W H E E L S i n M O T I O N
M O V I N G F O R W A R D with a P R O V E N S T R A T E G Y and a S T R O N G C U L T U R E
2 0 1 3 A N N U A L R E P O R T
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 1
UNPARALLELED CUSTOMER SERVICE
HIGHLY-TRAINED PROFESSIONAL PARTS PEOPLE
ROBUST ELECTRONIC CATALOG
O’REWARDS LOYALTY PROGRAM
REGIONAL, TIERED DISTRIBUTION NETWORK
24 STRATEGICALLY LOCATED FACILITIES
266 HUB STORES
D I S T R I B U T I O N
N E T W O R K
S I O N A L CUST
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T E A M
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F I N A N C I A L H I G H L I G H T S
In thousands, except earnings per share data and store count
YEARS ENDED DECEMBER 31,
Store Count
Percentage Increase in Same-Store Sales
2013
4,166
4.3%
2012
3,976
3.8%
2011
3,740
2010
3,570
2009
3,421
4.6%
8.8%
4.6%
INFINITY PARTS SYSTEM
FIRST CALL ONLINE
OREILLYAUTO.COM
Sales
Operating Income
Net Income
Accounts Payable to Inventory
Working Capital
Total Assets
Total Debt
Shareholders’ Equity
Earnings Per Share (assuming dilution)
Weighted-Average Common Shares
Outstanding (assuming dilution)
$ 6,649,237
1,103,485
670,292
86.6%
412,191
6,067,208
1,396,208
1,966,321
6.03
$
$ 6,182,184
$ 5,788,816
$ 5,397,525
$ 4,847,062
977,393
585,746
84.7%
866,766
507,673
712,776
419,373
537,619
307,498
64.4%
44.3%
42.8%
460,083
1,027,600
1,072,294
5,749,187
1,095,956
2,108,307
4.75
$
5,500,501
797,574
5,047,827
358,704
2,844,851
3,209,685
2,685,865
$
3.71
$
2.95
$
2.23
1,007,576
4,781,471
790,748
111, 101
123,314
136,983
141,992
137,882
NATIONAL BRAND AWARENESS
EVENT SPONSORSHIPS
RADIO, SOCIAL MEDIA &
IN-STORE PROMOTIONS
P R O D U C T M I X
42 STATES, COAST TO COAST
4,000TH STORE MILESTONE
190 NEW STORES IN 2013
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
This graph shows the cumulative total shareholder return
assuming the investment of $100 on December, 31, 2008, and
the reinvestment of dividends thereafter, in the common stock
of O’Reilly Automotive, Inc., the Standard and Poor’s S&P 500
Index and the Standard and Poor’s S&P 500 Retail Index.
$260
2011
$291
2012
$1 00
2 00 8
$ 12 4
2009
$1 97
2010
$419
2013
O’Reilly Automotive, inc.
S&P 500 Retail Index
S&P 500 Index
MARKET SPECIFIC STORE-LEVEL INVENTORY
FLEET, HEAVY DUTY & AGRICULTURE
PAINT, BODY & EQUIPMENT
W H E E L S i n M O T I O N
O’Reilly’s wheels remain in motion. In 2013, Team O’Reilly delivered another year of
record-breaking results driven by our relentless commitment to our proven dual market
strategy and our unwavering dedication to the O’Reilly Culture of hard work and excellent
customer service. During 2013, we launched O’Rewards, our new customer loyalty
program, we opened our milestone 4,000th store and we continued the expansion of our
robust distribution network by beginning construction on three new state-of-the-art DCs,
which will open in key, existing and expansion markets. Every member of Team O’Reilly
is dedicated to keeping our satisfied customers’ wheels in motion.
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 2
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 3
T O O U R
S H A R E H O L D E R S
It is our pleasure to report another year
of outstanding financial results to you,
our shareholders, and we would like to
thank our dedicated Team Members for
once again outworking our competitors
and providing the best customer service
in the industry. We entered the year with
a long tradition of excellent financial
performance, having generated
comparable store sales growth and
increases in revenues and operating
margin each year since becoming a public
company in 1993, and in 2013 Team
O’Reilly stepped up to the plate and
delivered another record breaking year.
