that we will not incur significant expenses in the future in order to comply with any such laws or regulations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following paragraphs discuss information about our executive officers who are not also directors:
Greg Henslee, age 52, President and Chief Executive Officer, has been an O’Reilly Team Member for 28 years. Mr. Henslee’s
O’Reilly career started as a parts specialist, and during his first five years he served in several positions in retail store operations,
including district manager. From there he advanced to Computer Operations Manager, and over the next 15 years, he served as
Director of Computer Operations/Loss Prevention, Vice President of Store Operations and as Senior Vice President. In 1999, he
became President of Merchandise, Distribution, Information Systems and Loss Prevention, and in 2005, he became Chief Executive
Officer and Co-President. Mr. Henslee continues to hold the position of Chief Executive Officer and as of January 1, 2013, he became
President.
Thomas McFall, age 42, Executive Vice President of Finance and Chief Financial Officer, has been an O’Reilly Team Member since
2006 and has held his position as Chief Financial Officer during this time. Mr. McFall’s primary areas of responsibility are Finance,
Accounting, Information Systems, Risk Management and Human Resources. Prior to joining O’Reilly, Mr. McFall held the position
of Chief Financial Officer – Midwest Operation for CSK, following CSK’s acquisition of Murray’s Discount Auto Stores
(“Murray’s”). Mr. McFall served Murray’s for eight years as Controller, Vice President of Finance, and Chief Financial Officer, with
direct responsibility for finance and accounting, distribution and logistics operations. Prior to joining Murray’s, Mr. McFall was an
Audit Manager with Ernst & Young, LLP in Detroit, Michigan.
Jeff Shaw, age 50, Executive Vice President of Store Operations and Sales, has been an O'Reilly Team Member for 24 years. Mr.
Shaw's primary areas of responsibility are Store Operations and Sales. His O'Reilly career started as a Parts Specialist, and has
progressed through the roles of Store Manager, District Manager, Regional Manager and Vice President of the Southern division. He
advanced to Vice President of Sales and Operations in 2003 and Senior Vice President of Sales and Operations in 2004. Mr. Shaw has
held the position of Executive Vice President of Store Operations and Sales since January 1, 2013.
Ted F. Wise, age 62, Executive Vice President of Expansion, has been an O’Reilly Team Member for 42 years. Mr. Wise’s primary
area of responsibility is Real Estate. He began his O’Reilly career in sales in 1970, was promoted to Store Manager in 1973 and
became our first District Manager in 1977. He continued his progression with O’Reilly as Operations Manager, Vice President,
Senior Vice President of Operations and Sales, and Executive Vice President. He has been President of Sales, Operations and Real
Estate since 1999, and in 2005 became Chief Operating Officer and Co-President. Mr. Wise has held the position of Executive Vice
President of Expansion since January 1, 2013.
Tony Bartholomew, age 51, Senior Vice President of Professional Sales, has been an O’Reilly Team Member for 30 years. Mr.
Bartholomew’s primary area of responsibility is Professional Sales. His O’Reilly career started as a Delivery Specialist and has
progressed through Parts Specialist, Assistant Manager, Night Manager, Merchandising set up crew Supervisor, Equipment Sales
Manager and Regional Field Sales Manager. In 1998 Mr. Bartholomew became the Director of Southern Division Sales and then in
2003 assumed the role of Vice President of Professional Sales. Mr. Bartholomew has held the position of Senior Vice President of
Professional Sales since January 1, 2013.
Stephen L. Jasinski, age 47, Senior Vice President of Information Systems, has been an O’Reilly Team Member for 20 years. Mr.
Jasinksi’s primary area of responsibility is Information Systems. His O’Reilly career started as a Programmer. Mr. Jasinski advanced
to Manager, responsible for retail, pricing and warehouse management programming development. From there, he was promoted to
Director of Systems Development and in early 2004, promoted to Vice President of Information Systems responsible for information
13
systems, PC support, store support services and telecommunications. Mr. Jasinski has held the position of Senior Vice President of
Information Systems since January 1, 2013.
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Gregory D. Johnson, age 47, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member for 30 years. Mr.
Johnson’s primary area of responsibility is Distribution and Logistics. He began his O’Reilly career as a part-time stocker in the
Nashville DC in 1982 and advanced with O’Reilly as Retail Systems Manager, WMS Systems Development Manager, Director of
Distribution and Vice President of Distribution. He has been in his current position as Senior Vice President since September 2007.
Randy Johnson, age 57, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 39 years. Mr.
Johnson’s primary area of responsibility is Inventory Management, Purchasing, Logistics, and Store Design. He began his career in a
DC in 1973, working in the stocking, shipping and will call counter departments, and was promoted to Customer Service Manager in
1976. He continued to progress with the development of the inventory control department as Inventory Control Manager and Vice
President of Store Inventory Management. He has been in his current position as Senior Vice President of Inventory Management
since October 2010.
Michael Swearengin, age 52, Senior Vice President of Merchandise, has been an O'Reilly Team Member for 19 years. Mr.
Swearengin's primary areas of responsibility are Merchandise, Pricing and Advertising. His O'Reilly career started as an employee in
a store later acquired by O’Reilly, he then became Product Manager, a position he held for four years. From there he advanced to
Senior Product Manager, Director of Merchandise and Vice President of Merchandise with responsibility for product mix and
replenishment. He has been in his current position as Senior Vice President since 2004.
SERVICE MARKS AND TRADEMARKS
We have registered, acquired and/or been assigned the following service marks and trademarks: BESTEST®, BETTER PARTS.
BETTER PRICES.®, BRAKEBEST®, CERTIFIED AUTO REPAIR®, CUSTOMIZE YOUR RIDE®, FIRST CALL®, FROM OUR
STORE TO YOUR DOOR®, HI-LO®, IMPORT DIRECT®, IPOLITE®, MASTER PRO®, MASTER PRO REFINISHING®,
MICRO-GARD®, MILES AHEAD®, MURRAY®, O®, OMNISPARK®, O’REILLY®, O’REILLY AUTO COLOR
PROFESSIONAL PAINT PEOPLE®, O’REILLY AUTO PARTS®, O’REILLY AUTO PARTS PROFESSIONAL PARTS
PEOPLE®, O’REILLY AUTOMOTIVE®, O’REILLY RACING®, PARTNERSHIP NETWORK®, PARTS CITY®, PARTS CITY
AUTO COLOR PROFESSIONAL PAINT PEOPLE®, PARTS CITY AUTO PARTS®, PARTS CITY TOOL BOX®, PARTS
PAYOFF®, POWER TORQUE®, PRECISION®, REAL WORLD TRAINING®, SERIOUS ABOUT YOUR CAR…SO ARE
WE!®, SUPER START®, TOOLBOX®, ULTIMA®, CSK PROSHOP®, FLAG®, KRAGEN AUTO PARTS®, MURRAY’S
AUTO PARTS®, PRIORITY PARTS®, PROXONE®, SCHUCK’S®, WE’RE THE PLACE WITH ALL THE PARTS®,
MURRAY’S VIP PROGRAM®, PAY N $AVE®. Some of the service marks and trademarks listed above may also have a design
associated therewith. Each of the service marks and trademarks are in duration for as long as we continue to use and seek renewal of
such marks – the duration of each of these service marks and trademarks is typically between five and ten years per renewal. We
believe that our business is not otherwise dependent upon any patent, trademark, service mark or copyright.
Solely for convenience, our service marks and trademarks may appear in this report without the ® or ™ symbol, which is not intended
to indicate that we will not assert, to the fullest extent under applicable law, our rights or the right to these service marks and
trademarks.
AVAILABLE INFORMATION
Our Internet address is www.oreillyauto.com. Interested readers can access, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the Securities and Exchange Commission website
at www.sec.gov and searching with our ticker symbol “ORLY”. Such reports are generally available the day they are filed. Upon
request, we will furnish interested readers a paper copy of such reports free of charge by contacting Mark Merz, Director of External
Reporting and Investor Relations, at 233 South Patterson Avenue, Springfield, Missouri, 65802.
Item 1A.
Risk Factors
Our future performance is subject to a variety of risks and uncertainties. Although the risks described below are the risks that we
believe are material, there may also be risks of which we are currently unaware, or that we currently regard as immaterial based upon
the information available to us that later may prove to be material. Interested parties should be aware that the occurrence of the events
described in these risk factors, elsewhere in this Form 10-K and in our other filings with the Securities and Exchange Commission
could have a material adverse effect on our business, operating results and financial condition. Actual results, therefore, may
materially differ from anticipated results described in our forward-looking statements.
Deteriorating economic conditions may adversely impact demand for our products, reduce access to credit and cause our
customers and others with which we do business to suffer financial hardship, all of which could adversely impact our business,
results of operations, financial condition and cash flows.
In recent years, worldwide economic conditions have deteriorated significantly in many countries and regions, including the United
States, and such conditions may worsen in the foreseeable future. Although demand for many of our products is primarily non-
discretionary in nature and tend to be purchased by consumers out of necessity, rather than on an impulse basis, our sales are impacted
by constraints on the economic health of our customers. The economic health of our customers is affected by many factors, including,
among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency
exchange rates, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending. Many
of these factors are outside of our control. Our customers’ purchases, including purchases of our products, could decline during
periods when income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable
economic conditions. If any of these events occur, or if unfavorable economic conditions challenge the consumer environment, our
business, results of operations, financial condition and cash flows could be adversely affected.
Overall demand for products sold in the automotive aftermarket is dependent upon many factors including the total number of vehicle
miles driven in the U.S., the total number of registered vehicles the U.S., the age and quality of these registered vehicles and the level
of unemployment in the U.S. Adverse changes in these factors could lead to a decreased level of demand for our products, which
could negatively impact our business, results of operations, financial condition and cash flows.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings,
bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial
institutions which are counterparties to our credit facilities and interest rate swap transactions. Also, the ability of these third parties to
overcome these difficulties may increase. If third parties, on whom we rely for merchandise, are unable to overcome difficulties
resulting from the deterioration in economic conditions and provide us with the merchandise we need, or if counterparties to our credit
facilities do not perform their obligations, our business, results of operations, financial condition and cash flows could be adversely
affected.
The automotive aftermarket business is highly competitive, and we may have to risk our capital to remain competitive.
Both the DIY and professional service provider portions of our business are highly competitive, particularly in the more densely
populated areas that we serve. Some of our competitors are larger than we are and have greater financial resources. In addition, some
of our competitors are smaller than we are, but have a greater presence than we do in a particular market. We may have to expend
more resources and risk additional capital to remain competitive. For a list of our principal competitors, see the “Competition” section
of Item 1 of this annual report on Form 10-K.
We are sensitive to regional economic and weather conditions that could impact our costs and sales.
Our business is sensitive to national and regional economic and weather conditions. Unusually inclement weather, such as significant
rain, snow, sleet, freezing rain, flooding, seismic activity and hurricanes, has historically discouraged our customers from visiting our
stores during the affected period and reduced our sales, particularly to DIY customers. Extreme weather conditions, such as extreme
heat and extreme cold temperatures, may enhance demand for our products due to increased failure rates of our customers’ automotive
parts, while temperate weather conditions may have a lesser impact on failure rates of automotive parts. In addition, our stores and
DCs located in coastal regions may be subject to increased insurance claims resulting from regional weather conditions and our results
of operations and financial condition could be adversely affected.
We cannot assure future growth will be achieved.
We believe that our ability to open additional, profitable stores at a high growth rate will be a significant factor in achieving our
growth objectives for the future. Our ability to accomplish our growth objectives is dependent, in part, on matters beyond our control,
such as weather conditions, zoning and other issues related to new store site development, the availability of qualified management
personnel and general business and economic conditions. We cannot be sure that our growth plans for 2013 and beyond will be
achieved. Failure to achieve our growth objectives may negatively impact the trading price of our common stock. For a discussion of
our growth strategies, see the “Growth Strategy” section of Item 1 of this annual report on Form 10-K.
In order to be successful, we will need to retain and motivate key employees.
Our success has been largely dependent on the efforts of certain key personnel. In order to be successful, we will need to retain and
motivate executives and other key employees. Experienced management and technical personnel are in high demand and competition
for their talents is intense. We must also continue to motivate employees and keep them focused on our strategies and goals. Our
business and results of operations could be materially adversely affected by the unexpected loss of the services of one or more of our
key employees. We cannot be sure that we will be able to continue to attract qualified personnel, which could cause us to be less
efficient, and as a result, may adversely impact our sales and profitability. For a discussion of our management, see the “Business”
section of Item 1 of this annual report on Form 10-K.
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systems, PC support, store support services and telecommunications. Mr. Jasinski has held the position of Senior Vice President of
Information Systems since January 1, 2013.
Gregory D. Johnson, age 47, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member for 30 years. Mr.
Johnson’s primary area of responsibility is Distribution and Logistics. He began his O’Reilly career as a part-time stocker in the
Nashville DC in 1982 and advanced with O’Reilly as Retail Systems Manager, WMS Systems Development Manager, Director of
Distribution and Vice President of Distribution. He has been in his current position as Senior Vice President since September 2007.
Randy Johnson, age 57, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 39 years. Mr.
Johnson’s primary area of responsibility is Inventory Management, Purchasing, Logistics, and Store Design. He began his career in a
DC in 1973, working in the stocking, shipping and will call counter departments, and was promoted to Customer Service Manager in
1976. He continued to progress with the development of the inventory control department as Inventory Control Manager and Vice
President of Store Inventory Management. He has been in his current position as Senior Vice President of Inventory Management
since October 2010.
Michael Swearengin, age 52, Senior Vice President of Merchandise, has been an O'Reilly Team Member for 19 years. Mr.
Swearengin's primary areas of responsibility are Merchandise, Pricing and Advertising. His O'Reilly career started as an employee in
a store later acquired by O’Reilly, he then became Product Manager, a position he held for four years. From there he advanced to
Senior Product Manager, Director of Merchandise and Vice President of Merchandise with responsibility for product mix and
replenishment. He has been in his current position as Senior Vice President since 2004.
SERVICE MARKS AND TRADEMARKS
We have registered, acquired and/or been assigned the following service marks and trademarks: BESTEST®, BETTER PARTS.
BETTER PRICES.®, BRAKEBEST®, CERTIFIED AUTO REPAIR®, CUSTOMIZE YOUR RIDE®, FIRST CALL®, FROM OUR
STORE TO YOUR DOOR®, HI-LO®, IMPORT DIRECT®, IPOLITE®, MASTER PRO®, MASTER PRO REFINISHING®,
MICRO-GARD®, MILES AHEAD®, MURRAY®, O®, OMNISPARK®, O’REILLY®, O’REILLY AUTO COLOR
PROFESSIONAL PAINT PEOPLE®, O’REILLY AUTO PARTS®, O’REILLY AUTO PARTS PROFESSIONAL PARTS
PEOPLE®, O’REILLY AUTOMOTIVE®, O’REILLY RACING®, PARTNERSHIP NETWORK®, PARTS CITY®, PARTS CITY
AUTO COLOR PROFESSIONAL PAINT PEOPLE®, PARTS CITY AUTO PARTS®, PARTS CITY TOOL BOX®, PARTS
PAYOFF®, POWER TORQUE®, PRECISION®, REAL WORLD TRAINING®, SERIOUS ABOUT YOUR CAR…SO ARE
WE!®, SUPER START®, TOOLBOX®, ULTIMA®, CSK PROSHOP®, FLAG®, KRAGEN AUTO PARTS®, MURRAY’S
AUTO PARTS®, PRIORITY PARTS®, PROXONE®, SCHUCK’S®, WE’RE THE PLACE WITH ALL THE PARTS®,
MURRAY’S VIP PROGRAM®, PAY N $AVE®. Some of the service marks and trademarks listed above may also have a design
associated therewith. Each of the service marks and trademarks are in duration for as long as we continue to use and seek renewal of
such marks – the duration of each of these service marks and trademarks is typically between five and ten years per renewal. We
believe that our business is not otherwise dependent upon any patent, trademark, service mark or copyright.
Solely for convenience, our service marks and trademarks may appear in this report without the ® or ™ symbol, which is not intended
to indicate that we will not assert, to the fullest extent under applicable law, our rights or the right to these service marks and
trademarks.
AVAILABLE INFORMATION
Our Internet address is www.oreillyauto.com. Interested readers can access, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the Securities and Exchange Commission website
at www.sec.gov and searching with our ticker symbol “ORLY”. Such reports are generally available the day they are filed. Upon
request, we will furnish interested readers a paper copy of such reports free of charge by contacting Mark Merz, Director of External
Reporting and Investor Relations, at 233 South Patterson Avenue, Springfield, Missouri, 65802.
Item 1A.
Risk Factors
Our future performance is subject to a variety of risks and uncertainties. Although the risks described below are the risks that we
believe are material, there may also be risks of which we are currently unaware, or that we currently regard as immaterial based upon
the information available to us that later may prove to be material. Interested parties should be aware that the occurrence of the events
described in these risk factors, elsewhere in this Form 10-K and in our other filings with the Securities and Exchange Commission
could have a material adverse effect on our business, operating results and financial condition. Actual results, therefore, may
materially differ from anticipated results described in our forward-looking statements.
Deteriorating economic conditions may adversely impact demand for our products, reduce access to credit and cause our
customers and others with which we do business to suffer financial hardship, all of which could adversely impact our business,
results of operations, financial condition and cash flows.
In recent years, worldwide economic conditions have deteriorated significantly in many countries and regions, including the United
States, and such conditions may worsen in the foreseeable future. Although demand for many of our products is primarily non-
discretionary in nature and tend to be purchased by consumers out of necessity, rather than on an impulse basis, our sales are impacted
by constraints on the economic health of our customers. The economic health of our customers is affected by many factors, including,
among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency
exchange rates, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending. Many
of these factors are outside of our control. Our customers’ purchases, including purchases of our products, could decline during
periods when income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable
economic conditions. If any of these events occur, or if unfavorable economic conditions challenge the consumer environment, our
business, results of operations, financial condition and cash flows could be adversely affected.
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Overall demand for products sold in the automotive aftermarket is dependent upon many factors including the total number of vehicle
miles driven in the U.S., the total number of registered vehicles the U.S., the age and quality of these registered vehicles and the level
of unemployment in the U.S. Adverse changes in these factors could lead to a decreased level of demand for our products, which
could negatively impact our business, results of operations, financial condition and cash flows.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings,
bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial
institutions which are counterparties to our credit facilities and interest rate swap transactions. Also, the ability of these third parties to
overcome these difficulties may increase. If third parties, on whom we rely for merchandise, are unable to overcome difficulties
resulting from the deterioration in economic conditions and provide us with the merchandise we need, or if counterparties to our credit
facilities do not perform their obligations, our business, results of operations, financial condition and cash flows could be adversely
affected.
The automotive aftermarket business is highly competitive, and we may have to risk our capital to remain competitive.
Both the DIY and professional service provider portions of our business are highly competitive, particularly in the more densely
populated areas that we serve. Some of our competitors are larger than we are and have greater financial resources. In addition, some
of our competitors are smaller than we are, but have a greater presence than we do in a particular market. We may have to expend
more resources and risk additional capital to remain competitive. For a list of our principal competitors, see the “Competition” section
of Item 1 of this annual report on Form 10-K.
We are sensitive to regional economic and weather conditions that could impact our costs and sales.
Our business is sensitive to national and regional economic and weather conditions. Unusually inclement weather, such as significant
rain, snow, sleet, freezing rain, flooding, seismic activity and hurricanes, has historically discouraged our customers from visiting our
stores during the affected period and reduced our sales, particularly to DIY customers. Extreme weather conditions, such as extreme
heat and extreme cold temperatures, may enhance demand for our products due to increased failure rates of our customers’ automotive
parts, while temperate weather conditions may have a lesser impact on failure rates of automotive parts. In addition, our stores and
DCs located in coastal regions may be subject to increased insurance claims resulting from regional weather conditions and our results
of operations and financial condition could be adversely affected.
We cannot assure future growth will be achieved.
We believe that our ability to open additional, profitable stores at a high growth rate will be a significant factor in achieving our
growth objectives for the future. Our ability to accomplish our growth objectives is dependent, in part, on matters beyond our control,
such as weather conditions, zoning and other issues related to new store site development, the availability of qualified management
personnel and general business and economic conditions. We cannot be sure that our growth plans for 2013 and beyond will be
achieved. Failure to achieve our growth objectives may negatively impact the trading price of our common stock. For a discussion of
our growth strategies, see the “Growth Strategy” section of Item 1 of this annual report on Form 10-K.
In order to be successful, we will need to retain and motivate key employees.
Our success has been largely dependent on the efforts of certain key personnel. In order to be successful, we will need to retain and
motivate executives and other key employees. Experienced management and technical personnel are in high demand and competition
for their talents is intense. We must also continue to motivate employees and keep them focused on our strategies and goals. Our
business and results of operations could be materially adversely affected by the unexpected loss of the services of one or more of our
key employees. We cannot be sure that we will be able to continue to attract qualified personnel, which could cause us to be less
efficient, and as a result, may adversely impact our sales and profitability. For a discussion of our management, see the “Business”
section of Item 1 of this annual report on Form 10-K.
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A change in the relationship with any of our key vendors or the unavailability of our key products at competitive prices could affect
our financial health.
Our business depends on developing and maintaining close relationships with our vendors and on our vendors' ability or willingness to
sell quality products to us at favorable prices and terms. Many factors outside of our control may harm these relationships and the
ability or willingness of these vendors to sell us products on favorable terms. For example, financial or operational difficulties that
our vendors may face could increase the cost of the products we purchase from them or our ability to source product from them. In
addition, the trend towards consolidation among automotive parts suppliers as well as the off-shoring of manufacturing capacity to
foreign countries may disrupt or end our relationship with some vendors, and could lead to less competition and result in higher prices.
We could also be negatively impacted by suppliers who might experience work stoppages, labor strikes or other interruptions to or
difficulties in the manufacture or supply of the products we purchase from them.
Risks associated with future acquisitions may not lead to expected growth and could result in increased costs and inefficiencies.
We expect to continue to make acquisitions as an element of our growth strategy. Acquisitions involve certain risks that could cause
our actual growth and profitability to differ from our expectations, examples of such risks include the following:
• we may not be able to continue to identify suitable acquisition targets or to acquire additional companies at favorable prices
or on other favorable terms;
our management’s attention may be distracted;
•
• we may fail to retain key personnel from acquired businesses;
• we may assume unanticipated legal liabilities and other problems;
• we may not be able to successfully integrate the operations (accounting and billing functions, for example) of businesses we
acquire to realize economic, operational and other benefits; and
The market price of our common stock may be volatile and could expose us to securities class action litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market
conditions. The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Failure to
meet such expectations, even slightly, could have an adverse effect on the market price of our common stock.
In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. Downturns in the stock market may cause the price of our common stock
to decline. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation
has often been instituted against such companies. If similar litigation were instituted against us, it could result in substantial costs and
a diversion of our management’s attention and resources, which could have an adverse effect on our business.
Our increased debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.
We have in place, an unsecured revolving credit facility and unsecured senior notes, which could have important consequences to our
financial health. For example, our level of indebtedness could, among other things:
• make it more difficult to satisfy our financial obligations, including those relating to the notes and our credit facility;
increase our vulnerability to adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a
competitive disadvantage;
require us to dedicate a substantial portion of our cash flows to service the principal and interest on the debt, reducing the
funds available for other business purposes, such as working capital, capital expenditures or other cash requirements;
• we may fail or be unable to discover liabilities of businesses that we acquire for which we, the subsequent owner or operator,
limit our ability to incur additional debt on acceptable terms, if at all; and
may be liable.
expose us to fluctuations in interest rates.
•
•
•
•
•
Business interruptions in our distribution centers or other facilities may affect our store hours, operability of our computer
systems, and/or availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters or the threat of them, may result in the closure of our distribution centers (“DC”s)
or other facilities or may adversely affect our ability to deliver inventory to our stores on a nightly basis. This may affect our ability
to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty. Some of our merchandise is
imported from other countries and these goods could become difficult or impossible to bring into the United States, and we may not be
able to obtain such merchandise from other sources at similar prices. Such a disruption in revenue could potentially have a negative
impact on our results of operations and financial condition.
We rely extensively on our computer systems to manage inventory, process transactions and timely provide products to our customers.
Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security
breaches or other catastrophic events. If our systems are damaged or fail to function properly, we may experience loss of critical data
and interruptions or delays in our ability to manage inventories or process customer transactions. Such a disruption of our systems
could negatively impact revenue and potentially have a negative impact on our results of operations and financial condition.
Failure to achieve and maintain a high level of product and service quality may reduce our brand value and negatively impact our
business.
We believe our Company has built an excellent reputation as a leading retailer in the automotive aftermarket industry. We believe our
continued success depends, in part, on our ability to preserve, grow and leverage the value of our brand. Brand value is based in large
part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in
adverse publicity, governmental investigations or litigation, which can negatively impact these perceptions and lead to adverse affects
on our business or Team Members.
Sales of shares of our common stock eligible for future sale could adversely affect our share price.
All of the shares of common stock currently held by our affiliates may be sold in reliance upon the exemptive provisions of Rule 144
of the Securities Act of 1933, as amended, subject to certain volume and other conditions imposed by such rule. We cannot predict
the effect, if any, which future sales of shares of common stock or the availability of such shares for sale will have on the market price
of the common stock prevailing from time to time. We believe sales of substantial amounts of common stock, or the perception that
such sales might occur, could adversely affect the prevailing market price of the common stock.
Risks related to us and unanticipated fluctuations in our quarterly operating results, could affect our stock price.
We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful indicators of our future
operating results and should not be relied on as an indication of future performance. If our quarterly operating results fail to meet the
expectations of analysts, the trading price of our common stock could be negatively affected. We cannot be certain that our business
strategy and our plans to integrate the operations of acquired businesses will be successful or that they will successfully meet the
expectations of these analysts. If we fail to adequately address any of these risks or difficulties, our business would likely suffer.
In addition, the terms of the financing obligations include restrictions, such as affirmative and negative covenants, conditions on
borrowing and subsidiary guarantees. A failure to comply with these restrictions could result in a default under the financing
obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a
default that remains uncured or the inability to secure a necessary consent or waiver could have a material adverse effect on our
business, financial condition or results of operations.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our unsecured senior
notes as well as limit our access to attractive vendor financing programs.
Credit ratings are an important part of our cost of capital. The evaluations are based upon, among other factors, our financial strength.
Our current credit ratings provide us with the ability to borrow funds at favorable rates. A downgrade in our current credit rating from
either rating agency could adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our
credit facility. A downgrade could also adversely affect the market price and/or liquidity of our notes, preventing a holder from
selling the notes at a favorable price, as well as adversely affect our ability to issue new notes in the future. In addition, a downgrade
could limit the financial institutions willing to commit funds to our vendor financing programs at attractive rates. Decreased
participation in our vendor financing programs would lead to an increase in working capital needed to operate the business adversely
affecting our cash flow.
A breach of customer, Team Member or Company information could damage our reputation or result in substantial additional
costs or possible litigation.
Our business involves the storage of personal information about our customers and Team Members. We have taken reasonable and
appropriate steps to protect this information; however, if we experience a significant data security breach, we could be exposed to
damage to our reputation, additional costs, lost sales or possible regulatory action. The regulatory environment related to information
security and privacy is constantly changing, and compliance with those requirements could result in additional costs. There is no
guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to
safeguard against all data security breaches, and such a breach could potentially have a negative impact on our results of operations
and financial condition.
Litigation, governmental proceedings, environmental legislation and regulations and employment laws and regulations may affect
our business, financial condition and results of operations.
We are, and in the future may become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings,
arising out of the ordinary course of our business. The damages sought against us in some of these litigation proceedings may be
material and may adversely affect our business, results of operations and financial condition.
Environmental legislation and regulations, like the initiatives to limit greenhouse gas emissions and bills related to climate change,
could adversely impact all industries. While it is uncertain whether these initiatives will become law, additional climate change
16
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A change in the relationship with any of our key vendors or the unavailability of our key products at competitive prices could affect
our financial health.
Our business depends on developing and maintaining close relationships with our vendors and on our vendors' ability or willingness to
sell quality products to us at favorable prices and terms. Many factors outside of our control may harm these relationships and the
ability or willingness of these vendors to sell us products on favorable terms. For example, financial or operational difficulties that
our vendors may face could increase the cost of the products we purchase from them or our ability to source product from them. In
addition, the trend towards consolidation among automotive parts suppliers as well as the off-shoring of manufacturing capacity to
foreign countries may disrupt or end our relationship with some vendors, and could lead to less competition and result in higher prices.
We could also be negatively impacted by suppliers who might experience work stoppages, labor strikes or other interruptions to or
difficulties in the manufacture or supply of the products we purchase from them.
Risks associated with future acquisitions may not lead to expected growth and could result in increased costs and inefficiencies.
We expect to continue to make acquisitions as an element of our growth strategy. Acquisitions involve certain risks that could cause
our actual growth and profitability to differ from our expectations, examples of such risks include the following:
• we may not be able to continue to identify suitable acquisition targets or to acquire additional companies at favorable prices
or on other favorable terms;
•
our management’s attention may be distracted;
• we may fail to retain key personnel from acquired businesses;
• we may assume unanticipated legal liabilities and other problems;
• we may not be able to successfully integrate the operations (accounting and billing functions, for example) of businesses we
acquire to realize economic, operational and other benefits; and
• we may fail or be unable to discover liabilities of businesses that we acquire for which we, the subsequent owner or operator,
may be liable.
•
•
•
The market price of our common stock may be volatile and could expose us to securities class action litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market
conditions. The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Failure to
meet such expectations, even slightly, could have an adverse effect on the market price of our common stock.
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In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. Downturns in the stock market may cause the price of our common stock
to decline. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation
has often been instituted against such companies. If similar litigation were instituted against us, it could result in substantial costs and
a diversion of our management’s attention and resources, which could have an adverse effect on our business.
Our increased debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.
We have in place, an unsecured revolving credit facility and unsecured senior notes, which could have important consequences to our
financial health. For example, our level of indebtedness could, among other things:
• make it more difficult to satisfy our financial obligations, including those relating to the notes and our credit facility;
•
•
increase our vulnerability to adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a
competitive disadvantage;
require us to dedicate a substantial portion of our cash flows to service the principal and interest on the debt, reducing the
funds available for other business purposes, such as working capital, capital expenditures or other cash requirements;
limit our ability to incur additional debt on acceptable terms, if at all; and
expose us to fluctuations in interest rates.
Business interruptions in our distribution centers or other facilities may affect our store hours, operability of our computer
systems, and/or availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters or the threat of them, may result in the closure of our distribution centers (“DC”s)
or other facilities or may adversely affect our ability to deliver inventory to our stores on a nightly basis. This may affect our ability
to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty. Some of our merchandise is
imported from other countries and these goods could become difficult or impossible to bring into the United States, and we may not be
able to obtain such merchandise from other sources at similar prices. Such a disruption in revenue could potentially have a negative
impact on our results of operations and financial condition.
We rely extensively on our computer systems to manage inventory, process transactions and timely provide products to our customers.
Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security
breaches or other catastrophic events. If our systems are damaged or fail to function properly, we may experience loss of critical data
and interruptions or delays in our ability to manage inventories or process customer transactions. Such a disruption of our systems
could negatively impact revenue and potentially have a negative impact on our results of operations and financial condition.
Failure to achieve and maintain a high level of product and service quality may reduce our brand value and negatively impact our
business.
We believe our Company has built an excellent reputation as a leading retailer in the automotive aftermarket industry. We believe our
continued success depends, in part, on our ability to preserve, grow and leverage the value of our brand. Brand value is based in large
part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in
adverse publicity, governmental investigations or litigation, which can negatively impact these perceptions and lead to adverse affects
on our business or Team Members.
Sales of shares of our common stock eligible for future sale could adversely affect our share price.
All of the shares of common stock currently held by our affiliates may be sold in reliance upon the exemptive provisions of Rule 144
of the Securities Act of 1933, as amended, subject to certain volume and other conditions imposed by such rule. We cannot predict
the effect, if any, which future sales of shares of common stock or the availability of such shares for sale will have on the market price
of the common stock prevailing from time to time. We believe sales of substantial amounts of common stock, or the perception that
such sales might occur, could adversely affect the prevailing market price of the common stock.
Risks related to us and unanticipated fluctuations in our quarterly operating results, could affect our stock price.
We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful indicators of our future
operating results and should not be relied on as an indication of future performance. If our quarterly operating results fail to meet the
expectations of analysts, the trading price of our common stock could be negatively affected. We cannot be certain that our business
strategy and our plans to integrate the operations of acquired businesses will be successful or that they will successfully meet the
expectations of these analysts. If we fail to adequately address any of these risks or difficulties, our business would likely suffer.
In addition, the terms of the financing obligations include restrictions, such as affirmative and negative covenants, conditions on
borrowing and subsidiary guarantees. A failure to comply with these restrictions could result in a default under the financing
obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a
default that remains uncured or the inability to secure a necessary consent or waiver could have a material adverse effect on our
business, financial condition or results of operations.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our unsecured senior
notes as well as limit our access to attractive vendor financing programs.
Credit ratings are an important part of our cost of capital. The evaluations are based upon, among other factors, our financial strength.
Our current credit ratings provide us with the ability to borrow funds at favorable rates. A downgrade in our current credit rating from
either rating agency could adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our
credit facility. A downgrade could also adversely affect the market price and/or liquidity of our notes, preventing a holder from
selling the notes at a favorable price, as well as adversely affect our ability to issue new notes in the future. In addition, a downgrade
could limit the financial institutions willing to commit funds to our vendor financing programs at attractive rates. Decreased
participation in our vendor financing programs would lead to an increase in working capital needed to operate the business adversely
affecting our cash flow.
A breach of customer, Team Member or Company information could damage our reputation or result in substantial additional
costs or possible litigation.
Our business involves the storage of personal information about our customers and Team Members. We have taken reasonable and
appropriate steps to protect this information; however, if we experience a significant data security breach, we could be exposed to
damage to our reputation, additional costs, lost sales or possible regulatory action. The regulatory environment related to information
security and privacy is constantly changing, and compliance with those requirements could result in additional costs. There is no
guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to
safeguard against all data security breaches, and such a breach could potentially have a negative impact on our results of operations
and financial condition.
Litigation, governmental proceedings, environmental legislation and regulations and employment laws and regulations may affect
our business, financial condition and results of operations.
We are, and in the future may become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings,
arising out of the ordinary course of our business. The damages sought against us in some of these litigation proceedings may be
material and may adversely affect our business, results of operations and financial condition.
Environmental legislation and regulations, like the initiatives to limit greenhouse gas emissions and bills related to climate change,
could adversely impact all industries. While it is uncertain whether these initiatives will become law, additional climate change
16
17
related mandates could potentially be forthcoming and these matters, if enacted, could adversely impact our costs, including, among
other things, increasing fuel prices.
Item 2.
Properties
F
O
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M
1
0
-
k
Our business is subject to employment laws and regulations, including requirements related to minimum wage. Our success depends,
in part, on our ability to manage operating costs and to look for opportunities to reduce costs. Our ability to meet labor needs, while
controlling costs is subject to external factors such as minimum wage legislation. A violation of or change in such laws and/or
regulations could have a material adverse effect on our business, results of operations and financial condition.
Healthcare reform legislation could have a negative impact on our business, financial condition and results of operations.
The enacted Patient Protection and Affordable Care Act, as well as other healthcare reform legislation considered by Congress and
state legislators, could significantly impact our healthcare cost structure and increase our healthcare-related expenses. We are
currently evaluating the potential impact the healthcare reform legislation will have on our business and the steps necessary to mitigate
the impacts, including potential modifications to our current benefit plans, operational changes to minimize the impact of the
legislation to our cost structure and increases to selling prices to mitigate the expected increase in healthcare-related expenses. If we
cannot effectively modify our programs and operations in response to the new legislation, our results of operations, financial condition
and cash flows may be adversely impacted.
Item 1B.
Unresolved Staff Comments
Not applicable.
Distribution centers, stores, and other properties
We currently operate 24 regional distribution centers (“DC”s). As of December 31, 2012, we leased nine DCs (2.9 million operating
square footage) and owned 15 DCs (5.7 million operating square footage) for total DC square footage of 8.6 million. The following
table provides information regarding our DCs, returns facilities and corporate offices as of December 31, 2012:
Principal Use(s)
Operating Square
Footage (1)
Nature of
Occupancy
Lease Term
Expiration
Location
Atlanta, GA
Belleville, MI
Billings, MT
Dallas, TX
Denver, CO
Des Moines, IA
Greensboro, NC
Houston, TX
Indianapolis, IN
Kansas City, MO
Knoxville, TN
Lewiston, ME
Little Rock, AR
Lubbock, TX
Mobile, AL
Moreno Valley, CA
Nashville, TN
Oklahoma City, OK
Phoenix, AZ
Salt Lake City, UT
Seattle, WA
Springfield, MO
St. Paul, MN
Stockton, CA
Auburn, WA
Commerce, CA
McAllen, TX
Springfield, MO
Springfield, MO
Phoenix, AZ
Springfield, MO
Springfield, MO
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Bulk Facility
Bulk Facility
Bulk Facility
Bulk Facility
Corporate Offices
Corporate Offices
Corporate Offices
Return/Deconsolidation Facility
492,350
333,262
108,300
442,000
321,242
253,886
441,600
532,615
657,603
299,018
150,766
131,184
122,969
276,896
301,068
547,478
315,977
320,667
383,570
294,932
533,790
293,015
324,668
720,836
81,761
75,000
24,560
35,200
290,598
12,327
435,600
46,970
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Leased (2)
10/31/2024
2/28/2015
1/31/2031
12/31/2014
3/31/2017
12/31/2022
12/31/2018
6/22/2015
6/30/2025
6/30/2018
8/31/2013
4/30/2017
11/30/2022
8/31/2024
Springfield, MO
Technical Center
22,000
Owned
Corporate Offices, Training and
Total operating square footage
9,623,708
(1) Includes floor and mezzanine operating square footage, excludes subleased square footage.
(2) Occupied under the terms of a lease with an affiliated party.
18
19
related mandates could potentially be forthcoming and these matters, if enacted, could adversely impact our costs, including, among
Item 2.
Properties
other things, increasing fuel prices.
Our business is subject to employment laws and regulations, including requirements related to minimum wage. Our success depends,
in part, on our ability to manage operating costs and to look for opportunities to reduce costs. Our ability to meet labor needs, while
controlling costs is subject to external factors such as minimum wage legislation. A violation of or change in such laws and/or
regulations could have a material adverse effect on our business, results of operations and financial condition.
Healthcare reform legislation could have a negative impact on our business, financial condition and results of operations.
The enacted Patient Protection and Affordable Care Act, as well as other healthcare reform legislation considered by Congress and
state legislators, could significantly impact our healthcare cost structure and increase our healthcare-related expenses. We are
currently evaluating the potential impact the healthcare reform legislation will have on our business and the steps necessary to mitigate
the impacts, including potential modifications to our current benefit plans, operational changes to minimize the impact of the
legislation to our cost structure and increases to selling prices to mitigate the expected increase in healthcare-related expenses. If we
cannot effectively modify our programs and operations in response to the new legislation, our results of operations, financial condition
and cash flows may be adversely impacted.
Item 1B.
Unresolved Staff Comments
Not applicable.
Distribution centers, stores, and other properties
We currently operate 24 regional distribution centers (“DC”s). As of December 31, 2012, we leased nine DCs (2.9 million operating
square footage) and owned 15 DCs (5.7 million operating square footage) for total DC square footage of 8.6 million. The following
table provides information regarding our DCs, returns facilities and corporate offices as of December 31, 2012:
k
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M
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F
Principal Use(s)
Operating Square
Footage (1)
Location
Atlanta, GA
Belleville, MI
Billings, MT
Dallas, TX
Denver, CO
Des Moines, IA
Greensboro, NC
Houston, TX
Indianapolis, IN
Kansas City, MO
Knoxville, TN
Lewiston, ME
Little Rock, AR
Lubbock, TX
Mobile, AL
Moreno Valley, CA
Nashville, TN
Oklahoma City, OK
Phoenix, AZ
Salt Lake City, UT
Seattle, WA
Springfield, MO
St. Paul, MN
Stockton, CA
Auburn, WA
Commerce, CA
McAllen, TX
Springfield, MO
Springfield, MO
Phoenix, AZ
Springfield, MO
Springfield, MO
Springfield, MO
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Bulk Facility
Bulk Facility
Bulk Facility
Bulk Facility
Return/Deconsolidation Facility
Corporate Offices
Corporate Offices
Corporate Offices
Corporate Offices, Training and
Technical Center
Nature of
Occupancy
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased (2)
Owned
Owned
Leased
Owned
Leased
Lease Term
Expiration
10/31/2024
2/28/2015
1/31/2031
12/31/2014
3/31/2017
12/31/2022
12/31/2018
6/22/2015
6/30/2025
6/30/2018
8/31/2013
4/30/2017
11/30/2022
8/31/2024
492,350
333,262
108,300
442,000
321,242
253,886
441,600
532,615
657,603
299,018
150,766
131,184
122,969
276,896
301,068
547,478
315,977
320,667
383,570
294,932
533,790
293,015
324,668
720,836
81,761
75,000
24,560
35,200
290,598
12,327
435,600
46,970
22,000
Owned
Total operating square footage
9,623,708
(1) Includes floor and mezzanine operating square footage, excludes subleased square footage.
(2) Occupied under the terms of a lease with an affiliated party.
18
19
Of the 24 DCs that we operated at December 31, 2012, 15 were owned and nine were leased. The leased facilities typically require a
fixed base rent, payment of certain tax, insurance and maintenance expense and have an original term of, at a minimum, 20 years,
subject to one five-year renewal at our option. One of our bulk facilities is leased from an entity owned by an affiliated director’s
immediate family. This lease requires payment of a fixed base rent, payment of certain tax, insurance and maintenance expenses and
an original term of 15 years, subject to three five-year renewals at our option. We believe that this lease agreement with the affiliated
entity is on terms comparable to those obtainable from third parties.
F
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k
Of the 3,976 stores that we operated at December 31, 2012, 1,359 stores were owned, 2,540 stores were leased from unaffiliated
parties and 77 stores were leased from entities in which certain of our affiliated directors, members of our affiliated director’s
immediate family, or our executive officers, are affiliated. Leases with unaffiliated parties generally provide for payment of a fixed
base rent, payment of certain tax, insurance and maintenance expenses and an original term of, at a minimum, 10 years, subject to one
or more renewals at our option. We have entered into separate master lease agreements with each of the affiliated entities for the
occupancy of the stores covered thereby. Such master lease agreements with two of the eight affiliated entities have been modified to
extend the term of the lease agreement for specific stores. The master lease agreements or modifications thereto expire on dates
ranging from March 31, 2013, to September 30, 2031. We believe that the lease agreements with the affiliated entities are on terms
comparable to those obtainable from third parties.
We believe that our present facilities are in good condition, are adequately insured and are adequate for the conduct of our current
operations. The store servicing capability of our 24 existing DCs is approximately 4,425 stores, providing a growth capacity of more
than 400 stores, which will increase by 300 stores with the completion of our Lakeland, Florida, DC, which is scheduled to open in the
first quarter of 2014 and provide distribution system support for store growth into southern Florida. We believe the growth capacity in
our 24 existing DCs, along with the additional capacity of our new Lakeland, Florida, DC will provide us with the DC infrastructure
needed for near-term expansion. However, as we expand our geographic footprint, we will continue to evaluate our existing
distribution system infrastructure and will adjust our distribution system capacity as needed to support our future growth.
Item 3.
Legal Proceedings
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters.
Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect
on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s
former officers and other litigation, prior to its acquisition by O’Reilly, as described below.
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have
concluded. All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well
as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”),
have concluded.
Under Delaware law, the charter documents of the CSK entities and certain indemnification agreements, CSK may have certain
indemnification obligations. As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential
indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former
employees. Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity
and scope, the final outcome cannot be predicted at this time. O’Reilly has a remaining reserve, with respect to the indemnification
obligations of $13.7 million at December 31, 2012, which relates to the payment of those legal fees and costs already incurred. It is
possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected
by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period. However, at this time,
management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material
adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common stock:
Shares of O’Reilly Automotive, Inc. (the “Company”) common stock are traded on The NASDAQ Global Select Market (“Nasdaq”)
under the symbol “ORLY”. The Company’s common stock began trading on April 22, 1993; no cash dividends have been declared
since that time, and we do not anticipate paying any cash dividends in the foreseeable future.
As of February 20, 2013, the Company had approximately 96,000 shareholders of common stock based on the number of holders of
record and an estimate of individual participants represented by security position listings.
The prices in the following table represent the high and low sales price for the Company’s common stock as reported by Nasdaq.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
For the Year
High
Low
High
Low
$
$
2012
$
91.51
106.71
94.56
94.08
106.71
78.15
81.34
80.37
79.92
78.15
2011
$
60.69
65.51
71.72
81.70
81.70
54.42
55.38
56.91
64.97
54.42
Sales of unregistered securities:
There were no sales of unregistered securities during the year ended December 31, 2012.
Issuer purchases of equity securities:
The following table identifies all repurchases during the fourth quarter ended December 31, 2012, of any of the Company’s securities
registered under Section 12 of the Exchange Act, as amended, by or on behalf of the Company or any affiliated purchaser (in
thousands, except per share amounts):
Total Number of
Shares Purchased
Maximum Dollar
as Part of
Publicly
Announced
Programs
Value of Shares
that May Yet Be
Purchased Under
the Programs (1)
Period
October 1, 2012, to October 31, 2012
November 1, 2012, to November 30, 2012
December 1, 2012, to December 31, 2012
Total as of December 31, 2012
Total Number of
Average Price Paid
Shares Purchased
per Share
1,531 $
631
1,392
3,554 $
83.49
89.82
91.39
87.71
1,531 $
631
1,392
3,554
262,544
705,834
578,635
(1) Under our share repurchase program, as approved by our Board of Directors in January of 2011, we may, from time to time, repurchase shares of
our common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors
such as price, corporate trading policy requirements and overall market conditions not to exceed a dollar limit authorized by the Board of Directors.
Our Board of Directors approved resolutions to increase the authorization under the share repurchase program by additional $500 million increments
on August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to $3.0 billion. The current
authorization under the share repurchase program is scheduled to expire on November 12, 2015. No other share repurchase programs existed during
the three months ended December 31, 2012.
The Company repurchased a total of 16.2 million shares of its common stock under its publicly announced share repurchase program
during the year ended December 31, 2012, at an average price per share of $89.20. Subsequent to December 31, 2012, and up to and
including February 28, 2013, the Company repurchased an additional 2.1 million shares of its common stock at an average price per
share of $90.09, for a total investment of $185.6 million, excluding fees and commissions. The Company repurchased a total of 34.1
million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 through
February 28, 2013, at an average price of $76.37, for a total aggregate investment of $2.6 billion.
Stock performance graph:
The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 29, 2007, and the
reinvestment of dividends thereafter, in the Company’s common stock versus the Nasdaq Retail Trade Stocks Total Return Index,
Nasdaq United States Stock Market Total Returns Index (“Nasdaq US”) and the Standard and Poor’s S&P 500 Index (“S&P 500”).
20
21
Of the 24 DCs that we operated at December 31, 2012, 15 were owned and nine were leased. The leased facilities typically require a
fixed base rent, payment of certain tax, insurance and maintenance expense and have an original term of, at a minimum, 20 years,
subject to one five-year renewal at our option. One of our bulk facilities is leased from an entity owned by an affiliated director’s
immediate family. This lease requires payment of a fixed base rent, payment of certain tax, insurance and maintenance expenses and
an original term of 15 years, subject to three five-year renewals at our option. We believe that this lease agreement with the affiliated
entity is on terms comparable to those obtainable from third parties.
Of the 3,976 stores that we operated at December 31, 2012, 1,359 stores were owned, 2,540 stores were leased from unaffiliated
parties and 77 stores were leased from entities in which certain of our affiliated directors, members of our affiliated director’s
immediate family, or our executive officers, are affiliated. Leases with unaffiliated parties generally provide for payment of a fixed
base rent, payment of certain tax, insurance and maintenance expenses and an original term of, at a minimum, 10 years, subject to one
or more renewals at our option. We have entered into separate master lease agreements with each of the affiliated entities for the
occupancy of the stores covered thereby. Such master lease agreements with two of the eight affiliated entities have been modified to
extend the term of the lease agreement for specific stores. The master lease agreements or modifications thereto expire on dates
ranging from March 31, 2013, to September 30, 2031. We believe that the lease agreements with the affiliated entities are on terms
comparable to those obtainable from third parties.
We believe that our present facilities are in good condition, are adequately insured and are adequate for the conduct of our current
operations. The store servicing capability of our 24 existing DCs is approximately 4,425 stores, providing a growth capacity of more
than 400 stores, which will increase by 300 stores with the completion of our Lakeland, Florida, DC, which is scheduled to open in the
first quarter of 2014 and provide distribution system support for store growth into southern Florida. We believe the growth capacity in
our 24 existing DCs, along with the additional capacity of our new Lakeland, Florida, DC will provide us with the DC infrastructure
needed for near-term expansion. However, as we expand our geographic footprint, we will continue to evaluate our existing
distribution system infrastructure and will adjust our distribution system capacity as needed to support our future growth.
Item 3.
Legal Proceedings
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters.
Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect
on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s
former officers and other litigation, prior to its acquisition by O’Reilly, as described below.
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have
concluded. All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well
as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”),
have concluded.
Under Delaware law, the charter documents of the CSK entities and certain indemnification agreements, CSK may have certain
indemnification obligations. As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential
indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former
employees. Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity
and scope, the final outcome cannot be predicted at this time. O’Reilly has a remaining reserve, with respect to the indemnification
obligations of $13.7 million at December 31, 2012, which relates to the payment of those legal fees and costs already incurred. It is
possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected
by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period. However, at this time,
management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material
adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common stock:
Shares of O’Reilly Automotive, Inc. (the “Company”) common stock are traded on The NASDAQ Global Select Market (“Nasdaq”)
under the symbol “ORLY”. The Company’s common stock began trading on April 22, 1993; no cash dividends have been declared
since that time, and we do not anticipate paying any cash dividends in the foreseeable future.
k
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F
As of February 20, 2013, the Company had approximately 96,000 shareholders of common stock based on the number of holders of
record and an estimate of individual participants represented by security position listings.
The prices in the following table represent the high and low sales price for the Company’s common stock as reported by Nasdaq.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
For the Year
$
2012
2011
High
Low
High
Low
$
91.51
106.71
94.56
94.08
106.71
$
78.15
81.34
80.37
79.92
78.15
$
60.69
65.51
71.72
81.70
81.70
54.42
55.38
56.91
64.97
54.42
Sales of unregistered securities:
There were no sales of unregistered securities during the year ended December 31, 2012.
Issuer purchases of equity securities:
The following table identifies all repurchases during the fourth quarter ended December 31, 2012, of any of the Company’s securities
registered under Section 12 of the Exchange Act, as amended, by or on behalf of the Company or any affiliated purchaser (in
thousands, except per share amounts):
Period
October 1, 2012, to October 31, 2012
November 1, 2012, to November 30, 2012
December 1, 2012, to December 31, 2012
Total as of December 31, 2012
Total Number of
Shares Purchased
Average Price Paid
per Share
1,531 $
631
1,392
3,554 $
83.49
89.82
91.39
87.71
Total Number of
Shares Purchased
as Part of
Publicly
Announced
Programs
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Programs (1)
262,544
705,834
578,635
1,531 $
631
1,392
3,554
(1) Under our share repurchase program, as approved by our Board of Directors in January of 2011, we may, from time to time, repurchase shares of
our common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors
such as price, corporate trading policy requirements and overall market conditions not to exceed a dollar limit authorized by the Board of Directors.
Our Board of Directors approved resolutions to increase the authorization under the share repurchase program by additional $500 million increments
on August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to $3.0 billion. The current
authorization under the share repurchase program is scheduled to expire on November 12, 2015. No other share repurchase programs existed during
the three months ended December 31, 2012.
The Company repurchased a total of 16.2 million shares of its common stock under its publicly announced share repurchase program
during the year ended December 31, 2012, at an average price per share of $89.20. Subsequent to December 31, 2012, and up to and
including February 28, 2013, the Company repurchased an additional 2.1 million shares of its common stock at an average price per
share of $90.09, for a total investment of $185.6 million, excluding fees and commissions. The Company repurchased a total of 34.1
million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 through
February 28, 2013, at an average price of $76.37, for a total aggregate investment of $2.6 billion.
Stock performance graph:
The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 29, 2007, and the
reinvestment of dividends thereafter, in the Company’s common stock versus the Nasdaq Retail Trade Stocks Total Return Index,
Nasdaq United States Stock Market Total Returns Index (“Nasdaq US”) and the Standard and Poor’s S&P 500 Index (“S&P 500”).
20
21
F
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1
0
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k
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$-
Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010 Dec. 30, 2011 Dec. 31, 2012
Item 6.
Selected Financial Data
The table below compares O’Reilly Automotive, Inc.’s (the “Company’s”) selected financial data over a ten-year period. In 2005 and
2008, the Company acquired Midwest Auto Parts Distributors and CSK Auto Corporation (“CSK”), respectively. The 2005 Midwest
acquisition added 72 stores and the 2008 CSK acquisition added 1,342 stores to the O’Reilly store count. Financial results for these
acquired companies have been included in the Company’s consolidated financial statements from the dates of the acquisitions
forward.
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
(In thousands, except per
share data)
INCOME STATEMENT
DATA:
Sales
Cost of goods sold,
including warehouse and
distribution expenses
Selling, general and
administrative expenses
Former CSK officer
clawback
Legacy CSK DOJ
investigation charge
O'Reilly Automotive, Inc.
Nasdaq Retail Trade Stocks
Nasdaq US
S&P 500
Operating income
977,393
866,766
712,776
537,619
335,617
305,151
282,315
252,524
190,458
165,275
Company/Index
O'Reilly Automotive, Inc.
Nasdaq Retail Trade Stocks
Nasdaq US
S&P 500
Dec. 29,
2007
Dec. 31,
2008
Dec. 31,
2009
Dec. 31,
2010
Dec. 31,
2011
Dec. 30,
2012
$
$
100
100
100
100
$
95
70
61
63
$
118
97
88
80
$
186
121
104
92
$
247
137
105
94
276
162
124
109
Write-off of asset-based
revolving credit agreement
debt issuance costs
Termination of interest rate
swap agreements
Gain on settlement of note
receivable
Other income (expense), net
Total other income
(expense)
Income before income taxes
and cumulative effect of
accounting change
Provision for income taxes
Income before cumulative
effect of accounting change
Cumulative effect of
accounting change, net of
tax (a)
BASIC EARNINGS PER
COMMON SHARE: (b)
Income before cumulative
effect of accounting change $
Cumulative effect of
accounting change (a)
Earnings per share – basic $
Weighted-average common
shares outstanding – basic
$ 6,182,184 $ 5,788,816 $ 5,397,525 $ 4,847,062 $ 3,576,553 $ 2,522,319 $ 2,283,222 $ 2,045,318 $ 1,721,241 $ 1,511,816
Gross profit
3,097,418 2,837,349 2,620,992
2,326,528
1,627,926
1,120,460
1,006,711
892,503
3,084,766 2,951,467
2,776,533
2,520,534
1,948,627
1,401,859
1,276,511 1,152,815
978,076
743,165
873,481
638,335
2,120,025 1,973,381
1,887,316
1,788,909
1,292,309
815,309
724,396
639,979
552,707
473,060
-
(2,798)
-
-
-
20,900
-
(21,626)
-
(4,237)
-
-
-
-
11,639
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50)
(50)
(35,872)
(25,130)
(35,042)
(40,721)
(33,085)
2,337
(1,455)
(2,721)
(5,233)
(35,872)
(50,993)
(23,403)
(40,721)
(33,085)
2,337
(1,455)
(2,721)
(5,233)
941,521
815,773
355,775
308,100
689,373
270,000
496,898
189,400
302,532
116,300
307,488
113,500
282,265
251,069
187,737
160,042
104,180
86,803
70,063
59,955
585,746
507,673
419,373
307,498
186,232
193,988
178,085
164,266
117,674
100,087
Net income
$
585,746 $
507,673 $
419,373 $
307,498 $
186,232 $
193,988 $
178,085 $
164,266 $
139,566 $
100,087
-
-
-
-
-
-
-
-
21,892
-
4.83 $
3.77 $
3.02 $
2.26 $
1.50 $
1.69 $
1.57 $
1.47 $
1.07 $
0.93
-
-
-
-
-
-
-
-
4.83 $
3.77 $
3.02 $
2.26 $
1.50 $
1.69 $
1.57 $
1.47 $
0.20
1.27 $
-
0.93
121,182
134,667
138,654
136,230
124,526
114,667
113,253
111,613
110,020
107,816
22
23
Item 6.
Selected Financial Data
The table below compares O’Reilly Automotive, Inc.’s (the “Company’s”) selected financial data over a ten-year period. In 2005 and
2008, the Company acquired Midwest Auto Parts Distributors and CSK Auto Corporation (“CSK”), respectively. The 2005 Midwest
acquisition added 72 stores and the 2008 CSK acquisition added 1,342 stores to the O’Reilly store count. Financial results for these
acquired companies have been included in the Company’s consolidated financial statements from the dates of the acquisitions
forward.
k
-
0
1
M
R
O
F
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
(In thousands, except per
share data)
INCOME STATEMENT
DATA:
Sales
Cost of goods sold,
including warehouse and
distribution expenses
Gross profit
Selling, general and
administrative expenses
Former CSK officer
clawback
Legacy CSK DOJ
investigation charge
Operating income
$ 6,182,184 $ 5,788,816 $ 5,397,525 $ 4,847,062 $ 3,576,553 $ 2,522,319 $ 2,283,222 $ 2,045,318 $ 1,721,241 $ 1,511,816
3,084,766 2,951,467
2,776,533
3,097,418 2,837,349 2,620,992
2,520,534
2,326,528
1,948,627
1,627,926
1,401,859
1,120,460
1,276,511 1,152,815
892,503
1,006,711
978,076
743,165
873,481
638,335
2,120,025 1,973,381
1,887,316
1,788,909
1,292,309
815,309
724,396
639,979
552,707
473,060
-
(2,798)
-
-
977,393
-
866,766
20,900
712,776
-
-
-
-
-
-
537,619
335,617
305,151
-
-
282,315
-
-
-
-
252,524
190,458
-
-
165,275
Company/Index
O'Reilly Automotive, Inc.
Nasdaq Retail Trade Stocks
Nasdaq US
S&P 500
Dec. 29,
2007
Dec. 31,
2008
Dec. 31,
2009
Dec. 31,
2010
Dec. 31,
2011
Dec. 30,
2012
$
$
$
118
$
$
$
100
100
100
100
95
70
61
63
97
88
80
186
121
104
92
247
137
105
94
276
162
124
109
Write-off of asset-based
revolving credit agreement
debt issuance costs
Termination of interest rate
swap agreements
Gain on settlement of note
receivable
Other income (expense), net
Total other income
(expense)
Income before income taxes
and cumulative effect of
accounting change
Provision for income taxes
Income before cumulative
effect of accounting change
Cumulative effect of
accounting change, net of
tax (a)
-
(21,626)
-
(4,237)
-
-
-
-
(35,872)
(25,130)
11,639
(35,042)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(35,872)
(50,993)
(23,403)
(40,721)
(33,085)
2,337
(40,721)
(33,085)
2,337
(50)
(50)
(1,455)
(2,721)
(5,233)
(1,455)
(2,721)
(5,233)
941,521
355,775
815,773
308,100
689,373
270,000
496,898
189,400
302,532
116,300
307,488
113,500
282,265
104,180
251,069
86,803
187,737
70,063
160,042
59,955
585,746
507,673
419,373
307,498
186,232
193,988
178,085
164,266
117,674
100,087
Net income
$
585,746 $
-
-
507,673 $
-
419,373 $
-
307,498 $
-
186,232 $
-
193,988 $
-
178,085 $
-
164,266 $
21,892
139,566 $
-
100,087
BASIC EARNINGS PER
COMMON SHARE: (b)
Income before cumulative
effect of accounting change $
Cumulative effect of
accounting change (a)
Earnings per share – basic $
Weighted-average common
shares outstanding – basic
4.83 $
3.77 $
3.02 $
2.26 $
1.50 $
1.69 $
1.57 $
1.47 $
1.07 $
0.93
-
4.83 $
-
3.77 $
-
3.02 $
-
2.26 $
-
1.50 $
-
1.69 $
-
1.57 $
-
1.47 $
0.20
1.27 $
-
0.93
121,182
134,667
138,654
136,230
124,526
114,667
113,253
111,613
110,020
107,816
22
23
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
4.75 $
3.71 $
2.95 $
2.23 $
1.48 $
1.67 $
1.55 $
1.45 $
1.05 $
0.92
-
-
-
-
-
-
-
-
0.20
-
$
4.75 $
3.71 $
2.95 $
2.23 $
1.48 $
1.67 $
1.55 $
1.45 $
1.25 $
0.92
123,314
136,983
141,992
137,882
125,413
116,080
115,119
113,385
111,423
109,060
F
O
R
M
1
0
-
k
(In thousands, except per
share data)
EARNINGS PER
COMMON SHARE-
ASSUMING DILUTION:
Income before cumulative
effect of accounting change $
Cumulative effect of
accounting change (a)
Earnings per share –
assuming dilution
Weighted-average common
shares outstanding –
assuming dilution
PRO FORMA INCOME
STATEMENT DATA: (c)
Sales
Cost of goods sold,
including warehouse and
distribution expenses
Gross profit
Selling, general and
administrative expenses
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net income per share
Net income per share –
assuming dilution
(a) The cumulative change in accounting method, effective January 1, 2004, changed the method of applying last-in, first-out accounting policy for certain
inventory costs. Under the new method, included in the value of inventory are certain procurement, warehousing and distribution center costs. The previous
method was to recognize those costs as incurred, reported as a component of costs of goods sold.
(b) Adjusted for a 2-for-1 stock split in 2005.
(c) The pro forma income statement reflects the retroactive application of the cumulative effect of the accounting change to historical periods.
$ 1,511,816
Working capital
$
460,083 $ 1,027,600 $ 1,072,294 $ 1,007,576 $
821,932 $
573,328 $
566,892 $
424,974 $
479,662 $
441,617
SELECTED OPERATING
DATA:
Number of Team Members
at year end
Number of stores at year end
Total store square footage at
year end (in 000s)(a)
Sales per weighted-average
store (in 000s)(a)
Sales per weighted-average
square foot (in 000s)(a)
$
$
Percentage increase in same
store sales (b)(c)
BALANCE SHEET
DATA:
(In thousands)
53,063
49,324
3,976
3,740
46,858
3,570
44,880
3,421
40,735
3,285
23,576
1,830
21,920
19,614
1,640
1,470
17,410
1,249
15,484
1,109
28,628
26,530
25,315
24,200
23,205
12,439
11,004
9,801
8,318
7,348
1,590 $
1,566 $
1,527 $
1,424 $
1,379 $
1,430 $
1,439 $
1,478 $
1,443 $
1,413
224 $
221 $
216 $
202 $
201 $
212 $
215 $
220 $
217 $
215
3.8%
4.6%
8.8%
4.6%
1.5%
3.7%
3.3%
7.5%
6.8%
7.8%
Total assets
Inventory turnover
Inventory turnover, net of
payables
Accounts payable to
inventory
Current portion of long-term
debt and short-term debt
Long-term debt, less current
portion
5,749,187 5,500,501
5,047,827
4,781,471
4,193,317
2,279,737
1,977,496 1,718,896
1,432,357
1,157,033
1.4
1.5
7.4
3.4
1.4
2.5
1.4
2.6
1.6
1.6
1.6
1.7
3.1
3.0
2.8
2.8
1.6
2.5
1.7
2.3
84.7%
64.4%
44.3%
42.8%
46.9%
43.2%
39.2%
40.3%
38.5%
27.9%
222
662
1,431
106,708
8,131
25,320
309
75,313
592
925
1,095,734
796,912
357,273
684,040
724,564
75,149
110,170
25,461
100,322
120,977
Shareholders’ equity
2,108,307 2,844,851
3,209,685
2,685,865
2,282,218
1,592,477
1,364,096
1,145,769
947,817
784,285
CASH FLOW DATA:
(In thousands)
Cash provided by operating
activities
Capital expenditures
Free cash flow (d)
$ 1,251,555 $ 1,118,991 $
703,687 $
285,200 $
298,542 $
299,418 $
185,928 $
206,685 $
226,536 $
168,836
300,719
328,319
365,419
414,779
341,679
282,655
228,871
205,159
173,486
136,497
950,836
790,672
338,268
(129,579)
(43,137)
16,763
(42,943)
1,526
53,050
32,339
(a) Total square footage includes normal selling, office, stockroom and receiving space. Sales per weighted-average store and square foot are weighted to
consider the approximate dates of store openings or expansions.
(b) Same-store sales are calculated based on the change in sales of stores open at least one year. Percentage increase in same-store sales is calculated based on
store sales results, which exclude sales of specialty machinery, sales by outside salesmen, sales to Team Members and sales during the one to two week
period certain CSK branded stores were closed for conversion.
(c) Same-store sales for 2008 include sales for stores acquired in the CSK acquisition. Comparable store sales for stores operating on O’Reilly systems open at
least one year increased 2.6% for the year ended December 31, 2008. Comparable store sales for stores operating on the legacy CSK system open at least
one year decreased 1.7% for the portion of CSK’s sales in 2008 since the July 11, 2008, acquisition.
(d) Free cash flow is calculated as net cash provided by operating activities, less capital expenditures for the period.
872,658
639,158
473,060
166,098
(5,233)
160,865
60,266
100,599
0.93
0.92
$
$
$
24
25
(In thousands, except per
share data)
EARNINGS PER
COMMON SHARE-
ASSUMING DILUTION:
Income before cumulative
Cumulative effect of
accounting change (a)
Earnings per share –
assuming dilution
Weighted-average common
shares outstanding –
assuming dilution
PRO FORMA INCOME
STATEMENT DATA: (c)
Sales
Cost of goods sold,
including warehouse and
distribution expenses
Gross profit
Selling, general and
administrative expenses
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Net income per share
Net income per share –
assuming dilution
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Years ended December 31,
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
effect of accounting change $
4.75 $
3.71 $
2.95 $
2.23 $
1.48 $
1.67 $
1.55 $
1.45 $
1.05 $
0.92
-
-
-
-
-
-
-
-
0.20
-
$
4.75 $
3.71 $
2.95 $
2.23 $
1.48 $
1.67 $
1.55 $
1.45 $
1.25 $
0.92
123,314
136,983
141,992
137,882
125,413
116,080
115,119
113,385
111,423
109,060
SELECTED OPERATING
DATA:
Number of Team Members
at year end
Number of stores at year end
Total store square footage at
year end (in 000s)(a)
Sales per weighted-average
store (in 000s)(a)
Sales per weighted-average
square foot (in 000s)(a)
$
$
Percentage increase in same
store sales (b)(c)
BALANCE SHEET
DATA:
(In thousands)
53,063
3,976
49,324
3,740
46,858
3,570
44,880
3,421
40,735
3,285
23,576
1,830
21,920
1,640
19,614
1,470
17,410
1,249
15,484
1,109
28,628
26,530
25,315
24,200
23,205
12,439
11,004
9,801
8,318
7,348
1,590 $
1,566 $
1,527 $
1,424 $
1,379 $
1,430 $
1,439 $
1,478 $
1,443 $
1,413
224 $
221 $
216 $
202 $
201 $
212 $
215 $
220 $
217 $
215
3.8%
4.6%
8.8%
4.6%
1.5%
3.7%
3.3%
7.5%
6.8%
7.8%
k
-
0
1
M
R
O
F
$ 1,511,816
Working capital
$
460,083 $ 1,027,600 $ 1,072,294 $ 1,007,576 $
821,932 $
573,328 $
566,892 $
424,974 $
479,662 $
441,617
872,658
639,158
473,060
166,098
(5,233)
160,865
60,266
100,599
0.93
0.92
$
$
$
(a) The cumulative change in accounting method, effective January 1, 2004, changed the method of applying last-in, first-out accounting policy for certain
inventory costs. Under the new method, included in the value of inventory are certain procurement, warehousing and distribution center costs. The previous
method was to recognize those costs as incurred, reported as a component of costs of goods sold.
(b) Adjusted for a 2-for-1 stock split in 2005.
(c) The pro forma income statement reflects the retroactive application of the cumulative effect of the accounting change to historical periods.
Total assets
Inventory turnover
5,749,187 5,500,501
1.5
1.4
5,047,827
1.4
4,781,471
1.4
4,193,317
1.6
2,279,737
1.6
1,977,496 1,718,896
1.7
1.6
1,432,357
1.6
1,157,033
1.7
Inventory turnover, net of
payables
Accounts payable to
inventory
Current portion of long-term
debt and short-term debt
Long-term debt, less current
portion
7.4
3.4
2.5
2.6
3.1
3.0
2.8
2.8
2.5
2.3
84.7%
64.4%
44.3%
42.8%
46.9%
43.2%
39.2%
40.3%
38.5%
27.9%
222
662
1,431
106,708
8,131
25,320
309
75,313
592
925
1,095,734
796,912
357,273
684,040
724,564
75,149
110,170
25,461
100,322
120,977
Shareholders’ equity
2,108,307 2,844,851
3,209,685
2,685,865
2,282,218
1,592,477
1,364,096
1,145,769
947,817
784,285
CASH FLOW DATA:
(In thousands)
Cash provided by operating
activities
Capital expenditures
Free cash flow (d)
$ 1,251,555 $ 1,118,991 $
300,719
950,836
328,319
790,672
703,687 $
365,419
338,268
285,200 $
414,779
(129,579)
298,542 $
341,679
(43,137)
299,418 $
282,655
16,763
185,928 $
228,871
(42,943)
206,685 $
205,159
1,526
226,536 $
173,486
53,050
168,836
136,497
32,339
(a) Total square footage includes normal selling, office, stockroom and receiving space. Sales per weighted-average store and square foot are weighted to
consider the approximate dates of store openings or expansions.
(b) Same-store sales are calculated based on the change in sales of stores open at least one year. Percentage increase in same-store sales is calculated based on
store sales results, which exclude sales of specialty machinery, sales by outside salesmen, sales to Team Members and sales during the one to two week
period certain CSK branded stores were closed for conversion.
(c) Same-store sales for 2008 include sales for stores acquired in the CSK acquisition. Comparable store sales for stores operating on O’Reilly systems open at
least one year increased 2.6% for the year ended December 31, 2008. Comparable store sales for stores operating on the legacy CSK system open at least
one year decreased 1.7% for the portion of CSK’s sales in 2008 since the July 11, 2008, acquisition.
(d) Free cash flow is calculated as net cash provided by operating activities, less capital expenditures for the period.
24
25
F
O
R
M
1
0
-
k
• Number of Miles Driven - The number of total miles driven in the U.S. heavily influences the demand for the repair and
maintenance products sold within the automotive aftermarket. Historically, the long-term trend in the total miles driven in
the U.S. has steadily increased; however, according to the Department of Transportation, total miles driven in the U.S. have
remained relatively flat since 2007 as the U.S. has experienced difficult macroeconomic conditions. We believe that as the
U.S. economy recovers and the level of unemployment declines, annual miles driven will return to historical growth rates and
continue to drive demand for the industry.
• Number of U.S. Registered Vehicles, New Light Vehicle Registrations and Average Vehicle Age - The total number of
vehicles on the road and the average age of the U.S. vehicle population also heavily influence the demand for products sold
within the automotive aftermarket industry. As reported by the Automotive Aftermarket Industry Association (“AAIA”), the
total number of registered vehicles has increased 15% over the past decade, from 209 million light vehicles in 2001 to 241
million light vehicles in 2011. Annual new light vehicle registrations, have declined 24% over the past decade, from 17
million registrations in 2001 to 13 million registrations in 2011; however, the seasonally adjusted annual rate (the “SAAR”)
of sales of light vehicles in the U.S. increased to 15 million as of December 31, 2012, indicating that the trend of declining
new light vehicle registrations has reversed. As reported by the AAIA, vehicle scrappage rates have decreased 23% from
2001 to 2011, while the average age of the U.S. vehicle population has increased 21% over that decade, from 8.9 years in
2001 to 10.8 years in 2011. We believe this decrease in vehicle scrappage rates and increase in average age can be attributed
to better engineered and manufactured vehicles, which can be reliably driven at higher miles due to better quality power
trains and interiors and exteriors, and the consumer’s willingness to invest in maintaining their higher-mileage, better built
vehicles. As the average age of the vehicle on the road increases, a larger percentage of miles are being driven by vehicles
which are outside of a manufacturer warranty. These out-of-warranty, older vehicles generate strong demand for automotive
aftermarket products as they go through more routine maintenance cycles, have more frequent mechanical failures and
generally require more maintenance than newer vehicles. Based on this change in consumer sentiment surrounding the
length of time older vehicles can be reliably driven at higher mileages, we believe consumers will continue to keep their
vehicles even longer as the economy recovers maintaining the trend of an aging vehicle population.
• Unemployment - Unemployment rates and continued uncertainty surrounding the overall economic health of the U.S. have
had a negative impact on consumer confidence and the level of consumer discretionary spending. The annual U.S.
unemployment rate over the past two years has remained at 30-year highs. We believe macroeconomic uncertainties and the
potential for future joblessness can motivate consumers to find ways to save money, which can be an important factor in the
consumer’s decision to defer the purchase of a new vehicle and maintain their existing vehicle. While the deferral of vehicle
purchases has led to an increase in vehicle maintenance, long-term trends of high unemployment could continue to impede
the growth of annual miles driven, as well as decrease consumer discretionary spending, both of which negatively impact
demand for products sold in the automotive aftermarket industry. As of December 31, 2012, the U.S. unemployment rate
decreased slightly to 7.8% from 8.5% as of December 31, 2011. We believe that as the economy recovers, unemployment
will return to more historic levels and we will see a corresponding increase in commuter traffic as unemployed individuals
return to work. Aided by these increased commuter miles, overall annual U.S. miles driven should begin to grow resulting in
continued demand for automotive aftermarket products.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
In Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results
of operations, liquidity and certain other factors that may affect our future results, including:
We believe the key drivers of current and future demand of the products sold within the automotive aftermarket include the number of
U.S. miles driven, number of U.S. registered vehicles, new light vehicle registrations, average vehicle age and unemployment.
•
•
•
•
•
•
•
•
•
•
an overview of the key drivers of the automotive aftermarket industry;
key events and recent developments within our company;
our results of operations for the years ended 2012, 2011 and 2010;
our liquidity and capital resources;
any contractual obligations to which we are committed;
any off-balance sheet arrangements we utilize;
our critical accounting estimates;
the inflation and seasonality of our business;
our quarterly results for the years ended December 31, 2012, and 2011; and
recent accounting pronouncements that may affect our company.
The review of Management’s Discussion and Analysis should be made in conjunction with our consolidated financial statements,
related notes and other financial information, forward-looking statements and risk factors included elsewhere in this annual report.
FORWARD-LOOKING STATEMENTS
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,”
“plan,” “intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this annual report that are not
historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store
development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking
statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such
statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market
for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, our increased debt levels, credit
ratings on our public debt, our ability to hire and retain qualified employees, risks associated with the performance of acquired
businesses, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results
described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of this annual report on Form 10-
K for the year ended December 31, 2012, for additional factors that could materially affect our financial performance. Forward
looking statements speak only as of the date they were made, and we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
OVERVIEW
We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. We are
one of the largest automotive aftermarket specialty retailers, selling our products to both do-it-yourself (“DIY”) and professional
service provider customers. Our stores carry an extensive product line consisting of new and remanufactured automotive hard parts,
maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools and professional service
provider service equipment. Our extensive product line includes an assortment of products that are differentiated by quality and price
for most of the product lines we offer. For many of our product offerings, this quality differentiation reflects “good”, “better”, and
“best” alternatives. Our sales and total gross margin dollars are highest for the “best” quality category of products. Consumers’
willingness to select products at a higher point on the value spectrum is a driver of sales and profitability in our industry. As of
December 31, 2012, we operated 3,976 stores in 42 states.
Operating within the retail industry, we are influenced by a number of general macroeconomic factors including, but not limited to,
fuel costs, unemployment rates, consumer preferences and spending habits and competition. The difficult conditions that affected the
overall macroeconomic environment in recent years continue to impact O’Reilly and the retail sector in general. We believe that the
average consumer’s tendency has been to “trade-down” to lower quality products during the recent challenging macroeconomic
conditions. We have ongoing initiatives aimed at tailoring our product offering to adjust to customers’ changing preferences;
however, we also continue to have initiatives focused on marketing and training to educate customers on the advantages of
“purchasing up” on the value spectrum.
We believe these ongoing initiatives targeted at marketing higher quality products will result in our customers’ willingness to return to
“purchasing up” on the value spectrum in the future as the U.S. economy recovers; however, we cannot predict whether, when, or the
manner in which, these economic conditions will change.
We remain confident in our ability to gain market share in our existing markets and grow our business in new markets by focusing on
our dual market strategy and the core O’Reilly values of customer service and expense control.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
• Under the Company’s share repurchase program, as approved by the Board of Directors in January of 2011, the Company
may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a
broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements
and overall market conditions. The Company and its Board of Directors may increase or otherwise modify, renew, suspend
or terminate the share repurchase program at any time, without prior notice. The Company’s Board of Directors approved
resolutions to increase the authorization under the share repurchase program by an additional $500 million on each of June 1,
2012, August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to
$3.0 billion. The additional $500 million authorizations are effective for a 3-year period, and the most recent authorization
expires on November 12, 2015. As of February 28, 2013, we had repurchased approximately 34.1 million shares of our
common stock at an aggregate cost of $2.6 billion under this program.
• On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due
2022 (“3.800% Senior Notes due 2022”) at a price to the public of 99.627% of their face value with United Missouri Bank,
N.A. (“UMB”) as trustee. Interest on the 3.800% Senior Notes due 2022 is payable on March 1 and September 1 of each
year, beginning on March 1, 2013, and is computed on the basis of a 360-day year.
26
27
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
In Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results
of operations, liquidity and certain other factors that may affect our future results, including:
•
•
•
•
•
•
•
•
•
•
an overview of the key drivers of the automotive aftermarket industry;
key events and recent developments within our company;
our results of operations for the years ended 2012, 2011 and 2010;
our liquidity and capital resources;
any contractual obligations to which we are committed;
any off-balance sheet arrangements we utilize;
our critical accounting estimates;
the inflation and seasonality of our business;
our quarterly results for the years ended December 31, 2012, and 2011; and
recent accounting pronouncements that may affect our company.
The review of Management’s Discussion and Analysis should be made in conjunction with our consolidated financial statements,
related notes and other financial information, forward-looking statements and risk factors included elsewhere in this annual report.
FORWARD-LOOKING STATEMENTS
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,”
“plan,” “intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this annual report that are not
historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store
development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking
statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such
statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market
for auto parts, the economy in general, inflation, consumer debt levels, governmental regulations, our increased debt levels, credit
ratings on our public debt, our ability to hire and retain qualified employees, risks associated with the performance of acquired
businesses, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results
described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of this annual report on Form 10-
K for the year ended December 31, 2012, for additional factors that could materially affect our financial performance. Forward
looking statements speak only as of the date they were made, and we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
OVERVIEW
We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. We are
one of the largest automotive aftermarket specialty retailers, selling our products to both do-it-yourself (“DIY”) and professional
service provider customers. Our stores carry an extensive product line consisting of new and remanufactured automotive hard parts,
maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools and professional service
provider service equipment. Our extensive product line includes an assortment of products that are differentiated by quality and price
for most of the product lines we offer. For many of our product offerings, this quality differentiation reflects “good”, “better”, and
“best” alternatives. Our sales and total gross margin dollars are highest for the “best” quality category of products. Consumers’
willingness to select products at a higher point on the value spectrum is a driver of sales and profitability in our industry. As of
December 31, 2012, we operated 3,976 stores in 42 states.
Operating within the retail industry, we are influenced by a number of general macroeconomic factors including, but not limited to,
fuel costs, unemployment rates, consumer preferences and spending habits and competition. The difficult conditions that affected the
overall macroeconomic environment in recent years continue to impact O’Reilly and the retail sector in general. We believe that the
average consumer’s tendency has been to “trade-down” to lower quality products during the recent challenging macroeconomic
conditions. We have ongoing initiatives aimed at tailoring our product offering to adjust to customers’ changing preferences;
however, we also continue to have initiatives focused on marketing and training to educate customers on the advantages of
“purchasing up” on the value spectrum.
We believe these ongoing initiatives targeted at marketing higher quality products will result in our customers’ willingness to return to
“purchasing up” on the value spectrum in the future as the U.S. economy recovers; however, we cannot predict whether, when, or the
manner in which, these economic conditions will change.
We believe the key drivers of current and future demand of the products sold within the automotive aftermarket include the number of
U.S. miles driven, number of U.S. registered vehicles, new light vehicle registrations, average vehicle age and unemployment.
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• Number of Miles Driven - The number of total miles driven in the U.S. heavily influences the demand for the repair and
maintenance products sold within the automotive aftermarket. Historically, the long-term trend in the total miles driven in
the U.S. has steadily increased; however, according to the Department of Transportation, total miles driven in the U.S. have
remained relatively flat since 2007 as the U.S. has experienced difficult macroeconomic conditions. We believe that as the
U.S. economy recovers and the level of unemployment declines, annual miles driven will return to historical growth rates and
continue to drive demand for the industry.
• Number of U.S. Registered Vehicles, New Light Vehicle Registrations and Average Vehicle Age - The total number of
vehicles on the road and the average age of the U.S. vehicle population also heavily influence the demand for products sold
within the automotive aftermarket industry. As reported by the Automotive Aftermarket Industry Association (“AAIA”), the
total number of registered vehicles has increased 15% over the past decade, from 209 million light vehicles in 2001 to 241
million light vehicles in 2011. Annual new light vehicle registrations, have declined 24% over the past decade, from 17
million registrations in 2001 to 13 million registrations in 2011; however, the seasonally adjusted annual rate (the “SAAR”)
of sales of light vehicles in the U.S. increased to 15 million as of December 31, 2012, indicating that the trend of declining
new light vehicle registrations has reversed. As reported by the AAIA, vehicle scrappage rates have decreased 23% from
2001 to 2011, while the average age of the U.S. vehicle population has increased 21% over that decade, from 8.9 years in
2001 to 10.8 years in 2011. We believe this decrease in vehicle scrappage rates and increase in average age can be attributed
to better engineered and manufactured vehicles, which can be reliably driven at higher miles due to better quality power
trains and interiors and exteriors, and the consumer’s willingness to invest in maintaining their higher-mileage, better built
vehicles. As the average age of the vehicle on the road increases, a larger percentage of miles are being driven by vehicles
which are outside of a manufacturer warranty. These out-of-warranty, older vehicles generate strong demand for automotive
aftermarket products as they go through more routine maintenance cycles, have more frequent mechanical failures and
generally require more maintenance than newer vehicles. Based on this change in consumer sentiment surrounding the
length of time older vehicles can be reliably driven at higher mileages, we believe consumers will continue to keep their
vehicles even longer as the economy recovers maintaining the trend of an aging vehicle population.
• Unemployment - Unemployment rates and continued uncertainty surrounding the overall economic health of the U.S. have
had a negative impact on consumer confidence and the level of consumer discretionary spending. The annual U.S.
unemployment rate over the past two years has remained at 30-year highs. We believe macroeconomic uncertainties and the
potential for future joblessness can motivate consumers to find ways to save money, which can be an important factor in the
consumer’s decision to defer the purchase of a new vehicle and maintain their existing vehicle. While the deferral of vehicle
purchases has led to an increase in vehicle maintenance, long-term trends of high unemployment could continue to impede
the growth of annual miles driven, as well as decrease consumer discretionary spending, both of which negatively impact
demand for products sold in the automotive aftermarket industry. As of December 31, 2012, the U.S. unemployment rate
decreased slightly to 7.8% from 8.5% as of December 31, 2011. We believe that as the economy recovers, unemployment
will return to more historic levels and we will see a corresponding increase in commuter traffic as unemployed individuals
return to work. Aided by these increased commuter miles, overall annual U.S. miles driven should begin to grow resulting in
continued demand for automotive aftermarket products.
We remain confident in our ability to gain market share in our existing markets and grow our business in new markets by focusing on
our dual market strategy and the core O’Reilly values of customer service and expense control.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
• Under the Company’s share repurchase program, as approved by the Board of Directors in January of 2011, the Company
may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a
broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements
and overall market conditions. The Company and its Board of Directors may increase or otherwise modify, renew, suspend
or terminate the share repurchase program at any time, without prior notice. The Company’s Board of Directors approved
resolutions to increase the authorization under the share repurchase program by an additional $500 million on each of June 1,
2012, August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to
$3.0 billion. The additional $500 million authorizations are effective for a 3-year period, and the most recent authorization
expires on November 12, 2015. As of February 28, 2013, we had repurchased approximately 34.1 million shares of our
common stock at an aggregate cost of $2.6 billion under this program.
• On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due
2022 (“3.800% Senior Notes due 2022”) at a price to the public of 99.627% of their face value with United Missouri Bank,
N.A. (“UMB”) as trustee. Interest on the 3.800% Senior Notes due 2022 is payable on March 1 and September 1 of each
year, beginning on March 1, 2013, and is computed on the basis of a 360-day year.
26
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• At the close of business on December 31, 2012, the Company completed the purchase of the auto-parts-related assets of VIP
Parts, Tires & Service (“VIP”). The asset purchase included 56 stores located throughout Maine, New Hampshire and
Massachusetts, as well as a distribution center located in Lewiston, Maine.
RESULTS OF OPERATIONS
The following table includes income statement data as a percentage of sales for the years ended December 31, 2012, 2011 and 2010:
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Operating income
Interest expense
Interest income
Write-off of asset-based revolving credit facility debt issuance costs
Termination of interest rate swap agreements
Gain on settlement of note receivable
Other income, net
Income before income taxes
Provision for income taxes
Net income
2012 Compared to 2011
Years ended December 31,
2012
100.0 %
49.9
50.1
34.3
-
-
15.8
(0.7)
0.1
-
-
-
-
15.2
5.7
9.5 %
2011
100.0 %
51.0
49.0
34.1
(0.1)
-
15.0
(0.5)
0.1
(0.4)
(0.1)
-
-
14.1
5.3
8.8 %
2010
100.0 %
51.4
48.6
35.0
-
0.4
13.2
(0.7)
-
-
-
0.2
0.1
12.8
5.0
7.8 %
Sales:
Sales for the year ended December 31, 2012, increased $393 million to $6.18 billion from $5.79 billion for the same period one year
ago, representing an increase of 7%. Comparable store sales for stores open at least one year increased 3.8% and 4.6% for the years
ended December 31, 2012 and 2011, respectively. Comparable store sales are calculated based on the change in sales of stores open at
least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.
The following table presents the components of the increase in sales for the year ended December 31, 2012 (in millions):
Increase in Sales for the Year Ended
December 31, 2012, Compared to the Same
Period in 2011
Store sales:
Comparable store sales
Non-comparable store sales:
Sales for stores opened throughout 2011, excluding stores open at least one year
that are included in comparable store sales
Sales in 2011 for stores that have closed
Sales for stores opened throughout 2012
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team
Members
Total increase in sales
$
$
215
78
(3)
96
7
393
We believe the increased sales achieved by our stores are the result of high levels of customer service, superior inventory availability,
a broader selection of products offered in most stores, a targeted promotional and advertising effort through a variety of media and
localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for
all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional
service provider customers.
Our comparable store sales increase for the year ended December 31, 2012, was driven by an increase in average ticket values,
partially offset by a decrease in DIY customer transaction counts. The improvement in average ticket values was a result of the
continued growth of the more costly, hard part categories, as a percentage of our total sales. The growth in the hard part categories is
driven by the increase of professional service provider customer sales as a percentage of our total sales mix and the continued growth
in DIY hard part sales, as consumers continue to maintain and repair their vehicles. The strong increases in our professional service
provider customer transaction counts, driven by our acquired markets, have been offset by pressured DIY transaction counts. DIY
customer transaction counts continue to be negatively impacted by macroeconomic pressures on disposable income, including
sustained unemployment levels above historical averages. Both DIY and professional service provider customer transaction counts
also continue to be negatively impacted by better-engineered and more technically advanced vehicles, which have been manufactured
in recent years. These vehicles require less frequent repairs and the component parts are more durable and last for longer periods of
time; however, when repairs are required, the cost of the repair is typically greater.
We opened 180 net, new stores and acquired 56 stores during the year ended December 31, 2012, compared to 170 net, new stores for
the year ended December 31, 2011. At December 31, 2012, we operated 3,976 stores in 42 states compared to 3,740 stores in 39
states at December 31, 2011. We anticipate new store unit growth to increase to 190 net, new stores in 2013.
Gross profit:
Gross profit for the year ended December 31, 2012, increased to $3.10 billion (or 50.1% of sales) from $2.84 billion (or 49.0% of
sales) for the same period one year ago, representing an increase of 9%. The increase in gross profit dollars was primarily a result of
the increases in sales from new stores and the increases in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was primarily due to distribution center (“DC”) efficiencies, acquisition cost improvements and improved
inventory shrinkage, partially offset by the impact of increased commercial sales as a percentage of the total sales mix. DC
efficiencies are the result of continued leverage on our increased sales volumes and more tenured and experienced DC Team Members
in our maturing DCs. In addition, during 2012 we increased our store-level inventories as a component of our focus on providing
higher service levels. The costs to move this additional inventory into the stores were more efficient than routine restocking activity
and, as a result, we realized a one-time benefit from capitalized distribution costs. This capitalization of costs benefited gross margin
by approximately 20 basis points versus the prior year, however, we do not anticipate realizing this excess benefit in future periods.
Acquisition cost improvements are the result of our ongoing negotiations with our vendors to improve our inventory purchase costs.
The improved inventory shrinkage is driven by our continued focus on inventory control and accountability through our distribution
and store networks. Commercial sales typically carry a lower gross profit as a percentage of sales than DIY sales, as volume discounts
are granted on wholesale transactions to professional service provider customers, therefore, creating pressure on our gross profit as a
percentage of sales.