Our financial performance in 2013 was
highlighted by a robust 27% increase in
diluted earnings per share – our fifth
consecutive year of 25% or greater
adjusted earnings per share growth.
2013 Results At the core of our team’s
ability to out-pace our industry year in
and year out is our unwavering,
unrelenting commitment to customer
service; however, our robust sales
performance certainly does not come
easily and our passion for taking care of
every customer was the driving force
behind our industry leading comparable
store sales growth of 4.3%. Although the
U.S. economy has shown some signs of a
modest recovery, our customer continues
to face pressure from historically high
unemployment and underemployment,
and the competition for their business is
fierce. This challenging economic
environment has constrained the overall
growth in the automotive aftermarket, as
evident in the number of miles driven in
the U.S. and the reported results of our
public competitors. Our team’s ability to
deliver solidly positive comparable store
sales growth, while the rest of the
marketplace struggles to remain flat, is a
clear indication we are capturing market
share. Our performance leads our
industry simply because we provide the
best customer service – it is ingrained in
the fiber of the Team O’Reilly Culture.
That Culture is no more evident than in
our commitment to promote from within.
Our executive and senior management
teams have average tenures of 23 and 16
years in our company, respectively, and a
8.8%
4.6%
4.6%
3.8%
4.3%
10
8
6
4
2
0
20
15
10
5
0
16.6%
15.8%
15.0%
13.2%
11.1%
$6.03
$4.75
$3.71
$2.95
$2.23
8
6
4
2
0
1,000
600
600
400
200
0
-200
($130)
$951
$791
$512
$338
25
20
15
10
5
0
23.6%
20.8%
16.7%
13.1%
10.8%
0 9
1 0
11
12
13
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
SA ME-S TORE SA L ES
(percentage increase)
OPER ATING INCOME AS A
PERCENTAGE OF SA L ES
DILU T ED E A RNINGS
PER SHA RE
F REE CASH F LOW
(in millions)
RE T URN ON
INV ES T ED CAPITA L
significant majority of these managers
started in our business in a customer
service position in one of our stores.
The leadership of our company has grown
up in the parts business…and it shows.
Our excellent customer service is not
a program or a corporate initiative, it
is the hard-earned product of the years
of experience we have in offering
our customers great advice and great
parts, every day. We have repeatedly
demonstrated our ability to successfully
perpetuate our Culture as we open new
stores and integrate acquisitions –
Excellent Customer Service is simply
who we are, and it will remain at the
heart and soul of our Company.
Another key component of the O’Reilly
Culture is our relentless expense control
focus, which, coupled with our strong and
profitable sales growth, drove a 13%
increase in operating profit to a record
16.6% as a percentage of sales. To provide
a little historical perspective, the 16.6%
operating margin result is a 450 basis
point improvement over our 12.1%
operating margin from just six years ago.
Our outstanding results have been driven
by our commitment to profitable growth
and are the result of our discipline in
pursuing growth – we capture market
share by providing better service, building
long-term relationships and do not buy
business with price. Our improved
profitability in 2013 mirrored our
long-term strategy. We drove improved
gross margins by demonstrating the value
for both our customers and suppliers; our
customers benefited from our excellent
service levels and technical knowledge,
and we continue to see a higher mix of
hard part sales, which carry a higher gross
profit, while our supplier partners have
shared the gains they have reaped from
our robust growth in improved
acquisition costs. Our operating discipline
extends to the management of our
operating expenses. Our strategy is to
improve the productivity of our operating
expenses over the long term by leveraging
our costs on improved sales volumes,
however, we have not and will not
sacrifice the service we provide to our
customers to drive short-term
improvements in our numbers.
Our stores offer an extensive
selection of automotive parts, tools,
supplies, equipment, accessories,
and enhanced services and
programs to both do-it-yourself
and professional service provider
customers. Our highly-trained,
technically-proficient Professional
Parts People are committed to
providing consistently superior
service to each of our customers
every day.
O’Rewards, our customer loyalty
program launched in 2013,
rewards our retail customers with
enhanced benefits including cash
discounts off future purchases,
member-only offers and surprise
and delight targeted promotions.
More than four million loyal
customers have already enrolled in
our O’Rewards program and are
enjoying their well-earned benefits.