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2012, increased to $2.12 billion (or 34.3% of
sales) from $1.97 billion (or 34.1% of sales) for the same period one year ago, representing an increase of 7%. The increase in total
SG&A dollars was primarily the result of additional employees, facilities and vehicles to support our increased store count. The slight
increase in SG&A as a percentage of sales was primarily the result of our focus on store staffing levels to continue to deliver industry-
leading customer service while adjusting to the slower sales environment, as well as an overall deleverage on soft comparable store
sales.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2012, increased to $977 million (or
15.8% of sales) from $867 million (or 15.0% of sales) for the same period one year ago, representing an increase of 13%.
Other income and expense:
Total other expense for the year ended December 31, 2012, decreased to $36 million (or 0.6% of sales), from $51 million (or 0.9% of
sales) for the same period one year ago, representing a decrease of 30%. The decrease in total other expense for the year ended
December 31, 2012, was primarily due to one-time charges related to our financing transactions that were completed in January of
2011 (discussed in detail below), partially offset by increased interest expense on higher average outstanding borrowings and
increased amortization of debt issuance costs as compared to the prior year.
Income taxes:
Our provision for income taxes for the year ended December 31, 2012, increased to $356 million (37.8% effective tax rate) from $308
million (37.8% effective tax rate) for the same period one year ago, representing an increase of 15%. The increase in our provision for
income taxes was due to the increase in our taxable income.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2012, increased to $586 million (or 9.5% of
sales), from $508 million (or 8.8% of sales) for the same period one year ago, representing an increase of 15%.
28
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• At the close of business on December 31, 2012, the Company completed the purchase of the auto-parts-related assets of VIP
Parts, Tires & Service (“VIP”). The asset purchase included 56 stores located throughout Maine, New Hampshire and
Massachusetts, as well as a distribution center located in Lewiston, Maine.
RESULTS OF OPERATIONS
The following table includes income statement data as a percentage of sales for the years ended December 31, 2012, 2011 and 2010:
Cost of goods sold, including warehouse and distribution expenses
Sales
Gross profit
Operating income
Interest expense
Interest income
Selling, general and administrative expenses
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Write-off of asset-based revolving credit facility debt issuance costs
Termination of interest rate swap agreements
Gain on settlement of note receivable
Other income, net
Income before income taxes
Provision for income taxes
Net income
2012 Compared to 2011
Sales:
Years ended December 31,
2012
100.0 %
2011
100.0 %
2010
100.0 %
49.9
50.1
34.3
15.8
(0.7)
0.1
-
-
-
-
-
-
15.2
5.7
51.0
49.0
34.1
(0.1)
-
15.0
(0.5)
0.1
(0.4)
(0.1)
-
-
14.1
5.3
51.4
48.6
35.0
-
0.4
13.2
(0.7)
-
-
-
0.2
0.1
12.8
5.0
9.5 %
8.8 %
7.8 %
Sales for the year ended December 31, 2012, increased $393 million to $6.18 billion from $5.79 billion for the same period one year
ago, representing an increase of 7%. Comparable store sales for stores open at least one year increased 3.8% and 4.6% for the years
ended December 31, 2012 and 2011, respectively. Comparable store sales are calculated based on the change in sales of stores open at
least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.
The following table presents the components of the increase in sales for the year ended December 31, 2012 (in millions):
Increase in Sales for the Year Ended
December 31, 2012, Compared to the Same
Period in 2011
Sales for stores opened throughout 2011, excluding stores open at least one year
Store sales:
Comparable store sales
Non-comparable store sales:
that are included in comparable store sales
Sales in 2011 for stores that have closed
Sales for stores opened throughout 2012
Non-store sales:
Members
Total increase in sales
Includes sales of machinery and sales to independent parts stores and Team
$
$
215
78
(3)
96
7
393
We believe the increased sales achieved by our stores are the result of high levels of customer service, superior inventory availability,
a broader selection of products offered in most stores, a targeted promotional and advertising effort through a variety of media and
localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for
all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional
service provider customers.
Our comparable store sales increase for the year ended December 31, 2012, was driven by an increase in average ticket values,
partially offset by a decrease in DIY customer transaction counts. The improvement in average ticket values was a result of the
continued growth of the more costly, hard part categories, as a percentage of our total sales. The growth in the hard part categories is
driven by the increase of professional service provider customer sales as a percentage of our total sales mix and the continued growth
in DIY hard part sales, as consumers continue to maintain and repair their vehicles. The strong increases in our professional service
provider customer transaction counts, driven by our acquired markets, have been offset by pressured DIY transaction counts. DIY
customer transaction counts continue to be negatively impacted by macroeconomic pressures on disposable income, including
sustained unemployment levels above historical averages. Both DIY and professional service provider customer transaction counts
also continue to be negatively impacted by better-engineered and more technically advanced vehicles, which have been manufactured
in recent years. These vehicles require less frequent repairs and the component parts are more durable and last for longer periods of
time; however, when repairs are required, the cost of the repair is typically greater.
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We opened 180 net, new stores and acquired 56 stores during the year ended December 31, 2012, compared to 170 net, new stores for
the year ended December 31, 2011. At December 31, 2012, we operated 3,976 stores in 42 states compared to 3,740 stores in 39
states at December 31, 2011. We anticipate new store unit growth to increase to 190 net, new stores in 2013.
Gross profit:
Gross profit for the year ended December 31, 2012, increased to $3.10 billion (or 50.1% of sales) from $2.84 billion (or 49.0% of
sales) for the same period one year ago, representing an increase of 9%. The increase in gross profit dollars was primarily a result of
the increases in sales from new stores and the increases in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was primarily due to distribution center (“DC”) efficiencies, acquisition cost improvements and improved
inventory shrinkage, partially offset by the impact of increased commercial sales as a percentage of the total sales mix. DC
efficiencies are the result of continued leverage on our increased sales volumes and more tenured and experienced DC Team Members
in our maturing DCs. In addition, during 2012 we increased our store-level inventories as a component of our focus on providing
higher service levels. The costs to move this additional inventory into the stores were more efficient than routine restocking activity
and, as a result, we realized a one-time benefit from capitalized distribution costs. This capitalization of costs benefited gross margin
by approximately 20 basis points versus the prior year, however, we do not anticipate realizing this excess benefit in future periods.
Acquisition cost improvements are the result of our ongoing negotiations with our vendors to improve our inventory purchase costs.
The improved inventory shrinkage is driven by our continued focus on inventory control and accountability through our distribution
and store networks. Commercial sales typically carry a lower gross profit as a percentage of sales than DIY sales, as volume discounts
are granted on wholesale transactions to professional service provider customers, therefore, creating pressure on our gross profit as a
percentage of sales.
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2012, increased to $2.12 billion (or 34.3% of
sales) from $1.97 billion (or 34.1% of sales) for the same period one year ago, representing an increase of 7%. The increase in total
SG&A dollars was primarily the result of additional employees, facilities and vehicles to support our increased store count. The slight
increase in SG&A as a percentage of sales was primarily the result of our focus on store staffing levels to continue to deliver industry-
leading customer service while adjusting to the slower sales environment, as well as an overall deleverage on soft comparable store
sales.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2012, increased to $977 million (or
15.8% of sales) from $867 million (or 15.0% of sales) for the same period one year ago, representing an increase of 13%.
Other income and expense:
Total other expense for the year ended December 31, 2012, decreased to $36 million (or 0.6% of sales), from $51 million (or 0.9% of
sales) for the same period one year ago, representing a decrease of 30%. The decrease in total other expense for the year ended
December 31, 2012, was primarily due to one-time charges related to our financing transactions that were completed in January of
2011 (discussed in detail below), partially offset by increased interest expense on higher average outstanding borrowings and
increased amortization of debt issuance costs as compared to the prior year.
Income taxes:
Our provision for income taxes for the year ended December 31, 2012, increased to $356 million (37.8% effective tax rate) from $308
million (37.8% effective tax rate) for the same period one year ago, representing an increase of 15%. The increase in our provision for
income taxes was due to the increase in our taxable income.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2012, increased to $586 million (or 9.5% of
sales), from $508 million (or 8.8% of sales) for the same period one year ago, representing an increase of 15%.
28
29
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2012, increased 28% to $4.75 on 123 million shares from
$3.71 on 137 million shares for the same period one year ago. The impact of share repurchases during 2012 on diluted earnings per
share was an increase of approximately $0.26.
F
O
R
M
1
0
-
k
Adjustments for nonrecurring and non-operating events:
Our results for the year ended December 31, 2011, included nonrecurring income related to a settlement between the SEC and a
former CSK officer that resulted in the reimbursement to O’Reilly, as successor issuer to CSK for SEC purposes, of $3 million ($2
million, net of tax) of incentive-based compensation and stock sale profits previously received by the officer. This “clawback”
amount was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2011. Our
results for the year ended December 31, 2011, also included one-time charges associated with the new financing transactions we
completed on January 14, 2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs
related to our previous ABL Credit Facility in the amount of $22 million ($13 million, net of tax) and a charge related to the
termination of our interest rate swap agreements in the amount of $4 million ($3 million, net of tax). The charges related to our new
financing transactions were included in “Other income (expense)” on our Consolidated Statements of Income for the year ended
December 31, 2011. The results discussed in the paragraph below are adjusted for these nonrecurring items and are reconciled to the
most directly comparable GAAP measure in the subsequent table.
Adjusted operating income for the year ended December 31, 2012, increased 13% to $977 million (or 15.8% of sales) from $864
million (or 14.9% of sales) for the same period one year ago. Adjusted net income for the year ended December 31, 2012 increased
12% to $586 million (or 9.5% of sales) from $522 million (or 9.0% of sales) for the same period one year ago. Adjusted diluted
earnings per common share for the year ended December 31, 2012, increased 25% to $4.75 from $3.81 for the same period one year
ago.
GAAP Operating income
Former CSK officer clawback
Non-GAAP adjusted operating income
$
$
2012
For the Year Ended December 31,
2011
Amount % of Sales
866,766 15.0 %
(2,798)
(0.1) %
863,968 14.9 %
Amount % of Sales
15.8 %
- %
15.8 %
977,393
-
977,393
$
$
GAAP net income
$
585,746
9.5 %
$
507,673 8.8 %
Write-off of asset-based revolving credit facility debt issuance costs, net of
tax
Termination of interest rate swap agreements, net of tax
Former CSK officer clawback, net of tax
Non-GAAP adjusted net income
GAAP diluted earnings per common share
Write-off of asset-based revolving credit facility debt issuance costs, net of
tax
Termination of interest rate swap agreements, net of tax
Former CSK DOJ officer clawback, net of tax
Non-GAAP adjusted diluted earnings per common share
$
$
$
-
-
-
585,746
- %
- %
- %
9.5 %
4.75
-
-
-
4.75
13,458 0.2 %
- %
2,637
- %
(1,741)
522,027 9.0 %
3.71
0.09
0.02
(0.01)
3.81
$
$
$
Weighted-average common shares outstanding - assuming dilution
123,314
136,983
The financial information presented in the paragraph and table above is not derived in accordance with United States generally
accepted accounting principles (“GAAP”). We do not, nor do we suggest investors should, consider such non-GAAP financial
measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of financial results
and estimates excluding the impact of the non-cash charge to write off the balance of debt issuance costs, the charge related to the
termination of interest rate swap contracts, and the former CSK officer clawback, provide meaningful supplemental information to
both management and investors, which is indicative of our core operations. We exclude these items in judging our performance and
believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such
measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the table above, the
accompanying reconciliation to the most directly comparable GAAP measures.
2011 Compared to 2010
Sales:
Sales for the year ended December 31, 2011, increased $391 million to $5.79 billion from $5.40 billion for the same period one year
ago, representing an increase of 7%. Comparable store sales for stores open at least one year increased 4.6% and 8.8% for the years
ended December 31, 2011 and 2010, respectively. Comparable store sales are calculated based on the change in sales of stores open at
least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.
The following table presents the components of the increase in sales for the year ended December 31, 2011 (in millions):
Increase in Sales for the Year Ended
December 31, 2011, Compared to the Same
Period in 2010
Store sales:
Comparable store sales
Non-comparable store sales:
that are included in comparable store sales
Sales in 2010 for stores that have closed
Sales for stores opened throughout 2011
Sales for stores opened throughout 2010, excluding stores open at least one year
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team
Members
Total increase in sales
$
$
241
70
(13)
82
11
391
We believe the increased sales achieved by our stores are the result of high levels of customer service, superior inventory availability,
a broader selection of products offered in most stores, a targeted promotional and advertising effort through a variety of media and
localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for
all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional
service provider customers. Our comparable store sales increase for the year was driven by an increase in average ticket values,
partially offset by a decline in customer transaction counts. The improvement in average ticket values was the result of the continued
growth of the higher priced, hard part categories as a percentage of our total sales, and the impact of increased raw material acquisition
costs, which were passed through to increased selling prices during the period. The growth in the hard part categories was driven by
the increase of professional service provider sales as a percentage of our total sales mix and a shift in DIY sales to the hard part
categories. During the year, DIY customer transaction counts were negatively impacted by the continued pressure on disposable
income that our customers faced as a result of increased fuel costs and sustained unemployment levels above historical averages,
which offset strong increases in professional service provider transaction counts.
We opened 170 net, new stores during the year ended December 31, 2011, compared to 149 net, new stores for the year ended
December 31, 2010. At December 31, 2011, we operated 3,740 stores in 39 states compared to 3,570 stores in 38 states at December
31, 2010.
Gross profit:
Gross profit for the year ended December 31, 2011, increased to $2.84 billion (or 49.0% of sales) from $2.62 billion (or 48.6% of
sales) for the same period one year ago, representing an increase of 8%. The increase in gross profit dollars was primarily a result of
the increase in sales from new stores and the increase in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was primarily due to a favorable product mix, improved acquisition costs, improved inventory shrinkage and
distribution center efficiencies, partially offset by the impact of increased professional service provider sales as a percentage of the
total sales mix. The improvement in product mix was primarily driven by increased sales in the hard part categories, which typically
generate a high gross profit as a percentage of sales. Increasing hard part sales is the result of strong demand as consumers retain and
maintain their vehicles beyond manufacturer warranty periods and our strong growth in sales to professional service providers in the
acquired markets. The improved shrinkage was driven by our converted CSK stores, which are now managed using the O’Reilly
point-of-sale system (“POS”), installed in all CSK stores as they converted to the O’Reilly distribution systems throughout 2009 and
2010. The O’Reilly POS provides our store managers with better tools to track and control inventory, resulting in improved inventory
shrinkage. Distribution center efficiencies were the result of leverage on increased sales volumes and more tenured and experienced
distribution center Team Members in our newer DCs. Professional service provider sales in the acquired CSK markets grew at a faster
rate than total DIY sales as a result of the enhanced distribution model in those markets, which supports the implementation of our
dual market strategy. Professional service provider sales typically carry a lower overall gross profit as a percentage of sales than DIY
sales, as volume discounts are granted on wholesale transactions to professional service providers, consequently creating pressure on
our gross profit as a percentage of sales.
30
31
k
-
0
1
M
R
O
F
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2012, increased 28% to $4.75 on 123 million shares from
$3.71 on 137 million shares for the same period one year ago. The impact of share repurchases during 2012 on diluted earnings per
2011 Compared to 2010
share was an increase of approximately $0.26.
Adjustments for nonrecurring and non-operating events:
Our results for the year ended December 31, 2011, included nonrecurring income related to a settlement between the SEC and a
former CSK officer that resulted in the reimbursement to O’Reilly, as successor issuer to CSK for SEC purposes, of $3 million ($2
million, net of tax) of incentive-based compensation and stock sale profits previously received by the officer. This “clawback”
amount was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2011. Our
results for the year ended December 31, 2011, also included one-time charges associated with the new financing transactions we
completed on January 14, 2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs
related to our previous ABL Credit Facility in the amount of $22 million ($13 million, net of tax) and a charge related to the
termination of our interest rate swap agreements in the amount of $4 million ($3 million, net of tax). The charges related to our new
financing transactions were included in “Other income (expense)” on our Consolidated Statements of Income for the year ended
December 31, 2011. The results discussed in the paragraph below are adjusted for these nonrecurring items and are reconciled to the
most directly comparable GAAP measure in the subsequent table.
Adjusted operating income for the year ended December 31, 2012, increased 13% to $977 million (or 15.8% of sales) from $864
million (or 14.9% of sales) for the same period one year ago. Adjusted net income for the year ended December 31, 2012 increased
12% to $586 million (or 9.5% of sales) from $522 million (or 9.0% of sales) for the same period one year ago. Adjusted diluted
earnings per common share for the year ended December 31, 2012, increased 25% to $4.75 from $3.81 for the same period one year
ago.
tax
tax
GAAP Operating income
Former CSK officer clawback
Non-GAAP adjusted operating income
For the Year Ended December 31,
2012
2011
Amount % of Sales
$
$
977,393
-
977,393
15.8 %
- %
15.8 %
Amount % of Sales
866,766 15.0 %
(0.1) %
863,968 14.9 %
(2,798)
$
$
GAAP net income
$
585,746
9.5 %
$
507,673 8.8 %
Write-off of asset-based revolving credit facility debt issuance costs, net of
Termination of interest rate swap agreements, net of tax
Former CSK officer clawback, net of tax
Non-GAAP adjusted net income
- %
- %
- %
585,746
9.5 %
2,637
13,458 0.2 %
- %
- %
522,027 9.0 %
(1,741)
GAAP diluted earnings per common share
Write-off of asset-based revolving credit facility debt issuance costs, net of
Termination of interest rate swap agreements, net of tax
Former CSK DOJ officer clawback, net of tax
Non-GAAP adjusted diluted earnings per common share
$
4.75
$
$
-
-
-
-
-
-
4.75
$
$
$
3.71
0.09
0.02
(0.01)
3.81
Weighted-average common shares outstanding - assuming dilution
123,314
136,983
The financial information presented in the paragraph and table above is not derived in accordance with United States generally
accepted accounting principles (“GAAP”). We do not, nor do we suggest investors should, consider such non-GAAP financial
measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of financial results
and estimates excluding the impact of the non-cash charge to write off the balance of debt issuance costs, the charge related to the
termination of interest rate swap contracts, and the former CSK officer clawback, provide meaningful supplemental information to
both management and investors, which is indicative of our core operations. We exclude these items in judging our performance and
believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such
measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the table above, the
accompanying reconciliation to the most directly comparable GAAP measures.
Sales:
Sales for the year ended December 31, 2011, increased $391 million to $5.79 billion from $5.40 billion for the same period one year
ago, representing an increase of 7%. Comparable store sales for stores open at least one year increased 4.6% and 8.8% for the years
ended December 31, 2011 and 2010, respectively. Comparable store sales are calculated based on the change in sales of stores open at
least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members.
The following table presents the components of the increase in sales for the year ended December 31, 2011 (in millions):
Increase in Sales for the Year Ended
December 31, 2011, Compared to the Same
Period in 2010
Store sales:
Comparable store sales
Non-comparable store sales:
Sales for stores opened throughout 2010, excluding stores open at least one year
that are included in comparable store sales
Sales in 2010 for stores that have closed
Sales for stores opened throughout 2011
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team
Members
Total increase in sales
$
$
241
70
(13)
82
11
391
We believe the increased sales achieved by our stores are the result of high levels of customer service, superior inventory availability,
a broader selection of products offered in most stores, a targeted promotional and advertising effort through a variety of media and
localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for
all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional
service provider customers. Our comparable store sales increase for the year was driven by an increase in average ticket values,
partially offset by a decline in customer transaction counts. The improvement in average ticket values was the result of the continued
growth of the higher priced, hard part categories as a percentage of our total sales, and the impact of increased raw material acquisition
costs, which were passed through to increased selling prices during the period. The growth in the hard part categories was driven by
the increase of professional service provider sales as a percentage of our total sales mix and a shift in DIY sales to the hard part
categories. During the year, DIY customer transaction counts were negatively impacted by the continued pressure on disposable
income that our customers faced as a result of increased fuel costs and sustained unemployment levels above historical averages,
which offset strong increases in professional service provider transaction counts.
We opened 170 net, new stores during the year ended December 31, 2011, compared to 149 net, new stores for the year ended
December 31, 2010. At December 31, 2011, we operated 3,740 stores in 39 states compared to 3,570 stores in 38 states at December
31, 2010.
Gross profit:
Gross profit for the year ended December 31, 2011, increased to $2.84 billion (or 49.0% of sales) from $2.62 billion (or 48.6% of
sales) for the same period one year ago, representing an increase of 8%. The increase in gross profit dollars was primarily a result of
the increase in sales from new stores and the increase in comparable store sales at existing stores. The increase in gross profit as a
percentage of sales was primarily due to a favorable product mix, improved acquisition costs, improved inventory shrinkage and
distribution center efficiencies, partially offset by the impact of increased professional service provider sales as a percentage of the
total sales mix. The improvement in product mix was primarily driven by increased sales in the hard part categories, which typically
generate a high gross profit as a percentage of sales. Increasing hard part sales is the result of strong demand as consumers retain and
maintain their vehicles beyond manufacturer warranty periods and our strong growth in sales to professional service providers in the
acquired markets. The improved shrinkage was driven by our converted CSK stores, which are now managed using the O’Reilly
point-of-sale system (“POS”), installed in all CSK stores as they converted to the O’Reilly distribution systems throughout 2009 and
2010. The O’Reilly POS provides our store managers with better tools to track and control inventory, resulting in improved inventory
shrinkage. Distribution center efficiencies were the result of leverage on increased sales volumes and more tenured and experienced
distribution center Team Members in our newer DCs. Professional service provider sales in the acquired CSK markets grew at a faster
rate than total DIY sales as a result of the enhanced distribution model in those markets, which supports the implementation of our
dual market strategy. Professional service provider sales typically carry a lower overall gross profit as a percentage of sales than DIY
sales, as volume discounts are granted on wholesale transactions to professional service providers, consequently creating pressure on
our gross profit as a percentage of sales.
30
31
F
O
R
M
1
0
-
k
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2011, increased to $1.97 billion (or 34.1% of
sales) from $1.89 billion (or 35.0% of sales) for the same period one year ago, representing an increase of 5%. The increase in total
SG&A dollars was primarily the result of additional employees, facilities and vehicles to support our increased store count. The
decrease in SG&A as a percentage of sales was primarily the result of increased leverage of store occupancy and headquarters costs on
strong comparable store sales, improved store payroll efficiencies and positive trends related to health benefits, partially offset by
increased fuel costs for our store delivery vehicles supporting our growing commercial business.
Operating income:
Operating income for the year ended December 31, 2011, increased to $867 million (or 15.0% of sales) from $713 million (or 13.2%
of sales) for the same period one year ago, representing an increase of 22%. The increase in operating income during the year was
primarily due to the impacts discussed above, as well as $3 million of nonrecurring income in the current year related to a settlement
between the Securities and Exchange Commission (“SEC”) and a former CSK officer that resulted in the reimbursement to CSK of
incentive-based compensation and stock sale profits previously received by the officer (discussed in detail below – see Note 12 Legal
Matters to the Consolidated Financial Statements) versus a $21 million charge to operating income in the prior year, related to the
previously announced legacy United States Department of Justice (“DOJ”) investigation of CSK (discussed in detail below – see Note
12 Legal Matters to the Consolidated Financial Statements). The increase in operating income as a percentage of sales was the result
of our improvements in gross margin and significant leverage on fixed SG&A from strong comparable store sales.
Other income and expense:
Total other expense for the year ended December 31, 2011, increased to $51 million (or 0.9% of sales), from $23 million (or 0.4% of
sales) for the same period one year ago, representing an increase of 118%. The increase in total other expense for the year was
primarily due to one-time charges related to our new financing transactions that were completed in January of 2011 (discussed in
detail below), offset by decreased interest expense on a lower average interest rate on outstanding borrowings, a lower facility fee on
our revolving credit facility and less amortization of debt issuance costs in the current period as compared to the borrowing rates,
facility fee and amortization of debt issuance costs in the prior period. In addition, during 2010, we recognized a nonrecurring, non-
operating gain of $12 million related to the favorable settlement of a note receivable acquired in the acquisition of CSK (discussed in
detail below).
Income taxes:
Our provision for income taxes for the year ended December 31, 2011, increased to $308 million (37.8% effective tax rate) from $270
million (39.2% effective tax rate) for the same period in the prior year, representing an increase of 14%. The increase in our provision
for income taxes was due to the increase in our taxable income. The decrease in the effective rate was primarily the result of the $21
million charge recorded in 2010 related to the legacy CSK DOJ investigation, discussed in detail below, which was not deductible for
tax purposes.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2011, increased to $508 million (or 8.8% of
sales), from $419 million (or 7.8% of sales) for the same period in the prior year, representing an increase of 21%.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2011, increased 26% to $3.71 on 137 million shares from
$2.95 on 142 million shares for the same period in the prior year. The impact of share repurchases during 2011 on diluted earnings
per share was an increase of approximately $0.19.
Adjustments for nonrecurring and non-operating events:
Our results for the year ended December 31, 2011, included nonrecurring income related to a settlement between the SEC and a
former CSK officer that resulted in the reimbursement to O’Reilly, as successor issuer to CSK for SEC purposes, of $3 million ($2
million, net of tax) of incentive-based compensation and stock sale profits previously received by the officer. This “clawback”
amount was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2011. Our
results for the year ended December 31, 2011, also included one-time charges associated with the new financing transactions we
completed on January 14, 2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs
related to our previous ABL Credit Facility in the amount of $22 million ($13 million, net of tax) and a charge related to the
termination of our interest rate swap agreements in the amount of $4 million ($3 million, net of tax). The charges related to our new
financing transactions were included in “Other income (expense)” on our Consolidated Statements of Income for the year ended
December 31, 2011. Our results for the year ended December 31, 2010, included a nonrecurring, non-operating gain in “Other income
(expense)” of $12 million ($7 million, net of tax) related to the favorable settlement of a note receivable acquired in the CSK
acquisition, as well as a charge related to the legacy DOJ investigation into CSK’s pre-acquisition historical accounting practices. We
accrued $21 million during 2010 in anticipation of executing a Non-Prosecution Agreement (“NPA”) among the DOJ, CSK and
O’Reilly and paying a one-time monetary penalty of $21 million. During the third quarter of 2011, the NPA was executed and the
previously recorded, one-time $21 million penalty was paid to the DOJ on behalf of CSK. The charge related to the legacy CSK DOJ
32
investigation was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2010.
The results discussed in the paragraph below are adjusted for these nonrecurring items and are reconciled to the most directly
comparable GAAP measure in the subsequent table.
Adjusted operating income for the year ended December 31, 2011, increased 18% to $864 million (or 14.9% of sales) from $734
million (or 13.6% of sales) for the same period one year ago. Adjusted net income for the year ended December 31, 2011, increased
21% to $522 million (or 9.0% of sales) from $433 million (or 8.0% of sales) for the same period in the prior year. Adjusted diluted
earnings per common share for the year ended December 31, 2011, increased 25% to $3.81 from $3.05 for the same period in the prior
year.
For the Year Ended December 31,
2011
Amount % of Sales
$ 866,766
(2,798)
-
$ 863,968
15.0 %
(0.1) %
- %
14.9 %
2010
Amount % of Sales
$
712,776
13.2 %
-
20,900
- %
0.4 %
$
733,676
13.6 %
$
507,673
8.8 %
$
419,373
7.8 %
GAAP Operating income
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Non-GAAP adjusted operating income
GAAP net income
of tax
Write-off of asset-based revolving credit facility debt issuance costs, net
Termination of interest rate swap agreements, net of tax
Former CSK officer clawback, net of tax
Legacy CSK DOJ investigation charge
Gain on settlement of note receivable, net of tax
Non-GAAP adjusted net income
GAAP diluted earnings per common share
Write-off of asset-based revolving credit facility debt issuance costs, net
of tax
Termination of interest rate swap agreements, net of tax
Former CSK DOJ officer clawback, net of tax
Legacy CSK DOJ investigation charge
Gain on settlement of note receivable, net of tax
13,458
2,637
(1,741)
-
-
-
-
3.71
0.09
0.02
(0.01)
Non-GAAP adjusted diluted earnings per common share
$
3.81
522,027
9.0 %
$
$
0.2 %
- %
- %
- %
- %
- %
- %
- %
20,900
0.4 %
(7,215)
(0.2)%
433,058
8.0 %
-
-
-
-
-
-
2.95
0.15
(0.05)
3.05
$
$
$
Weighted-average common shares outstanding - assuming dilution
136,983
141,992
The financial information presented in the paragraph and table above is not derived in accordance with United States generally
accepted accounting principles (“GAAP”). We do not, nor do we suggest investors should, consider such non-GAAP financial
measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of financial results
and estimates excluding the impact of the non-cash charge to write off the balance of debt issuance costs, the charge related to the
termination of interest rate swap contracts, the former CSK officer clawback, the charges for the legacy CSK DOJ investigation and
the nonrecurring, non-operating gain related to the settlement of a note receivable acquired in the acquisition of CSK, provide
meaningful supplemental information to both management and investors, which is indicative of our core operations. We exclude these
items in judging our performance and believe this non-GAAP information is useful to investors as well. Material limitations of these
non-GAAP measures are that such measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting,
in the table above, the accompanying reconciliation to the most directly comparable GAAP measures.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure,
operate and maintain existing stores and may include the opportunistic repurchase of shares of our common stock through our Board-
approved share repurchase program. The primary sources of our liquidity are funds generated from operations and borrowed under
our Revolving Credit Facility. Decreased demand for our products or changes in customer buying patterns could negatively impact
our ability to generate funds from operations. Additionally, decreased demand or changes in buying patterns could impact our ability
to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our Revolving Credit
Facility. We believe that cash expected to be provided by operating activities and availability under our Revolving Credit Facility will
be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. However, there can be
no assurance that we will continue to generate cash flows at or above recent levels.
33
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2011, increased to $1.97 billion (or 34.1% of
sales) from $1.89 billion (or 35.0% of sales) for the same period one year ago, representing an increase of 5%. The increase in total
SG&A dollars was primarily the result of additional employees, facilities and vehicles to support our increased store count. The
decrease in SG&A as a percentage of sales was primarily the result of increased leverage of store occupancy and headquarters costs on
strong comparable store sales, improved store payroll efficiencies and positive trends related to health benefits, partially offset by
increased fuel costs for our store delivery vehicles supporting our growing commercial business.
Operating income:
Operating income for the year ended December 31, 2011, increased to $867 million (or 15.0% of sales) from $713 million (or 13.2%
of sales) for the same period one year ago, representing an increase of 22%. The increase in operating income during the year was
primarily due to the impacts discussed above, as well as $3 million of nonrecurring income in the current year related to a settlement
between the Securities and Exchange Commission (“SEC”) and a former CSK officer that resulted in the reimbursement to CSK of
incentive-based compensation and stock sale profits previously received by the officer (discussed in detail below – see Note 12 Legal
Matters to the Consolidated Financial Statements) versus a $21 million charge to operating income in the prior year, related to the
previously announced legacy United States Department of Justice (“DOJ”) investigation of CSK (discussed in detail below – see Note
12 Legal Matters to the Consolidated Financial Statements). The increase in operating income as a percentage of sales was the result
of our improvements in gross margin and significant leverage on fixed SG&A from strong comparable store sales.
Other income and expense:
Total other expense for the year ended December 31, 2011, increased to $51 million (or 0.9% of sales), from $23 million (or 0.4% of
sales) for the same period one year ago, representing an increase of 118%. The increase in total other expense for the year was
primarily due to one-time charges related to our new financing transactions that were completed in January of 2011 (discussed in
detail below), offset by decreased interest expense on a lower average interest rate on outstanding borrowings, a lower facility fee on
our revolving credit facility and less amortization of debt issuance costs in the current period as compared to the borrowing rates,
facility fee and amortization of debt issuance costs in the prior period. In addition, during 2010, we recognized a nonrecurring, non-
operating gain of $12 million related to the favorable settlement of a note receivable acquired in the acquisition of CSK (discussed in
Our provision for income taxes for the year ended December 31, 2011, increased to $308 million (37.8% effective tax rate) from $270
million (39.2% effective tax rate) for the same period in the prior year, representing an increase of 14%. The increase in our provision
for income taxes was due to the increase in our taxable income. The decrease in the effective rate was primarily the result of the $21
million charge recorded in 2010 related to the legacy CSK DOJ investigation, discussed in detail below, which was not deductible for
As a result of the impacts discussed above, net income for the year ended December 31, 2011, increased to $508 million (or 8.8% of
sales), from $419 million (or 7.8% of sales) for the same period in the prior year, representing an increase of 21%.
Our diluted earnings per common share for the year ended December 31, 2011, increased 26% to $3.71 on 137 million shares from
$2.95 on 142 million shares for the same period in the prior year. The impact of share repurchases during 2011 on diluted earnings
per share was an increase of approximately $0.19.
Adjustments for nonrecurring and non-operating events:
Our results for the year ended December 31, 2011, included nonrecurring income related to a settlement between the SEC and a
former CSK officer that resulted in the reimbursement to O’Reilly, as successor issuer to CSK for SEC purposes, of $3 million ($2
million, net of tax) of incentive-based compensation and stock sale profits previously received by the officer. This “clawback”
amount was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2011. Our
results for the year ended December 31, 2011, also included one-time charges associated with the new financing transactions we
completed on January 14, 2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs
related to our previous ABL Credit Facility in the amount of $22 million ($13 million, net of tax) and a charge related to the
termination of our interest rate swap agreements in the amount of $4 million ($3 million, net of tax). The charges related to our new
financing transactions were included in “Other income (expense)” on our Consolidated Statements of Income for the year ended
December 31, 2011. Our results for the year ended December 31, 2010, included a nonrecurring, non-operating gain in “Other income
(expense)” of $12 million ($7 million, net of tax) related to the favorable settlement of a note receivable acquired in the CSK
acquisition, as well as a charge related to the legacy DOJ investigation into CSK’s pre-acquisition historical accounting practices. We
accrued $21 million during 2010 in anticipation of executing a Non-Prosecution Agreement (“NPA”) among the DOJ, CSK and
O’Reilly and paying a one-time monetary penalty of $21 million. During the third quarter of 2011, the NPA was executed and the
previously recorded, one-time $21 million penalty was paid to the DOJ on behalf of CSK. The charge related to the legacy CSK DOJ
detail below).
Income taxes:
tax purposes.
Net income:
Earnings per share:
investigation was included in “Operating income” on our Consolidated Statements of Income for the year ended December 31, 2010.
The results discussed in the paragraph below are adjusted for these nonrecurring items and are reconciled to the most directly
comparable GAAP measure in the subsequent table.
Adjusted operating income for the year ended December 31, 2011, increased 18% to $864 million (or 14.9% of sales) from $734
million (or 13.6% of sales) for the same period one year ago. Adjusted net income for the year ended December 31, 2011, increased
21% to $522 million (or 9.0% of sales) from $433 million (or 8.0% of sales) for the same period in the prior year. Adjusted diluted
earnings per common share for the year ended December 31, 2011, increased 25% to $3.81 from $3.05 for the same period in the prior
year.
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GAAP Operating income
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Non-GAAP adjusted operating income
$ 866,766
(2,798)
-
$ 863,968
15.0 %
(0.1) %
- %
14.9 %
$
$
For the Year Ended December 31,
2011
Amount % of Sales
2010
Amount % of Sales
13.2 %
712,776
- %
-
0.4 %
20,900
13.6 %
733,676
GAAP net income
$
507,673
8.8 %
$
419,373
7.8 %
Write-off of asset-based revolving credit facility debt issuance costs, net
of tax
Termination of interest rate swap agreements, net of tax
Former CSK officer clawback, net of tax
Legacy CSK DOJ investigation charge
Gain on settlement of note receivable, net of tax
Non-GAAP adjusted net income
GAAP diluted earnings per common share
$
$
Write-off of asset-based revolving credit facility debt issuance costs, net
of tax
Termination of interest rate swap agreements, net of tax
Former CSK DOJ officer clawback, net of tax
Legacy CSK DOJ investigation charge
Gain on settlement of note receivable, net of tax
Non-GAAP adjusted diluted earnings per common share
$
13,458
2,637
(1,741)
-
-
522,027
3.71
0.09
0.02
(0.01)
-
-
3.81
0.2 %
- %
- %
- %
- %
9.0 %
-
-
-
20,900
(7,215)
433,058
- %
- %
- %
0.4 %
(0.2)%
8.0 %
2.95
-
-
-
0.15
(0.05)
3.05
$
$
$
Weighted-average common shares outstanding - assuming dilution
136,983
141,992
The financial information presented in the paragraph and table above is not derived in accordance with United States generally
accepted accounting principles (“GAAP”). We do not, nor do we suggest investors should, consider such non-GAAP financial
measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of financial results
and estimates excluding the impact of the non-cash charge to write off the balance of debt issuance costs, the charge related to the
termination of interest rate swap contracts, the former CSK officer clawback, the charges for the legacy CSK DOJ investigation and
the nonrecurring, non-operating gain related to the settlement of a note receivable acquired in the acquisition of CSK, provide
meaningful supplemental information to both management and investors, which is indicative of our core operations. We exclude these
items in judging our performance and believe this non-GAAP information is useful to investors as well. Material limitations of these
non-GAAP measures are that such measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting,
in the table above, the accompanying reconciliation to the most directly comparable GAAP measures.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure,
operate and maintain existing stores and may include the opportunistic repurchase of shares of our common stock through our Board-
approved share repurchase program. The primary sources of our liquidity are funds generated from operations and borrowed under
our Revolving Credit Facility. Decreased demand for our products or changes in customer buying patterns could negatively impact
our ability to generate funds from operations. Additionally, decreased demand or changes in buying patterns could impact our ability
to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our Revolving Credit
Facility. We believe that cash expected to be provided by operating activities and availability under our Revolving Credit Facility will
be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. However, there can be
no assurance that we will continue to generate cash flows at or above recent levels.
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Liquidity and related ratios:
The following table highlights our liquidity and related ratios as of December 31, 2012 and 2011 (dollars in millions):
Liquidity and Related Ratios
Current assets
Quick assets (1)
Current liabilities
Working capital (2)
Total debt
Total equity
Current ratio (3)
Quick ratio (4)
Debt to equity (5)
$
December 31,
2012
2011
Percentage
Change
2,733 $
429
2,273
460
1,096
2,108
1.20:1
0.20:1
0.52:1
2,608
565
1,580
1,028
798
2,845
1.65:1
0.39:1
0.28:1
4.8 %
(24.1)%
43.9 %
(55.3)%
37.3 %
(25.9)%
(27.3)%
(48.7)%
85.7 %
(1) Quick assets include cash, cash equivalents and receivables.
(2) Working capital is calculated as current assets less current liabilities.
(3) Current ratio is calculated as current assets divided by current liabilities.
(4) Quick ratio is calculated as current assets, less inventories, divided by current liabilities.
(5) Debt to equity is calculated as total debt divided by shareholders’ equity.
Current liabilities increased 44%, total debt increased 37% and total equity decreased 26% from 2011 to 2012. The increase in current
liabilities was primarily due to the increase in accounts payable as a result of the impact of our enhanced vendor financing program
and the additional vendor participation during the year. Our accounts payable to inventory ratio was 84.7% as of December 31, 2012,
as compared to 64.4% one year prior. The increase in total debt was attributable to the issuance of our unsecured $300 million
3.800% Senior Notes during 2012. The decrease in total equity resulted from the impact of repurchase activity under our share
repurchase program on additional paid-in-capital and retained earnings, partially offset by an increase in retained earnings from strong
net income for the year and an increase in additional paid-in-capital from the proceeds of stock option exercises, and related tax
benefits, executed under our director and employee share-based compensation plans.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended
December 30, 2012, 2011 and 2010 (in thousands):
Liquidity
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash and cash equivalents
Capital expenditures
Free cash flow (a)
For the Year Ended December 31,
2012
2011
2010
$
$
$
1,251,555
(317,407)
(1,047,572)
(113,424)
300,719
950,836
$
$
$
1,118,991
(319,653)
(467,507)
331,831
328,319
790,672
$
$
$
703,687
(351,277)
(349,624)
2,786
365,419
338,268
(a) Calculated as net cash provided by operating activities, less capital expenditures for the period.
Operating activities:
The increase in cash provided by operating activities in 2012 compared to 2011 was primarily due to the increase in net income for the
year (adjusted for the effect of non-cash depreciation and amortization charges and the one-time, non-cash charge to write off the
balance of debt issuance costs in conjunction with the retirement of our ABL Credit Facility in January of 2011), decreases in net
inventory investment and other assets and increases in income taxes payable (adjusted for the effect of non-cash change in deferred
income taxes and the excess tax benefit from stock options exercised) and other current liabilities. Net inventory investment reflects
our investment in inventory, net of the amount of accounts payable to vendors. Our net inventory investment continues to decrease as
a result of the impact of our enhanced vendor financing programs. Our vendor financing programs enable us to reduce overall supply
chain costs and negotiate extended payment terms with our vendors. Our accounts payable to inventory ratio was 84.7% and 64.4% at
December 31, 2012 and 2011, respectively. The decrease in other assets was primarily the result of the timing of payments from
vendors for receivables due to the Company under various programs. The increase in income taxes payable, adjusted for the non-cash
impacts discussed above, was primarily the result of the prepayment of income taxes during 2011. The increase in other current
liabilities was primarily the result of the payment, during 2011, for the one-time monetary penalty to the DOJ for the legacy CSK DOJ
investigation.
The increase in cash provided by operating activities in 2011 compared to 2010 was primarily due to strong net income for the year
(adjusted for the effect of non-cash depreciation and amortization charges, the one-time, non-cash charge to write off the balance of
debt issuance costs in conjunction with the retirement of our ABL Credit Facility in January of 2011 and deferred income taxes) and a
significant decrease in net inventory investment, partially offset by a decrease in other current liabilities (driven by the payment of the
one-time penalty to the DOJ for the legacy CSK DOJ investigation). Our net inventory investment significantly decreased as a result
of the impact of our enhanced vendor financing programs as well as our ongoing efforts to remove excess inventory from our systems.
Our accounts payable to inventory ratio was 64.4% and 44.3% at December 31, 2011 and 2010, respectively. Our efforts to remove
excess inventory from our systems resulted in a decrease in total inventory of $37 million during the year, despite the fact that we
opened 170 new stores during the year.
Investing activities:
The decrease in cash used in investing activities in 2012 compared to 2011 was primarily the result of decreased capital expenditures
during 2012, partially offset by small acquisitions during the year. Total capital expenditures were $301 million, $328 million, and
$365 million in 2012, 2011, and 2010, respectively. The decrease in capital expenditures during 2012, as compared to 2011, was
primarily related to the mix of owned versus leased stores opened. We were able to find real estate with attractive lease factors during
2012 and as a result, opened a larger number of leased locations during 2012 as compared to the year prior. Opening a new store in a
leased location requires a smaller capital investment than opening an owned location.
The decrease in cash used in investing activities in 2011 compared to 2010 was primarily the result of decreased capital expenditures.
During 2010, we completed the comprehensive expansion of our distribution system in the CSK markets and the conversion of the
CSK stores to the O’Reilly POS, resulting in reduced levels of conversion related capital expenditures during 2011.
We opened 180, 170, and 149 net, new stores in 2012, 2011, and 2010, respectively, and acquired 56 stores in 2012. We plan to open
190 net, new stores in 2013. The costs associated with the opening of a new store (including the cost of land acquisition,
improvements, fixtures, vehicles, net inventory investment and computer equipment) are estimated to average approximately $1.7
million to $1.9 million; however, such costs may be significantly reduced where we lease, rather than purchase, the store site.
Financing activities:
The increase in net cash used in financing activities during 2012 compared to 2011 was primarily attributable to the impact of
repurchases of our common stock during 2012, in accordance with our Board-approved share repurchase program and greater net
proceeds from the issuance of long-term debt during 2011, partially offset by an increase in the net proceeds from the exercise of stock
options issued under the Company’s incentive programs and the related tax benefits during 2012.
The increase in net cash used in financing activities during 2011 compared to 2010 is primarily attributable to the impact of
repurchases of our common stock during 2011 in accordance with our Board-approved share repurchase program, which was partially
offset by an increase in net long term borrowings in 2011 as compared to net repayments under our facilities during 2010. The net
borrowings in 2011 are the result of proceeds from the issuance of our 4.875% Senior Notes due 2021 and our 4.625% Senior Notes
due 2021 in January and September of 2011, respectively, partially offset by the repayment and termination of our previous ABL
Credit Facility and the payment of debt issuance costs related to the issuance of our senior notes and the establishment of our new
unsecured Revolving Credit Facility. The net repayments under our facilities in 2010 were the result of our focus on using available
cash on hand to reduce the level of outstanding borrowings under our secured ABL Credit Facility.
Credit facilities:
On January 14, 2011, we entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility
(“Revolving Credit Facility”) arranged by BA and Barclays Capital, which was scheduled to mature in January of 2016. During 2011,
we amended the unsecured Revolving Credit Facility, which decreased the facility to $660 million and reduced the fees and interest
rate margins for borrowings under the Revolving Credit Facility. The amendment also extended the maturity of the Revolving Credit
Facility to September of 2016. In conjunction with the amendment to the Revolving Credit Facility, we recognized a one-time charge
related to the modification to the credit facility in the amount of $0.3 million, which is included in “Other income (expense)” on the
accompanying Consolidated Statements of Income for the year ended December 31, 2011. The Revolving Credit Facility includes a
$200 million sub-limit for the issuance of letters of credit and a $75 million sub-limit for swing line borrowings. As described in the
credit agreement governing the Revolving Credit Facility, we may, from time to time subject to certain conditions, increase the
aggregate commitments under the Revolving Credit Facility by up to $200 million. We had stand-by letters of credit, primarily to
satisfy workers’ compensation, general liability and other insurance policies, in the amount of $57 million and $60 million as of
December 13, 2012 and 2011, respectively. As of December 31, 2012 and 2011, we had no outstanding borrowings under the
Revolving Credit Facility.