Future Outlook As we look forward to
2014, we will continue to execute our
business model and growth strategies with
the goal of setting new records for growth
and profitability. We remain very
confident in the health of the automotive
aftermarket, principally supported by the
stability of miles driven and continued
aging of the vehicle fleet. Vehicles
manufactured today can be reasonably
expected to stay on the road at high
mileages because of the quality of the
power trains, interiors and exteriors, and,
as a result, vehicle owners are willing to
invest in routine maintenance and repairs
on older vehicles with an expectation that
their vehicle will remain a reliable source
of transportation. This combination of the
durability of vehicles, and the value
proposition it creates for consumers,
continues to push out the age at which
vehicles are sent to the junk yard, and has
resulted in very stable scrappage rates,
and we expect for this trend to continue.
We are also optimistic about the
increasing trend in new vehicle sales.
Stronger new car sales point to improving
consumer confidence and overall
economic health and, combined with
stable, low scrappage rates, leads to a
growing population of total vehicles.
Unemployment improved modestly in
2013 and we expect to continue to see
steady improvements in commuter miles
as the economy recovers and more
individuals return to work. An increasing
population of vehicles and total miles
driven in the U.S. are strong catalysts for
increased demand for the parts we sell
and we remain extremely confident in the
long-term prospects of the aftermarket.
Growing Market Share Against the
backdrop of strong automotive
aftermarket fundamentals, we are poised
to continue to outpace our industry by
executing our proven growth strategy.
The most important component to that
strategy has been, and will continue to be,
growing our market share in existing
stores by simply outworking our
competitors and providing better
customer service. Our dual market
business model of serving both
professional service providers and
do-it-yourselfers with the best inventory
availability and knowledgeable parts
professionals has proven to be the most
effective model in our industry, and the
most difficult to duplicate. Our robust,
regional, tiered distribution infrastructure
enables us to provide five-night-a-week
delivery service to our stores,
supplemented in the majority of our
stores with multiple daily deliveries of
must-have parts from our local
distribution center or hub store. This
robust distribution network reflects a
significant capital investment, but the
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 4
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 5
Acquired VIP Auto Parts
launching O’Reilly into three
northeastern states.
4,166
Acquired CSK Auto Corporation
propelling O’Reilly to 40,000
Team Members and more than
3,200 stores in 38 states.
“ Our customers
must succeed
for us to be
successful.”
1,830
981
Initial public offering
of common stock at
$17.50 per share
(split adjusted $2.19).
219
O’Reilly will expand our market
share in 2014 with the addition
of 200 new stores in both
new and existing markets
$128.71 NASDAQ: ORLY
We remain committed to our
long track record of strong
and profitable growth and
are dedicated to continuing
to build shareholder value.
Our Team Members’ relentless
focus on providing the highest
level of customer service in the
industry remains the key to our
current and long-term success.
“ Day in and day
out, we live
the O’Reilly
Culture,
which clearly
differentiates
us from the
competition.”
O U R R O A D t o
C O N T I N U E D S U C C E S S
O’Reilly has effectively navigated the road of success for
more than 57 years. From the original 13 Team Members
and a single store, to our current team of 62,000,
supporting and servicing 24 distribution centers and
more than 4,100 stores, we’ve consistently delivered the
right parts at the right price at the right time to our
satisfied customers for decades.
“ Since our humble
beginnings in 1957,
we’ve been in the
business of making
lasting impressions
on our customers.”
O’Reilly Automotive, Inc. opened
its first store and generated sales
of $700,000 in its first year.
1
First branch store was
added in Springfield, MO.
O’Reilly launched
its unique dual
market strategy.
37
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O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 6
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 7
DEVENS, MASSACHUSETTS
NAPERVILLE, ILLINOIS
LAKELAND, FLORIDA
DISTRIBUTION NETWORK
Our robust, regional, tiered distribution
network provides our stores with same-day
or overnight access to hard-to-find parts
not routinely stocked at the store level and
enables us to optimize product availability and
inventory levels throughout our store network.
Our three new distribution centers in Florida,
Illinois and Massachusetts, opening in 2014,
will have a combined capacity to service
more than 750 stores. These new DCs will
provide our existing stores with a more robust
same-day inventory availability and still
support our future store growth and help
drive our continued market share gains.
large breadth of inventory we offer builds
strong relationships with both our
do-it-yourself and professional service
provider customers, because we can
deliver the right part to our customers
quicker than our competitors.