On July 11, 2008, we entered into a credit agreement for a five-year asset-based revolving credit facility, which was scheduled to
mature in July of 2013. At December 31, 2010, we had outstanding borrowings of $356 million under the ABL Credit Facility, of
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Liquidity and related ratios:
The following table highlights our liquidity and related ratios as of December 31, 2012 and 2011 (dollars in millions):
Liquidity and Related Ratios
Current assets
Quick assets (1)
Current liabilities
Working capital (2)
Total debt
Total equity
Current ratio (3)
Quick ratio (4)
Debt to equity (5)
December 31,
2012
2011
$
2,733 $
Percentage
Change
4.8 %
(24.1)%
43.9 %
(55.3)%
37.3 %
(25.9)%
(27.3)%
(48.7)%
85.7 %
2,608
565
1,580
1,028
798
2,845
1.65:1
0.39:1
0.28:1
429
2,273
460
1,096
2,108
1.20:1
0.20:1
0.52:1
(1) Quick assets include cash, cash equivalents and receivables.
(2) Working capital is calculated as current assets less current liabilities.
(3) Current ratio is calculated as current assets divided by current liabilities.
(4) Quick ratio is calculated as current assets, less inventories, divided by current liabilities.
(5) Debt to equity is calculated as total debt divided by shareholders’ equity.
Current liabilities increased 44%, total debt increased 37% and total equity decreased 26% from 2011 to 2012. The increase in current
liabilities was primarily due to the increase in accounts payable as a result of the impact of our enhanced vendor financing program
and the additional vendor participation during the year. Our accounts payable to inventory ratio was 84.7% as of December 31, 2012,
as compared to 64.4% one year prior. The increase in total debt was attributable to the issuance of our unsecured $300 million
3.800% Senior Notes during 2012. The decrease in total equity resulted from the impact of repurchase activity under our share
repurchase program on additional paid-in-capital and retained earnings, partially offset by an increase in retained earnings from strong
net income for the year and an increase in additional paid-in-capital from the proceeds of stock option exercises, and related tax
benefits, executed under our director and employee share-based compensation plans.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended
December 30, 2012, 2011 and 2010 (in thousands):
For the Year Ended December 31,
2012
2011
2010
$
$
$
1,251,555
$
1,118,991
(317,407)
(1,047,572)
(113,424)
$
(319,653)
(467,507)
331,831
300,719
950,836
$
328,319
790,672
$
$
$
703,687
(351,277)
(349,624)
2,786
365,419
338,268
(a) Calculated as net cash provided by operating activities, less capital expenditures for the period.
The increase in cash provided by operating activities in 2012 compared to 2011 was primarily due to the increase in net income for the
year (adjusted for the effect of non-cash depreciation and amortization charges and the one-time, non-cash charge to write off the
balance of debt issuance costs in conjunction with the retirement of our ABL Credit Facility in January of 2011), decreases in net
inventory investment and other assets and increases in income taxes payable (adjusted for the effect of non-cash change in deferred
income taxes and the excess tax benefit from stock options exercised) and other current liabilities. Net inventory investment reflects
our investment in inventory, net of the amount of accounts payable to vendors. Our net inventory investment continues to decrease as
a result of the impact of our enhanced vendor financing programs. Our vendor financing programs enable us to reduce overall supply
chain costs and negotiate extended payment terms with our vendors. Our accounts payable to inventory ratio was 84.7% and 64.4% at
December 31, 2012 and 2011, respectively. The decrease in other assets was primarily the result of the timing of payments from
vendors for receivables due to the Company under various programs. The increase in income taxes payable, adjusted for the non-cash
impacts discussed above, was primarily the result of the prepayment of income taxes during 2011. The increase in other current
Liquidity
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash and cash equivalents
Capital expenditures
Free cash flow (a)
Operating activities:
liabilities was primarily the result of the payment, during 2011, for the one-time monetary penalty to the DOJ for the legacy CSK DOJ
investigation.
The increase in cash provided by operating activities in 2011 compared to 2010 was primarily due to strong net income for the year
(adjusted for the effect of non-cash depreciation and amortization charges, the one-time, non-cash charge to write off the balance of
debt issuance costs in conjunction with the retirement of our ABL Credit Facility in January of 2011 and deferred income taxes) and a
significant decrease in net inventory investment, partially offset by a decrease in other current liabilities (driven by the payment of the
one-time penalty to the DOJ for the legacy CSK DOJ investigation). Our net inventory investment significantly decreased as a result
of the impact of our enhanced vendor financing programs as well as our ongoing efforts to remove excess inventory from our systems.
Our accounts payable to inventory ratio was 64.4% and 44.3% at December 31, 2011 and 2010, respectively. Our efforts to remove
excess inventory from our systems resulted in a decrease in total inventory of $37 million during the year, despite the fact that we
opened 170 new stores during the year.
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Investing activities:
The decrease in cash used in investing activities in 2012 compared to 2011 was primarily the result of decreased capital expenditures
during 2012, partially offset by small acquisitions during the year. Total capital expenditures were $301 million, $328 million, and
$365 million in 2012, 2011, and 2010, respectively. The decrease in capital expenditures during 2012, as compared to 2011, was
primarily related to the mix of owned versus leased stores opened. We were able to find real estate with attractive lease factors during
2012 and as a result, opened a larger number of leased locations during 2012 as compared to the year prior. Opening a new store in a
leased location requires a smaller capital investment than opening an owned location.
The decrease in cash used in investing activities in 2011 compared to 2010 was primarily the result of decreased capital expenditures.
During 2010, we completed the comprehensive expansion of our distribution system in the CSK markets and the conversion of the
CSK stores to the O’Reilly POS, resulting in reduced levels of conversion related capital expenditures during 2011.
We opened 180, 170, and 149 net, new stores in 2012, 2011, and 2010, respectively, and acquired 56 stores in 2012. We plan to open
190 net, new stores in 2013. The costs associated with the opening of a new store (including the cost of land acquisition,
improvements, fixtures, vehicles, net inventory investment and computer equipment) are estimated to average approximately $1.7
million to $1.9 million; however, such costs may be significantly reduced where we lease, rather than purchase, the store site.
Financing activities:
The increase in net cash used in financing activities during 2012 compared to 2011 was primarily attributable to the impact of
repurchases of our common stock during 2012, in accordance with our Board-approved share repurchase program and greater net
proceeds from the issuance of long-term debt during 2011, partially offset by an increase in the net proceeds from the exercise of stock
options issued under the Company’s incentive programs and the related tax benefits during 2012.
The increase in net cash used in financing activities during 2011 compared to 2010 is primarily attributable to the impact of
repurchases of our common stock during 2011 in accordance with our Board-approved share repurchase program, which was partially
offset by an increase in net long term borrowings in 2011 as compared to net repayments under our facilities during 2010. The net
borrowings in 2011 are the result of proceeds from the issuance of our 4.875% Senior Notes due 2021 and our 4.625% Senior Notes
due 2021 in January and September of 2011, respectively, partially offset by the repayment and termination of our previous ABL
Credit Facility and the payment of debt issuance costs related to the issuance of our senior notes and the establishment of our new
unsecured Revolving Credit Facility. The net repayments under our facilities in 2010 were the result of our focus on using available
cash on hand to reduce the level of outstanding borrowings under our secured ABL Credit Facility.
Credit facilities:
On January 14, 2011, we entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility
(“Revolving Credit Facility”) arranged by BA and Barclays Capital, which was scheduled to mature in January of 2016. During 2011,
we amended the unsecured Revolving Credit Facility, which decreased the facility to $660 million and reduced the fees and interest
rate margins for borrowings under the Revolving Credit Facility. The amendment also extended the maturity of the Revolving Credit
Facility to September of 2016. In conjunction with the amendment to the Revolving Credit Facility, we recognized a one-time charge
related to the modification to the credit facility in the amount of $0.3 million, which is included in “Other income (expense)” on the
accompanying Consolidated Statements of Income for the year ended December 31, 2011. The Revolving Credit Facility includes a
$200 million sub-limit for the issuance of letters of credit and a $75 million sub-limit for swing line borrowings. As described in the
credit agreement governing the Revolving Credit Facility, we may, from time to time subject to certain conditions, increase the
aggregate commitments under the Revolving Credit Facility by up to $200 million. We had stand-by letters of credit, primarily to
satisfy workers’ compensation, general liability and other insurance policies, in the amount of $57 million and $60 million as of
December 13, 2012 and 2011, respectively. As of December 31, 2012 and 2011, we had no outstanding borrowings under the
Revolving Credit Facility.
On July 11, 2008, we entered into a credit agreement for a five-year asset-based revolving credit facility, which was scheduled to
mature in July of 2013. At December 31, 2010, we had outstanding borrowings of $356 million under the ABL Credit Facility, of
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which $106 million were not covered under an interest rate swap contract. All outstanding borrowings under the ABL Credit Facility
were repaid, and all related interest rate swap transaction contracts were terminated on January 14, 2011, and the ABL Credit Facility
was retired concurrent with the issuance of our 4.875% Senior Notes due 2021, as further described below. In conjunction with the
retirement of our ABL Credit Facility, we recognized a one-time non-cash charge to write off the balance of debt issuance costs
related to the ABL Credit Facility in the amount of $22 million and a one-time charge related to the termination of our interest rate
swap contracts in the amount of $4 million, which are included in “Other income (expense)” on the accompanying Consolidated
Statements of Income for the year ended December 31, 2011.
Senior Notes:
4.875% Senior Notes due 2021:
On January 14, 2011, we issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021 (“4.875%
Senior Notes due 2021”) at a price to the public of 99.297% of their face value with United Missouri Bank, N.A. (“UMB”) as trustee.
Interest on the 4.875% Senior Notes due 2021 is payable on January 14 and July 14 of each year, which began on July 14, 2011, and is
computed on the basis of a 360-day year.
4.625% Senior Notes due 2021:
On September 19, 2011, we issued $300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021 (“4.625%
Senior Notes due 2021”) at a price to the public of 99.826% of their face value with UMB as trustee. Interest on the 4.625% Senior
Notes due 2021 is payable on March 15 and September 15 of each year, which began on March 15, 2012, and is computed on the basis
of a 360-day year.
3.800% Senior Notes due 2022
On August 21, 2012, we issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due 2022 (“3.800%
Senior Notes due 2022”) at a price to the public of 99.627% of their face value with UMB as trustee. Interest on the 3.800% Senior
Notes due 2022 is payable on March 1 and September 1 of each year, beginning on March 1, 2013, and is computed on the basis of a
360-day year. The net proceeds from the issuance of the 3.800% Senior Notes due 2022 were used to pay fees and expenses related to
the offering, with the remainder intended to be used to repay borrowings outstanding from time to time under the Revolving Credit
Facility and for general corporate purposes, including share repurchases.
The senior notes are guaranteed on a senior unsecured basis by each of our subsidiaries (“Subsidiary Guarantors”) that incurs or
guarantees our obligations under our Revolving Credit Facility or certain of our other debt or any of our Subsidiary Guarantors. The
guarantees are joint and several and full and unconditional, subject to certain customary automatic release provisions, including
release of the subsidiary guarantor’s guarantee under our Credit Agreement and certain other debt, or, in certain circumstances, the
sales or other disposition of a majority of the voting power of the capital interest in, or of all or substantially all of the property of, the
subsidiary guarantor. Each of the Subsidiary Guarantors is wholly-owned, directly or indirectly, by us and we have no independent
assets or operations other than those of our subsidiaries. Our only direct or indirect subsidiaries that would not be Subsidiary
Guarantors would be minor subsidiaries. Neither we, nor any of our Subsidiary Guarantors, are subject to any material or significant
restrictions on our ability to obtain funds from our subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except
as provided by applicable law. Each of our senior notes is subject to certain customary covenants, with which we complied as of
December 31, 2012.
Debt covenants:
The indentures governing our senior notes contain covenants that limit our ability and the ability of certain of our subsidiaries to,
among other things: (i) create certain liens on assets to secure certain debt; (ii) enter into certain sale and leaseback transactions; and
(iii) merge or consolidate with another company or transfer all or substantially all of our or its property, in each case as set forth in the
indentures. These covenants are, however, subject to a number of important limitations and exceptions.
The Credit Agreement contains covenants, including limitations on total outstanding borrowings under the Revolving Credit Facility,
a minimum consolidated fixed charge coverage ratio of 2.00 times through December 31, 2012; 2.25 times through December 31,
2014; 2.50 times through maturity; and a maximum adjusted consolidated leverage ratio of 3.00 times through maturity. The
consolidated leverage ratio includes a calculation of adjusted earnings before interest, taxes, depreciation, amortization, rent and stock
option compensation expense (“EBITDAR”) to adjusted debt. Adjusted debt includes outstanding debt, outstanding stand-by letters of
credit, six-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In
the event that we should default on any covenant contained within the Credit Agreement, certain actions may be taken against us,
including but not limited to possible termination of credit extensions, immediate payment of outstanding principal amount plus
accrued interest and litigation from our lenders. We had a fixed charge coverage ratio of 4.95 times and 4.86 times as of December
31, 2012 and 2011, respectively, and an adjusted debt to adjusted EBITDAR ratio of 1.83 times and 1.75 times as of December 31,
2012 and 2011, respectively, remaining in compliance with all covenants related to the borrowing arrangements. Under our current
financing plan, we have targeted an adjusted debt to adjusted EBITDAR ratio range of 2.00 times to 2.25 times.
36
The table below outlines the calculations of the fixed charge coverage ratio and adjusted debt to adjusted EBITDAR ratio covenants,
as defined in the Credit Agreement governing the Revolving Credit Facility, for the twelve months ended December 31, 2012 and
2011 (dollars in thousands):
GAAP net income
Add:
Interest expense
Rent expense
Provision for income taxes
Depreciation expense
Amortization expense
Non-cash share-based compensation
Write-off of asset-based revolving credit facility debt issuance costs
Non-GAAP adjusted net income (EBITDAR)
Interest expense
Capitalized interest
Rent expense
Total fixed charges
Fixed charge coverage ratio
GAAP debt
Stand-by letters of credit
Discount on senior notes
Six-times rent expense
Non-GAAP adjusted debt
Adjusted consolidated leverage ratio
For the Year Ended December 31,
2012
2011
$
585,746
$
507,673
40,200
240,869
355,775
176,705
401
22,026
-
1,421,722
40,200
6,064
240,869
287,133
4.95
1,095,956
57,281
4,366
1,445,214
2,602,817
1.83
$
$
$
$
$
28,165
230,897
308,100
164,579
1,301
20,579
21,626
1,282,920
28,165
4,666
230,897
263,728
4.86
797,574
59,917
3,683
1,385,382
2,246,556
1.75
$
$
$
$
$
The fixed charge coverage ratio and adjusted debt to adjusted EBITDAR ratio discussed and presented in the table above are not
derived in accordance with U.S. GAAP. We do not, nor do we suggest investors should, consider such non-GAAP financial measures
in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of our fixed charge coverage
ratio, adjusted debt to adjusted EBITDAR and free cash flow provides meaningful supplemental information to both management and
investors that reflects the required covenants under our credit agreement. We include these items in judging our performance and
believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such
measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the table above, the
accompanying reconciliation to the most directly comparable GAAP measures.
Share repurchase program:
Under our share repurchase program, as approved by our Board of Directors, we may, from time to time, repurchase shares of our
common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety
of factors such as price, corporate trading policy requirements and overall market conditions. We may increase or otherwise modify,
renew, suspend or terminate the share repurchase program at any time, without prior notice. During 2012, our Board of Directors
approved resolutions to increase the cumulative authorization amount to $3.0 billion. The most recent $500 million authorization is
effective for a three-year period and expires November 12, 2015. Each prior $500 million authorization was effective for a three-year
period beginning on the date of the additional authorization.
The following table identifies shares of the Company’s common stock that have been repurchased as part of our publicly announced
share repurchase program (in thousands, except per share data):
Shares repurchased
Average price per share
Total investment
For the Year Ended December 31,
2012
2011
16,201
89.20 $
1,445,044 $
15,877
61.49
976,322
$
$
37
Senior Notes:
4.875% Senior Notes due 2021:
computed on the basis of a 360-day year.
4.625% Senior Notes due 2021:
of a 360-day year.
3.800% Senior Notes due 2022
which $106 million were not covered under an interest rate swap contract. All outstanding borrowings under the ABL Credit Facility
were repaid, and all related interest rate swap transaction contracts were terminated on January 14, 2011, and the ABL Credit Facility
was retired concurrent with the issuance of our 4.875% Senior Notes due 2021, as further described below. In conjunction with the
retirement of our ABL Credit Facility, we recognized a one-time non-cash charge to write off the balance of debt issuance costs
related to the ABL Credit Facility in the amount of $22 million and a one-time charge related to the termination of our interest rate
swap contracts in the amount of $4 million, which are included in “Other income (expense)” on the accompanying Consolidated
Statements of Income for the year ended December 31, 2011.
On January 14, 2011, we issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021 (“4.875%
Senior Notes due 2021”) at a price to the public of 99.297% of their face value with United Missouri Bank, N.A. (“UMB”) as trustee.
Interest on the 4.875% Senior Notes due 2021 is payable on January 14 and July 14 of each year, which began on July 14, 2011, and is
On September 19, 2011, we issued $300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021 (“4.625%
Senior Notes due 2021”) at a price to the public of 99.826% of their face value with UMB as trustee. Interest on the 4.625% Senior
Notes due 2021 is payable on March 15 and September 15 of each year, which began on March 15, 2012, and is computed on the basis
On August 21, 2012, we issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due 2022 (“3.800%
Senior Notes due 2022”) at a price to the public of 99.627% of their face value with UMB as trustee. Interest on the 3.800% Senior
Notes due 2022 is payable on March 1 and September 1 of each year, beginning on March 1, 2013, and is computed on the basis of a
360-day year. The net proceeds from the issuance of the 3.800% Senior Notes due 2022 were used to pay fees and expenses related to
the offering, with the remainder intended to be used to repay borrowings outstanding from time to time under the Revolving Credit
Facility and for general corporate purposes, including share repurchases.
The senior notes are guaranteed on a senior unsecured basis by each of our subsidiaries (“Subsidiary Guarantors”) that incurs or
guarantees our obligations under our Revolving Credit Facility or certain of our other debt or any of our Subsidiary Guarantors. The
guarantees are joint and several and full and unconditional, subject to certain customary automatic release provisions, including
release of the subsidiary guarantor’s guarantee under our Credit Agreement and certain other debt, or, in certain circumstances, the
sales or other disposition of a majority of the voting power of the capital interest in, or of all or substantially all of the property of, the
subsidiary guarantor. Each of the Subsidiary Guarantors is wholly-owned, directly or indirectly, by us and we have no independent
assets or operations other than those of our subsidiaries. Our only direct or indirect subsidiaries that would not be Subsidiary
Guarantors would be minor subsidiaries. Neither we, nor any of our Subsidiary Guarantors, are subject to any material or significant
restrictions on our ability to obtain funds from our subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except
as provided by applicable law. Each of our senior notes is subject to certain customary covenants, with which we complied as of
December 31, 2012.
Debt covenants:
The indentures governing our senior notes contain covenants that limit our ability and the ability of certain of our subsidiaries to,
among other things: (i) create certain liens on assets to secure certain debt; (ii) enter into certain sale and leaseback transactions; and
(iii) merge or consolidate with another company or transfer all or substantially all of our or its property, in each case as set forth in the
indentures. These covenants are, however, subject to a number of important limitations and exceptions.
The Credit Agreement contains covenants, including limitations on total outstanding borrowings under the Revolving Credit Facility,
a minimum consolidated fixed charge coverage ratio of 2.00 times through December 31, 2012; 2.25 times through December 31,
2014; 2.50 times through maturity; and a maximum adjusted consolidated leverage ratio of 3.00 times through maturity. The
consolidated leverage ratio includes a calculation of adjusted earnings before interest, taxes, depreciation, amortization, rent and stock
option compensation expense (“EBITDAR”) to adjusted debt. Adjusted debt includes outstanding debt, outstanding stand-by letters of
credit, six-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In
the event that we should default on any covenant contained within the Credit Agreement, certain actions may be taken against us,
including but not limited to possible termination of credit extensions, immediate payment of outstanding principal amount plus
accrued interest and litigation from our lenders. We had a fixed charge coverage ratio of 4.95 times and 4.86 times as of December
31, 2012 and 2011, respectively, and an adjusted debt to adjusted EBITDAR ratio of 1.83 times and 1.75 times as of December 31,
2012 and 2011, respectively, remaining in compliance with all covenants related to the borrowing arrangements. Under our current
financing plan, we have targeted an adjusted debt to adjusted EBITDAR ratio range of 2.00 times to 2.25 times.
36
k
-
0
1
M
R
O
F
The table below outlines the calculations of the fixed charge coverage ratio and adjusted debt to adjusted EBITDAR ratio covenants,
as defined in the Credit Agreement governing the Revolving Credit Facility, for the twelve months ended December 31, 2012 and
2011 (dollars in thousands):
GAAP net income
Add:
Interest expense
Rent expense
Provision for income taxes
Depreciation expense
Amortization expense
Non-cash share-based compensation
Write-off of asset-based revolving credit facility debt issuance costs
Non-GAAP adjusted net income (EBITDAR)
Interest expense
Capitalized interest
Rent expense
Total fixed charges
Fixed charge coverage ratio
GAAP debt
Stand-by letters of credit
Discount on senior notes
Six-times rent expense
Non-GAAP adjusted debt
Adjusted consolidated leverage ratio
For the Year Ended December 31,
2011
2012
$
585,746
$
507,673
40,200
240,869
355,775
176,705
401
22,026
-
1,421,722
40,200
6,064
240,869
287,133
4.95
1,095,956
57,281
4,366
1,445,214
2,602,817
1.83
$
$
$
$
$
28,165
230,897
308,100
164,579
1,301
20,579
21,626
1,282,920
28,165
4,666
230,897
263,728
4.86
797,574
59,917
3,683
1,385,382
2,246,556
1.75
$
$
$
$
$
The fixed charge coverage ratio and adjusted debt to adjusted EBITDAR ratio discussed and presented in the table above are not
derived in accordance with U.S. GAAP. We do not, nor do we suggest investors should, consider such non-GAAP financial measures
in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of our fixed charge coverage
ratio, adjusted debt to adjusted EBITDAR and free cash flow provides meaningful supplemental information to both management and
investors that reflects the required covenants under our credit agreement. We include these items in judging our performance and
believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such
measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the table above, the
accompanying reconciliation to the most directly comparable GAAP measures.
Share repurchase program:
Under our share repurchase program, as approved by our Board of Directors, we may, from time to time, repurchase shares of our
common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety
of factors such as price, corporate trading policy requirements and overall market conditions. We may increase or otherwise modify,
renew, suspend or terminate the share repurchase program at any time, without prior notice. During 2012, our Board of Directors
approved resolutions to increase the cumulative authorization amount to $3.0 billion. The most recent $500 million authorization is
effective for a three-year period and expires November 12, 2015. Each prior $500 million authorization was effective for a three-year
period beginning on the date of the additional authorization.
The following table identifies shares of the Company’s common stock that have been repurchased as part of our publicly announced
share repurchase program (in thousands, except per share data):
Shares repurchased
Average price per share
Total investment
For the Year Ended December 31,
2012
2011
16,201
89.20 $
1,445,044 $
15,877
61.49
976,322
$
$
37
Subsequent to the end of the year and through the date of this filing, we repurchased an additional 2.1 million shares of our common
stock under our share repurchase program at an average price of $90.09 for a total investment of $186 million. We have repurchased a
total of 34.1 million shares of our common stock under our share repurchase program since the inception of the program in January of
2011 through and including February 28, 2013, at an average price of $76.37 for a total aggregate investment of $2.6 billion.
F
O
R
M
1
0
-
k
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2012, included commitments for short and long-term debt arrangements, interest
payments related to long-term debt, future payments under non-cancelable lease arrangements, self-insurance reserves and purchase
obligations for construction contract commitments, which are identified in the table below and are fully disclosed in Note 5 “Leasing”
and Note 11 “Commitments” to the Consolidated Financial Statements. We expect to fund these commitments primarily with
operating cash flows expected to be generated in the normal course of business or through borrowings under our Revolving Credit
Facility.
Deferred income taxes, which is included in “Other liabilities” on our Consolidated Balance Sheets, as well as commitments with
various vendors for the purchase of inventory, are not reflected in the table below due to the absence of scheduled maturities, the
nature of the account or the commitment’s cancellation terms. Due to the absence of scheduled maturities, the timing of certain of
these payments cannot be determined, except for amounts estimated to be payable in 2013, which are included in “Current liabilities”
on our Consolidated Balance Sheets.
Payments Due By Period
Total
Before
1 Year
1 to 2
Years
(In thousands)
3 to 4
Years
Years 5
and Over
Contractual Obligations:
Long-term debt principal and interest payments (1)
Future minimum lease payments under capital leases (2)
Future minimum lease payments under operating leases
(2)
Other obligations
Self-insurance reserves (3)
Construction commitments
Total contractual cash obligations
$ 1,546,063
$
49,650
$
99,300
$
99,300
$ 1,297,813
336
234
102
-
-
1,843,100
2,400
122,866
89,305
$ 3,604,070
240,040
600
54,191
89,305
434,020
429,833
1,200
34,424
-
$ 564,859
332,437
600
18,042
-
$ 450,379
840,790
-
16,209
-
$ 2,154,812
$
(1) Our Revolving Credit Facility, which has a maximum aggregate commitment of $660 million and matures in September of 2016, bears interest (other than
swing line loans), at our option, at either the Base Rate or Eurodollar Rate (both as defined in the agreement) plus a margin, that will vary from 0.975% to
1.600% in the case of loans bearing interest at the Eurodollar Rate and 0.000% to 0.600% in the case of loans bearing interest at the Base Rate, in each case
based upon the better of the ratings assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services, subject to limited
exceptions. Swing line loans made under the Revolving Credit Facility bear interest at the Base Rate plus the applicable margin described above. In
addition, we pay a facility fee on the aggregate amount of the commitments in an amount equal to a percentage of such commitments, varying from 0.150%
to 0.400% based upon the better of the ratings assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services, subject to
limited exceptions. Based on our current credit ratings, our margin for Base Rate loans is 0.200%, our margin for Eurodollar Rate loans is 1.200% and our
facility fee is 0.175%. As of December 31, 2012, we had no outstanding borrowings under our Revolving Credit Facility.
(2) The minimum lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our
operating leases but are generally not fixed and can fluctuate from year to year. These expenses historically average approximately 20% of the
corresponding lease payments.
(3) We use various self-insurance mechanisms to provide for potential liabilities from workers’ compensation, vehicle and general liability, and employee health
care benefits. The self-insurance reserves above are at the undiscounted obligation amount. The self-insurance reserves liabilities are recorded on our
Consolidated Balance Sheets at our estimate of their net present value and do not have scheduled maturities, however we can estimate the timing of future
payments based upon historical patterns.
We record a reserve for potential liabilities related to uncertain tax positions, including estimated interest and penalties, which are
fully disclosed in Note 14 “Income Taxes” to the Consolidated Financial Statements. These estimates are not included in the above
table because the timing related to the ultimate resolution or settlement of these positions cannot be determined. As of December 31,
2012, we recorded a liability of $59 million related to these uncertain tax positions on our Consolidated Balance Sheets, all of which
was included as a component of “Other liabilities”.
OFF-BALANCE SHEET ARRANGEMENTS
Off-balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for
which we have an obligation to the entity that is not recorded in our consolidated financial statements. We have historically utilized
various off-balance sheet financial instruments, including sale-leaseback and synthetic lease transactions, but we have not entered into
38
any such transactions for over five years and do not plan to utilize off-balance sheet arrangements in the future to fund our working
capital requirements, operations or growth plans.
We issue stand-by letters of credit provided by a $200 million sub limit under the Revolving Credit Facility that reduce our available
borrowings under the Revolving Credit Facility. Those letters of credit are issued primarily to satisfy the requirements of workers
compensation, general liability and other insurance policies. Substantially all of the outstanding letters of credit have a one-year term
from the date of issuance. Letters of credit totaling $57 million and $60 million were outstanding at December 31, 2012 and 2011,
respectively.
Other than in connection with executing operating leases, we do not have any off-balance sheet financing that has, or is reasonably
likely to have, a material, current or future effect on our financial condition, cash flows, results of operations, liquidity, capital
expenditures or capital resources. See “Contractual Obligations” and Note 11 “Commitments” to the Consolidated Financial
Statements for information on our operating leases.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by
management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends and other factors
believed to be relevant at the time the consolidated financial statements are prepared. Management believes that the following policies
are critical due to the inherent uncertainty of these matters and the complex and subjective judgments required to establish these
estimates. Management continues to review these critical accounting policies and estimates to ensure that the consolidated financial
statements are presented fairly in accordance with GAAP. However, actual results could differ from our assumptions and estimates
and such differences could be material.
•
Inventory Obsolescence and Shrink – Inventory, which consists of automotive hard parts, maintenance items, accessories and
tools, is stated at the lower of cost or market. The extended nature of the life cycle of our products is such that the risk of
obsolescence of our inventory is minimal. The products that we sell generally have applications in our markets for a relatively
long period of time in conjunction with the corresponding vehicle population. We have developed sophisticated systems for
monitoring the life cycle of a given product and, accordingly, have historically been very successful in adjusting the volume of
our inventory in conjunction with a decrease in demand. We do record a reserve to reduce the carrying value of our inventory
through a charge to cost of sales in the isolated instances where we believe that the market value of a product line is lower than
our recorded cost. This reserve is based on our assumptions about the marketability of our existing inventory and is subject to
uncertainty to the extent that we must estimate, at a given point in time, the market value of inventory that will be sold in future
periods. Ultimately, our projections could differ from actual results and could result in a material impact to our stated inventory
balances. We have historically not had to materially adjust our obsolescence reserves due to the factors discussed above and do
not anticipate that we will experience material changes in our estimates in the future.
We also record a reserve to reduce the carrying value of our perpetual inventory to account for quantities in our perpetual records
above the actual existing quantities on hand caused by unrecorded shrink. We estimate this reserve based on the results of our
extensive and frequent cycle counting programs and periodic, full physical inventories at our stores and DCs. To the extent that
our estimates do not accurately reflect the actual unrecorded inventory shrinkage, we could potentially experience a material
impact to our inventory balances. We have historically been able to provide a timely and accurate measurement of shrink and
have not experienced material adjustments to our estimates. If unrecorded shrink changed 10% from the estimate that we
recorded based on our historical experience at December 31, 2012, the financial impact would have been approximately $1
million or 0.1% of pretax income for the year ended December 31, 2012.
• Accounts Receivable – We provide credit to our commercial customers in the ordinary course of business. We estimate the
allowance for doubtful accounts on these receivables based on historical loss ratios and other relevant factors. Actual results have
consistently been within management’s expectations, and we do not believe there is a reasonable likelihood that there will be a
material change in the future that will require a significant change in the assumptions or estimates we use to calculate our
allowance for doubtful accounts. However, if actual results differ from our estimates, we may be exposed to losses or gains. If
the allowance for doubtful accounts were changed 10% from our estimated allowance at December 31, 2012, the financial impact
would have been approximately $1 million or 0.1% of pretax income for the year ended December 31, 2012.
• Valuation of Long-Lived Assets and Goodwill - We evaluate the carrying value of long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. As part of
the evaluation, we review performance at the store level to identify any stores with current period operating losses that should be
considered for impairment. A potential impairment has occurred if the projected future undiscounted cash flows realized from the
best possible use of the asset are less than the carrying value of the asset. The estimate of cash flows includes management’s
assumptions of cash inflows and outflows directly resulting from the use of that asset in operations. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of
39
Subsequent to the end of the year and through the date of this filing, we repurchased an additional 2.1 million shares of our common
stock under our share repurchase program at an average price of $90.09 for a total investment of $186 million. We have repurchased a
total of 34.1 million shares of our common stock under our share repurchase program since the inception of the program in January of
2011 through and including February 28, 2013, at an average price of $76.37 for a total aggregate investment of $2.6 billion.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2012, included commitments for short and long-term debt arrangements, interest
payments related to long-term debt, future payments under non-cancelable lease arrangements, self-insurance reserves and purchase
obligations for construction contract commitments, which are identified in the table below and are fully disclosed in Note 5 “Leasing”
and Note 11 “Commitments” to the Consolidated Financial Statements. We expect to fund these commitments primarily with
operating cash flows expected to be generated in the normal course of business or through borrowings under our Revolving Credit
Facility.
Deferred income taxes, which is included in “Other liabilities” on our Consolidated Balance Sheets, as well as commitments with
various vendors for the purchase of inventory, are not reflected in the table below due to the absence of scheduled maturities, the
nature of the account or the commitment’s cancellation terms. Due to the absence of scheduled maturities, the timing of certain of
these payments cannot be determined, except for amounts estimated to be payable in 2013, which are included in “Current liabilities”
on our Consolidated Balance Sheets.
Payments Due By Period
Total
Before
1 Year
1 to 2
Years
3 to 4
Years
Years 5
and Over
(In thousands)
Future minimum lease payments under capital leases (2)
Future minimum lease payments under operating leases
Contractual Obligations:
(2)
Other obligations
Self-insurance reserves (3)
Construction commitments
Long-term debt principal and interest payments (1)
$ 1,546,063
$
49,650
$
99,300
$
99,300
$ 1,297,813
336
234
102
-
-
1,843,100
240,040
429,833
332,437
2,400
122,866
89,305
600
54,191
89,305
1,200
34,424
-
600
18,042
-
840,790
-
16,209
-
$ 2,154,812
Total contractual cash obligations
$ 3,604,070
$
434,020
$ 564,859
$ 450,379
(1) Our Revolving Credit Facility, which has a maximum aggregate commitment of $660 million and matures in September of 2016, bears interest (other than
swing line loans), at our option, at either the Base Rate or Eurodollar Rate (both as defined in the agreement) plus a margin, that will vary from 0.975% to
1.600% in the case of loans bearing interest at the Eurodollar Rate and 0.000% to 0.600% in the case of loans bearing interest at the Base Rate, in each case
based upon the better of the ratings assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services, subject to limited
exceptions. Swing line loans made under the Revolving Credit Facility bear interest at the Base Rate plus the applicable margin described above. In
addition, we pay a facility fee on the aggregate amount of the commitments in an amount equal to a percentage of such commitments, varying from 0.150%
to 0.400% based upon the better of the ratings assigned to our debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services, subject to
limited exceptions. Based on our current credit ratings, our margin for Base Rate loans is 0.200%, our margin for Eurodollar Rate loans is 1.200% and our
facility fee is 0.175%. As of December 31, 2012, we had no outstanding borrowings under our Revolving Credit Facility.
(2) The minimum lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our
operating leases but are generally not fixed and can fluctuate from year to year. These expenses historically average approximately 20% of the
corresponding lease payments.
(3) We use various self-insurance mechanisms to provide for potential liabilities from workers’ compensation, vehicle and general liability, and employee health
care benefits. The self-insurance reserves above are at the undiscounted obligation amount. The self-insurance reserves liabilities are recorded on our
Consolidated Balance Sheets at our estimate of their net present value and do not have scheduled maturities, however we can estimate the timing of future
payments based upon historical patterns.
We record a reserve for potential liabilities related to uncertain tax positions, including estimated interest and penalties, which are
fully disclosed in Note 14 “Income Taxes” to the Consolidated Financial Statements. These estimates are not included in the above
table because the timing related to the ultimate resolution or settlement of these positions cannot be determined. As of December 31,
2012, we recorded a liability of $59 million related to these uncertain tax positions on our Consolidated Balance Sheets, all of which
was included as a component of “Other liabilities”.
OFF-BALANCE SHEET ARRANGEMENTS
Off-balance sheet arrangements are transactions, agreements, or other contractual arrangements with an unconsolidated entity for
which we have an obligation to the entity that is not recorded in our consolidated financial statements. We have historically utilized
various off-balance sheet financial instruments, including sale-leaseback and synthetic lease transactions, but we have not entered into
any such transactions for over five years and do not plan to utilize off-balance sheet arrangements in the future to fund our working
capital requirements, operations or growth plans.
We issue stand-by letters of credit provided by a $200 million sub limit under the Revolving Credit Facility that reduce our available
borrowings under the Revolving Credit Facility. Those letters of credit are issued primarily to satisfy the requirements of workers
compensation, general liability and other insurance policies. Substantially all of the outstanding letters of credit have a one-year term
from the date of issuance. Letters of credit totaling $57 million and $60 million were outstanding at December 31, 2012 and 2011,
respectively.
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Other than in connection with executing operating leases, we do not have any off-balance sheet financing that has, or is reasonably
likely to have, a material, current or future effect on our financial condition, cash flows, results of operations, liquidity, capital
expenditures or capital resources. See “Contractual Obligations” and Note 11 “Commitments” to the Consolidated Financial
Statements for information on our operating leases.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by
management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends and other factors
believed to be relevant at the time the consolidated financial statements are prepared. Management believes that the following policies
are critical due to the inherent uncertainty of these matters and the complex and subjective judgments required to establish these
estimates. Management continues to review these critical accounting policies and estimates to ensure that the consolidated financial
statements are presented fairly in accordance with GAAP. However, actual results could differ from our assumptions and estimates
and such differences could be material.
•
Inventory Obsolescence and Shrink – Inventory, which consists of automotive hard parts, maintenance items, accessories and
tools, is stated at the lower of cost or market. The extended nature of the life cycle of our products is such that the risk of
obsolescence of our inventory is minimal. The products that we sell generally have applications in our markets for a relatively
long period of time in conjunction with the corresponding vehicle population. We have developed sophisticated systems for
monitoring the life cycle of a given product and, accordingly, have historically been very successful in adjusting the volume of
our inventory in conjunction with a decrease in demand. We do record a reserve to reduce the carrying value of our inventory
through a charge to cost of sales in the isolated instances where we believe that the market value of a product line is lower than
our recorded cost. This reserve is based on our assumptions about the marketability of our existing inventory and is subject to
uncertainty to the extent that we must estimate, at a given point in time, the market value of inventory that will be sold in future
periods. Ultimately, our projections could differ from actual results and could result in a material impact to our stated inventory
balances. We have historically not had to materially adjust our obsolescence reserves due to the factors discussed above and do
not anticipate that we will experience material changes in our estimates in the future.
We also record a reserve to reduce the carrying value of our perpetual inventory to account for quantities in our perpetual records
above the actual existing quantities on hand caused by unrecorded shrink. We estimate this reserve based on the results of our
extensive and frequent cycle counting programs and periodic, full physical inventories at our stores and DCs. To the extent that
our estimates do not accurately reflect the actual unrecorded inventory shrinkage, we could potentially experience a material
impact to our inventory balances. We have historically been able to provide a timely and accurate measurement of shrink and
have not experienced material adjustments to our estimates. If unrecorded shrink changed 10% from the estimate that we
recorded based on our historical experience at December 31, 2012, the financial impact would have been approximately $1
million or 0.1% of pretax income for the year ended December 31, 2012.
• Accounts Receivable – We provide credit to our commercial customers in the ordinary course of business. We estimate the
allowance for doubtful accounts on these receivables based on historical loss ratios and other relevant factors. Actual results have
consistently been within management’s expectations, and we do not believe there is a reasonable likelihood that there will be a
material change in the future that will require a significant change in the assumptions or estimates we use to calculate our
allowance for doubtful accounts. However, if actual results differ from our estimates, we may be exposed to losses or gains. If
the allowance for doubtful accounts were changed 10% from our estimated allowance at December 31, 2012, the financial impact
would have been approximately $1 million or 0.1% of pretax income for the year ended December 31, 2012.
• Valuation of Long-Lived Assets and Goodwill - We evaluate the carrying value of long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. As part of
the evaluation, we review performance at the store level to identify any stores with current period operating losses that should be
considered for impairment. A potential impairment has occurred if the projected future undiscounted cash flows realized from the
best possible use of the asset are less than the carrying value of the asset. The estimate of cash flows includes management’s
assumptions of cash inflows and outflows directly resulting from the use of that asset in operations. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of
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the asset exceeds the fair value of the assets. Our impairment analyses contain estimates due to the inherently judgmental nature
of forecasting long-term estimated cash flows and determining the ultimate useful lives and fair values of the assets. Actual
results could differ from these estimates, which could materially impact our impairment assessment.
We review goodwill for impairment annually during the fourth quarter, or when events or changes in circumstances indicate the
carrying value of these assets might exceed their current fair values. We have not historically recorded an impairment to
goodwill. The process of evaluating goodwill for impairment involves the determination of the fair value of our Company using
the market approach. Inherent in such fair value determinations are certain judgments and estimates, including estimates which
incorporate assumptions marketplace participants would use in making their estimates of fair value. In the future, if events or
market conditions affect the estimated fair value to the extent that an asset is impaired, we will adjust the carrying value of these
assets in the period in which the impairment occurs, however, we do not believe there has been any change of events or
circumstances that would indicate that a reevaluation of goodwill is required as of December 31, 2012, nor do we believe
goodwill is at risk of failing impairment testing. If the price of O’Reilly stock, which was a primary input used to determine our
market capitalization during step one of goodwill impairment testing, changed by 10% from the value used during testing, the
results and our conclusions would not have changed and no further steps would have been required.
• Vendor Concessions – We receive concessions from our vendors through a variety of programs and arrangements, including co-
operative advertising, allowances for warranties, merchandise allowances and volume purchase rebates. Co-operative advertising
allowances that are incremental to our advertising program, specific to a product or event and identifiable for accounting
purposes, are reported as a reduction of advertising expense in the period in which the advertising occurred. All other material
vendor concessions are recognized as a reduction to the cost of inventory. Amounts receivable from vendors also include
amounts due to us relating to vendor purchases and product returns. Management regularly reviews amounts receivable from
vendors and assesses the need for a reserve for uncollectible amounts based on our evaluation of our vendors’ financial position
and corresponding ability to meet their financial obligations. Based on our historical results and current assessment, we have not
recorded a reserve for uncollectible amounts in our consolidated financial statements, and we do not believe there is a reasonable
likelihood that our ability to collect these amounts will differ from our expectations. The eventual ability of our vendors to pay us
the obliged amounts could differ from our assumptions and estimates, and we may be exposed to losses or gains that could be
material.
• Warranty Reserves – We offer warranties on certain merchandise we sell with warranty periods ranging from 30 days to limited
lifetime warranties. The risk of loss arising from warranty claims is typically the obligation of our vendors. Certain vendors
provide upfront allowances to us in lieu of accepting the obligation for warranty claims. For this merchandise, when sold, we
bear the risk of loss associated with the cost of warranty claims. Differences between vendor allowances received in lieu of
warranty obligations and estimated warranty expense are recorded as an adjustment to cost of sales. Estimated warranty costs,
which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product line. Our
historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims
has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims.
If warranty reserves were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been
approximately $3 million or 0.3% of pretax income for the year ended December 31, 2012.
• Self-Insurance Reserves – We use a combination of insurance and self-insurance mechanisms to provide for potential liabilities
from workers’ compensation, general liability, vehicle liability, property loss, and Team Member health care benefits. With the
exception of certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial
litigation and certain regulatory matters, we obtain third-party insurance coverage to limit our exposure for any individual
workers’ compensation, general liability, vehicle liability or property loss claim. When estimating our self-insurance liabilities,
we consider a number of factors, including historical claims experience and trend-lines, projected medical and legal inflation, and
growth patterns and exposure forecasts. The assumptions made by management as they relate to each of these factors represent
our judgment as to the most probable cumulative impact of each factor to our future obligations. Our calculation of self-insurance
liabilities requires management to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but
not yet reported as of the balance sheet date and the application of alternative assumptions could result in a different estimate of
these liabilities. Actual claim activity or development may vary from our assumptions and estimates, which may result in
material losses or gains. As we obtain additional information that affects the assumptions and estimates we used to recognize
liabilities for claims incurred in prior accounting periods, we adjust our self-insurance liabilities to reflect the revised estimates
based on this additional information. These liabilities are recorded at our estimate of their net present value, using a credit-
adjusted discount rate. These liabilities do not have scheduled maturities, but we can estimate the timing of future payments
based upon historical patterns. We could apply alternative assumptions regarding the timing of payments or the applicable
discount rate that could result in materially different estimates of the net present value of the liabilities. If self-insurance reserves
were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $11
million or 1.2% of pretax income for the year ended December 31, 2012.
• Closed Property Reserves – We maintain reserves for closed stores and other properties that are no longer utilized in current
operations. We accrue for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present
value of the remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing
date, net of estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease
terms. We estimate sublease income and future cash flows based on our experience and knowledge of the market in which the
closed property is located, our previous efforts to dispose of similar assets and existing economic conditions. Adjustments to
closed property reserves are made to reflect changes in estimated sublease income or actual exit costs from original estimates.
Adjustments are made for changes in estimates in the period in which the changes become known. If closed property reserves
were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $1
million or 0.1% of pretax income for the year ended December 31, 2012.
• Legal Reserves – We maintain reserves for expenses associated with litigation for which O’Reilly is currently involved. We are
currently involved in litigation incidental to the ordinary conduct of our business. We resolved the governmental investigations
and litigation that were being conducted against CSK and certain of CSK’s former employees for alleged conduct relating to
periods prior to the acquisition date. As a result of the acquisition, we incurred legal fees and costs related to such investigations,
litigation and indemnity obligations. Our legal reserve was principally recorded as an assumed liability in our allocation of the
purchase price of CSK. Management, with the assistance of outside legal counsel, must make estimates of potential legal
obligations and possible liabilities arising from such litigation and records reserves for these expenditures. If legal reserves were
changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $2 million
or 0.2% of pretax income for the year ended December 31, 2012.
• Taxes – We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve
complex issues, which may require an extended period of time to resolve. We regularly review our potential tax liabilities for tax
years subject to audit. The amount of such liabilities is based on various factors, such as differing interpretations of tax
regulations by the responsible tax authority, experience with previous tax audits and applicable tax law rulings. Changes in our
tax liability may occur in the future as our assessments change based on the progress of tax examinations in various jurisdictions
and/or changes in tax regulations. In management’s opinion, adequate provisions for income taxes have been made for all years
presented. The estimates of our potential tax liabilities contain uncertainties because management must use judgment to estimate
the exposures associated with our various tax positions and actual results could differ from our estimates. Alternatively, we could
have applied assumptions regarding the eventual outcome of the resolution of open tax positions that could differ from our current
estimates but that would still be reasonable given the nature of a particular position. While our estimates are subject to the
uncertainty noted in the preceding discussion, our initial estimates of our potential tax liabilities have historically not been
materially different from actual results except in instances where we have reversed liabilities that were recorded for periods that
were subsequently closed with the applicable taxing authority.
INFLATION AND SEASONALITY
For the last three fiscal years, we have been successful, in many cases, in reducing the effects of merchandise cost increases
principally by taking advantage of vendor incentive programs, economies of scale resulting from increased volume of purchases and
selective forward buying. To the extent our acquisition cost increased due to base commodity price increases industry-wide, we have
typically been able to pass along these increased costs through higher retail prices for the affected products. As a result, we do not
believe our operations have been materially, adversely affected by inflation.
To some extent, our business is seasonal primarily as a result of the impact of weather conditions on customer buying patterns. While
we have historically realized operating profits in each quarter of the year, our store sales and profits have historically been higher in
the second and third quarters (April through September) than in the first and fourth quarters (October through March) of the year.
QUARTERLY RESULTS
The following table sets forth certain quarterly unaudited operating data for fiscal 2012 and 2011. 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 therein.
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the asset exceeds the fair value of the assets. Our impairment analyses contain estimates due to the inherently judgmental nature
of forecasting long-term estimated cash flows and determining the ultimate useful lives and fair values of the assets. Actual
results could differ from these estimates, which could materially impact our impairment assessment.
We review goodwill for impairment annually during the fourth quarter, or when events or changes in circumstances indicate the
carrying value of these assets might exceed their current fair values. We have not historically recorded an impairment to
goodwill. The process of evaluating goodwill for impairment involves the determination of the fair value of our Company using
the market approach. Inherent in such fair value determinations are certain judgments and estimates, including estimates which
incorporate assumptions marketplace participants would use in making their estimates of fair value. In the future, if events or
market conditions affect the estimated fair value to the extent that an asset is impaired, we will adjust the carrying value of these
assets in the period in which the impairment occurs, however, we do not believe there has been any change of events or
circumstances that would indicate that a reevaluation of goodwill is required as of December 31, 2012, nor do we believe
goodwill is at risk of failing impairment testing. If the price of O’Reilly stock, which was a primary input used to determine our
market capitalization during step one of goodwill impairment testing, changed by 10% from the value used during testing, the
results and our conclusions would not have changed and no further steps would have been required.
• Vendor Concessions – We receive concessions from our vendors through a variety of programs and arrangements, including co-
operative advertising, allowances for warranties, merchandise allowances and volume purchase rebates. Co-operative advertising
allowances that are incremental to our advertising program, specific to a product or event and identifiable for accounting
purposes, are reported as a reduction of advertising expense in the period in which the advertising occurred. All other material
vendor concessions are recognized as a reduction to the cost of inventory. Amounts receivable from vendors also include
amounts due to us relating to vendor purchases and product returns. Management regularly reviews amounts receivable from
vendors and assesses the need for a reserve for uncollectible amounts based on our evaluation of our vendors’ financial position
and corresponding ability to meet their financial obligations. Based on our historical results and current assessment, we have not
recorded a reserve for uncollectible amounts in our consolidated financial statements, and we do not believe there is a reasonable
likelihood that our ability to collect these amounts will differ from our expectations. The eventual ability of our vendors to pay us
the obliged amounts could differ from our assumptions and estimates, and we may be exposed to losses or gains that could be
material.
• Warranty Reserves – We offer warranties on certain merchandise we sell with warranty periods ranging from 30 days to limited
lifetime warranties. The risk of loss arising from warranty claims is typically the obligation of our vendors. Certain vendors
provide upfront allowances to us in lieu of accepting the obligation for warranty claims. For this merchandise, when sold, we
bear the risk of loss associated with the cost of warranty claims. Differences between vendor allowances received in lieu of
warranty obligations and estimated warranty expense are recorded as an adjustment to cost of sales. Estimated warranty costs,
which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product line. Our
historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims
has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims.
If warranty reserves were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been
approximately $3 million or 0.3% of pretax income for the year ended December 31, 2012.
• Self-Insurance Reserves – We use a combination of insurance and self-insurance mechanisms to provide for potential liabilities
from workers’ compensation, general liability, vehicle liability, property loss, and Team Member health care benefits. With the
exception of certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial
litigation and certain regulatory matters, we obtain third-party insurance coverage to limit our exposure for any individual
workers’ compensation, general liability, vehicle liability or property loss claim. When estimating our self-insurance liabilities,
we consider a number of factors, including historical claims experience and trend-lines, projected medical and legal inflation, and
growth patterns and exposure forecasts. The assumptions made by management as they relate to each of these factors represent
our judgment as to the most probable cumulative impact of each factor to our future obligations. Our calculation of self-insurance
liabilities requires management to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but
not yet reported as of the balance sheet date and the application of alternative assumptions could result in a different estimate of
these liabilities. Actual claim activity or development may vary from our assumptions and estimates, which may result in
material losses or gains. As we obtain additional information that affects the assumptions and estimates we used to recognize
liabilities for claims incurred in prior accounting periods, we adjust our self-insurance liabilities to reflect the revised estimates
based on this additional information. These liabilities are recorded at our estimate of their net present value, using a credit-
adjusted discount rate. These liabilities do not have scheduled maturities, but we can estimate the timing of future payments
based upon historical patterns. We could apply alternative assumptions regarding the timing of payments or the applicable
discount rate that could result in materially different estimates of the net present value of the liabilities. If self-insurance reserves
were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $11
million or 1.2% of pretax income for the year ended December 31, 2012.
• Closed Property Reserves – We maintain reserves for closed stores and other properties that are no longer utilized in current
operations. We accrue for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present
value of the remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing
date, net of estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease
terms. We estimate sublease income and future cash flows based on our experience and knowledge of the market in which the
closed property is located, our previous efforts to dispose of similar assets and existing economic conditions. Adjustments to
closed property reserves are made to reflect changes in estimated sublease income or actual exit costs from original estimates.
Adjustments are made for changes in estimates in the period in which the changes become known. If closed property reserves
were changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $1
million or 0.1% of pretax income for the year ended December 31, 2012.
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• Legal Reserves – We maintain reserves for expenses associated with litigation for which O’Reilly is currently involved. We are
currently involved in litigation incidental to the ordinary conduct of our business. We resolved the governmental investigations
and litigation that were being conducted against CSK and certain of CSK’s former employees for alleged conduct relating to
periods prior to the acquisition date. As a result of the acquisition, we incurred legal fees and costs related to such investigations,
litigation and indemnity obligations. Our legal reserve was principally recorded as an assumed liability in our allocation of the
purchase price of CSK. Management, with the assistance of outside legal counsel, must make estimates of potential legal
obligations and possible liabilities arising from such litigation and records reserves for these expenditures. If legal reserves were
changed 10% from our estimated reserves at December 31, 2012, the financial impact would have been approximately $2 million
or 0.2% of pretax income for the year ended December 31, 2012.
• Taxes – We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve
complex issues, which may require an extended period of time to resolve. We regularly review our potential tax liabilities for tax
years subject to audit. The amount of such liabilities is based on various factors, such as differing interpretations of tax
regulations by the responsible tax authority, experience with previous tax audits and applicable tax law rulings. Changes in our
tax liability may occur in the future as our assessments change based on the progress of tax examinations in various jurisdictions
and/or changes in tax regulations. In management’s opinion, adequate provisions for income taxes have been made for all years
presented. The estimates of our potential tax liabilities contain uncertainties because management must use judgment to estimate
the exposures associated with our various tax positions and actual results could differ from our estimates. Alternatively, we could
have applied assumptions regarding the eventual outcome of the resolution of open tax positions that could differ from our current
estimates but that would still be reasonable given the nature of a particular position. While our estimates are subject to the
uncertainty noted in the preceding discussion, our initial estimates of our potential tax liabilities have historically not been
materially different from actual results except in instances where we have reversed liabilities that were recorded for periods that
were subsequently closed with the applicable taxing authority.
INFLATION AND SEASONALITY
For the last three fiscal years, we have been successful, in many cases, in reducing the effects of merchandise cost increases
principally by taking advantage of vendor incentive programs, economies of scale resulting from increased volume of purchases and
selective forward buying. To the extent our acquisition cost increased due to base commodity price increases industry-wide, we have
typically been able to pass along these increased costs through higher retail prices for the affected products. As a result, we do not
believe our operations have been materially, adversely affected by inflation.
To some extent, our business is seasonal primarily as a result of the impact of weather conditions on customer buying patterns. While
we have historically realized operating profits in each quarter of the year, our store sales and profits have historically been higher in
the second and third quarters (April through September) than in the first and fourth quarters (October through March) of the year.
QUARTERLY RESULTS
The following table sets forth certain quarterly unaudited operating data for fiscal 2012 and 2011. 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 therein.
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Item 8. Financial Statements and Supplementary Data
Index
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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Comparable store sales
Sales
Gross profit
Operating income
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Comparable store sales
Sales
Gross profit
Former CSK officer clawback
Operating income
Write-off of debt issuance costs
Termination of interest rate swap agreements
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Fiscal 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
6.1%
1,529,392
761,680
247,501
147,492
1.16
1.14
$
$
$
2.5%
1,562,849
779,861
243,603
146,120
1.17
1.15
$
$
$
Fiscal 2011
1.3%
1,601,558
805,493
263,318
159,332
1.34
1.32
$
$
$
4.2%
1,488,385
750,384
222,971
132,802
1.16
1.14
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
5.7%
1,382,738
669,781
-
196,437
(21,626)
(4,237)
102,474
0.73
0.72
$
$
$
4.4%
1,479,318
718,661
-
222,368
-
-
133,772
0.97
0.96
$
$
$
4.8%
1,535,453
754,210
-
241,050
-
-
148,439
1.12
1.10
$
$
$
3.3%
1,391,307
694,697
(2,798)
206,911
-
-
122,988
0.96
0.94
$
$
$
$
$
$
RECENT ACCOUNTING PRONOUNCEMENTS
In February of 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ( “ASU 2013-02”). Under ASU 2013-02, an
entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”)
by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant
amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02
does not change the current requirements for reporting net income or other comprehensive income in the financial statements. We
plan to adopt this guidance beginning with our first quarter ended March 31, 2013; the application of this guidance affects presentation
only and therefore, is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to interest rate risk to the extent we borrow against our unsecured revolving credit facility (the “Revolving Credit
Facility”) with variable interest rates based on either a Base Rate or Eurodollar Rate, as defined in the credit agreement governing the
Revolving Credit Facility. Historically, we had entered into interest rate swap contracts to mitigate our exposure to interest rate risks
associated with borrowings against our previous credit facility with variable interest rates, however, as of December 31, 2012, we did
not have any interest rate swap contracts and had no outstanding borrowings under our Revolving Credit Facility.
We had outstanding fixed rate debt of $1.10 billion and $0.80 billion as of December 31, 2012 and 2011, respectively. The fair value
of our fixed rate debt was estimated at $1.20 billion and $0.85 billion as of December 31, 2012 and 2011, respectively, which was
determined by reference to quoted market prices.
We invest certain of our excess cash balances in short-term, highly-liquid instruments with maturities of 90 days or less. We do not
expect any material losses from our invested cash balances and we believe that our interest rate exposure is minimal. As of December
31, 2012, our cash and cash equivalents totaled $248 million.
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Item 8. Financial Statements and Supplementary Data
Index
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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Earnings per share – basic
Earnings per share – assuming dilution
1.16
1.14
$
$
1.17
1.15
$
$
1.34
1.32
$
$
Comparable store sales
Sales
Gross profit
Operating income
Net income
Comparable store sales
Sales
Gross profit
Former CSK officer clawback
Operating income
Write-off of debt issuance costs
Termination of interest rate swap agreements
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Fiscal 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
6.1%
2.5%
1,529,392
$
1,562,849
$
1,601,558
$
761,680
247,501
147,492
779,861
243,603
146,120
1.3%
805,493
263,318
159,332
Fiscal 2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
5.7%
4.4%
4.8%
$
1,382,738
$
1,479,318
$
1,535,453
$
669,781
-
196,437
(21,626)
(4,237)
102,474
718,661
754,210
222,368
241,050
-
-
-
-
-
-
133,772
148,439
0.73
0.72
$
$
0.97
0.96
$
$
1.12
1.10
$
$
4.2%
1,488,385
750,384
222,971
132,802
1.16
1.14
3.3%
1,391,307
694,697
(2,798)
206,911
-
-
122,988
0.96
0.94
$
$
$
$
$
RECENT ACCOUNTING PRONOUNCEMENTS
In February of 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ( “ASU 2013-02”). Under ASU 2013-02, an
entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”)
by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant
amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02
does not change the current requirements for reporting net income or other comprehensive income in the financial statements. We
plan to adopt this guidance beginning with our first quarter ended March 31, 2013; the application of this guidance affects presentation
only and therefore, is not expected to have an impact on our consolidated financial condition, results of operations or cash flows.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to interest rate risk to the extent we borrow against our unsecured revolving credit facility (the “Revolving Credit
Facility”) with variable interest rates based on either a Base Rate or Eurodollar Rate, as defined in the credit agreement governing the
Revolving Credit Facility. Historically, we had entered into interest rate swap contracts to mitigate our exposure to interest rate risks
associated with borrowings against our previous credit facility with variable interest rates, however, as of December 31, 2012, we did
not have any interest rate swap contracts and had no outstanding borrowings under our Revolving Credit Facility.
We had outstanding fixed rate debt of $1.10 billion and $0.80 billion as of December 31, 2012 and 2011, respectively. The fair value
of our fixed rate debt was estimated at $1.20 billion and $0.85 billion as of December 31, 2012 and 2011, respectively, which was
determined by reference to quoted market prices.
We invest certain of our excess cash balances in short-term, highly-liquid instruments with maturities of 90 days or less. We do not
expect any material losses from our invested cash balances and we believe that our interest rate exposure is minimal. As of December
31, 2012, our cash and cash equivalents totaled $248 million.
42
43
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F
O
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M
1
0
-
k
The management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”), under the supervision and with the participation of
the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) or 15(d)-
15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes all policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control – Integrated Framework. Based on this assessment, management believes that as of
December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, as stated in their
report which is included herein.
/s/ Greg Henslee
Greg Henslee
President & Chief Executive Officer
February 28, 2013
/s/ Thomas McFall
Thomas McFall
Executive Vice President of Finance &
Chief Financial Officer
February 28, 2013
The Board of Directors and Shareholders of O’Reilly Automotive, Inc. and Subsidiaries
We have audited O’Reilly Automotive, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2012, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). O’Reilly Automotive, Inc. and Subsidiaries’ management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, O’Reilly Automotive, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive
income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012, of O’Reilly
Automotive, Inc. and Subsidiaries and our report dated February 28, 2013, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2013
44
45
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”), under the supervision and with the participation of
the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) or 15(d)-
15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes all policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control – Integrated Framework. Based on this assessment, management believes that as of
December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, as stated in their
report which is included herein.
/s/ Greg Henslee
Greg Henslee
President & Chief Executive Officer
February 28, 2013
/s/ Thomas McFall
Thomas McFall
Chief Financial Officer
February 28, 2013
Executive Vice President of Finance &
k
-
0
1
M
R
O
F
The Board of Directors and Shareholders of O’Reilly Automotive, Inc. and Subsidiaries
We have audited O’Reilly Automotive, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2012, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). O’Reilly Automotive, Inc. and Subsidiaries’ management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, O’Reilly Automotive, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive
income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012, of O’Reilly
Automotive, Inc. and Subsidiaries and our report dated February 28, 2013, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2013
44
45
F
O
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1
0
-
k
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of 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,
2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2012 and 2011, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), O’Reilly
Automotive, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2013, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2013
Consolidated Balance Sheets
(In thousands, except share data)
December 31,
2012
2011
Accounts receivable, less allowance for doubtful accounts of $6,447 in
$
248,128
$
361,552
Assets
Current assets:
Cash and cash equivalents
2012 and $6,403 in 2011
Amounts receivable from vendors
Inventory
Other current assets
Total current assets
Property and equipment, at cost
Less: accumulated depreciation and amortization
Net property and equipment
Notes receivable, less current portion
Goodwill
Other assets, net
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Self-insurance reserves
Accrued payroll
Deferred income taxes
Income taxes payable
Other current liabilities
Accrued benefits and withholdings
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 – 245,000,000
Issued and outstanding shares –
112,963,413 as of December 31, 2012, and
127,179,792 as of December 31, 2011
Additional paid-in capital
Retained earnings
Total shareholders’ equity
5,749,187
$
$
$
1,929,112
$
1,279,294
122,989
58,185
2,276,331
27,315
2,732,948
3,269,570
1,057,980
2,211,590
5,347
758,410
40,892
54,190
60,120
42,417
19,472
5,932
161,400
222
2,272,865
1,095,734
79,544
192,737
135,149
68,604
1,985,748
56,557
2,607,610
3,026,996
933,229
2,093,767
10,889
743,907
44,328
5,500,501
53,155
52,465
41,512
1,990
-
150,932
662
1,580,010
796,912
88,864
189,864
-
-
1,130
1,083,910
1,023,267
2,108,307
1,272
1,110,105
1,733,474
2,844,851
46
See accompanying Notes to consolidated financial statements.
47
Total liabilities and shareholders’ equity
$
5,749,187
$
5,500,501
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of 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,
2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2012 and 2011, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), O’Reilly
Automotive, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2013, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2013
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $6,447 in
2012 and $6,403 in 2011
Amounts receivable from vendors
Inventory
Other current assets
Total current assets
Property and equipment, at cost
Less: accumulated depreciation and amortization
Net property and equipment
Notes receivable, less current portion
Goodwill
Other assets, net
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Self-insurance reserves
Accrued payroll
Accrued benefits and withholdings
Deferred income taxes
Income taxes payable
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 – 245,000,000
Issued and outstanding shares –
112,963,413 as of December 31, 2012, and
127,179,792 as of December 31, 2011
Additional paid-in capital
Retained earnings
Total shareholders’ equity
December 31,
2012
2011
k
-
0
1
M
R
O
F
$
248,128
$
361,552
$
$
122,989
58,185
2,276,331
27,315
2,732,948
3,269,570
1,057,980
2,211,590
5,347
758,410
40,892
5,749,187
1,929,112
54,190
60,120
42,417
19,472
5,932
161,400
222
2,272,865
1,095,734
79,544
192,737
$
$
135,149
68,604
1,985,748
56,557
2,607,610
3,026,996
933,229
2,093,767
10,889
743,907
44,328
5,500,501
1,279,294
53,155
52,465
41,512
1,990
-
150,932
662
1,580,010
796,912
88,864
189,864
-
-
1,130
1,083,910
1,023,267
2,108,307
1,272
1,110,105
1,733,474
2,844,851
46
See accompanying Notes to consolidated financial statements.
47
Total liabilities and shareholders’ equity
$
5,749,187
$
5,500,501
Consolidated Statements of Income
(In thousands, except per share data)
Consolidated Statements of Comprehensive Income
(In thousands)
F
O
R
M
1
0
-
k
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Operating income
Other income (expense):
Interest expense
Interest income
Write-off of asset-based revolving credit facility debt issuance costs
Termination of interest rate swap agreements
Gain on settlement of note receivable
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share-basic:
Earnings per share
Weighted-average common shares outstanding – basic
Earnings per share-assuming dilution:
Earnings per share
Weighted-average common shares outstanding – assuming dilution
$
$
$
$
For the Year Ended December 31,
2011
5,788,816 $
2,951,467
2,837,349
2012
6,182,184
3,084,766
3,097,418
2010
5,397,525
2,776,533
2,620,992
$
Components of comprehensive income:
Net income
Unrealized losses on cash flow hedges, net of tax
Reclassification adjustment for unrealized losses on cash flow hedges, net of tax,
2,120,025
-
-
977,393
1,973,381
(2,798)
-
866,766
1,887,316
-
20,900
712,776
included in net income
Other comprehensive income
Total comprehensive income
See accompanying Notes to consolidated financial statements.
(40,200)
2,441
-
-
-
1,887
(35,872)
(28,165)
2,245
(21,626)
(4,237)
-
790
(50,993)
(39,273)
1,941
-
-
11,639
2,290
(23,403)
941,521
815,773
689,373
355,775
585,746
$
308,100
507,673 $
270,000
419,373
4.83
$
3.77 $
121,182
134,667
3.02
138,654
4.75
$
3.71 $
123,314
136,983
2.95
141,992
For the Year Ended December 31,
2012
2011
2010
$
585,746 $
507,673 $
419,373
-
-
-
-
2,970
2,970
4,992
-
4,992
$
585,746 $
510,643 $
424,365
See accompanying Notes to consolidated financial statements.
48
49
Consolidated Statements of Income
(In thousands, except per share data)
Consolidated Statements of Comprehensive Income
(In thousands)
For the Year Ended December 31,
2011
2012
2010
k
-
0
1
M
R
O
F
$
585,746 $
507,673 $
-
419,373
4,992
-
-
-
$
585,746 $
2,970
2,970
510,643 $
-
4,992
424,365
Components of comprehensive income:
Net income
Unrealized losses on cash flow hedges, net of tax
Reclassification adjustment for unrealized losses on cash flow hedges, net of tax,
included in net income
Other comprehensive income
Total comprehensive income
See accompanying Notes to consolidated financial statements.
Sales
Gross profit
Cost of goods sold, including warehouse and distribution expenses
Selling, general and administrative expenses
Former CSK officer clawback
Legacy CSK DOJ investigation charge
Operating income
Write-off of asset-based revolving credit facility debt issuance costs
Termination of interest rate swap agreements
Gain on settlement of note receivable
Other income (expense):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share-basic:
Earnings per share
Weighted-average common shares outstanding – basic
Earnings per share-assuming dilution:
Earnings per share
Weighted-average common shares outstanding – assuming dilution
See accompanying Notes to consolidated financial statements.
For the Year Ended December 31,
$
$
5,788,816 $
977,393
866,766
2012
6,182,184
3,084,766
3,097,418
2,120,025
-
-
-
-
-
(40,200)
2,441
1,887
(35,872)
2011
2,951,467
2,837,349
1,973,381
(2,798)
-
(28,165)
2,245
(21,626)
(4,237)
-
790
(50,993)
2010
5,397,525
2,776,533
2,620,992
1,887,316
-
20,900
712,776
(39,273)
1,941
-
-
11,639
2,290
(23,403)
941,521
815,773
689,373
355,775
585,746
308,100
$
507,673 $
270,000
419,373
4.83
$
3.77 $
121,182
134,667
3.02
138,654
4.75
$
3.71 $
123,314
136,983
2.95
141,992
$
$
$
48
49
Balance at December 31, 2010
141,026
$ 1,410
$
1,141,749
$ 2,069,496
$
(2,970)
$ 3,209,685
507,673
-
507,673
Consolidated Statements of Shareholders' Equity
(In thousands)
Consolidated Statements of Cash Flows
(In thousands)
F
O
R
M
1
0
-
k
Common Stock
Shares Par Value
Additional Paid-In
Capital
Retained
Earnings
Accumulated Other
Comprehensive Income (Loss)
Total
Balance at December 31, 2009
137,468
$ 1,375
$
1,042,329
$ 1,650,123
$
(7,962)
$ 2,685,865
419,373
-
419,373
Net income
Unrealized losses on cash flow hedge, net of
tax of $3,215
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
-
-
-
-
-
-
194
2
7,860
Net issuance of common stock upon exercise
of stock options
2,332
23
Excess tax benefit of stock options exercised
Share based compensation
-
-
-
-
Exchange of exchangeable notes by holders
1,032
10
56,827
18,419
16,052
262
Net income
Reclassification adjustment for unrealized
losses on cash flow hedge, net of tax of
$1,875, included in net income
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
Net issuance of common stock upon exercise
of stock options
Excess tax benefit of stock options exercised
Share based compensation
-
-
170
1,861
-
-
-
-
2
19
-
-
-
-
9,037
50,290
22,885
18,922
Share repurchases, including fees
(15,877)
(159)
(132,778)
(843,695)
Balance at December 31, 2011
127,180
$ 1,272
$
1,110,105
$ 1,733,474
$
Net income
-
-
-
585,746
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
Net issuance of common stock upon exercise
of stock options
Excess tax benefit of stock options exercised
Share based compensation
124
1,860
-
-
1
19
-
-
9,552
54,857
38,572
19,996
-
-
-
-
Share repurchases, including fees
(16,201)
(162)
(149,172)
(1,295,953)
Balance at December 31, 2012
112,963
$ 1,130
$
1,083,910
$ 1,023,267
$
See accompanying Notes to consolidated financial statements.
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, equipment and intangibles
For the Year Ended December 31,
2012
2011
2010
$
585,746
$
507,673
$
419,373
-
-
-
-
-
-
-
-
-
-
-
4,992
4,992
Amortization of debt premium, discount and issuance costs
-
-
-
-
-
7,862
56,850
18,419
16,052
272
Write-off of asset-based revolving credit facility debt issuance costs
Excess tax benefit from stock options exercised
Deferred income taxes
Gain on settlement of note receivable
Share-based compensation programs
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Accounts payable
Income taxes payable
Accrued payroll
Other
177,106
1,788
(38,631)
8,162
-
-
22,026
7,464
4,404
(276,904)
645,706
71,346
7,655
5,464
30,223
1,251,555
3,044
4,157
(23,889)
(317,407)
-
-
298,881
(2,376)
(935)
(1,445,287)
38,631
63,514
(1,047,572)
(113,424)
361,552
248,128
165,880
1,797
21,626
(22,985)
54,120
-
20,579
8,292
(21,219)
37,740
383,632
(8,625)
(269)
1,500
(30,750)
1,118,991
2,715
5,435
516
(319,653)
42,400
(398,400)
795,963
(9,942)
(1,443)
(976,632)
22,985
57,562
(467,507)
331,831
29,721
361,552
(300,719)
(328,319)
161,442
7,852
-
(18,587)
99,257
(11,639)
16,973
6,893
(21,748)
(110,271)
82,574
15,346
9,939
8,930
37,353
703,687
(365,419)
2,124
17,364
(5,346)
(351,277)
548,700
(871,500)
-
-
-
(108,527)
18,587
63,116
(349,624)
2,786
26,935
29,721
2,970
2,970
Accrued benefits and withholdings
-
-
-
-
-
-
-
-
-
-
-
-
-
9,039
50,309
22,885
18,922
(976,632)
$ 2,844,851
585,746
9,553
54,876
38,572
19,996
(1,445,287)
$ 2,108,307
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Payments received on notes receivable
Other
Net cash used in investing activities
Financing activities:
Proceeds from borrowings on asset-based revolving credit facility
Payments on asset-based revolving credit facility
Proceeds from the issuance of long-term debt
Payment of debt issuance costs
Principal payments on debt and capital leases
Repurchases of common stock
Excess tax benefit from stock options exercised
Net proceeds from issuance of common stock
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Income taxes paid
Interest paid, net of capitalized interest
$
$
$
$
$
$
274,637
34,655
252,769
13,350
154,146
31,211
See accompanying Notes to consolidated financial statements.
50
51
Consolidated Statements of Shareholders' Equity
(In thousands)
Consolidated Statements of Cash Flows
(In thousands)
Common Stock
Shares Par Value
Capital
Comprehensive Income (Loss)
Total
Additional Paid-In
Accumulated Other
Retained
Earnings
Balance at December 31, 2009
137,468
$ 1,375
$
1,042,329
$ 1,650,123
$
(7,962)
$ 2,685,865
419,373
-
419,373
4,992
4,992
Balance at December 31, 2010
141,026
$ 1,410
$
1,141,749
$ 2,069,496
$
(2,970)
$ 3,209,685
507,673
507,673
2,970
2,970
7,862
56,850
18,419
16,052
272
9,039
50,309
22,885
18,922
(976,632)
$ 2,844,851
585,746
9,553
54,876
38,572
19,996
(1,445,287)
$ 2,108,307
194
2
7,860
-
-
-
-
-
-
-
-
-
Net income
tax of $3,215
Unrealized losses on cash flow hedge, net of
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
Net issuance of common stock upon exercise
of stock options
2,332
23
Excess tax benefit of stock options exercised
Share based compensation
Exchange of exchangeable notes by holders
1,032
10
Net income
Reclassification adjustment for unrealized
losses on cash flow hedge, net of tax of
$1,875, included in net income
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
Net issuance of common stock upon exercise
of stock options
Excess tax benefit of stock options exercised
Share based compensation
170
1,861
2
19
Net income
Issuance of common stock under employee
benefit plans, net of forfeitures and shares
withheld to cover taxes
Net issuance of common stock upon exercise
of stock options
Excess tax benefit of stock options exercised
Share based compensation
124
1,860
1
19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
56,827
18,419
16,052
262
9,037
50,290
22,885
18,922
9,552
54,857
38,572
19,996
Share repurchases, including fees
(15,877)
(159)
(132,778)
(843,695)
Balance at December 31, 2011
127,180
$ 1,272
$
1,110,105
$ 1,733,474
$
-
585,746
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share repurchases, including fees
(16,201)
(162)
(149,172)
(1,295,953)
Balance at December 31, 2012
112,963
$ 1,130
$
1,083,910
$ 1,023,267
$
See accompanying Notes to consolidated financial statements.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
For the Year Ended December 31,
2011
2012
2010
k
-
0
1
M
R
O
F
$
585,746
$
507,673
$
419,373
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, equipment and intangibles
Amortization of debt premium, discount and issuance costs
Write-off of asset-based revolving credit facility debt issuance costs
Excess tax benefit from stock options exercised
Deferred income taxes
Gain on settlement of note receivable
Share-based compensation programs
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Accounts payable
Income taxes payable
Accrued payroll
Accrued benefits and withholdings
Other
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Payments received on notes receivable
Other
Net cash used in investing activities
Financing activities:
Proceeds from borrowings on asset-based revolving credit facility
Payments on asset-based revolving credit facility
Proceeds from the issuance of long-term debt
Payment of debt issuance costs
Principal payments on debt and capital leases
Repurchases of common stock
Excess tax benefit from stock options exercised
Net proceeds from issuance of common stock
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Income taxes paid
Interest paid, net of capitalized interest
$
$
177,106
1,788
-
(38,631)
8,162
-
22,026
7,464
4,404
(276,904)
645,706
71,346
7,655
5,464
30,223
1,251,555
(300,719)
3,044
4,157
(23,889)
(317,407)
-
-
298,881
(2,376)
(935)
(1,445,287)
38,631
63,514
(1,047,572)
(113,424)
361,552
248,128
274,637
34,655
$
$
165,880
1,797
21,626
(22,985)
54,120
-
20,579
8,292
(21,219)
37,740
383,632
(8,625)
(269)
1,500
(30,750)
1,118,991
(328,319)
2,715
5,435
516
(319,653)
42,400
(398,400)
795,963
(9,942)
(1,443)
(976,632)
22,985
57,562
(467,507)
331,831
29,721
361,552
252,769
13,350
$
$
161,442
7,852
-
(18,587)
99,257
(11,639)
16,973
6,893
(21,748)
(110,271)
82,574
15,346
9,939
8,930
37,353
703,687
(365,419)
2,124
17,364
(5,346)
(351,277)
548,700
(871,500)
-
-
(108,527)
-
18,587
63,116
(349,624)
2,786
26,935
29,721
154,146
31,211
50
51
See accompanying Notes to consolidated financial statements.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F
O
R
M
1
0
-
k
Nature of business:
O'Reilly Automotive, Inc. (“O’Reilly” or the “Company”) is a specialty retailer and supplier of automotive aftermarket parts. The
Company’s stores carry an extensive product line, including new and remanufactured automotive hard parts, maintenance items and
various automotive accessories. As of December 31, 2012, the Company owned and operated 3,976 stores in 42 states, servicing both
the do-it-yourself (“DIY”) customer and the professional service provider. The Company’s robust distribution system provides stores
with same-day or overnight access to an extensive inventory of hard-to-find items not typically stocked in the stores of other auto parts
retailers.
Segment reporting:
The Company is managed and operated by a single management team reporting to the chief operating decision maker. O'Reilly stores
have similar characteristics including the nature of the products and services, the type and class of customers and the methods used to
distribute products and provide service to its customers and, as a whole, make up a single operating segment. The Company does not
prepare discrete financial information with respect to product lines or geographic locations and as such has one reportable segment.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-
company balances and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of the 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 materially differ from those estimates.
Cash equivalents:
Cash equivalents include investments with maturities of 90 days or less on the date of purchase.
Accounts receivable:
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s
customers to make required payments. The Company considers the following factors when determining if collection is reasonably
assured: customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in
customer payment terms. Amounts due to the Company from its Team Members are included as a component of accounts receivable.
These amounts consist primarily of purchases of merchandise on Team Member accounts. Accounts receivable due from Team
Members was approximately $2.1 million and $2.2 million as of December 31, 2012 and 2011, respectively.
The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Concentrations of
credit risk with respect to these receivables are limited because the Company’s customer base consists of a large number of small
customers, spreading the credit risk across a broad base. The Company also controls this credit risk through credit approvals, credit
limits and accounts receivable and credit monitoring procedures. Generally, the Company does not require security when credit is
granted to customers. Credit losses are provided for in the Company’s consolidated financial statements and have consistently been
within management’s expectations.
Amounts receivable from vendors:
The Company receives concessions from its vendors through a variety of programs and arrangements, including allowances for new
stores and warranties, volume purchase rebates and co-operative advertising. Co-operative advertising allowances that are
incremental to the Company’s advertising program, specific to a product or event and identifiable for accounting purposes, are
reported as a reduction of advertising expense in the period in which the advertising occurred. All other vendor concessions are
recognized as a reduction to the cost of inventory. Amounts receivable from vendors also includes amounts due to the Company for
changeover merchandise and product returns. The Company regularly reviews vendor receivables for collectability and assesses the
need for a reserve for uncollectable amounts based on an evaluation of the Company’s vendors’ financial positions and corresponding
abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable
to collect the amounts receivable from vendors and the Company did not record a reserve for uncollectable amounts from vendors in
the consolidated financial statements as of December 31, 2012 or 2011.
Inventory:
Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market.
Inventory also includes capitalized costs related to procurement, warehousing and distribution centers (“DC”). Cost has been
determined using the last-in, first-out (“LIFO”) method, which more accurately matches costs with related revenues. The replacement
cost of inventory was $2.31 billion and $2.04 billion as of December 31, 2012 and 2011, respectively.
Property and equipment:
Property and equipment are carried at cost. Depreciation is calculated using the straight-line method generally over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the estimated economic life of
the assets. The lease term includes renewal options determined by management at lease inception for which failure to execute renewal
options would result in a substantial economic penalty to the Company. Maintenance and repairs are charged to expense as incurred.
Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included as a component
of “Other income (expense)” in the Company’s Consolidated Statements of Income. 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 following table identifies the types of property and equipment included in the accompanying consolidated financial statements as
of December 31, 2012 and 2011 (in thousands, except useful lives):
Land
Buildings and building improvements
Leasehold improvements
Furniture, fixtures and equipment
Vehicles
Construction in progress
Total property and equipment
Less: accumulated depreciation and amortization
Net property and equipment
Original Useful Lives
December 31, 2012
December 31, 2011
15 – 39 years
3 – 25 years
3 – 20 years
5 – 10 years
$
$
420,292 $
1,078,265
447,046
932,406
231,615
159,946
3,269,570
1,057,980
2,211,590 $
462,790
1,012,709
395,274
906,257
206,685
43,281
3,026,996
933,229
2,093,767
The gross value of capital lease assets included in the “Vehicles” amounts of the above table was $8.4 million and $8.6 million at
December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, the Company recorded accumulated amortization on
these capital lease assets in the amounts of $8.4 million and $7.9 million, respectively, all of which was included in “accumulated
depreciation and amortization” in the above table.
Notes receivable:
The Company had notes receivable from vendors and other third parties amounting to $9.5 million and $15.0 million at December 31,
2012 and 2011, respectively. The notes receivable, which bear interest at rates ranging from 0% to 10%, are due in varying amounts
through March of 2019. Interest income on notes receivable is recorded in accordance with the note terms to the extent that such
amounts are expected to be collected. The Company regularly reviews its notes receivable for collectability and assesses the need for
a reserve for uncollectable amounts based on an evaluation of the Company’s borrowers’ financial positions and corresponding
abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable
to collect the notes receivable and the Company did not record a reserve for uncollectable notes receivable in the consolidated
financial statements as of December 31, 2012 or 2011.
Goodwill and other intangible assets:
The accompanying Consolidated Balance Sheets at December 31, 2012 and 2011, include goodwill and other intangible assets
recorded as the result of acquisitions. The Company reviews goodwill for impairment annually during the fourth quarter, or when
events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values, rather than
systematically amortizing goodwill against earnings. During 2012 and 2011, the goodwill impairment test included a quantitative
assessment, which compared the fair value of a reporting unit to its carrying amount, including goodwill. The Company operates as a
single reporting unit, and the Company determined that its fair value exceeded its carrying value, including goodwill, as of December
31, 2012 and 2011; as such, no goodwill impairment adjustment was required as of December 31, 2012 and 2011. Finite-lived
intangibles are carried at cost. Amortization is calculated using the straight-line method, generally over the estimated useful lives of
the intangibles.
Impairment of long-lived assets:
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected
future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are
less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. The Company has not historically recorded any material impairment to its
long-lived assets; the Company did not record an impairment of long-lived assets during the year ended December 31, 2012 or 2011.
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team
Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of
certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and
certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure. The Company estimates its self-
52
53
Nature of business:
retailers.
Segment reporting:
Use of estimates:
Cash equivalents:
Accounts receivable:
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O'Reilly Automotive, Inc. (“O’Reilly” or the “Company”) is a specialty retailer and supplier of automotive aftermarket parts. The
Company’s stores carry an extensive product line, including new and remanufactured automotive hard parts, maintenance items and
various automotive accessories. As of December 31, 2012, the Company owned and operated 3,976 stores in 42 states, servicing both
the do-it-yourself (“DIY”) customer and the professional service provider. The Company’s robust distribution system provides stores
with same-day or overnight access to an extensive inventory of hard-to-find items not typically stocked in the stores of other auto parts
Property and equipment:
Property and equipment are carried at cost. Depreciation is calculated using the straight-line method generally over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the estimated economic life of
the assets. The lease term includes renewal options determined by management at lease inception for which failure to execute renewal
options would result in a substantial economic penalty to the Company. Maintenance and repairs are charged to expense as incurred.
Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included as a component
of “Other income (expense)” in the Company’s Consolidated Statements of Income. 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 following table identifies the types of property and equipment included in the accompanying consolidated financial statements as
of December 31, 2012 and 2011 (in thousands, except useful lives):
k
-
0
1
M
R
O
F
The Company is managed and operated by a single management team reporting to the chief operating decision maker. O'Reilly stores
have similar characteristics including the nature of the products and services, the type and class of customers and the methods used to
distribute products and provide service to its customers and, as a whole, make up a single operating segment. The Company does not
prepare discrete financial information with respect to product lines or geographic locations and as such has one reportable segment.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-
company balances and transactions have been eliminated in consolidation.
The preparation of the 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 materially differ from those estimates.
Cash equivalents include investments with maturities of 90 days or less on the date of purchase.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s
customers to make required payments. The Company considers the following factors when determining if collection is reasonably
assured: customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in
customer payment terms. Amounts due to the Company from its Team Members are included as a component of accounts receivable.
These amounts consist primarily of purchases of merchandise on Team Member accounts. Accounts receivable due from Team
Members was approximately $2.1 million and $2.2 million as of December 31, 2012 and 2011, respectively.
The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Concentrations of
credit risk with respect to these receivables are limited because the Company’s customer base consists of a large number of small
customers, spreading the credit risk across a broad base. The Company also controls this credit risk through credit approvals, credit
limits and accounts receivable and credit monitoring procedures. Generally, the Company does not require security when credit is
granted to customers. Credit losses are provided for in the Company’s consolidated financial statements and have consistently been
within management’s expectations.
Amounts receivable from vendors:
The Company receives concessions from its vendors through a variety of programs and arrangements, including allowances for new
stores and warranties, volume purchase rebates and co-operative advertising. Co-operative advertising allowances that are
incremental to the Company’s advertising program, specific to a product or event and identifiable for accounting purposes, are
reported as a reduction of advertising expense in the period in which the advertising occurred. All other vendor concessions are
recognized as a reduction to the cost of inventory. Amounts receivable from vendors also includes amounts due to the Company for
changeover merchandise and product returns. The Company regularly reviews vendor receivables for collectability and assesses the
need for a reserve for uncollectable amounts based on an evaluation of the Company’s vendors’ financial positions and corresponding
abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable
to collect the amounts receivable from vendors and the Company did not record a reserve for uncollectable amounts from vendors in
the consolidated financial statements as of December 31, 2012 or 2011.
Inventory:
Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market.
Inventory also includes capitalized costs related to procurement, warehousing and distribution centers (“DC”). Cost has been
determined using the last-in, first-out (“LIFO”) method, which more accurately matches costs with related revenues. The replacement
cost of inventory was $2.31 billion and $2.04 billion as of December 31, 2012 and 2011, respectively.
Land
Buildings and building improvements
Leasehold improvements
Furniture, fixtures and equipment
Vehicles
Construction in progress
Total property and equipment
Less: accumulated depreciation and amortization
Net property and equipment
Original Useful Lives
15 – 39 years
3 – 25 years
3 – 20 years
5 – 10 years
$
December 31, 2012
$
420,292 $
December 31, 2011
462,790
1,012,709
395,274
906,257
206,685
43,281
3,026,996
933,229
2,093,767
1,078,265
447,046
932,406
231,615
159,946
3,269,570
1,057,980
2,211,590 $
The gross value of capital lease assets included in the “Vehicles” amounts of the above table was $8.4 million and $8.6 million at
December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, the Company recorded accumulated amortization on
these capital lease assets in the amounts of $8.4 million and $7.9 million, respectively, all of which was included in “accumulated
depreciation and amortization” in the above table.
Notes receivable:
The Company had notes receivable from vendors and other third parties amounting to $9.5 million and $15.0 million at December 31,
2012 and 2011, respectively. The notes receivable, which bear interest at rates ranging from 0% to 10%, are due in varying amounts
through March of 2019. Interest income on notes receivable is recorded in accordance with the note terms to the extent that such
amounts are expected to be collected. The Company regularly reviews its notes receivable for collectability and assesses the need for
a reserve for uncollectable amounts based on an evaluation of the Company’s borrowers’ financial positions and corresponding
abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable
to collect the notes receivable and the Company did not record a reserve for uncollectable notes receivable in the consolidated
financial statements as of December 31, 2012 or 2011.
Goodwill and other intangible assets:
The accompanying Consolidated Balance Sheets at December 31, 2012 and 2011, include goodwill and other intangible assets
recorded as the result of acquisitions. The Company reviews goodwill for impairment annually during the fourth quarter, or when
events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values, rather than
systematically amortizing goodwill against earnings. During 2012 and 2011, the goodwill impairment test included a quantitative
assessment, which compared the fair value of a reporting unit to its carrying amount, including goodwill. The Company operates as a
single reporting unit, and the Company determined that its fair value exceeded its carrying value, including goodwill, as of December
31, 2012 and 2011; as such, no goodwill impairment adjustment was required as of December 31, 2012 and 2011. Finite-lived
intangibles are carried at cost. Amortization is calculated using the straight-line method, generally over the estimated useful lives of
the intangibles.
Impairment of long-lived assets:
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected
future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are
less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. The Company has not historically recorded any material impairment to its
long-lived assets; the Company did not record an impairment of long-lived assets during the year ended December 31, 2012 or 2011.
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team
Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of
certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and
certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure. The Company estimates its self-
52
53
insurance liabilities by considering a number of factors, including historical claims experience and trend-lines, projected medical and
legal inflation, growth patterns and exposure forecasts. Certain of these liabilities were recorded at their net present value discounted
using the Company’s incremental borrowing rate of 4.50% and 4.75% as of December 31, 2012 and 2011, respectively.
The following table identifies the components of the Company’s self-insurance reserves as of December 31, 2012 and 2011 (in
thousands):
F
O
R
M
1
0
-
k
Self-insurance reserves (undiscounted)
Self-insurance reserves (discounted)
December 31,
2012
122,866
111,840
$
$
2011
116,696
106,011
$
$
The current portion of the Company’s discounted self-insurance reserves totaled $54.2 million and $53.2 million as of December 31,
2012 and 2011, respectively. The remainder was included within “Other liabilities” on the accompanying Consolidated Balance
Sheets as of December 31, 2012 and 2011.
Warranties:
The Company offers warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime
warranties. The risk of loss arising from warranty claims is typically the obligation of the Company’s vendors. Certain vendors
provide upfront allowances to the Company in lieu of accepting the obligation for warranty claims. For this merchandise, when sold,
the Company bears the risk of loss associated with the cost of warranty claims. Differences between vendor allowances received by
the Company in lieu of warranty obligations and estimated warranty expense are recorded as an adjustment to cost of sales. Estimated
warranty costs, which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product
line. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of
warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of
the cost of individual claims. See Note 8 for further information concerning the Company’s aggregate product warranty liability.
Litigation reserves:
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred on pending litigation matters.
Although the Company cannot ascertain the total amount of liability that it may incur from any of these matters, the Company does
not currently believe that in the aggregate, taking into account applicable insurance coverage, these matters will have a material
adverse effect on its consolidated financial position, results of operations or cash flows. In addition, O’Reilly was involved in
resolving legacy governmental investigations and litigation commenced by the Department of Justice (“DOJ”) and Securities and
Exchange Commission (“SEC”) against CSK Automotive Corporation (“CSK”) and certain former CSK employees arising out of
alleged conduct relating to periods prior to the Company’s acquisition of CSK; as a result, O’Reilly incurred legal fees and costs
related to potential indemnification obligations. See Note 12 for further information concerning these legal matters.
Closed property liabilities:
The Company maintains reserves for closed stores and other properties that are no longer being utilized in current operations. The
Company provides for these liabilities using a credit-adjusted discount rate to calculate the present value of the remaining non-
cancelable lease payments, occupancy costs and lease termination fees after the close date, net of estimated sublease income. In
conjunction with the acquisition of CSK, the Company’s reserves include purchase accounting liabilities related to acquired properties
that were no longer being utilized in the acquired business as well as the Company’s planned exit activities. See Note 6 for further
information concerning these closed property liabilities.
Derivative instruments and hedging activities:
The Company’s accounting policies for derivative financial instruments are based on whether the instruments meet the criteria for
designation as cash flow or fair value hedges. The criteria for designating a derivative as a hedge include the assessment of the
instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction and the probability that
the underlying transaction will occur. A designated hedge of the exposure to variability in the future cash flows of an asset or a
liability qualifies as a cash flow hedge. A designated hedge of the exposure to changes in fair value of an asset or a liability qualifies
as a fair value hedge. For derivatives with cash flow hedge accounting designation, the Company would recognize the after-tax gain
or loss from the effective portion of the hedge as a component of “Accumulated other comprehensive loss” and would reclassify it into
earnings in the same period or periods in which the hedged transaction affects earnings, and within the same income statement line
item as the impact of the hedged transaction. For derivatives with fair value hedge accounting designation, the Company would
recognize gains or losses from the change in fair value of these derivatives, as well as the offsetting change in the fair value of the
underlying hedged item, in earnings. As of December 31, 2012 and 2011, the Company did not hold any instruments that qualified as
cash flow or fair value hedge derivatives.
Share repurchases:
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may,
from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at
prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
conditions. All shares repurchased under the share repurchase program are retired and recorded under the par value method on the
accompanying Consolidated Balance Sheets. See Note 9 for further information concerning the Company’s share repurchase
program.
Revenue recognition:
Over-the-counter retail sales are recorded when the customer takes possession of the merchandise. Sales to professional service
provider customers, also referred to as “commercial sales,” are recorded upon same-day delivery of the merchandise to the customer,
generally at the customer’s place of business. Wholesale sales to other retailers, also referred to as “jobber sales,” are recorded upon
shipment of the merchandise from a regional distribution center (“DC”) with same-day delivery to the jobber customer's location.
Internet retail sales are recorded when the merchandise is shipped or when the merchandise is picked up in a store. All sales are
recorded net of estimated returns allowances, discounts and taxes.
Cost of goods sold and selling, general and administrative expenses:
The following table illustrates the primary costs classified in each major expense category:
Cost of goods sold, including warehouse and distribution
Total cost of merchandise sold, including:
Selling, general and administrative expenses
Payroll and benefit costs for store and corporate Team Members
Freight expenses associated with acquiring merchandise
Occupancy costs of store and corporate facilities
and with moving merchandise inventories from the
Company's distribution centers to the stores
Defective merchandise and warranty costs
Depreciation and amortization related to store and corporate
assets
Vendor allowances and incentives, including:
Vehicle expenses for store delivery services
Allowances that are not reimbursements for specific,
Self-insurance costs
incremental and identifiable costs
Cash discounts on payments to vendors
Closed store expenses
Costs associated with the Company's supply chain, including:
Other administrative costs, including:
Payroll and benefit costs
Warehouse occupancy costs
Transportation costs
Depreciation
Inventory shrinkage
Accounting, legal and other professional services
Bad debt, banking and credit card fees
Supplies
Travel
Advertising costs
Operating leases:
The Company recognizes rent expense on a straight-line basis over the lease terms of its stores and DCs. Generally, the lease term for
stores is the base lease term and the lease term for DCs includes the base lease term plus certain renewal option periods for which
renewal is reasonably assured and failure to exercise the renewal option would result in a significant economic penalty. The
Company’s policy is to amortize leasehold improvements associated with the Company’s operating leases over the lesser of the lease
term or the estimated economic life of those assets.
Advertising expenses:
Advertising expense consists primarily of expenses related to the Company’s integrated marketing program, which includes television,
radio, direct mail and newspaper distribution, in-store and online promotions, and sports and event sponsorships. The Company
expenses advertising costs as incurred. The Company also participates in cooperative advertising arrangements with certain of its
vendors. Advertising expense included as a component of “Selling, general and administrative expenses” (“SG&A”) on the
accompanying Consolidated Statements of Income amounted to $74.8 million, $73.8 million and $70.0 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
Share-based compensation and benefit plans:
The Company sponsors employee share-based benefit plans and employee and director share-based compensation plans. The
Company recognizes compensation expense for its share-based plans based on the fair value of the awards on the date of the grant,
award or issuance. Share-based plans include stock option awards issued under the Company’s employee incentive plans, director
stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees and directors through
other compensation plans. See Note 10 for further information concerning these plans.
54
55
Self-insurance reserves (undiscounted)
Self-insurance reserves (discounted)
Sheets as of December 31, 2012 and 2011.
Warranties:
insurance liabilities by considering a number of factors, including historical claims experience and trend-lines, projected medical and
legal inflation, growth patterns and exposure forecasts. Certain of these liabilities were recorded at their net present value discounted
using the Company’s incremental borrowing rate of 4.50% and 4.75% as of December 31, 2012 and 2011, respectively.
The following table identifies the components of the Company’s self-insurance reserves as of December 31, 2012 and 2011 (in
thousands):
December 31,
2012
122,866
111,840
$
$
2011
116,696
106,011
$
$
The current portion of the Company’s discounted self-insurance reserves totaled $54.2 million and $53.2 million as of December 31,
2012 and 2011, respectively. The remainder was included within “Other liabilities” on the accompanying Consolidated Balance
The Company offers warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime
warranties. The risk of loss arising from warranty claims is typically the obligation of the Company’s vendors. Certain vendors
provide upfront allowances to the Company in lieu of accepting the obligation for warranty claims. For this merchandise, when sold,
the Company bears the risk of loss associated with the cost of warranty claims. Differences between vendor allowances received by
the Company in lieu of warranty obligations and estimated warranty expense are recorded as an adjustment to cost of sales. Estimated
warranty costs, which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product
line. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of
warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of
the cost of individual claims. See Note 8 for further information concerning the Company’s aggregate product warranty liability.
Litigation reserves:
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred on pending litigation matters.
Although the Company cannot ascertain the total amount of liability that it may incur from any of these matters, the Company does
not currently believe that in the aggregate, taking into account applicable insurance coverage, these matters will have a material
adverse effect on its consolidated financial position, results of operations or cash flows. In addition, O’Reilly was involved in
resolving legacy governmental investigations and litigation commenced by the Department of Justice (“DOJ”) and Securities and
Exchange Commission (“SEC”) against CSK Automotive Corporation (“CSK”) and certain former CSK employees arising out of
alleged conduct relating to periods prior to the Company’s acquisition of CSK; as a result, O’Reilly incurred legal fees and costs
related to potential indemnification obligations. See Note 12 for further information concerning these legal matters.
Closed property liabilities:
The Company maintains reserves for closed stores and other properties that are no longer being utilized in current operations. The
Company provides for these liabilities using a credit-adjusted discount rate to calculate the present value of the remaining non-
cancelable lease payments, occupancy costs and lease termination fees after the close date, net of estimated sublease income. In
conjunction with the acquisition of CSK, the Company’s reserves include purchase accounting liabilities related to acquired properties
that were no longer being utilized in the acquired business as well as the Company’s planned exit activities. See Note 6 for further
information concerning these closed property liabilities.
Derivative instruments and hedging activities:
The Company’s accounting policies for derivative financial instruments are based on whether the instruments meet the criteria for
designation as cash flow or fair value hedges. The criteria for designating a derivative as a hedge include the assessment of the
instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction and the probability that
the underlying transaction will occur. A designated hedge of the exposure to variability in the future cash flows of an asset or a
liability qualifies as a cash flow hedge. A designated hedge of the exposure to changes in fair value of an asset or a liability qualifies
as a fair value hedge. For derivatives with cash flow hedge accounting designation, the Company would recognize the after-tax gain
or loss from the effective portion of the hedge as a component of “Accumulated other comprehensive loss” and would reclassify it into
earnings in the same period or periods in which the hedged transaction affects earnings, and within the same income statement line
item as the impact of the hedged transaction. For derivatives with fair value hedge accounting designation, the Company would
recognize gains or losses from the change in fair value of these derivatives, as well as the offsetting change in the fair value of the
underlying hedged item, in earnings. As of December 31, 2012 and 2011, the Company did not hold any instruments that qualified as
cash flow or fair value hedge derivatives.
Share repurchases:
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may,
from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at
prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
conditions. All shares repurchased under the share repurchase program are retired and recorded under the par value method on the
accompanying Consolidated Balance Sheets. See Note 9 for further information concerning the Company’s share repurchase
program.
k
-
0
1
M
R
O
F
Revenue recognition:
Over-the-counter retail sales are recorded when the customer takes possession of the merchandise. Sales to professional service
provider customers, also referred to as “commercial sales,” are recorded upon same-day delivery of the merchandise to the customer,
generally at the customer’s place of business. Wholesale sales to other retailers, also referred to as “jobber sales,” are recorded upon
shipment of the merchandise from a regional distribution center (“DC”) with same-day delivery to the jobber customer's location.
Internet retail sales are recorded when the merchandise is shipped or when the merchandise is picked up in a store. All sales are
recorded net of estimated returns allowances, discounts and taxes.
Cost of goods sold and selling, general and administrative expenses:
The following table illustrates the primary costs classified in each major expense category:
Cost of goods sold, including warehouse and distribution
Total cost of merchandise sold, including:
Selling, general and administrative expenses
Payroll and benefit costs for store and corporate Team Members
Freight expenses associated with acquiring merchandise
and with moving merchandise inventories from the
Company's distribution centers to the stores
Defective merchandise and warranty costs
Vendor allowances and incentives, including:
Allowances that are not reimbursements for specific,
incremental and identifiable costs
Cash discounts on payments to vendors
Costs associated with the Company's supply chain, including:
Payroll and benefit costs
Warehouse occupancy costs
Transportation costs
Depreciation
Inventory shrinkage
Occupancy costs of store and corporate facilities
Depreciation and amortization related to store and corporate
assets
Vehicle expenses for store delivery services
Self-insurance costs
Closed store expenses
Other administrative costs, including:
Accounting, legal and other professional services
Bad debt, banking and credit card fees
Supplies
Travel
Advertising costs
Operating leases:
The Company recognizes rent expense on a straight-line basis over the lease terms of its stores and DCs. Generally, the lease term for
stores is the base lease term and the lease term for DCs includes the base lease term plus certain renewal option periods for which
renewal is reasonably assured and failure to exercise the renewal option would result in a significant economic penalty. The
Company’s policy is to amortize leasehold improvements associated with the Company’s operating leases over the lesser of the lease
term or the estimated economic life of those assets.
Advertising expenses:
Advertising expense consists primarily of expenses related to the Company’s integrated marketing program, which includes television,
radio, direct mail and newspaper distribution, in-store and online promotions, and sports and event sponsorships. The Company
expenses advertising costs as incurred. The Company also participates in cooperative advertising arrangements with certain of its
vendors. Advertising expense included as a component of “Selling, general and administrative expenses” (“SG&A”) on the
accompanying Consolidated Statements of Income amounted to $74.8 million, $73.8 million and $70.0 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
Share-based compensation and benefit plans:
The Company sponsors employee share-based benefit plans and employee and director share-based compensation plans. The
Company recognizes compensation expense for its share-based plans based on the fair value of the awards on the date of the grant,
award or issuance. Share-based plans include stock option awards issued under the Company’s employee incentive plans, director
stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees and directors through
other compensation plans. See Note 10 for further information concerning these plans.
54
55
Pre-opening expenses:
Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to SG&A as
incurred. Costs associated with the opening of new distribution centers, which consist primarily of payroll and occupancy costs, are
included as a component of “Cost of goods sold, including warehouse and distribution expenses” on the accompanying Consolidated
Statements of Income as incurred.
F
O
R
M
1
0
-
k
Interest expense:
The Company capitalizes interest costs as a component of construction in progress, based on the weighted-average interest rates
incurred on long-term borrowings. Total interest costs capitalized for the years ended December 31, 2012, 2011 and 2010, were $6.1
million, $4.7 million and $5.1 million, respectively.
In conjunction with the issuance or amendment of long-term debt instruments, the Company incurs various costs including debt
registration fees, accounting and legal fees and underwriter and book runner fees. These debt issuance costs have been deferred and
are being amortized over the term of the corresponding debt issue and the amortization expense is included as a component of
“Interest expense” in the accompanying Consolidated Statements of Income. Deferred debt issuance costs totaled $10.1 million and
$9.0 million, net of amortization, as of December 31, 2012 and 2011, respectively, of which $1.5 million and $1.3 million were
included within “Other current assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, with the
remainder included within “Other assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011. All
unamortized debt issuance costs related to the Company’s asset-based revolving credit facility (“ABL Credit Facility”) were expensed
in January of 2011, in conjunction with the issuance of the Company’s $500 million unsecured 4.875% Senior Notes due 2021 (the
“4.875% Senior Notes due 2021”) and subsequent repayment and retirement of the ABL Credit Facility. See Note 4 for further
information concerning debt issuance costs associated with the issuances of or amendments to long-term debt instruments.
Income taxes:
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on differences between the GAAP basis and tax basis of assets and liabilities using
enacted tax rules and rates currently scheduled to be in effect for the year in which the differences are expected to reverse. Tax carry
forwards are also recognized in deferred tax assets and liabilities under this method. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period of the enactment date. The Company would record a valuation allowance
against deferred tax assets to the extent it is more likely than not the amount will not be realized, based upon evidence available at the
time of the determination and any change in the valuation allowance is recorded in the period of a change in such determination. The
Company did not establish a valuation allowance for deferred tax assets as of December 31, 2012 and 2011, as it was considered more
likely than not that deferred tax assets were realizable through a combination of future taxable income, the realization of deferred tax
liabilities and tax planning strategies. The Company regularly reviews its potential tax liabilities for tax years subject to audit. The
amount of such liabilities is based on various factors, such as differing interpretations of tax regulations by the responsible tax
authority, experience with previous tax audits and applicable tax law rulings. Changes in the Company’s tax liability may occur in the
future as its assessments change based on the progress of tax examinations in various jurisdictions and/or changes in tax regulations.
In management’s opinion, adequate provisions for income taxes have been made for all years presented. The estimates of the
Company’s potential tax liabilities contain uncertainties because management must use judgment to estimate the exposures associated
with the Company’s various tax positions and actual results could differ from estimates.
Earnings per share:
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during
the fiscal period. Diluted earnings per share is calculated by dividing the weighted-average number of common shares outstanding
plus, where applicable, the common stock equivalents associated with the potential impact of dilutive stock options or conversion of
convertible debt. Certain common stock equivalents that could potentially dilute basic earnings per share in the future, were not
included in the fully diluted computation because they would have been antidilutive. Generally, stock options are antidilutive and
excluded from the earnings per share calculation when the exercise price exceeds the market price of the common shares. See Note 15
for further information concerning these common stock equivalents.
New accounting pronouncements:
In February of 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ( “ASU 2013-02”). Under ASU 2013-02, an
entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”)
by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant
amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02
does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The
Company plans to adopt this guidance beginning with its first quarter ended March 31, 2013; the application of this guidance affects
presentation only and therefore, is not expected to have an impact on the Company’s consolidated financial condition, results of
operations or cash flows.
NOTE 2 – FAIR VALUE MEASUREMENTS
The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial
instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and
market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth
below:
• Level 1 – Observable inputs that reflect quoted prices in active markets.
• Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
• Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own
assumptions.
Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain
circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired
in a business combination or property and equipment that are determined to be impaired. As of December 31, 2012 and 2011, the
Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.
Fair value of financial instruments:
The carrying amounts of the Company’s senior notes are included in “Long-term debt, less current portion” on the accompanying
Consolidated Balance Sheets as of December 31, 2012 and 2011.
The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair value as of
December 31, 2012, was determined by reference to quoted market prices of the same or similar instruments (Level 2), and the fair
value as of December 31, 2011, was determined by reference to quoted market prices (Level 1) (in thousands):
4.875% Senior Notes due 2021 (1)
4.625% Senior Notes due 2021 (1)
3.800% Senior Notes due 2022 (1)
December 31, 2012
December 31, 2011
Carrying
Amount
Estimated Fair
Estimated Fair
Value
Carrying Amount
Value
$
$
$
497,173
299,545
298,916
$
$
$
559,870
331,224
313,890
$
$
$
496,824
299,493
-
$
$
$
533,150
313,830
-
(1) Transferred from Level 1, as of December 31, 2011, to Level 2, as of December 31, 2012, within the hierarchy due to the absence of unadjusted,
quoted prices in active markets.
The accompanying Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts
receivable, amounts receivable from vendors and accounts payable. Due to the short-term nature of these financial instruments, the
Company believes that the carrying values of these instruments approximate their fair values.
NOTE 3 – GOODWILL AND OTHER INTANGIBLES
Goodwill:
Goodwill is reviewed for impairment annually during the fourth quarter, or more frequently if events or changes in business conditions
indicate that impairment may exist. Goodwill is not amortizable for financial statement purposes. During the year ended December
31, 2012, the Company recorded an increase in goodwill of $14.5 million, resulting primarily from purchase price allocations related
to small acquisitions, partially offset by the excess tax benefit related to exercises of stock options acquired in the acquisition of CSK.
The Company did not record any goodwill impairment during the year ended December 31, 2012 or 2011.
The following table identifies the changes in goodwill for the years ended December 31, 2012 and 2011 (in thousands):
Balance at December 31, 2010
Other
Balance at December 31, 2011
Other
Balance at December 31, 2012
$
$
743,975
(68)
743,907
14,503
758,410
56
57
Statements of Income as incurred.
Interest expense:
Pre-opening expenses:
Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to SG&A as
incurred. Costs associated with the opening of new distribution centers, which consist primarily of payroll and occupancy costs, are
included as a component of “Cost of goods sold, including warehouse and distribution expenses” on the accompanying Consolidated
presentation only and therefore, is not expected to have an impact on the Company’s consolidated financial condition, results of
operations or cash flows.
NOTE 2 – FAIR VALUE MEASUREMENTS
k
-
0
1
M
R
O
F
The Company capitalizes interest costs as a component of construction in progress, based on the weighted-average interest rates
incurred on long-term borrowings. Total interest costs capitalized for the years ended December 31, 2012, 2011 and 2010, were $6.1
million, $4.7 million and $5.1 million, respectively.
In conjunction with the issuance or amendment of long-term debt instruments, the Company incurs various costs including debt
registration fees, accounting and legal fees and underwriter and book runner fees. These debt issuance costs have been deferred and
are being amortized over the term of the corresponding debt issue and the amortization expense is included as a component of
“Interest expense” in the accompanying Consolidated Statements of Income. Deferred debt issuance costs totaled $10.1 million and
$9.0 million, net of amortization, as of December 31, 2012 and 2011, respectively, of which $1.5 million and $1.3 million were
included within “Other current assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, with the
remainder included within “Other assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011. All
unamortized debt issuance costs related to the Company’s asset-based revolving credit facility (“ABL Credit Facility”) were expensed
in January of 2011, in conjunction with the issuance of the Company’s $500 million unsecured 4.875% Senior Notes due 2021 (the
“4.875% Senior Notes due 2021”) and subsequent repayment and retirement of the ABL Credit Facility. See Note 4 for further
information concerning debt issuance costs associated with the issuances of or amendments to long-term debt instruments.
Income taxes:
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on differences between the GAAP basis and tax basis of assets and liabilities using
enacted tax rules and rates currently scheduled to be in effect for the year in which the differences are expected to reverse. Tax carry
forwards are also recognized in deferred tax assets and liabilities under this method. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period of the enactment date. The Company would record a valuation allowance
against deferred tax assets to the extent it is more likely than not the amount will not be realized, based upon evidence available at the
time of the determination and any change in the valuation allowance is recorded in the period of a change in such determination. The
Company did not establish a valuation allowance for deferred tax assets as of December 31, 2012 and 2011, as it was considered more
likely than not that deferred tax assets were realizable through a combination of future taxable income, the realization of deferred tax
liabilities and tax planning strategies. The Company regularly reviews its potential tax liabilities for tax years subject to audit. The
amount of such liabilities is based on various factors, such as differing interpretations of tax regulations by the responsible tax
authority, experience with previous tax audits and applicable tax law rulings. Changes in the Company’s tax liability may occur in the
future as its assessments change based on the progress of tax examinations in various jurisdictions and/or changes in tax regulations.
In management’s opinion, adequate provisions for income taxes have been made for all years presented. The estimates of the
Company’s potential tax liabilities contain uncertainties because management must use judgment to estimate the exposures associated
with the Company’s various tax positions and actual results could differ from estimates.
Earnings per share:
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during
the fiscal period. Diluted earnings per share is calculated by dividing the weighted-average number of common shares outstanding
plus, where applicable, the common stock equivalents associated with the potential impact of dilutive stock options or conversion of
convertible debt. Certain common stock equivalents that could potentially dilute basic earnings per share in the future, were not
included in the fully diluted computation because they would have been antidilutive. Generally, stock options are antidilutive and
excluded from the earnings per share calculation when the exercise price exceeds the market price of the common shares. See Note 15
for further information concerning these common stock equivalents.
New accounting pronouncements:
In February of 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02,
"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ( “ASU 2013-02”). Under ASU 2013-02, an
entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”)
by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant
amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net
income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02
does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The
Company plans to adopt this guidance beginning with its first quarter ended March 31, 2013; the application of this guidance affects
The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial
instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and
market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth
below:
• Level 1 – Observable inputs that reflect quoted prices in active markets.
• Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
• Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own
assumptions.
Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain
circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired
in a business combination or property and equipment that are determined to be impaired. As of December 31, 2012 and 2011, the
Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.
Fair value of financial instruments:
The carrying amounts of the Company’s senior notes are included in “Long-term debt, less current portion” on the accompanying
Consolidated Balance Sheets as of December 31, 2012 and 2011.
The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair value as of
December 31, 2012, was determined by reference to quoted market prices of the same or similar instruments (Level 2), and the fair
value as of December 31, 2011, was determined by reference to quoted market prices (Level 1) (in thousands):
4.875% Senior Notes due 2021 (1)
4.625% Senior Notes due 2021 (1)
3.800% Senior Notes due 2022 (1)
December 31, 2012
Carrying
Amount
Estimated Fair
Value
$
$
$
497,173
299,545
298,916
$
$
$
559,870
331,224
313,890
December 31, 2011
Carrying Amount
496,824
299,493
-
$
$
$
$
$
$
Estimated Fair
Value
533,150
313,830
-
(1) Transferred from Level 1, as of December 31, 2011, to Level 2, as of December 31, 2012, within the hierarchy due to the absence of unadjusted,
quoted prices in active markets.
The accompanying Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts
receivable, amounts receivable from vendors and accounts payable. Due to the short-term nature of these financial instruments, the
Company believes that the carrying values of these instruments approximate their fair values.
NOTE 3 – GOODWILL AND OTHER INTANGIBLES
Goodwill:
Goodwill is reviewed for impairment annually during the fourth quarter, or more frequently if events or changes in business conditions
indicate that impairment may exist. Goodwill is not amortizable for financial statement purposes. During the year ended December
31, 2012, the Company recorded an increase in goodwill of $14.5 million, resulting primarily from purchase price allocations related
to small acquisitions, partially offset by the excess tax benefit related to exercises of stock options acquired in the acquisition of CSK.
The Company did not record any goodwill impairment during the year ended December 31, 2012 or 2011.
The following table identifies the changes in goodwill for the years ended December 31, 2012 and 2011 (in thousands):
Balance at December 31, 2010
Other
Balance at December 31, 2011
Other
Balance at December 31, 2012
$
$
743,975
(68)
743,907
14,503
758,410
56
57
As of December 31, 2012 and 2011, other than goodwill, the Company did not have any other unamortizable intangible assets.
F
O
R
M
1
0
-
k
Intangibles other than goodwill:
The following table identifies the components of the Company’s amortizable intangibles as of December 31, 2012 and 2011 (in
thousands):
Cost of Amortizable
Intangibles
Accumulated Amortization
(Expense) Benefit
Net Amortizable Intangibles
December 31,
2012
December 31,
2011
December 31,
2012
December 31,
2011
December 31,
2012
December 31,
2011
Amortizable intangible assets:
Favorable leases
Non-compete agreements
$
Total amortizable intangible assets $
50,910
717
51,627
Unfavorable leases
$
49,380
$
$
$
51,660
793
52,453
49,380
$
$
$
(28,566)
(447)
(29,013)
32,210
$
$
$
(23,969) $
(427)
(24,396) $
22,344
270
22,614
26,560
$
17,170
$
$
$
27,691
366
28,057
22,820
The Company recorded favorable lease assets in conjunction with the acquisition of CSK; these favorable lease assets represent the
values of operating leases acquired with favorable terms. These favorable leases had an estimated weighted-average remaining useful
life of approximately 10.1 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and 2010, the Company
recorded amortization expense of $4.7 million, $6.1 million, and $8.5 million, respectively, related to its amortizable intangible assets,
which are included in “Other assets, net” on the accompanying Consolidated Balance Sheets.
The Company recorded unfavorable lease liabilities in conjunction with the acquisition of CSK; these unfavorable lease liabilities
represent the values of operating leases acquired with unfavorable terms. These unfavorable leases had an estimated weighted-
average remaining useful life of approximately 5.3 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and
2010, the Company recognized an amortized benefit of $5.7 million, $6.7 million and $7.0 million, respectively, related to these
unfavorable operating leases, which are included in “Other liabilities” on the accompanying Consolidated Balance Sheets. These
unfavorable lease liabilities are not included as a component of the Company’s closed store reserves, which are discussed in Note 6.
The following table identifies the estimated amortization expense and benefit of the Company’s intangibles for each of the next five
years as of December 31, 2012 (in thousands):
Amortization Expense
Amortization Benefit
Total Amortization
Benefit (Expense)
2013
2014
2015
2016
2017
Total
$
$
NOTE 4 – FINANCING
(3,997)
(3,098)
(2,667)
(2,312)
(1,897)
(13,971)
$
$
4,548
3,642
2,794
2,076
1,493
14,553
$
$
551
544
127
(236)
(404)
582
The following table identifies the balances of the Company’s financing facilities as of December 31, 2012 and 2011 (in thousands):
Revolving Credit Facility
4.875% Senior Notes due 2021 (1), effective interest rate of 4.973%
4.625% Senior Notes due 2021 (2), effective interest rate of 4.649%
3.800% Senior Notes due 2021 (3), effective interest rate of 3.845%
$
December 31,
2012
2011
$
-
497,173
299,545
298,916
-
496,824
299,493
-
(1) Net of unamortized discount of $2.8 million and $3.2 million as of December 31, 2012 and 2011, respectively.
(2) Net of unamortized discount of $0.5 million and $0.5 million as of December 31, 2012 and 2011, respectively.
(3) Net of unamortized discount of $1.1 million as of December 31, 2012.
The following table identifies the principal maturities of the Company’s financing facilities as of December 31, 2012 (in thousands):
$
2013
2014
2015
2016
2017
Thereafter
Total $
-
-
-
-
-
1,100,000
1,100,000
Unsecured revolving credit facility:
In January of 2011, the Company entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility
(the “Revolving Credit Facility”) arranged by Bank of America, N.A. (“BA”) and Barclays Capital, originally scheduled to mature in
January of 2016. In September of 2011, the Company amended the credit agreement (the “Credit Agreement”), decreasing the
aggregate commitments under the Revolving Credit Facility to $660 million, extending the maturity date on the Credit Agreement to
September of 2016 and reducing the facility fee and interest rate margins for borrowing under the Revolving Credit Facility. In
conjunction with the amendment, the Company recognized a one-time charge related to the modification in the amount of $0.3
million, which is included in “Other income (expense)” on the accompanying Consolidated Statements of Income for the year ended
December 31, 2011. The Credit Agreement includes a $200 million sub-limit for the issuance of letters of credit and a $75 million
sub-limit for swing line borrowings under the Revolving Credit Facility. As described in the Credit Agreement governing the
Revolving Credit Facility, the Company may, from time to time, subject to certain conditions, increase the aggregate commitments
under the Revolving Credit Facility by up to $200 million. As of December 31, 2012 and 2011, the Company had outstanding letters
of credit, primarily to support obligations related to workers’ compensation, general liability and other insurance policies, in the
amount of $57.3 million and $59.9 million, respectively, reducing the aggregate availability under the Revolving Credit Facility by
those amounts. As of December 31, 2012 and 2011, the Company had no outstanding borrowings under the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at the Base Rate
or Eurodollar Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans made under the Revolving
Credit Facility bear interest at the Base Rate plus the applicable margin to Base Rate loans. In addition, the Company pays a facility
fee on the aggregate amount of the commitments in an amount equal to a percentage of such commitments. The interest rate margins
and facility fee are based upon the better of the ratings assigned to the Company’s debt by Moody’s Investor Service, Inc. and
Standard & Poor’s Rating Services, subject to limited exceptions. Based upon the Company’s credit ratings at December 31, 2012, its
margin for Base Rate loans was 0.200%, its margin for Eurodollar Rate loans was 1.200% and its facility fee was 0.175%.
The Credit Agreement contains certain covenants, which include limitations on indebtedness, a minimum fixed charge coverage ratio
of 2.00 times through December 31, 2012; 2.25 times thereafter through December 31, 2014; and 2.50 times thereafter through
maturity; and a maximum adjusted consolidated leverage ratio of 3.00 times through maturity. The consolidated leverage ratio
includes a calculation of adjusted earnings before interest, taxes, depreciation, amortization, rent and stock based compensation
expense to adjusted debt. Adjusted debt includes outstanding debt, outstanding letters of credit, six-times rent expense and excludes
any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company should default
on any covenant contained within the Credit Agreement, certain actions may be taken, including, but not limited to, possible
termination of credit extensions, immediate payment of outstanding principal amount plus accrued interest and other amounts payable
under the Credit Agreement and litigation from lenders. As of December 31, 2012, the Company remained in compliance with all
covenants under the Credit Agreement.
Senior notes:
4.875% Senior Notes due 2021:
On January 14, 2011, the Company issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021
(“4.875% Senior Notes due 2021”) at a price to the public of 99.297% of their face value with United Missouri Bank, N.A. (“UMB”)
as trustee. Interest on the 4.875% Senior Notes due 2021 is payable on January 14 and July 14 of each year and is computed on the
basis of a 360-day year.
4.625% Senior Notes due 2021:
On September 19, 2011, the Company issued $300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021
(“4.625% Senior Notes due 2021”) at a price to the public of 99.826% of their face value with UMB as trustee. Interest on the 4.625%
Senior Notes due 2021 is payable on March 15 and September 15 of each year and is computed on the basis of a 360-day year.
3.800% Senior Notes due 2022:
On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due 2022
(“3.800% Senior Notes due 2022”) at a price to the public of 99.627% of their face value with UMB as trustee. Interest on the 3.800%
Senior Notes due 2022 is payable on March 1 and September 1 of each year, beginning on March 1, 2013, and is computed on the
58
59
As of December 31, 2012 and 2011, other than goodwill, the Company did not have any other unamortizable intangible assets.
Intangibles other than goodwill:
thousands):
The following table identifies the components of the Company’s amortizable intangibles as of December 31, 2012 and 2011 (in
Cost of Amortizable
Accumulated Amortization
Intangibles
(Expense) Benefit
Net Amortizable Intangibles
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2012
2011
2012
2011
2012
2011
$
$
$
$
$
$
$
$
$
$
$
$
Amortizable intangible assets:
Favorable leases
Non-compete agreements
$
50,910
717
Total amortizable intangible assets $
51,627
51,660
793
52,453
(28,566)
(447)
(29,013)
(23,969) $
(427)
(24,396) $
22,344
270
22,614
27,691
366
28,057
Unfavorable leases
$
49,380
49,380
32,210
26,560
$
17,170
22,820
The Company recorded favorable lease assets in conjunction with the acquisition of CSK; these favorable lease assets represent the
values of operating leases acquired with favorable terms. These favorable leases had an estimated weighted-average remaining useful
life of approximately 10.1 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and 2010, the Company
recorded amortization expense of $4.7 million, $6.1 million, and $8.5 million, respectively, related to its amortizable intangible assets,
which are included in “Other assets, net” on the accompanying Consolidated Balance Sheets.
The Company recorded unfavorable lease liabilities in conjunction with the acquisition of CSK; these unfavorable lease liabilities
represent the values of operating leases acquired with unfavorable terms. These unfavorable leases had an estimated weighted-
average remaining useful life of approximately 5.3 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and
2010, the Company recognized an amortized benefit of $5.7 million, $6.7 million and $7.0 million, respectively, related to these
unfavorable operating leases, which are included in “Other liabilities” on the accompanying Consolidated Balance Sheets. These
unfavorable lease liabilities are not included as a component of the Company’s closed store reserves, which are discussed in Note 6.
The following table identifies the estimated amortization expense and benefit of the Company’s intangibles for each of the next five
years as of December 31, 2012 (in thousands):
Amortization Expense
Amortization Benefit
Total Amortization
Benefit (Expense)
2013
2014
2015
2016
2017
Total
$
$
NOTE 4 – FINANCING
(3,997)
$
(3,098)
(2,667)
(2,312)
(1,897)
$
4,548
3,642
2,794
2,076
1,493
551
544
127
(236)
(404)
582
(13,971)
$
14,553
$
The following table identifies the balances of the Company’s financing facilities as of December 31, 2012 and 2011 (in thousands):
Revolving Credit Facility
4.875% Senior Notes due 2021 (1), effective interest rate of 4.973%
4.625% Senior Notes due 2021 (2), effective interest rate of 4.649%
3.800% Senior Notes due 2021 (3), effective interest rate of 3.845%
December 31,
2012
2011
$
-
$
497,173
299,545
298,916
-
496,824
299,493
-
(1) Net of unamortized discount of $2.8 million and $3.2 million as of December 31, 2012 and 2011, respectively.
(2) Net of unamortized discount of $0.5 million and $0.5 million as of December 31, 2012 and 2011, respectively.
(3) Net of unamortized discount of $1.1 million as of December 31, 2012.
The following table identifies the principal maturities of the Company’s financing facilities as of December 31, 2012 (in thousands):
$
2013
2014
2015
2016
2017
Thereafter
Total $
-
-
-
-
-
1,100,000
1,100,000
k
-
0
1
M
R
O
F
Unsecured revolving credit facility:
In January of 2011, the Company entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility
(the “Revolving Credit Facility”) arranged by Bank of America, N.A. (“BA”) and Barclays Capital, originally scheduled to mature in
January of 2016. In September of 2011, the Company amended the credit agreement (the “Credit Agreement”), decreasing the
aggregate commitments under the Revolving Credit Facility to $660 million, extending the maturity date on the Credit Agreement to
September of 2016 and reducing the facility fee and interest rate margins for borrowing under the Revolving Credit Facility. In
conjunction with the amendment, the Company recognized a one-time charge related to the modification in the amount of $0.3
million, which is included in “Other income (expense)” on the accompanying Consolidated Statements of Income for the year ended
December 31, 2011. The Credit Agreement includes a $200 million sub-limit for the issuance of letters of credit and a $75 million
sub-limit for swing line borrowings under the Revolving Credit Facility. As described in the Credit Agreement governing the
Revolving Credit Facility, the Company may, from time to time, subject to certain conditions, increase the aggregate commitments
under the Revolving Credit Facility by up to $200 million. As of December 31, 2012 and 2011, the Company had outstanding letters
of credit, primarily to support obligations related to workers’ compensation, general liability and other insurance policies, in the
amount of $57.3 million and $59.9 million, respectively, reducing the aggregate availability under the Revolving Credit Facility by
those amounts. As of December 31, 2012 and 2011, the Company had no outstanding borrowings under the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at the Base Rate
or Eurodollar Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans made under the Revolving
Credit Facility bear interest at the Base Rate plus the applicable margin to Base Rate loans. In addition, the Company pays a facility
fee on the aggregate amount of the commitments in an amount equal to a percentage of such commitments. The interest rate margins
and facility fee are based upon the better of the ratings assigned to the Company’s debt by Moody’s Investor Service, Inc. and
Standard & Poor’s Rating Services, subject to limited exceptions. Based upon the Company’s credit ratings at December 31, 2012, its
margin for Base Rate loans was 0.200%, its margin for Eurodollar Rate loans was 1.200% and its facility fee was 0.175%.
The Credit Agreement contains certain covenants, which include limitations on indebtedness, a minimum fixed charge coverage ratio
of 2.00 times through December 31, 2012; 2.25 times thereafter through December 31, 2014; and 2.50 times thereafter through
maturity; and a maximum adjusted consolidated leverage ratio of 3.00 times through maturity. The consolidated leverage ratio
includes a calculation of adjusted earnings before interest, taxes, depreciation, amortization, rent and stock based compensation
expense to adjusted debt. Adjusted debt includes outstanding debt, outstanding letters of credit, six-times rent expense and excludes
any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company should default
on any covenant contained within the Credit Agreement, certain actions may be taken, including, but not limited to, possible
termination of credit extensions, immediate payment of outstanding principal amount plus accrued interest and other amounts payable
under the Credit Agreement and litigation from lenders. As of December 31, 2012, the Company remained in compliance with all
covenants under the Credit Agreement.
Senior notes:
4.875% Senior Notes due 2021:
On January 14, 2011, the Company issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021
(“4.875% Senior Notes due 2021”) at a price to the public of 99.297% of their face value with United Missouri Bank, N.A. (“UMB”)
as trustee. Interest on the 4.875% Senior Notes due 2021 is payable on January 14 and July 14 of each year and is computed on the
basis of a 360-day year.
4.625% Senior Notes due 2021:
On September 19, 2011, the Company issued $300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021
(“4.625% Senior Notes due 2021”) at a price to the public of 99.826% of their face value with UMB as trustee. Interest on the 4.625%
Senior Notes due 2021 is payable on March 15 and September 15 of each year and is computed on the basis of a 360-day year.
3.800% Senior Notes due 2022:
On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due 2022
(“3.800% Senior Notes due 2022”) at a price to the public of 99.627% of their face value with UMB as trustee. Interest on the 3.800%
Senior Notes due 2022 is payable on March 1 and September 1 of each year, beginning on March 1, 2013, and is computed on the
58
59
F
O
R
M
1
0
-
k
basis of a 360-day year. The net proceeds from the issuance of the 3.800% Senior Notes due 2022 were used to pay fees and expenses
related to the offering, with the remainder intended to be used to repay borrowings outstanding from time to time under the Revolving
Credit Facility and for general corporate purposes, including share repurchases.
The senior notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries (“Subsidiary Guarantors”) that
incurs or guarantees the Company’s obligations under the Company’s Revolving Credit Facility or certain other debt of the Company
or any of the Subsidiary Guarantors. The guarantees are joint and several and full and unconditional, subject to certain customary
automatic release provisions, including release of the subsidiary guarantor’s guarantee under the Company’s Credit Agreement and
certain other debt, or, in certain circumstances, the sale or other disposition of a majority of the voting power of the capital interest in,
or of all or substantially all of the property of, the subsidiary guarantor. Each of the Subsidiary Guarantors is wholly-owned, directly
or indirectly, by the Company and the Company has no independent assets or operations other than those of its subsidiaries. The only
direct or indirect subsidiaries of the Company that would not be Subsidiary Guarantors would be minor subsidiaries. Neither the
Company, nor any of its Subsidiary Guarantors, are subject to any material or significant restrictions on the Company’s ability to
obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable
law. Each of the senior notes is subject to certain customary covenants, with which the Company complied as of December 31, 2012.
NOTE 5 – LEASING
Minimum operating lease expense
Contingent rents
Other lease related occupancy costs
Total rent expense
Less: sublease income
Net rent expense
NOTE 6 – EXIT ACTIVITIES
For the Years Ended December 31,
2012
2011
2010
234,113
$
226,158
$
221,540
$
$
744
10,043
244,900
4,031
240,869
534
8,821
235,513
4,616
230,897
$
$
903
9,352
231,795
4,916
226,879
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations, and had
previously maintained reserves for employee separation liabilities.
The following table identifies the future minimum lease payments under all of the Company’s operating and capital leases for each of
the next five years and in the aggregate as of December 31, 2012 (in thousands):
The following table identifies the closure reserves for stores, administrative office and distribution facilities, and reserves for
employee separation costs at December 31, 2012 and 2011 (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
Operating Leases
Related Parties
$
4,439
4,487
4,430
3,996
3,300
11,618
32,270
$
Non-Related Parties
235,601
222,216
198,700
174,171
150,970
829,172
1,810,830
$
$
$
Capital Leases
Non-Related Parties
234
77
25
-
-
-
336
$
Total
240,274
226,780
203,155
178,167
154,270
840,790
1,843,436
$
$
Capital lease agreements:
The Company assumed certain vehicle capital leases in the acquisition of CSK. The remaining vehicle capital lease agreements have
contractual terms of nine months, which will expire on October 15, 2013. The present value of the future minimum lease payments
under these vehicle capital leases totaled approximately $0.2 million and $0.7 million at December 31, 2012 and 2011, respectively,
which were classified as long-term debt in the accompanying consolidated financial statements. The Company did not acquire any
additional vehicles under capital leases during the periods ended December 31, 2012 or 2011.
The Company assumed certain building capital leases in the CSK acquisition. The remaining building capital lease agreement will
expire on March 31, 2017. The present value of future minimum lease payments under building capital leases totaled approximately
$0.2 million and $0.5 million at December 31, 2012 and 2011, respectively, which was classified as long-term debt in the
accompanying consolidated financial statements. The Company did not acquire any additional buildings under capital leases during
the periods ended December 31, 2012 or 2011.
Operating lease commitments:
The Company 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, provisions for percentage rent based on sales
and/or incremental step increase provisions.
The future minimum lease payments under the Company’s operating leases, in the table above, do not include potential amounts for
percentage rent or other operating lease related costs and have not been reduced by expected future minimum sublease income.
Expected future minimum sublease income under non-cancelable subleases is approximately $13.9 million at December 31, 2012.
The following table summarizes the net rent expense amounts for the years ended December 31, 2012, 2011 and 2010:
Store Closure
Liabilities
Administrative Office and
Distribution Facilities
Closure Liabilities
Employee Separation
Liabilities
Balance at December 31, 2010:
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2011:
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2012:
13,971
695
(3,634)
280
11,312
584
(2,998)
(561)
8,337
5,608
314
(2,593)
215
3,544
170
(2,038)
-
1,156
(912)
(244)
-
-
-
-
-
-
$
$
1,676
$
Store, administrative office and distribution facilities closure liabilities:
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations. The Company
accrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the
remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing date, net of
estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which
currently extend through April 23, 2023. The Company estimates sublease income and future cash flows based on the Company’s
experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar
assets and existing economic conditions. Adjustments to closed property reserves are made to reflect changes in estimated sublease
income or actual contracted exit costs, which vary from original estimates, and are made for material changes in estimates in the
period in which the changes become known.
Revisions to estimates in closure reserves for stores and administrative office and distribution facilities include changes in the
estimates of sublease agreements, changes in assumptions of various store and office closure activities, changes in assumed leasing
arrangements and actual exit costs since the inception of the exit activities. Revisions to estimates and additions or accretions to
closure reserves for stores and administrative office and distribution facilities are included in “Selling, general and administrative
expenses” on the accompanying Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010.
The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through December 31, 2012, was
$24.4 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit
activity through December 31, 2012, was $10.0 million. The balance of both these reserves is included in “Other current liabilities”
and “Other liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, based upon the dates
when the reserves are expected to be settled.
Employee separation liabilities:
The Company had previously maintained a reserve for employee separation liabilities. Employee separation liabilities represented
costs for anticipated payments, including payments required under various pre-existing employment arrangements with acquired CSK
employees, which existed at the time of the acquisition, related to the planned involuntary termination of employees performing
60
61
basis of a 360-day year. The net proceeds from the issuance of the 3.800% Senior Notes due 2022 were used to pay fees and expenses
related to the offering, with the remainder intended to be used to repay borrowings outstanding from time to time under the Revolving
Credit Facility and for general corporate purposes, including share repurchases.
The senior notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries (“Subsidiary Guarantors”) that
incurs or guarantees the Company’s obligations under the Company’s Revolving Credit Facility or certain other debt of the Company
or any of the Subsidiary Guarantors. The guarantees are joint and several and full and unconditional, subject to certain customary
automatic release provisions, including release of the subsidiary guarantor’s guarantee under the Company’s Credit Agreement and
certain other debt, or, in certain circumstances, the sale or other disposition of a majority of the voting power of the capital interest in,
or of all or substantially all of the property of, the subsidiary guarantor. Each of the Subsidiary Guarantors is wholly-owned, directly
or indirectly, by the Company and the Company has no independent assets or operations other than those of its subsidiaries. The only
direct or indirect subsidiaries of the Company that would not be Subsidiary Guarantors would be minor subsidiaries. Neither the
Company, nor any of its Subsidiary Guarantors, are subject to any material or significant restrictions on the Company’s ability to
obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable
law. Each of the senior notes is subject to certain customary covenants, with which the Company complied as of December 31, 2012.
NOTE 5 – LEASING
Minimum operating lease expense
Contingent rents
Other lease related occupancy costs
Total rent expense
Less: sublease income
Net rent expense
NOTE 6 – EXIT ACTIVITIES
For the Years Ended December 31,
2011
2010
2012
$
$
234,113
744
10,043
244,900
4,031
240,869
$
$
226,158
534
8,821
235,513
4,616
230,897
$
$
221,540
903
9,352
231,795
4,916
226,879
k
-
0
1
M
R
O
F
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations, and had
previously maintained reserves for employee separation liabilities.
The following table identifies the future minimum lease payments under all of the Company’s operating and capital leases for each of
the next five years and in the aggregate as of December 31, 2012 (in thousands):
The following table identifies the closure reserves for stores, administrative office and distribution facilities, and reserves for
employee separation costs at December 31, 2012 and 2011 (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
Operating Leases
Capital Leases
Related Parties
Non-Related Parties
Non-Related Parties
Total
$
$
4,439
4,487
4,430
3,996
3,300
11,618
32,270
$
$
235,601
222,216
198,700
174,171
150,970
829,172
1,810,830
$
$
$
234
77
25
-
-
-
336
$
240,274
226,780
203,155
178,167
154,270
840,790
1,843,436
Capital lease agreements:
The Company assumed certain vehicle capital leases in the acquisition of CSK. The remaining vehicle capital lease agreements have
contractual terms of nine months, which will expire on October 15, 2013. The present value of the future minimum lease payments
under these vehicle capital leases totaled approximately $0.2 million and $0.7 million at December 31, 2012 and 2011, respectively,
which were classified as long-term debt in the accompanying consolidated financial statements. The Company did not acquire any
additional vehicles under capital leases during the periods ended December 31, 2012 or 2011.
The Company assumed certain building capital leases in the CSK acquisition. The remaining building capital lease agreement will
expire on March 31, 2017. The present value of future minimum lease payments under building capital leases totaled approximately
$0.2 million and $0.5 million at December 31, 2012 and 2011, respectively, which was classified as long-term debt in the
accompanying consolidated financial statements. The Company did not acquire any additional buildings under capital leases during
the periods ended December 31, 2012 or 2011.
Operating lease commitments:
The Company 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, provisions for percentage rent based on sales
and/or incremental step increase provisions.
The future minimum lease payments under the Company’s operating leases, in the table above, do not include potential amounts for
percentage rent or other operating lease related costs and have not been reduced by expected future minimum sublease income.
Expected future minimum sublease income under non-cancelable subleases is approximately $13.9 million at December 31, 2012.
The following table summarizes the net rent expense amounts for the years ended December 31, 2012, 2011 and 2010:
60
Store Closure
Liabilities
Administrative Office and
Distribution Facilities
Closure Liabilities
Employee Separation
Liabilities
Balance at December 31, 2010:
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2011:
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2012:
$
13,971
695
(3,634)
280
11,312
584
(2,998)
(561)
8,337
$
5,608
314
(2,593)
215
3,544
170
(2,038)
-
1,676
$
1,156
-
(912)
(244)
-
-
-
-
-
Store, administrative office and distribution facilities closure liabilities:
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations. The Company
accrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the
remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing date, net of
estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which
currently extend through April 23, 2023. The Company estimates sublease income and future cash flows based on the Company’s
experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar
assets and existing economic conditions. Adjustments to closed property reserves are made to reflect changes in estimated sublease
income or actual contracted exit costs, which vary from original estimates, and are made for material changes in estimates in the
period in which the changes become known.
Revisions to estimates in closure reserves for stores and administrative office and distribution facilities include changes in the
estimates of sublease agreements, changes in assumptions of various store and office closure activities, changes in assumed leasing
arrangements and actual exit costs since the inception of the exit activities. Revisions to estimates and additions or accretions to
closure reserves for stores and administrative office and distribution facilities are included in “Selling, general and administrative
expenses” on the accompanying Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010.
The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through December 31, 2012, was
$24.4 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit
activity through December 31, 2012, was $10.0 million. The balance of both these reserves is included in “Other current liabilities”
and “Other liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, based upon the dates
when the reserves are expected to be settled.
Employee separation liabilities:
The Company had previously maintained a reserve for employee separation liabilities. Employee separation liabilities represented
costs for anticipated payments, including payments required under various pre-existing employment arrangements with acquired CSK
employees, which existed at the time of the acquisition, related to the planned involuntary termination of employees performing
61
overlapping or duplicative functions. The Company completed all restructuring activities related to these employee separation
liabilities during 2012, and the reserve had no remaining balance as of December 31, 2012.
F
O
R
M
1
0
-
k
Revisions to estimates for employee separation liabilities included changes in assumptions surrounding the timing required to
consolidate certain duplicative administration functions from the inception of the exit activities. Revisions to estimates and additions
or accretions to employee separation liabilities are included in “Selling, general and administrative expenses” on the accompanying
Consolidated Statements of Income for the years ended December 31, 2011 and 2010.
conditions, for a three-year period. The Company and its Board of Directors may increase or otherwise modify, renew, suspend or
terminate the share repurchase program at any time, without prior notice. During 2012, the Company’s Board of Directors approved
resolutions to increase the cumulative authorization amount to $3.0 billion. Each prior $500 million authorization was effective for a
three-year period, and expires November 12, 2015.
The following table identifies shares of the Company’s common stock that have been repurchased as part of the Company’s publicly
announced share repurchase program (in thousands, except per share data):
The cumulative amount incurred for employee separation liabilities from the inception of the exit activity through December 31, 2012,
was $29.4 million.
NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Historically, the Company entered into interest rate swap contracts with various counterparties to mitigate cash flow risk associated
with floating interest rates on outstanding borrowings under its ABL Credit Facility. The fair values of the Company’s outstanding
hedges were recorded as liabilities, the effective portion of the change in fair values of the Company’s cash flow hedges was recorded
as a component of “Accumulated other comprehensive loss”, and any ineffectiveness was recognized in “Other income (expense)” in
the accompanying Consolidated Statements of Income in the period of ineffectiveness. The interest rate swap contracts were
designated as cash flow hedges with interest payments designed to offset the interest payments for borrowings under the ABL Credit
Facility that corresponded with the notional amounts of the swaps. In January of 2011, the ABL Credit Facility was retired concurrent
with the issuance of the Company’s 4.875% Senior Notes due 2021 and all interest rate swap contracts were terminated at the
Company’s request. The Company recognized a charge of $4.2 million related to the termination of the interest rate swap contracts,
which was included as a component of “Other income (expense)” in the accompanying Consolidated Statements of Income for the
year ended December 31, 2011. During 2010, one interest rate swap contract was terminated at the Company’s request and was
deemed to be ineffective as of the termination date. The Company recognized $0.1 million in “Other income (expense)” on the
accompanying Consolidated Statements of Income for the year ended December 31, 2010, as a result of this hedge ineffectiveness. As
of December 31, 2012, the Company did not hold any instruments that qualified as cash flow hedge derivatives.
The table below outlines the effects the Company’s derivative financial instruments had on its Consolidated Statements of Income for
the years ended December 31, 2012, 2011 and 2010 (in thousands):
For the Year Ended December 31,
2012
2011
Shares repurchased
Average price per share
Total investment
$
$
16,201
89.20
1,445,044
$
$
15,877
61.49
976,322
As of December 31, 2012, the Company had $578.6 million remaining under its share repurchase program. Subsequent to the end of
the year and through the date of this filing, the Company repurchased an additional 2.1 million shares of its common stock under its
share repurchase program at an average price of $90.09 for a total investment of $185.6 million. The Company has repurchased a
total of 34.1 million shares of its common stock under its share repurchase program since the inception of the program in January of
2011 through and including February 28, 2013, at an average price of $76.37 for a total aggregate investment of $2.6 billion.
NOTE 10 – SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER COMPENSATION AND BENEFIT
PLANS
The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the
grant, award or issuance. Share-based compensation includes stock option awards issued under the Company’s employee incentive
plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans, performance incentive plan
and director stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees through
other benefit programs.
Location and Amount of Loss Recognized in Income on Derivatives
The table below identifies the shares that have been authorized for issuance and the shares available for future issuance under the
Company plans, as of December 31, 2012 (in thousands):
Derivatives Designated as Hedging
Instruments
Interest rate swap contracts
NOTE 8 – WARRANTIES
Classification
Other income (expense) $
For the Year Ended December 31,
2012
2011
2010
-
$
(4,237)
$
(65)
The Company provides warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime
warranties. Estimated warranty costs are based on the historical failure rate of each individual product line and are recorded as
obligations. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate
cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the
variation of the cost of individual claims. The Company’s product warranty liabilities are included in “Other current liabilities” on the
accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011.
The following table identifies the changes in the Company’s aggregate product warranty liabilities for the years ended December 31,
2012 and 2011 (in thousands):
Balance at January 1,
Warranty claims
Warranty accruals
Balance at December 31,
NOTE 9 – SHARE REPURCHASE PROGRAM
2012
2011
$
$
21,642
(50,009)
56,368
28,001
$
$
22,429
(46,779)
45,992
21,642
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may,
from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at
prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
Plans
Employee Incentive Plans
Director Stock Plan
Performance Incentive Plan
Employee Stock Purchase Plan
Profit Sharing and Savings Plan
Total Shares Authorized for
Shares Available for Future Issuance
Issuance under the Plans
under the Plans
34,000
1,000
650
4,250
4,200
6,544
277
381
1,002
349
Stock options:
The Company’s employee incentive plans provide for the granting of stock options for the purchase of the common stock of the
Company to certain key employees of the Company. Employee stock options are granted at an exercise price that is equal to the
closing market price of the Company’s common stock on the date of the grant. Employee stock options granted under the plans expire
after ten years and typically vest 25% per year, over four years, or the minimum required service period. The Company records
compensation expense for the grant date fair value of the option awards, adjusted for estimated forfeitures, evenly over the vesting
period.
The table below identifies the employee stock option activity under these plans during the year ended December 31, 2012:
62
63
overlapping or duplicative functions. The Company completed all restructuring activities related to these employee separation
liabilities during 2012, and the reserve had no remaining balance as of December 31, 2012.
Revisions to estimates for employee separation liabilities included changes in assumptions surrounding the timing required to
consolidate certain duplicative administration functions from the inception of the exit activities. Revisions to estimates and additions
or accretions to employee separation liabilities are included in “Selling, general and administrative expenses” on the accompanying
Consolidated Statements of Income for the years ended December 31, 2011 and 2010.
conditions, for a three-year period. The Company and its Board of Directors may increase or otherwise modify, renew, suspend or
terminate the share repurchase program at any time, without prior notice. During 2012, the Company’s Board of Directors approved
resolutions to increase the cumulative authorization amount to $3.0 billion. Each prior $500 million authorization was effective for a
three-year period, and expires November 12, 2015.
k
-
0
1
M
R
O
F
The following table identifies shares of the Company’s common stock that have been repurchased as part of the Company’s publicly
announced share repurchase program (in thousands, except per share data):
The cumulative amount incurred for employee separation liabilities from the inception of the exit activity through December 31, 2012,
was $29.4 million.
NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Historically, the Company entered into interest rate swap contracts with various counterparties to mitigate cash flow risk associated
with floating interest rates on outstanding borrowings under its ABL Credit Facility. The fair values of the Company’s outstanding
hedges were recorded as liabilities, the effective portion of the change in fair values of the Company’s cash flow hedges was recorded
as a component of “Accumulated other comprehensive loss”, and any ineffectiveness was recognized in “Other income (expense)” in
the accompanying Consolidated Statements of Income in the period of ineffectiveness. The interest rate swap contracts were
designated as cash flow hedges with interest payments designed to offset the interest payments for borrowings under the ABL Credit
Facility that corresponded with the notional amounts of the swaps. In January of 2011, the ABL Credit Facility was retired concurrent
with the issuance of the Company’s 4.875% Senior Notes due 2021 and all interest rate swap contracts were terminated at the
Company’s request. The Company recognized a charge of $4.2 million related to the termination of the interest rate swap contracts,
which was included as a component of “Other income (expense)” in the accompanying Consolidated Statements of Income for the
year ended December 31, 2011. During 2010, one interest rate swap contract was terminated at the Company’s request and was
deemed to be ineffective as of the termination date. The Company recognized $0.1 million in “Other income (expense)” on the
accompanying Consolidated Statements of Income for the year ended December 31, 2010, as a result of this hedge ineffectiveness. As
of December 31, 2012, the Company did not hold any instruments that qualified as cash flow hedge derivatives.
The table below outlines the effects the Company’s derivative financial instruments had on its Consolidated Statements of Income for
the years ended December 31, 2012, 2011 and 2010 (in thousands):
Derivatives Designated as Hedging
Instruments
Location and Amount of Loss Recognized in Income on Derivatives
Classification
2012
2011
2010
For the Year Ended December 31,
Interest rate swap contracts
Other income (expense) $
-
$
(4,237)
$
(65)
NOTE 8 – WARRANTIES
The Company provides warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime
warranties. Estimated warranty costs are based on the historical failure rate of each individual product line and are recorded as
obligations. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate
cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the
variation of the cost of individual claims. The Company’s product warranty liabilities are included in “Other current liabilities” on the
accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011.
The following table identifies the changes in the Company’s aggregate product warranty liabilities for the years ended December 31,
For the Year Ended December 31,
2012
2011
Shares repurchased
Average price per share
Total investment
$
$
16,201
89.20
1,445,044
$
$
15,877
61.49
976,322
As of December 31, 2012, the Company had $578.6 million remaining under its share repurchase program. Subsequent to the end of
the year and through the date of this filing, the Company repurchased an additional 2.1 million shares of its common stock under its
share repurchase program at an average price of $90.09 for a total investment of $185.6 million. The Company has repurchased a
total of 34.1 million shares of its common stock under its share repurchase program since the inception of the program in January of
2011 through and including February 28, 2013, at an average price of $76.37 for a total aggregate investment of $2.6 billion.
NOTE 10 – SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER COMPENSATION AND BENEFIT
PLANS
The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the
grant, award or issuance. Share-based compensation includes stock option awards issued under the Company’s employee incentive
plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans, performance incentive plan
and director stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees through
other benefit programs.
The table below identifies the shares that have been authorized for issuance and the shares available for future issuance under the
Company plans, as of December 31, 2012 (in thousands):
Plans
Employee Incentive Plans
Director Stock Plan
Performance Incentive Plan
Employee Stock Purchase Plan
Profit Sharing and Savings Plan
Total Shares Authorized for
Issuance under the Plans
Shares Available for Future Issuance
under the Plans
34,000
1,000
650
4,250
4,200
6,544
277
381
1,002
349
Stock options:
The Company’s employee incentive plans provide for the granting of stock options for the purchase of the common stock of the
Company to certain key employees of the Company. Employee stock options are granted at an exercise price that is equal to the
closing market price of the Company’s common stock on the date of the grant. Employee stock options granted under the plans expire
after ten years and typically vest 25% per year, over four years, or the minimum required service period. The Company records
compensation expense for the grant date fair value of the option awards, adjusted for estimated forfeitures, evenly over the vesting
period.
2012
2011
The table below identifies the employee stock option activity under these plans during the year ended December 31, 2012:
22,429
(46,779)
45,992
21,642
2012 and 2011 (in thousands):
Balance at January 1,
Warranty claims
Warranty accruals
Balance at December 31,
$
$
21,642
(50,009)
56,368
28,001
$
$
NOTE 9 – SHARE REPURCHASE PROGRAM
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may,
from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at
prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
62
63
F
O
R
M
1
0
-
k
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 31, 2012
Vested or expected to vest at December 31, 2012
Exercisable at December 31, 2012
Shares
(in thousands)
7,393
1,834
(1,831)
(675)
6,721
6,224
3,527
Weighted-
Average
Exercise Price
37.41
$
88.75
29.41
62.97
51.03
49.17
31.36
$
$
$
Average Remaining
Contractual Terms
(in years)
Aggregate Intrinsic
Value (in thousands)
6.86
6.70
5.17
$
$
$
258,059
250,536
204,777
The Company’s director stock plan provides for the granting of stock options for the purchase of the common stock of the Company to
directors of the Company. Director stock options are granted at an exercise price that is equal to the closing market price of the
Company’s common stock on the date of the grant. Director stock options granted under the plans expire after seven years and vest
fully after six months. The Company records compensation expense for the grant date fair value of the option awards evenly over the
vesting period.
The table below identifies the director stock option activity under this plan during the year ended December 31, 2012:
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 31, 2012
Vested or expected to vest at December 31, 2012
Exercisable at December 31, 2012
Shares
(in thousands)
97
-
(29)
-
68
68
68
Weighted-
Average
Exercise Price
35.00
$
-
34.92
-
35.03
35.03
35.03
$
$
$
Average Remaining
Contractual Terms
(in years)
Aggregate Intrinsic
Value (in thousands)
3.31
3.31
3.31
$
$
$
3,698
3,698
3,698
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The
Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected
dividend yield.
• Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected
life.
•
• Expected life - Represents the period of time that options granted are expected to be outstanding. The Company uses
historical experience to estimate the expected life of options granted.
• Expected volatility – Measure of the amount by which the Company’s stock price has historically fluctuated.
• Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.
The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2012,
2011 and 2010:
Risk free interest rate
Expected life
Expected volatility
Expected dividend yield
2012
0.59 %
3.9 Years
33.5 %
- %
December 31,
2011
1.16 %
3.7 Years
33.3 %
- %
2010
1.67 %
4.3 Years
33.9 %
- %
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to
becoming fully vested. The Company’s estimate is evaluated periodically, is based upon historical experience at the time of
evaluation and reduces expense ratably over the vesting period or the minimum required service period.
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2012,
2011 and 2010:
Compensation expense for stock options awarded (in millions)
Income tax benefit from compensation expense related to stock options (in millions)
Total intrinsic value of stock options exercised (in millions)
Cash received from exercise of stock options (in millions)
Weighted-average grant-date fair value of options awarded
Weighted-average remaining contractual life of exercisable options (in years)
For the Year Ended December 31,
2012
2011
$ 17.6
2010
$ 14.9
$
$
18.5
7.1
113.6
54.9
23.57
6.8
71.5
50.3
5.7
60.0
56.9
$ 16.93
$ 14.24
5.13
5.12
5.21
The remaining unrecognized compensation expense related to unvested stock option awards at December 31, 2012, was $53.5 million
and the weighted-average period of time over which this cost will be recognized is 3.0 years.
Restricted stock:
The Company’s performance incentive plan provides for the award of shares of restricted stock to its corporate and senior
management that vest evenly over a three-year period and are held in escrow until such vesting has occurred. Generally, unvested
shares are forfeited when an employee ceases employment. The fair value of shares awarded under this plan is based on the closing
market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting
period.
The table below identifies the employee restricted stock activity under this plan during the year ended December 31, 2012:
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
Non-vested at December 31, 2011
Granted during the period
Vested during the period (1)
Forfeited during the period
Non-vested at December 31, 2012
(1) Includes 13 thousand shares withheld to cover employees' taxes upon vesting.
The Company’s director stock plan provides for the award of shares of restricted stock that vest evenly over a three-year period and
are held in escrow until such vesting has occurred. Generally, unvested shares are forfeited when a director ceases their service on the
Company’s Board of Directors. The fair value of shares awarded under this plan is based on the closing market price of the
Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting period.
The table below identifies the director restricted stock activity under this plan during the year ended December 31, 2012:
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
Non-vested at December 31, 2011
Granted during the period
Vested during the period
Forfeited during the period
Non-vested at December 31, 2012
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2012,
2011 and 2010:
Compensation expense for restricted shares awarded (in millions)
Income tax benefit from compensation expense related to restricted shares (in millions)
Total fair value of restricted shares at vest date (in millions)
Shares awarded under the plans (in thousands)
Average grant-date fair value of shares awarded under the plans
For the Year Ended December 31,
2012
2011
2010
$
$
$
$
2.0
0.8
2.7
23.7
$
$
$
1.7
0.6
2.6
49.9
$
$
$
0.9
0.4
1.6
41.1
90.10
$ 56.18
$ 39.57
40
18
(30)
(1)
27
8
5
(3)
-
10
$
$
$
$
50.72
86.90
55.11
61.08
70.64
59.65
102.39
59.65
-
79.58
64
65
Shares
Weighted-
Average
Average Remaining
Contractual Terms
(in thousands)
Exercise Price
(in years)
Aggregate Intrinsic
Value (in thousands)
$
$
$
$
$
$
$
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 31, 2012
Vested or expected to vest at December 31, 2012
Exercisable at December 31, 2012
7,393
1,834
(1,831)
(675)
6,721
6,224
3,527
37.41
88.75
29.41
62.97
51.03
49.17
31.36
6.86
6.70
5.17
$
$
$
258,059
250,536
204,777
The Company’s director stock plan provides for the granting of stock options for the purchase of the common stock of the Company to
directors of the Company. Director stock options are granted at an exercise price that is equal to the closing market price of the
Company’s common stock on the date of the grant. Director stock options granted under the plans expire after seven years and vest
fully after six months. The Company records compensation expense for the grant date fair value of the option awards evenly over the
vesting period.
The table below identifies the director stock option activity under this plan during the year ended December 31, 2012:
Outstanding at December 31, 2011
97
$
35.00
Shares
Weighted-
Average
Average Remaining
Contractual Terms
(in thousands)
Exercise Price
(in years)
Aggregate Intrinsic
Value (in thousands)
Outstanding at December 31, 2012
Vested or expected to vest at December 31, 2012
Exercisable at December 31, 2012
3.31
3.31
3.31
$
$
$
3,698
3,698
3,698
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The
Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected
(29)
-
-
68
68
68
34.92
-
-
35.03
35.03
35.03
• Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected
• Expected life - Represents the period of time that options granted are expected to be outstanding. The Company uses
historical experience to estimate the expected life of options granted.
• Expected volatility – Measure of the amount by which the Company’s stock price has historically fluctuated.
• Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.
The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2012,
Granted
Exercised
Forfeited
dividend yield.
life.
•
2011 and 2010:
Risk free interest rate
Expected life
Expected volatility
Expected dividend yield
2012
0.59 %
3.9 Years
33.5 %
- %
December 31,
2011
1.16 %
3.7 Years
33.3 %
- %
2010
1.67 %
4.3 Years
33.9 %
- %
Compensation expense for stock options awarded (in millions)
Income tax benefit from compensation expense related to stock options (in millions)
Total intrinsic value of stock options exercised (in millions)
Cash received from exercise of stock options (in millions)
Weighted-average grant-date fair value of options awarded
Weighted-average remaining contractual life of exercisable options (in years)
2012
For the Year Ended December 31,
2010
$ 14.9
5.7
60.0
56.9
$ 14.24
5.21
2011
$ 17.6
6.8
71.5
50.3
$ 16.93
18.5
7.1
113.6
54.9
23.57
5.13
5.12
$
$
k
-
0
1
M
R
O
F
The remaining unrecognized compensation expense related to unvested stock option awards at December 31, 2012, was $53.5 million
and the weighted-average period of time over which this cost will be recognized is 3.0 years.
Restricted stock:
The Company’s performance incentive plan provides for the award of shares of restricted stock to its corporate and senior
management that vest evenly over a three-year period and are held in escrow until such vesting has occurred. Generally, unvested
shares are forfeited when an employee ceases employment. The fair value of shares awarded under this plan is based on the closing
market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting
period.
The table below identifies the employee restricted stock activity under this plan during the year ended December 31, 2012:
Non-vested at December 31, 2011
Granted during the period
Vested during the period (1)
Forfeited during the period
Non-vested at December 31, 2012
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
40
18
(30)
(1)
27
$
$
50.72
86.90
55.11
61.08
70.64
(1) Includes 13 thousand shares withheld to cover employees' taxes upon vesting.
The Company’s director stock plan provides for the award of shares of restricted stock that vest evenly over a three-year period and
are held in escrow until such vesting has occurred. Generally, unvested shares are forfeited when a director ceases their service on the
Company’s Board of Directors. The fair value of shares awarded under this plan is based on the closing market price of the
Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting period.
The table below identifies the director restricted stock activity under this plan during the year ended December 31, 2012:
Non-vested at December 31, 2011
Granted during the period
Vested during the period
Forfeited during the period
Non-vested at December 31, 2012
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
8
5
(3)
-
10
$
$
59.65
102.39
59.65
-
79.58
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2012,
2011 and 2010:
For the Year Ended December 31,
2010
2011
2012
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to
becoming fully vested. The Company’s estimate is evaluated periodically, is based upon historical experience at the time of
evaluation and reduces expense ratably over the vesting period or the minimum required service period.
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2012,
2011 and 2010:
Compensation expense for restricted shares awarded (in millions)
Income tax benefit from compensation expense related to restricted shares (in millions)
Total fair value of restricted shares at vest date (in millions)
Shares awarded under the plans (in thousands)
Average grant-date fair value of shares awarded under the plans
$
$
$
$
2.0
0.8
2.7
23.7
90.10
$
$
$
1.7
0.6
2.6
49.9
$ 56.18
$
$
$
0.9
0.4
1.6
41.1
$ 39.57
64
65
The remaining unrecognized compensation expense related to unvested restricted share awards at December 31, 2012, was $2.7
million and the weighted-average period of time over which this cost will be recognized is 2.1 years.
believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect
on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s
former officers and other litigation, prior to its acquisition by O’Reilly, as described below.
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have
concluded. All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well
as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”),
have concluded.
Under Delaware law, the charter documents of the CSK entities, and certain indemnification agreements, CSK may have certain
indemnification obligations. As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential
indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former
employees. Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity
and scope, the final outcome cannot be predicted at this time. O’Reilly has a remaining reserve, with respect to the indemnification
obligations of $13.7 million at December 31, 2012, which relates to the payment of those legal fees and costs already incurred. It is
possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected
by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period. However, at this time,
management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material
adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
NOTE 13 – RELATED PARTIES
The Company leases certain land and buildings related to 77 of its O'Reilly Auto Parts stores and one of its bulk facilities under
fifteen- or twenty-year operating lease agreements with entities in which certain of the Company’s affiliated directors, members of an
affiliated director’s immediate family or certain of the Company’s executive officers, are affiliated. Generally, these lease agreements
provide for renewal options for an additional five years at the option of the Company and the lease agreements are periodically
modified to further extend the lease term for specific stores under the agreements (see Note 10). Lease payments under these
operating leases totaled $4.4 million, $4.2 million and $4.4 million during the years ended December 31, 2012, 2011 and 2010,
respectively. We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third
parties.
NOTE 14 – INCOME TAXES
Deferred income tax assets (liabilities):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and also include the tax effect of carryforwards.
The following table identifies significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012
and 2011 (in thousands):
F
O
R
M
1
0
-
k
Employee stock purchase plan:
The Company’s employee stock purchase plan (the “ESPP”) permits eligible employees to purchase shares of the Company’s
common stock at 85% of the fair market value. Employees may authorize the Company to withhold up to 5% of their annual salary to
participate in the plan. The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the
Company’s common stock during the offering periods. Compensation expense is recognized based on the discount between the grant-
date fair value and the employee purchase price for the shares sold to employees.
The following table summarizes activity related to the Company’s ESPP for the years ended December 31, 2012, 2011 and 2010:
For the Year Ended December 31,
2010
2011
2012
Compensation expense for shares issued under the ESPP (in millions)
Income tax benefit from compensation expense for shares issued under the ESPP (in
millions)
Shares issued under the ESPP (in thousands)
Weighted-average price of shares issued under the ESPP
$
$
$
1.5
0.6
$
$
1.3
0.5
114.6
75.42
134.5
$ 53.93
$
$
1.1
0.4
152.9
$ 40.86
Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan that covers substantially all employees who are at least 21 years
of age and have at least six months of service. The Company makes matching contributions equal to 100% of the first 2% of each
employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. The Company may
also make additional discretionary profit sharing contributions to the plan on an annual basis as determined by the Board of Directors.
The Company did not issue any shares under this plan for the years ended December 31, 2012, 2011 or 2010. The Company does not
anticipate funding the plan with the issuance of shares in the future. The Company made monetary matching contributions to the plan
in the amounts of $15.6 million, $11.8 million and $11.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
NOTE 11 – COMMITMENTS
Construction commitments:
As of December 31, 2012, the Company had construction commitments in the amount of $89.3 million.
Letter of credit commitments:
As of December 31, 2012, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability
and other insurance policies, in the amount of $57.3 million (see Note 4).
Debt financing commitments:
The Company’s senior notes are redeemable in whole, at any time, or in part, from time to time, at the Company’s option upon not
less than 30 nor more than 60 days’ notice at a redemption price, plus any accrued and unpaid interest to, but not including the
redemption date, equal to the greater of (i) 100% of the principal amount thereof or (2) the sum of the present value of the remaining
scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis at the applicable
Treasury Yield plus basis points identified in the indentures governing the notes. In addition, if at any time the Company undergoes a
Change of Control Triggering Event (as defined in the indentures governing the notes), the holders may require the Company to
repurchase all or a portion of their senior notes at a price equal to 101% of the principal amount of the notes being repurchased, plus
accrued and unpaid interest, if any, to but not including the repurchase date (see Note 4).
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team
Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of
certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and
certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure to this obligation.
NOTE 12 – LEGAL MATTERS
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters.
Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
66
67
The remaining unrecognized compensation expense related to unvested restricted share awards at December 31, 2012, was $2.7
million and the weighted-average period of time over which this cost will be recognized is 2.1 years.
believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect
on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
Employee stock purchase plan:
The Company’s employee stock purchase plan (the “ESPP”) permits eligible employees to purchase shares of the Company’s
common stock at 85% of the fair market value. Employees may authorize the Company to withhold up to 5% of their annual salary to
participate in the plan. The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the
Company’s common stock during the offering periods. Compensation expense is recognized based on the discount between the grant-
date fair value and the employee purchase price for the shares sold to employees.
The following table summarizes activity related to the Company’s ESPP for the years ended December 31, 2012, 2011 and 2010:
Compensation expense for shares issued under the ESPP (in millions)
Income tax benefit from compensation expense for shares issued under the ESPP (in
millions)
Shares issued under the ESPP (in thousands)
Weighted-average price of shares issued under the ESPP
For the Year Ended December 31,
2012
2011
2010
$
$
$
1.5
0.6
$
$
1.3
0.5
114.6
75.42
134.5
$ 53.93
$
$
1.1
0.4
152.9
$ 40.86
Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan that covers substantially all employees who are at least 21 years
of age and have at least six months of service. The Company makes matching contributions equal to 100% of the first 2% of each
employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. The Company may
also make additional discretionary profit sharing contributions to the plan on an annual basis as determined by the Board of Directors.
The Company did not issue any shares under this plan for the years ended December 31, 2012, 2011 or 2010. The Company does not
anticipate funding the plan with the issuance of shares in the future. The Company made monetary matching contributions to the plan
in the amounts of $15.6 million, $11.8 million and $11.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s
former officers and other litigation, prior to its acquisition by O’Reilly, as described below.
k
-
0
1
M
R
O
F
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have
concluded. All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well
as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”),
have concluded.
Under Delaware law, the charter documents of the CSK entities, and certain indemnification agreements, CSK may have certain
indemnification obligations. As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential
indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former
employees. Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity
and scope, the final outcome cannot be predicted at this time. O’Reilly has a remaining reserve, with respect to the indemnification
obligations of $13.7 million at December 31, 2012, which relates to the payment of those legal fees and costs already incurred. It is
possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected
by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period. However, at this time,
management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material
adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
NOTE 13 – RELATED PARTIES
The Company leases certain land and buildings related to 77 of its O'Reilly Auto Parts stores and one of its bulk facilities under
fifteen- or twenty-year operating lease agreements with entities in which certain of the Company’s affiliated directors, members of an
affiliated director’s immediate family or certain of the Company’s executive officers, are affiliated. Generally, these lease agreements
provide for renewal options for an additional five years at the option of the Company and the lease agreements are periodically
modified to further extend the lease term for specific stores under the agreements (see Note 10). Lease payments under these
operating leases totaled $4.4 million, $4.2 million and $4.4 million during the years ended December 31, 2012, 2011 and 2010,
respectively. We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third
parties.
As of December 31, 2012, the Company had construction commitments in the amount of $89.3 million.
NOTE 14 – INCOME TAXES
Deferred income tax assets (liabilities):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and also include the tax effect of carryforwards.
The following table identifies significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012
and 2011 (in thousands):
As of December 31, 2012, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability
and other insurance policies, in the amount of $57.3 million (see Note 4).
The Company’s senior notes are redeemable in whole, at any time, or in part, from time to time, at the Company’s option upon not
less than 30 nor more than 60 days’ notice at a redemption price, plus any accrued and unpaid interest to, but not including the
redemption date, equal to the greater of (i) 100% of the principal amount thereof or (2) the sum of the present value of the remaining
scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis at the applicable
Treasury Yield plus basis points identified in the indentures governing the notes. In addition, if at any time the Company undergoes a
Change of Control Triggering Event (as defined in the indentures governing the notes), the holders may require the Company to
repurchase all or a portion of their senior notes at a price equal to 101% of the principal amount of the notes being repurchased, plus
accrued and unpaid interest, if any, to but not including the repurchase date (see Note 4).
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team
Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of
certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and
certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure to this obligation.
NOTE 12 – LEGAL MATTERS
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records
reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably
estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters.
Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
NOTE 11 – COMMITMENTS
Construction commitments:
Letter of credit commitments:
Debt financing commitments:
66
67
December 31,
2012
2011
Current
Deferred
Total
F
O
R
M
1
0
-
k
Deferred tax assets:
Current:
Allowance for doubtful accounts
Tax credits
Other accruals
Total current deferred tax assets:
Noncurrent:
Tax credits
Net operating losses
Other accruals
Total noncurrent deferred tax assets:
Total deferred tax assets
Deferred tax liabilities:
Current:
Inventories
Total current deferred tax liabilities:
Noncurrent:
Property and equipment
Other
Total noncurrent deferred tax liabilities:
Total deferred tax liabilities
Net deferred tax liabilities
$
$
$
$
1,937
1,583
55,683
59,203
5,333
2,077
58,605
66,015
125,218
78,675
78,675
132,547
13,012
145,559
224,234
(99,016)
$
$
$
$
1,933
541
55,209
57,683
4,605
3,008
50,855
58,468
116,151
59,673
59,673
138,132
9,200
147,332
207,005
(90,854)
The following table reconciles the above net deferred tax assets (liabilities) as presented on the accompanying Consolidated Balance
Sheets as of December 31, 2012 and 2011 (in thousands):
December 31,
2012
2011
Deferred tax assets - current
Deferred tax liabilities - current
Deferred tax liabilities - current
Deferred tax assets - noncurrent
Deferred tax liabilities - noncurrent
Deferred tax liabilities - noncurrent
$
59,203
(78,675)
(19,472)
66,015
(145,559)
(79,544)
Net deferred tax liabilities
$
(99,016)
$
$
$
$
57,683
(59,673)
(1,990)
58,468
(147,332)
(88,864)
(90,854)
Provision for income taxes:
The following table reconciles the “Provision for income taxes” included in the accompanying Consolidated Statements of Income for
the years ended December 31, 2012, 2011 and 2010 (in thousands):
2012
Federal
State
2011
Federal
State
2010
Federal
State
$
$
$
$
$
$
311,631
35,982
347,613
228,443
25,537
253,980
146,259
24,484
170,743
$
$
$
$
$
$
10,030
(1,868)
8,162
55,175
(1,055)
54,120
88,395
10,862
99,257
$
$
$
$
$
$
321,661
34,114
355,775
283,618
24,482
308,100
234,654
35,346
270,000
The following table outlines the reconciliation of the “Provision for income taxes” amounts included in the accompanying
Consolidated Statements of Income to the amounts computed at the federal statutory rate for the years ended December 31, 2012,
2011 and 2010 (in thousands):
Federal income taxes at statutory rate
State income taxes, net of federal tax benefit
Other items, net
Total provision for income taxes
Year ended December 31,
2012
2011
2010
$
$
329,532
$
285,524
$
22,426
3,817
16,132
6,444
355,775
$
308,100
$
241,281
22,267
6,452
270,000
The excess tax benefit associated with the exercise of non-qualified stock options has been included within “Additional paid-in
capital” on the accompanying consolidated financial statements.
As of December 31, 2012, the Company had tax credit carryforwards available for state tax purposes of $6.9 million. As of December
31, 2012, the Company had net operating loss carryforwards available for state purposes of $42.9 million. The Company’s state net
operating loss carryforwards generally expire in years ranging from 2021 to 2027, and the Company’s tax credits generally do not
expire.
CSK had net operating losses in various years dating back to the tax year 1993. For CSK, the statute of limitation for a particular tax
year for examination by the IRS is three years subsequent to the last year in which the loss carryover is finally used. The IRS
completed an examination of the CSK consolidated federal tax return for the fiscal years ended January 30, 2005, January 29, 2006,
February 4, 2007, and February 2, 2008. The statute of limitation for a particular tax year for examination by various states is
generally three to four years subsequent to the last year in which the loss carryover is finally used.
Unrecognized tax benefits:
The following table summarizes the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the
years ended December 31, 2012, 2011 and 2010 (in thousands):
Balance as of January 1,
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Payments related to settled items
Reductions due to lapse of statute of limitations
Balance as of December 31,
Year ended December 31,
2012
2011
$
45,800 $
36,710 $
8,100
1,301
(451)
(3,746)
7,308
4,060
-
(2,278)
$
51,004 $
45,800 $
2010
33,570
5,138
-
-
(1,998)
36,710
68
69
December 31,
2012
2011
Current
Deferred
Total
Deferred tax assets:
Current:
Tax credits
Other accruals
Allowance for doubtful accounts
Total current deferred tax assets:
Noncurrent:
Tax credits
Net operating losses
Other accruals
Total noncurrent deferred tax assets:
Total deferred tax assets
Deferred tax liabilities:
Current:
Inventories
Noncurrent:
Total current deferred tax liabilities:
Property and equipment
Other
Total noncurrent deferred tax liabilities:
Total deferred tax liabilities
Net deferred tax liabilities
Deferred tax assets - current
Deferred tax liabilities - current
Deferred tax liabilities - current
Deferred tax assets - noncurrent
Deferred tax liabilities - noncurrent
Deferred tax liabilities - noncurrent
Net deferred tax liabilities
Provision for income taxes:
$
$
$
$
1,937
1,583
55,683
59,203
5,333
2,077
58,605
66,015
125,218
78,675
78,675
132,547
13,012
145,559
224,234
(99,016)
$
$
$
$
1,933
541
55,209
57,683
4,605
3,008
50,855
58,468
116,151
59,673
59,673
138,132
9,200
147,332
207,005
(90,854)
The following table reconciles the above net deferred tax assets (liabilities) as presented on the accompanying Consolidated Balance
Sheets as of December 31, 2012 and 2011 (in thousands):
57,683
(59,673)
(1,990)
58,468
(147,332)
(88,864)
The following table reconciles the “Provision for income taxes” included in the accompanying Consolidated Statements of Income for
the years ended December 31, 2012, 2011 and 2010 (in thousands):
$
(99,016)
(90,854)
December 31,
2012
2011
$
$
59,203
(78,675)
(19,472)
$
66,015
(145,559)
(79,544)
$
$
2012
Federal
State
2011
Federal
State
2010
Federal
State
$
$
$
$
$
$
311,631
35,982
347,613
228,443
25,537
253,980
146,259
24,484
170,743
$
$
$
$
$
$
10,030
(1,868)
8,162
55,175
(1,055)
54,120
88,395
10,862
99,257
$
$
$
$
$
$
k
-
0
1
M
R
O
F
321,661
34,114
355,775
283,618
24,482
308,100
234,654
35,346
270,000
The following table outlines the reconciliation of the “Provision for income taxes” amounts included in the accompanying
Consolidated Statements of Income to the amounts computed at the federal statutory rate for the years ended December 31, 2012,
2011 and 2010 (in thousands):
Federal income taxes at statutory rate
State income taxes, net of federal tax benefit
Other items, net
Total provision for income taxes
2012
Year ended December 31,
2011
2010
$
$
329,532
22,426
3,817
355,775
$
$
285,524
16,132
6,444
308,100
$
$
241,281
22,267
6,452
270,000
The excess tax benefit associated with the exercise of non-qualified stock options has been included within “Additional paid-in
capital” on the accompanying consolidated financial statements.
As of December 31, 2012, the Company had tax credit carryforwards available for state tax purposes of $6.9 million. As of December
31, 2012, the Company had net operating loss carryforwards available for state purposes of $42.9 million. The Company’s state net
operating loss carryforwards generally expire in years ranging from 2021 to 2027, and the Company’s tax credits generally do not
expire.
CSK had net operating losses in various years dating back to the tax year 1993. For CSK, the statute of limitation for a particular tax
year for examination by the IRS is three years subsequent to the last year in which the loss carryover is finally used. The IRS
completed an examination of the CSK consolidated federal tax return for the fiscal years ended January 30, 2005, January 29, 2006,
February 4, 2007, and February 2, 2008. The statute of limitation for a particular tax year for examination by various states is
generally three to four years subsequent to the last year in which the loss carryover is finally used.
Unrecognized tax benefits:
The following table summarizes the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the
years ended December 31, 2012, 2011 and 2010 (in thousands):
Balance as of January 1,
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Payments related to settled items
Reductions due to lapse of statute of limitations
Balance as of December 31,
Year ended December 31,
2012
45,800 $
8,100
1,301
(451)
(3,746)
51,004 $
$
$
2011
36,710 $
7,308
4,060
-
(2,278)
45,800 $
2010
33,570
5,138
-
-
(1,998)
36,710
68
69
F
O
R
M
1
0
-
k
For the years ended December 31, 2012, 2011 and 2010, the Company recorded a reserve for unrecognized tax benefits (including
interest and penalties) of $59.3 million, $53.0 million and $41.3 million, respectively, of which $59.3 million, $53.0 million and $41.3
million would affect the Company’s effective tax rate if recognized, generally net of federal tax affect. The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense. As of the years ended December 31, 2012, 2011 and
2010, the Company had accrued approximately $8.3 million, $7.2 million and $4.6 million, respectively, of interest and penalties
related to uncertain tax positions before the benefit of the deduction for interest on state and federal returns. During the years ended
December 31, 2012, 2011 and 2010, the Company recorded tax expense related to an increase in its liability for interest and penalties
of $2.6 million, $3.9 million and $1.5 million, respectively. Although unrecognized tax benefits for individual tax positions may
increase or decrease during 2013, the Company expects a reduction of $6.9 million of unrecognized tax benefits during the one-year
period subsequent to December 31, 2012, resulting from settlement or expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2011 and beyond remain subject to examination by the Internal
Revenue Service (“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2008, 2009 and 2010 federal income tax
returns in the first quarter of 2013. The statute of limitations for the Company’s federal income tax returns for tax years 2008 and
prior expired on September 15, 2012. The statute of limitations for the Company’s U.S. federal income tax return for 2009 will expire
on September 15, 2013, unless otherwise extended. The IRS is currently conducting an examination of the Company’s consolidated
returns for the tax year 2011. The Company’s state income tax returns remain subject to examination by various state authorities for
tax years ranging from 2002 through 2011.
NOTE 15 – EARNINGS PER SHARE
The following table reconciles the numerator and denominator used in the basic and diluted earnings per share calculations for the
years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data):
For the Year Ended December 31,
2011
2010
2012
Numerator (basic and diluted):
Net income
Denominator:
$
585,746 $
507,673
$
419,373
Denominator for basic earnings per share - weighted-average shares
Effect of stock options (1)
Effect of exchangeable notes
Denominator for diluted earnings per share - weighted-average shares and
assumed conversion
121,182
2,132
-
134,667
2,316
-
138,654
2,348
990
123,314
136,983
141,992
Earnings per share-basic
Earnings per share-assuming dilution
$
$
4.83 $
4.75 $
3.77
3.71
$
$
3.02
2.95
Antidilutive common stock equivalents not included in the calculation
Stock options (1)
Weighted-average exercise price per share of antidilutive stock options (1) $
1,816
87.88 $
1,756
62.79 $
1,373
48.15
(1) See Note 10 for further discussion on the terms of the Company's share-based compensation plans.
The exchangeable notes were retired in December of 2010, and therefore had no dilutive effect on 2012 or 2011 results. Incremental
net shares for the exchange feature of the exchangeable notes were included in the diluted earnings per share calculation for the year
ended December 31, 2010.
From January 1, 2013, through and including February 28, 2013, the Company repurchased 2.1 million shares of its common stock at
an average price of $90.09, for a total investment of $185.6 million.
NOTE 17 – QUARTERLY RESULTS (Unaudited)
The following table sets forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2012 and 2011. The
unaudited quarterly information includes all adjustments, which the Company considers necessary for a fair presentation of the
information shown:
Sales
Gross profit
Operating income
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Sales
Gross profit
Former CSK officer clawback
Operating income
Write-off of debt issuance costs
Termination of interest rate swap agreements
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Fiscal 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share data)
$
1,529,392
$
1,562,849
$
1,601,558
$
1,488,385
761,680
247,501
147,492
779,861
243,603
146,120
805,493
263,318
159,332
$
$
1.16
1.14
$
$
1.17
1.15
$
$
1.34
1.32
$
$
750,384
222,971
132,802
1.16
1.14
Fiscal 2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share data)
$
1,382,738
$
1,479,318
$
1,535,453
$
1,391,307
669,781
-
196,437
(21,626)
(4,237)
102,474
718,661
754,210
222,368
241,050
-
-
-
-
-
-
$
$
0.73
0.72
$
$
133,772
148,439
0.97
0.96
$
$
1.12
1.10
$
$
694,697
(2,798)
206,911
-
-
122,988
0.96
0.94
The unaudited operating data presented above should be read in conjunction with the Company’s consolidated financial statements
and related notes, and the other financial information included therein.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(b) and as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“the
Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance
that the information required to be disclosed by us (including our consolidated subsidiaries) in reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules
and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
NOTE 16 – SHAREHOLDER RIGHTS PLAN
CHANGES IN INTERNAL CONTROLS
On May 7, 2002, and as amended on December 29, 2010, and May 20, 2011, the Board of Directors adopted a shareholder rights plan
(“Rights Agreement”) whereby one right was distributed for each share of common stock, par value $0.01 per share, of the Company
held by shareholders of record (the “Rights”) as of the close of business on May 31, 2002. The Rights Agreement, as well as the
Rights, expired on May 31, 2012.
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2012,
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
70
71
For the years ended December 31, 2012, 2011 and 2010, the Company recorded a reserve for unrecognized tax benefits (including
interest and penalties) of $59.3 million, $53.0 million and $41.3 million, respectively, of which $59.3 million, $53.0 million and $41.3
million would affect the Company’s effective tax rate if recognized, generally net of federal tax affect. The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense. As of the years ended December 31, 2012, 2011 and
2010, the Company had accrued approximately $8.3 million, $7.2 million and $4.6 million, respectively, of interest and penalties
related to uncertain tax positions before the benefit of the deduction for interest on state and federal returns. During the years ended
December 31, 2012, 2011 and 2010, the Company recorded tax expense related to an increase in its liability for interest and penalties
of $2.6 million, $3.9 million and $1.5 million, respectively. Although unrecognized tax benefits for individual tax positions may
increase or decrease during 2013, the Company expects a reduction of $6.9 million of unrecognized tax benefits during the one-year
period subsequent to December 31, 2012, resulting from settlement or expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2011 and beyond remain subject to examination by the Internal
Revenue Service (“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2008, 2009 and 2010 federal income tax
returns in the first quarter of 2013. The statute of limitations for the Company’s federal income tax returns for tax years 2008 and
prior expired on September 15, 2012. The statute of limitations for the Company’s U.S. federal income tax return for 2009 will expire
on September 15, 2013, unless otherwise extended. The IRS is currently conducting an examination of the Company’s consolidated
returns for the tax year 2011. The Company’s state income tax returns remain subject to examination by various state authorities for
tax years ranging from 2002 through 2011.
NOTE 15 – EARNINGS PER SHARE
The following table reconciles the numerator and denominator used in the basic and diluted earnings per share calculations for the
years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data):
Numerator (basic and diluted):
Net income
Denominator:
Effect of stock options (1)
Effect of exchangeable notes
assumed conversion
Denominator for basic earnings per share - weighted-average shares
Denominator for diluted earnings per share - weighted-average shares and
For the Year Ended December 31,
2012
2011
2010
$
585,746 $
507,673
$
419,373
121,182
2,132
-
134,667
2,316
-
138,654
2,348
990
123,314
136,983
141,992
Earnings per share-basic
Earnings per share-assuming dilution
$
$
4.83 $
4.75 $
3.77
3.71
$
$
3.02
2.95
Antidilutive common stock equivalents not included in the calculation
Stock options (1)
Weighted-average exercise price per share of antidilutive stock options (1) $
1,816
87.88 $
1,756
62.79 $
1,373
48.15
(1) See Note 10 for further discussion on the terms of the Company's share-based compensation plans.
The exchangeable notes were retired in December of 2010, and therefore had no dilutive effect on 2012 or 2011 results. Incremental
net shares for the exchange feature of the exchangeable notes were included in the diluted earnings per share calculation for the year
ended December 31, 2010.
From January 1, 2013, through and including February 28, 2013, the Company repurchased 2.1 million shares of its common stock at
an average price of $90.09, for a total investment of $185.6 million.
NOTE 17 – QUARTERLY RESULTS (Unaudited)
The following table sets forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2012 and 2011. The
unaudited quarterly information includes all adjustments, which the Company considers necessary for a fair presentation of the
information shown:
k
-
0
1
M
R
O
F
Sales
Gross profit
Operating income
Net income
Earnings per share – basic
Earnings per share – assuming dilution
Sales
Gross profit
Former CSK officer clawback
Operating income
Write-off of debt issuance costs
Termination of interest rate swap agreements
Net income
Earnings per share – basic
Earnings per share – assuming dilution
First
Quarter
1,529,392
761,680
247,501
147,492
1.16
1.14
First
Quarter
1,382,738
669,781
-
196,437
(21,626)
(4,237)
102,474
0.73
0.72
$
$
$
$
$
$
$
$
$
$
$
$
Fiscal 2012
Third
Second
Quarter
Quarter
(In thousands, except per share data)
1,562,849
779,861
243,603
146,120
1.17
1.15
$
$
$
1,601,558
805,493
263,318
159,332
1.34
1.32
Fiscal 2011
Second
Quarter
Third
Quarter
(In thousands, except per share data)
1,479,318
718,661
-
222,368
-
-
133,772
0.97
0.96
$
$
$
1,535,453
754,210
-
241,050
-
-
148,439
1.12
1.10
$
$
$
$
$
$
Fourth
Quarter
1,488,385
750,384
222,971
132,802
1.16
1.14
Fourth
Quarter
1,391,307
694,697
(2,798)
206,911
-
-
122,988
0.96
0.94
The unaudited operating data presented above should be read in conjunction with the Company’s consolidated financial statements
and related notes, and the other financial information included therein.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(b) and as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“the
Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance
that the information required to be disclosed by us (including our consolidated subsidiaries) in reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules
and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
NOTE 16 – SHAREHOLDER RIGHTS PLAN
CHANGES IN INTERNAL CONTROLS
On May 7, 2002, and as amended on December 29, 2010, and May 20, 2011, the Board of Directors adopted a shareholder rights plan
(“Rights Agreement”) whereby one right was distributed for each share of common stock, par value $0.01 per share, of the Company
held by shareholders of record (the “Rights”) as of the close of business on May 31, 2002. The Rights Agreement, as well as the
Rights, expired on May 31, 2012.
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2012,
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
70
71
INTERNAL CONTROL OVER FINANCIAL REPORTING
F
O
R
M
1
0
-
k
The management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”), under the supervision and with the participation of
the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) or 15(d)-
15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes all policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control – Integrated Framework. Based on this assessment, management believes that as of
December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, which is included
in Item 8.
Item 9B. Other Information
Not Applicable.
PART III
Code of Ethics:
Our Board of Directors has adopted a code of ethics that applies to all of our directors, officers (including its chief executive officer,
chief operating officer, chief financial officer, chief accounting officer, controller and any person performing similar functions) and
Team Members. Our Code of Ethics is available on our website at www.oreillyauto.com, under the “Corporate Home” caption. The
information on our website is not a part of this Annual Report on Form 10-K and is not incorporated by reference in this report or any
of our other filings with the SEC.
Corporate Governance:
The Corporate Governance/Nominating Committee of the Board of Directors does not have a written policy on the consideration of
Director candidates recommended by shareholders. It is the view of the Board of Directors that all candidates, whether recommended
by a shareholder or the Corporate Governance/Nominating Committee, shall be evaluated based on the same established criteria for
persons to be nominated for election to the Board of Directors and its committees.
The Board of Directors has established an Audit Committee pursuant to Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The Audit Committee currently consists of Jay D. Burchfield, Thomas T. Hendrickson, Paul R.
Lederer, John Murphy and Ronald Rashkow, each an independent director in accordance with The Nasdaq Stock Market Marketplace
Rule 5605(a)(2), the standards of Rule 10A-3 of the Exchange Act and the requirements of The Nasdaq Stock Market Marketplace
Rule 5605(c)(2). In addition, our Board of Directors has determined that Mr. Murphy, Chairman of the Audit Committee, qualifies as
an audit committee financial expert under Item 407(d)(5) of Regulation S-K.
Item 11.
Executive Compensation
Director and Officer compensation:
The information required by Item 402 of Regulation S-K will be included in the Company’s Proxy Statement under the captions
“Compensation of Executive Officers” and “Director Compensation” and is incorporated herein by reference.
Compensation Committee:
The information required by Item 407(e)(4) and (e)(5) of Regulation S-K will be included in the Company’s Proxy Statement under
the captions “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” and is
incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 201(d) of Regulation S-K will be included in the Proxy Statement under the caption “Equity
Compensation Plans” and is incorporated herein by reference.
The information required by Item 403 of Regulation S-K will be included in the Proxy Statement under the captions “Security
Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Management” and is incorporated herein by
reference.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Certain information required by Part III is incorporated by reference from the Company’s Proxy Statement on Schedule 14A for the
2013 Annual Meeting of Shareholders (“Proxy Statement”), which will be filed with the Securities and Exchange Commission
(“SEC”) within 120 days of the end of our most recent fiscal year. Except for those portions specifically incorporated in this Annual
Report on Form 10-K by reference to the Company’s Proxy Statement, no other portions of the Proxy Statement are deemed to be
filed as part of this Annual Report on Form 10-K.
The information required by Item 404 of Regulation S-K will be included in the Company’s Proxy Statement under the caption
“Certain Relationships and Related Transactions” and is incorporated herein by reference.
The information required by Item 407(a) of Regulation S-K will be included in the Company’s Proxy Statement under the caption
“Director Independence” and is incorporated herein by reference.
Directors and Officers:
The information regarding the directors of O’Reilly Automotive, Inc. (the “Company”) will be included in the Company's Proxy
Statement under the caption “Proposal 1- Election of Directors” and “Information Concerning the Board of Directors” and is
incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days of the end of our most recent fiscal
year. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I, in accordance with
General Instruction G (3) to Form 10-K, for our executive officers who are not also directors.
Section 16(a) of the Exchange Act:
The information regarding compliance with Section 16(a) of the Exchange Act required by Item 405 of Regulation S-K, will be
included in the Company's Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is
incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by Item 9(e) of Schedule 14A will be included in the Proxy Statement under the caption “Fees Paid to
Independent Registered Public Accounting Firm” and is incorporated herein by reference.
72
73
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”), under the supervision and with the participation of
the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13(a)-15(f) or 15(d)-
15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes all policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control – Integrated Framework. Based on this assessment, management believes that as of
December 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.
Code of Ethics:
Our Board of Directors has adopted a code of ethics that applies to all of our directors, officers (including its chief executive officer,
chief operating officer, chief financial officer, chief accounting officer, controller and any person performing similar functions) and
Team Members. Our Code of Ethics is available on our website at www.oreillyauto.com, under the “Corporate Home” caption. The
information on our website is not a part of this Annual Report on Form 10-K and is not incorporated by reference in this report or any
of our other filings with the SEC.
k
-
0
1
M
R
O
F
Corporate Governance:
The Corporate Governance/Nominating Committee of the Board of Directors does not have a written policy on the consideration of
Director candidates recommended by shareholders. It is the view of the Board of Directors that all candidates, whether recommended
by a shareholder or the Corporate Governance/Nominating Committee, shall be evaluated based on the same established criteria for
persons to be nominated for election to the Board of Directors and its committees.
The Board of Directors has established an Audit Committee pursuant to Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The Audit Committee currently consists of Jay D. Burchfield, Thomas T. Hendrickson, Paul R.
Lederer, John Murphy and Ronald Rashkow, each an independent director in accordance with The Nasdaq Stock Market Marketplace
Rule 5605(a)(2), the standards of Rule 10A-3 of the Exchange Act and the requirements of The Nasdaq Stock Market Marketplace
Rule 5605(c)(2). In addition, our Board of Directors has determined that Mr. Murphy, Chairman of the Audit Committee, qualifies as
an audit committee financial expert under Item 407(d)(5) of Regulation S-K.
Item 11.
Executive Compensation
Director and Officer compensation:
The information required by Item 402 of Regulation S-K will be included in the Company’s Proxy Statement under the captions
“Compensation of Executive Officers” and “Director Compensation” and is incorporated herein by reference.
Compensation Committee:
The information required by Item 407(e)(4) and (e)(5) of Regulation S-K will be included in the Company’s Proxy Statement under
the captions “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” and is
incorporated herein by reference.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, which is included
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 201(d) of Regulation S-K will be included in the Proxy Statement under the caption “Equity
Compensation Plans” and is incorporated herein by reference.
The information required by Item 403 of Regulation S-K will be included in the Proxy Statement under the captions “Security
Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Management” and is incorporated herein by
reference.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Certain information required by Part III is incorporated by reference from the Company’s Proxy Statement on Schedule 14A for the
2013 Annual Meeting of Shareholders (“Proxy Statement”), which will be filed with the Securities and Exchange Commission
(“SEC”) within 120 days of the end of our most recent fiscal year. Except for those portions specifically incorporated in this Annual
Report on Form 10-K by reference to the Company’s Proxy Statement, no other portions of the Proxy Statement are deemed to be
The information required by Item 404 of Regulation S-K will be included in the Company’s Proxy Statement under the caption
“Certain Relationships and Related Transactions” and is incorporated herein by reference.
The information required by Item 407(a) of Regulation S-K will be included in the Company’s Proxy Statement under the caption
“Director Independence” and is incorporated herein by reference.
The information regarding the directors of O’Reilly Automotive, Inc. (the “Company”) will be included in the Company's Proxy
Statement under the caption “Proposal 1- Election of Directors” and “Information Concerning the Board of Directors” and is
incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days of the end of our most recent fiscal
year. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I, in accordance with
General Instruction G (3) to Form 10-K, for our executive officers who are not also directors.
Section 16(a) of the Exchange Act:
incorporated herein by reference.
The information regarding compliance with Section 16(a) of the Exchange Act required by Item 405 of Regulation S-K, will be
included in the Company's Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is
Item 14.
Principal Accountant Fees and Services
The information required by Item 9(e) of Schedule 14A will be included in the Proxy Statement under the caption “Fees Paid to
Independent Registered Public Accounting Firm” and is incorporated herein by reference.
in Item 8.
Item 9B. Other Information
Not Applicable.
PART III
filed as part of this Annual Report on Form 10-K.
Directors and Officers:
72
73
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Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements - O'Reilly Automotive, Inc. and Subsidiaries
PART IV
The following consolidated financial statements of O'Reilly Automotive, Inc. and Subsidiaries included in the Annual
Shareholders' Report of the registrant for the year ended December 31, 2012, are filed with this Annual Report in Part II, Item 8:
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm – Financial Statements
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements for the years ended December 31, 2012, 2011 and 2010
Description
(amounts in thousands)
Sales and returns
allowances
For the year ended
December 31, 2012
For the year ended
December 31, 2011
For the year ended
December 31, 2010
Allowance for doubtful
accounts
For the year ended
December 31, 2012
For the year ended
December 31, 2011
For the year ended
December 31, 2010
2. Financial Statement Schedules - O'Reilly Automotive, Inc. and Subsidiaries
(1) Uncollectable accounts written off.
The following consolidated financial statement schedule of O'Reilly Automotive, Inc. and Subsidiaries is included in Item 15(a):
Schedule II-Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
3. Exhibits
See Exhibit Index beginning on page E-1.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Column A
Column B
Column C
Column D
Column E
Balance at
Beginning of
Period
Charged to Costs
and Expenses
Additions -
Charged to Other
Additions -
Accounts -
Describe
Deductions -
Describe
Balance at End
of Period
$
6,406
$
920
$
-
$
-
$
5,634
5,316
8,349
6,795
772
318
7,695
9,250
-
-
-
-
-
-
9,641 (1)
7,696 (1)
7,326
6,406
5,634
6,447
6,403
8,349
$
6,403
$
8,043
$
-
$
7,999 (1) $
74
75
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements - O'Reilly Automotive, Inc. and Subsidiaries
The following consolidated financial statements of O'Reilly Automotive, Inc. and Subsidiaries included in the Annual
Shareholders' Report of the registrant for the year ended December 31, 2012, are filed with this Annual Report in Part II, Item 8:
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm – Financial Statements
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements for the years ended December 31, 2012, 2011 and 2010
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
k
-
0
1
M
R
O
F
Column A
Column B
Column C
Column D
Column E
Description
(amounts in thousands)
Sales and returns
allowances
For the year ended
December 31, 2012
For the year ended
December 31, 2011
For the year ended
December 31, 2010
Allowance for doubtful
accounts
For the year ended
December 31, 2012
For the year ended
December 31, 2011
For the year ended
December 31, 2010
Balance at
Beginning of
Period
Additions -
Charged to Costs
and Expenses
Additions -
Charged to Other
Accounts -
Describe
Deductions -
Describe
Balance at End
of Period
$
6,406
$
920
$
-
$
-
$
5,634
5,316
772
318
-
-
-
-
$
6,403
$
8,043
$
-
$
7,999 (1) $
8,349
6,795
7,695
9,250
-
-
9,641 (1)
7,696 (1)
7,326
6,406
5,634
6,447
6,403
8,349
2. Financial Statement Schedules - O'Reilly Automotive, Inc. and Subsidiaries
(1) Uncollectable accounts written off.
The following consolidated financial statement schedule of O'Reilly Automotive, Inc. and Subsidiaries is included in Item 15(a):
Schedule II-Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
3. Exhibits
See Exhibit Index beginning on page E-1.
74
75
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
F
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SIGNATURES
O'REILLY AUTOMOTIVE, INC.
(Registrant)
Date: February 28, 2013
By /s/ Greg Henslee
Greg Henslee
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David O'Reilly
David O'Reilly
/s/ Larry O'Reilly
Larry O'Reilly
/s/ Charlie O'Reilly
Charlie O'Reilly
Director and Chairman of the Board
February 28, 2013
Director and Vice-Chairman of the Board
February 28, 2013
Director and Vice-Chairman of the Board
February 28, 2013
February 28, 2013
EXHIBIT INDEX
Exhibit No.
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
Description
Agreement and Plan of Merger, dated April 1, 2008, between O’Reilly Automotive, Inc., OC Acquisition Company
and CSK Auto Corporation, filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated April 7, 2008,
is incorporated herein by this reference.
Agreement and Plan of Merger, dated December 29, 2010, between O’Reilly Automotive, Inc., O’Reilly Holdings,
Inc. and O’Reilly MergerCo, Inc., filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated
December 29, 2010, is incorporated herein by this reference.
Articles of Incorporation of the Registrant, as amended, filed as Exhibit 3.1 to the Registrant’s Current Report on
Form 8-K dated December 29, 2010, is incorporated herein by this reference.
Bylaws of the Registrant, as amended, filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated
December 29, 2010, is incorporated herein by this reference.
Form of Stock Certificate for Common Stock, filed as Exhibit 4.1 to the Registration Statement of the Registrant on
Form S-1, File No. 33-58948, is incorporated herein by this reference.
Indenture, dated as of January 14, 2011, among O’Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A., as
Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated January 14, 2011, is incorporated
herein by this reference.
Indenture, dated as of September 19, 2011, among O’Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A.,
as Trustee, filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 19, 2011, is
incorporated herein by this reference.
Indenture, dated as of August 21, 2012, among O'Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A., as
Trustee, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated August 21, 2012, is incorporated
herein by this reference.
10.1 (a)
Form of Employment Agreement between the Registrant and David E. O'Reilly, filed as Exhibit 10.1 to the
Registration Statement of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
10.2
10.3
Lease between the Registrant and O'Reilly Investment Company, filed as Exhibit 10.2 to the Registration Statement
of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
Lease between the Registrant and O'Reilly Real Estate Company, filed as Exhibit 10.3 to the Registration Statement
of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
/s/ Rosalie O'Reilly-Wooten
Rosalie O'Reilly-Wooten
Director
/s/ Jay D. Burchfield
Jay D. Burchfield
Director
/s/ Thomas T. Hendrickson
Thomas T. Hendrickson
Director
/s/ Paul R. Lederer
Paul R. Lederer
/s/ John R. Murphy
John R. Murphy
/s/ Ronald Rashkow
Ronald Rashkow
/s/ Greg Henslee
Greg Henslee
/s/ Thomas McFall
Thomas McFall
Director
Director
Director
President and Chief Executive Officer
(Principal Executive Officer)
February 28, 2013
10.4 (a)
Form of Retirement Agreement between the Registrant and David E. O’Reilly, filed as Exhibit 10.4 to the
Registrant's Annual Shareholders' Report on Form 10-K for the year ended December 31, 1997, is incorporated
herein by this reference.
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
10.5 (a)
O'Reilly Automotive, Inc. Profit Sharing and Savings Plan, filed as Exhibit 4.1 to the Registrant’s Registration
Statement on Form S-8, File No. 33-73892, is incorporated herein by this reference.
10.6 (a)
O'Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.8 to the Registration Statement of the
Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
10.7 (a)
O'Reilly Automotive, Inc. Stock Purchase Plan, filed as Exhibit 10.9 to the Registration Statement of the Registrant
on Form S-1, File No. 33-58948, is incorporated herein by this reference.
10.8 (a)
O'Reilly Automotive, Inc. Director Stock Option Plan, filed as Exhibit 10.10 to the Registration Statement of the
Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
10.9 (a)
O’Reilly Automotive, Inc. Performance Incentive Plan, filed as Exhibit 10.18 (a) to the Registrant’s Annual
Shareholders’ Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by this reference.
10.10 (a)
Second Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.20 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by this
10.11 (a)
Third Amendment to the O'Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.21 to the Registrant's
Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1998, is incorporated herein by this
reference.
reference.
Executive Vice-President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2013
76
Page E-1
77
SIGNATURES
EXHIBIT INDEX
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Exhibit No.
O'REILLY AUTOMOTIVE, INC.
(Registrant)
Date: February 28, 2013
By /s/ Greg Henslee
Greg Henslee
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
Director and Chairman of the Board
February 28, 2013
Director and Vice-Chairman of the Board
February 28, 2013
Director and Vice-Chairman of the Board
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
February 28, 2013
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
10.1 (a)
10.2
10.3
10.4 (a)
10.5 (a)
10.6 (a)
10.7 (a)
10.8 (a)
10.9 (a)
10.10 (a)
10.11 (a)
k
-
0
1
M
R
O
F
Description
Agreement and Plan of Merger, dated April 1, 2008, between O’Reilly Automotive, Inc., OC Acquisition Company
and CSK Auto Corporation, filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated April 7, 2008,
is incorporated herein by this reference.
Agreement and Plan of Merger, dated December 29, 2010, between O’Reilly Automotive, Inc., O’Reilly Holdings,
Inc. and O’Reilly MergerCo, Inc., filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated
December 29, 2010, is incorporated herein by this reference.
Articles of Incorporation of the Registrant, as amended, filed as Exhibit 3.1 to the Registrant’s Current Report on
Form 8-K dated December 29, 2010, is incorporated herein by this reference.
Bylaws of the Registrant, as amended, filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated
December 29, 2010, is incorporated herein by this reference.
Form of Stock Certificate for Common Stock, filed as Exhibit 4.1 to the Registration Statement of the Registrant on
Form S-1, File No. 33-58948, is incorporated herein by this reference.
Indenture, dated as of January 14, 2011, among O’Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A., as
Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated January 14, 2011, is incorporated
herein by this reference.
Indenture, dated as of September 19, 2011, among O’Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A.,
as Trustee, filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 19, 2011, is
incorporated herein by this reference.
Indenture, dated as of August 21, 2012, among O'Reilly Automotive, Inc. as guarantors, and UMB Bank, N.A., as
Trustee, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated August 21, 2012, is incorporated
herein by this reference.
Form of Employment Agreement between the Registrant and David E. O'Reilly, filed as Exhibit 10.1 to the
Registration Statement of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
Lease between the Registrant and O'Reilly Investment Company, filed as Exhibit 10.2 to the Registration Statement
of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
Lease between the Registrant and O'Reilly Real Estate Company, filed as Exhibit 10.3 to the Registration Statement
of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
Form of Retirement Agreement between the Registrant and David E. O’Reilly, filed as Exhibit 10.4 to the
Registrant's Annual Shareholders' Report on Form 10-K for the year ended December 31, 1997, is incorporated
herein by this reference.
O'Reilly Automotive, Inc. Profit Sharing and Savings Plan, filed as Exhibit 4.1 to the Registrant’s Registration
Statement on Form S-8, File No. 33-73892, is incorporated herein by this reference.
O'Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.8 to the Registration Statement of the
Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
O'Reilly Automotive, Inc. Stock Purchase Plan, filed as Exhibit 10.9 to the Registration Statement of the Registrant
on Form S-1, File No. 33-58948, is incorporated herein by this reference.
O'Reilly Automotive, Inc. Director Stock Option Plan, filed as Exhibit 10.10 to the Registration Statement of the
Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
O’Reilly Automotive, Inc. Performance Incentive Plan, filed as Exhibit 10.18 (a) to the Registrant’s Annual
Shareholders’ Report on Form 10-K for the year ended December 31, 1996, is incorporated herein by this reference.
Second Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.20 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by this
reference.
Third Amendment to the O'Reilly Automotive, Inc. 1993 Stock Option Plan, filed as Exhibit 10.21 to the Registrant's
Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1998, is incorporated herein by this
reference.
Executive Vice-President of Finance and Chief Financial Officer
February 28, 2013
(Principal Financial and Accounting Officer)
76
Page E-1
77
/s/ David O'Reilly
David O'Reilly
/s/ Larry O'Reilly
Larry O'Reilly
/s/ Charlie O'Reilly
Charlie O'Reilly
/s/ Rosalie O'Reilly-Wooten
Director
Rosalie O'Reilly-Wooten
/s/ Jay D. Burchfield
Director
Jay D. Burchfield
/s/ Thomas T. Hendrickson
Director
Thomas T. Hendrickson
Director
Director
/s/ Ronald Rashkow
Director
/s/ Paul R. Lederer
Paul R. Lederer
/s/ John R. Murphy
John R. Murphy
Ronald Rashkow
/s/ Greg Henslee
Greg Henslee
/s/ Thomas McFall
Thomas McFall
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT INDEX (continued)
EXHIBIT INDEX (continued)
Exhibit No.
10.12 (a)
F
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10.13 (a)
10.14
10.15 (a)
10.16 (a)
10.17 (a)
10.18 (a)
10.19 (a)
10.20 (a)
10.21 (a)
10.22 (a)
10.23
10.24
10.25 (a)
10.26 (a)
10.27 (a)
18.1
21.1
23.1
31.1
31.2
32.1 *
32.2 *
101.INS
101.SCH
Description
First Amendment to the O'Reilly Automotive, Inc. Directors' Stock Option Plan, filed as Exhibit 10.22 to the
Registrant's Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1998, is incorporated
herein by this reference.
O'Reilly Automotive, Inc. Deferred Compensation Plan, filed as Exhibit 10.23 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, is incorporated herein by this reference.
Trust Agreement between the Registrant's Deferred Compensation Plan and Bankers Trust, dated February 2, 1998,
filed as Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by this reference.
2001 Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, dated May 8, 2001, filed as Exhibit
10.24 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2002, is
incorporated herein by this reference.
First Amendment to Retirement Agreement, dated February 7, 2001, filed as Exhibit 10.26 to the Registrant’s Annual
Shareholders’ Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by this reference.
Fourth Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, dated February 7, 2001, filed as
Exhibit 10.27 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2001,
is incorporated herein by this reference.
Amended and Restated O’Reilly Automotive, Inc. 2003 Incentive Plan, filed as Appendix B to the Registrant’s Proxy
Statement for 2005 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
Amended and Restated O’Reilly Automotive, Inc. 2003 Directors’ Stock Plan, filed as Appendix C to the
Registrant’s Proxy Statement for 2005 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by
this reference.
O’Reilly Automotive, Inc. 2009 Stock Purchase Plan, filed as Appendix A to the Registrant’s Proxy Statement for
2009 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
O’Reilly Automotive, Inc. 2009 Incentive Plan, filed as Appendix B to the Registrant’s Proxy Statement for 2009
Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
Form of Stock Option Agreement, dated as of December 31, 2009, filed as Exhibit 10.47 to the Registrant’s Annual
Shareholders’ Report on Form 10-K for the year ended December 31, 2009, is incorporated herein by this reference.
Credit Agreement, dated as of January 14, 2011, among O’Reilly Automotive, Inc., as the lead Borrower itself and
the other Borrowers from time to time party thereto, the Guarantors from time to time party thereto, Bank of America
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K dated January 14, 2011, is incorporated herein by this reference.
Amendment No. 1 to the Credit Agreement, dated as of September 9, 2011, by and among O’Reilly Automotive,
Inc., as the lead Borrower, Bank of America N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, filed
as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 9, 2011, is incorporated herein by
this reference.
O’Reilly Automotive, Inc. Director Compensation Program, filed as Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2011, is incorporated herein by this reference.
O'Reilly Automotive, Inc. 2012 Incentive Award Plan, filed as Annex A to the Registrant's Proxy Statement for 2012
Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
O'Reilly Automotive, Inc. 2012 Incentive Award Plan, Form of Stock Option Grant Notice and Agreement, filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, is incorporated
herein by this reference.
Independent Registered Public Accounting Firm Letter Regarding Accounting Change, dated March 7, 2005, filed as
Exhibit 18.0 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2004,
is incorporated herein by this reference.
Subsidiaries of the Registrant, filed herewith.
Consent of Ernst & Young LLP, independent registered public accounting firm, filed herewith.
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished herewith.
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished herewith.
XBRL Instance Document
XBRL Taxonomy Extension Schema
Page E-2
78
Exhibit No.
101.CAL
101.DEF
101.LAB
101.PRE
(a)
*
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
Description
Management contract or compensatory plan or arrangement.
Furnished (and not filed) herewith pursuant to Item 601 (b)(32)(ii) of Regulation S-K.
Page E-3
79
EXHIBIT INDEX (continued)
Exhibit No.
10.12 (a)
herein by this reference.
First Amendment to the O'Reilly Automotive, Inc. Directors' Stock Option Plan, filed as Exhibit 10.22 to the
Registrant's Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1998, is incorporated
Description
10.13 (a)
O'Reilly Automotive, Inc. Deferred Compensation Plan, filed as Exhibit 10.23 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, is incorporated herein by this reference.
10.14
Trust Agreement between the Registrant's Deferred Compensation Plan and Bankers Trust, dated February 2, 1998,
filed as Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
10.15 (a)
2001 Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, dated May 8, 2001, filed as Exhibit
10.24 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2002, is
incorporated herein by this reference.
incorporated herein by this reference.
10.16 (a)
First Amendment to Retirement Agreement, dated February 7, 2001, filed as Exhibit 10.26 to the Registrant’s Annual
10.17 (a)
Shareholders’ Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by this reference.
Fourth Amendment to the O’Reilly Automotive, Inc. 1993 Stock Option Plan, dated February 7, 2001, filed as
Exhibit 10.27 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2001,
is incorporated herein by this reference.
10.18 (a)
Amended and Restated O’Reilly Automotive, Inc. 2003 Incentive Plan, filed as Appendix B to the Registrant’s Proxy
Statement for 2005 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
10.19 (a)
Amended and Restated O’Reilly Automotive, Inc. 2003 Directors’ Stock Plan, filed as Appendix C to the
Registrant’s Proxy Statement for 2005 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by
this reference.
10.20 (a)
O’Reilly Automotive, Inc. 2009 Stock Purchase Plan, filed as Appendix A to the Registrant’s Proxy Statement for
2009 Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
10.21 (a)
O’Reilly Automotive, Inc. 2009 Incentive Plan, filed as Appendix B to the Registrant’s Proxy Statement for 2009
Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
10.22 (a)
Form of Stock Option Agreement, dated as of December 31, 2009, filed as Exhibit 10.47 to the Registrant’s Annual
Shareholders’ Report on Form 10-K for the year ended December 31, 2009, is incorporated herein by this reference.
Credit Agreement, dated as of January 14, 2011, among O’Reilly Automotive, Inc., as the lead Borrower itself and
the other Borrowers from time to time party thereto, the Guarantors from time to time party thereto, Bank of America
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K dated January 14, 2011, is incorporated herein by this reference.
Amendment No. 1 to the Credit Agreement, dated as of September 9, 2011, by and among O’Reilly Automotive,
Inc., as the lead Borrower, Bank of America N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, filed
as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 9, 2011, is incorporated herein by
this reference.
10.25 (a)
O’Reilly Automotive, Inc. Director Compensation Program, filed as Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2011, is incorporated herein by this reference.
10.26 (a)
O'Reilly Automotive, Inc. 2012 Incentive Award Plan, filed as Annex A to the Registrant's Proxy Statement for 2012
Annual Meeting of Shareholders on Schedule 14A, is incorporated herein by this reference.
10.27 (a)
O'Reilly Automotive, Inc. 2012 Incentive Award Plan, Form of Stock Option Grant Notice and Agreement, filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, is incorporated
herein by this reference.
Independent Registered Public Accounting Firm Letter Regarding Accounting Change, dated March 7, 2005, filed as
Exhibit 18.0 to the Registrant’s Annual Shareholders’ Report on Form 10-K for the year ended December 31, 2004,
is incorporated herein by this reference.
Subsidiaries of the Registrant, filed herewith.
Consent of Ernst & Young LLP, independent registered public accounting firm, filed herewith.
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 *
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished herewith.
32.2 *
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
10.23
10.24
18.1
21.1
23.1
31.1
31.2
the Sarbanes-Oxley Act of 2002, furnished herewith.
101.INS
101.SCH
XBRL Instance Document
XBRL Taxonomy Extension Schema
Page E-2
78
EXHIBIT INDEX (continued)
Exhibit No.
101.CAL
101.DEF
101.LAB
101.PRE
(a)
*
Description
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
Management contract or compensatory plan or arrangement.
Furnished (and not filed) herewith pursuant to Item 601 (b)(32)(ii) of Regulation S-K.
Page E-3
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O'Reilly Automotive, Inc. and Subsidiaries
Consent of Independent Registered Public Accounting Firm
Subsidiary
State of Incorporation
We consent to the incorporation by reference in the following Registration Statements:
Exhibit 21.1 – Subsidiaries of the Registrant
Exhibit 23.1 – Consent of Independent Registered Public Accounting Firm
O’Reilly Automotive Stores, Inc.
Ozark Automotive Distributors, Inc.
Ozark Services, Inc.
Ozark Purchasing, LLC
CSK Auto, Inc.
Missouri
Missouri
Missouri
Missouri
Arizona
In addition, six subsidiaries operating in the United States have been omitted from the above list, as they would not, considered in the
aggregate as a single subsidiary, constitute a significant subsidiary as defined by Rule 1-02(w) of Regulation S-X.
One hundred percent of the capital stock of each of the above subsidiaries is directly or indirectly owned by O’Reilly Automotive, Inc.
(1) Registration Statement (Form S-8 No. 033-91022), Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(Form S-8 No. 033-91022) and Post-Effective Amendment No. 2 to Registration Statement on Form S-8 (Form S-8 No. 033-
91022) pertaining to the O’Reilly Automotive, Inc. Performance Incentive Plan,
(2) Registration Statement (Form S-8 No. 333-63467) and Post-Effective Amendment No. 1 (Form S-8 No. 333-63467)
pertaining to the O’Reilly Automotive, Inc. Director Stock Option Plan and the O’Reilly Automotive, Inc. 1993 Stock Option
(3) Registration Statements (Form S-8 No. 333-59568 and 333-136958) and Post-Effective Amendment No. 1 (Form S-8 No.
333-59568 and 333-136958) pertaining to the O’Reilly Automotive, Inc. Profit Sharing and Savings Plan,
(4) Registration Statement (Form S-8 No. 333-111976) and Post-Effective Amendment No. 1 (Form S-8 No. 333-111976)
pertaining to the O’Reilly Automotive, Inc. 2003 Employee Stock Option Plan, O’Reilly Automotive, Inc. 2003 Director
Stock Option Plan, O’Reilly Automotive, Inc. 1993 Employee Stock Option Plan, and the O’Reilly Automotive, Inc. Stock
Plan,
Purchase Plan,
(5) Post-Effective Amendment No. 1 to Registration Statement on Form S-8 to Form S-4 (Form S-8 No. 333-151578) and Post-
Effective Amendment No. 2 (Form S-8 No. 333-151578) pertaining to the CSK Auto Corporation 2004 Stock and Incentive
Plan, CSK Auto Corporation 1999 Employee Stock Option Plan, CSK Auto Corporation 1996 Executive Stock Option Plan,
CSK Auto Corporation 1996 Associate Stock Option Plan and CSK Auto Corporation Nonqualified Stock Option Agreement
with Lawrence N. Mondry,
(6) Registration Statement (Form S-8 No. 333-157862) and Post-Effective Amendment No. 1 (Form S-8 No. 333-157862)
pertaining to the O’Reilly Automotive, Inc. Stock Purchase Plan,
(7) Registration Statement (Form S-8 No. 333-159351) and Post-Effective Amendment No. 1 (Form S-8 No. 333-159351)
pertaining to the O’Reilly Automotive, Inc. 2009 Stock Purchase Plan and to the O’Reilly Automotive, Inc. 2009 Incentive
Plan, and
(8) Registration Statement (Form S-8 No. 333-181364) pertaining to the O’Reilly Automotive, Inc. 2012 Incentive Award Plan;
of our reports dated February 28, 2013, with respect to the consolidated financial statements and schedule of O’Reilly Automotive,
Inc. and Subsidiaries and the effectiveness of internal control over financial reporting of O’Reilly Automotive, Inc. and Subsidiaries,
included in this Annual Report (Form 10-K) for the year ended December 31, 2012.
Kansas City, Missouri
February 28, 2013
/s/ Ernst & Young LLP
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Exhibit 21.1 – Subsidiaries of the Registrant
Exhibit 23.1 – Consent of Independent Registered Public Accounting Firm
O'Reilly Automotive, Inc. and Subsidiaries
Consent of Independent Registered Public Accounting Firm
Subsidiary
State of Incorporation
We consent to the incorporation by reference in the following Registration Statements:
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O’Reilly Automotive Stores, Inc.
Ozark Automotive Distributors, Inc.
Ozark Services, Inc.
Ozark Purchasing, LLC
CSK Auto, Inc.
Missouri
Missouri
Missouri
Missouri
Arizona
In addition, six subsidiaries operating in the United States have been omitted from the above list, as they would not, considered in the
aggregate as a single subsidiary, constitute a significant subsidiary as defined by Rule 1-02(w) of Regulation S-X.
One hundred percent of the capital stock of each of the above subsidiaries is directly or indirectly owned by O’Reilly Automotive, Inc.
(1) Registration Statement (Form S-8 No. 033-91022), Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(Form S-8 No. 033-91022) and Post-Effective Amendment No. 2 to Registration Statement on Form S-8 (Form S-8 No. 033-
91022) pertaining to the O’Reilly Automotive, Inc. Performance Incentive Plan,
(2) Registration Statement (Form S-8 No. 333-63467) and Post-Effective Amendment No. 1 (Form S-8 No. 333-63467)
pertaining to the O’Reilly Automotive, Inc. Director Stock Option Plan and the O’Reilly Automotive, Inc. 1993 Stock Option
Plan,
(3) Registration Statements (Form S-8 No. 333-59568 and 333-136958) and Post-Effective Amendment No. 1 (Form S-8 No.
333-59568 and 333-136958) pertaining to the O’Reilly Automotive, Inc. Profit Sharing and Savings Plan,
(4) Registration Statement (Form S-8 No. 333-111976) and Post-Effective Amendment No. 1 (Form S-8 No. 333-111976)
pertaining to the O’Reilly Automotive, Inc. 2003 Employee Stock Option Plan, O’Reilly Automotive, Inc. 2003 Director
Stock Option Plan, O’Reilly Automotive, Inc. 1993 Employee Stock Option Plan, and the O’Reilly Automotive, Inc. Stock
Purchase Plan,
(5) Post-Effective Amendment No. 1 to Registration Statement on Form S-8 to Form S-4 (Form S-8 No. 333-151578) and Post-
Effective Amendment No. 2 (Form S-8 No. 333-151578) pertaining to the CSK Auto Corporation 2004 Stock and Incentive
Plan, CSK Auto Corporation 1999 Employee Stock Option Plan, CSK Auto Corporation 1996 Executive Stock Option Plan,
CSK Auto Corporation 1996 Associate Stock Option Plan and CSK Auto Corporation Nonqualified Stock Option Agreement
with Lawrence N. Mondry,
(6) Registration Statement (Form S-8 No. 333-157862) and Post-Effective Amendment No. 1 (Form S-8 No. 333-157862)
pertaining to the O’Reilly Automotive, Inc. Stock Purchase Plan,
(7) Registration Statement (Form S-8 No. 333-159351) and Post-Effective Amendment No. 1 (Form S-8 No. 333-159351)
pertaining to the O’Reilly Automotive, Inc. 2009 Stock Purchase Plan and to the O’Reilly Automotive, Inc. 2009 Incentive
Plan, and
(8) Registration Statement (Form S-8 No. 333-181364) pertaining to the O’Reilly Automotive, Inc. 2012 Incentive Award Plan;
of our reports dated February 28, 2013, with respect to the consolidated financial statements and schedule of O’Reilly Automotive,
Inc. and Subsidiaries and the effectiveness of internal control over financial reporting of O’Reilly Automotive, Inc. and Subsidiaries,
included in this Annual Report (Form 10-K) for the year ended December 31, 2012.
Kansas City, Missouri
February 28, 2013
/s/ Ernst & Young LLP
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
CERTIFICATIONS
I, Greg Henslee, certify that:
I, Thomas McFall, certify that:
1. I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
1. I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
Exhibit 31.1 – CEO Certification
Exhibit 31.2 – CFO Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 28, 2013
/s/ Greg Henslee
Greg Henslee, President and
Chief Executive Officer (Principal Executive Officer)
Date: February 28, 2013
/s/ Thomas McFall
Thomas McFall
Executive Vice President of
Finance and Chief Financial Officer (Principal
Financial and Accounting Officer)
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
CERTIFICATIONS
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Exhibit 31.1 – CEO Certification
Exhibit 31.2 – CFO Certification
I, Greg Henslee, certify that:
I, Thomas McFall, certify that:
1. I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
1. I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Greg Henslee
Greg Henslee, President and
Chief Executive Officer (Principal Executive Officer)
Date: February 28, 2013
/s/ Thomas McFall
Thomas McFall
Executive Vice President of
Finance and Chief Financial Officer (Principal
Financial and Accounting Officer)
internal control over financial reporting.
Date: February 28, 2013
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O’REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O’REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1 – CEO Certification
Exhibit 32.2 – CFO Certification
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Greg Henslee, Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas McFall, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Greg Henslee
Greg Henslee
Chief Executive Officer
February 28, 2013
operations of the Company.
/s/ Thomas McFall
Thomas McFall
Chief Financial Officer
February 28, 2013
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification
accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification
accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Exhibit 32.1 – CEO Certification
Exhibit 32.2 – CFO Certification
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O’REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O’REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Greg Henslee, Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas McFall, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Thomas McFall
Thomas McFall
Chief Financial Officer
February 28, 2013
amended; and
operations of the Company.
/s/ Greg Henslee
Greg Henslee
Chief Executive Officer
February 28, 2013
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification
accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification
accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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