We also drive growth in our existing store
base by continually enhancing the in-store
experience of our customers through
refinements to our systems and new
programs to enhance the already excellent
service we provide to our customers. One
of these new programs we rolled out in
late 2013 was our O’Rewards Customer
Loyalty Program, and we are thrilled with
the initial response from our customers
to this new initiative. Our O’Rewards
program rewards our loyal customers
with rebates based on their purchases
and targeted “surprise and delight”
promotions tailored to their individual
preferences. This program will solidify
our engagement with our customers and
help us capture a larger percentage of
their business, while also providing us
with valuable information about our
customer’s buying habits. O’Rewards is
just one example of Team O’Reilly’s
dedication to our customers and our
commitment to becoming the dominant
auto parts supplier in all of our markets.
New Store Expansion Executing our
business model and providing excellent
customer service in every one of our
stores will always be our top priority and
we have proven our ability, over the
course of our history, to add very
profitable new stores without missing a
beat. Our new store growth has been
successful because we do not compromise
our proven model in order to drive unit
growth numbers. For each new store we
open, we aggressively identify and develop
a knowledgeable and enthusiastic team of
parts professionals to provide unsurpassed
customer service from day one. Having
distribution capacity across our chain has
allowed us to spread out our new store
growth, allowing us to be selective not
only in the sites we develop, but also, just
as importantly, in the new store teams we
build. In 2014, we will add new stores in
several existing market areas, with strong
growth in Texas and California, and in
new geographic regions, with expansion in
growth markets in Florida and the upper
Midwest. Our new stores in existing
markets are some of the strongest out of
the gate as they benefit from our existing
strong brand presence and management
support infrastructure. We support our
new market growth by opening stores in
contiguous geographic areas to our
existing distribution network, providing
the same five-night-a-week delivery our
existing markets receive. We also
frequently support a new market area with
the addition of a hub store in the first wave
of store openings. We only have one
chance to make a first impression, and we
make sure we have availability to be the
best parts provider as soon as we enter a
new market.
Capturing market share in existing stores
and opening successful new stores is
highly dependent on a strong distribution
network, and we have three new
Our state-of-the-art distribution centers stock
an average of 147,000 SKUs, average more than
380,000 operating square feet and provide same
day and five-night-a-week delivery to our stores
in the continental United States.
Our proven dual market
strategy allows us to effectively
serve, at a very high level, both
do-it-yourself and professional
service provider customers. Our
Professional Parts People are
required to be highly trained
and technically proficient in
automotive products to effectively
serve our customers. Our
experienced full-time
sales staff, consisting of more
than 600 Team Members
throughout our store base, are
devoted to calling on existing
and future professional service
provider customers.
distribution centers opening in 2014
which will provide us with the additional
capacity necessary to grow and to
continue to lead the industry in inventory
availability. We opened our 25th DC in
Lakeland, Florida, in January of 2014.
This DC will support our expansion into
Central and Southern Florida, and we
have been very pleased with the progress
of the stores we have added in these
markets. Our second new DC will open in
the third quarter of 2014 just outside of
Chicago, Illinois. This new DC will
provide us with a strategic advantage by
positioning more than 150,000 SKUs in
close proximity to the huge car population
in the important Chicagoland market,
while also freeing up distribution capacity
to support additional growth in several of
our existing midwestern facilities. Our
final project to be completed in 2014 will
be the opening of a new DC just outside
of Boston, Massachusetts. This new DC
will open in the back half of 2014 and will
initially service the stores acquired in the
VIP acquisition, with significant
additional capacity to support continued
expansion in the northeast beginning in
2015 and beyond. Constructing, stocking
and staffing more than 1.1 million
additional square feet of distribution
capacity in one year is a huge
undertaking, but our distribution team
has a proven track record of bringing new
DCs online without a hitch.
Opportunistic Acquisitions The third
prong of our proven growth strategy is the
identification, acquisition, and integration
of existing auto parts chains, and the
multiple acquisition success stories in our
history set the blueprint for our activity
moving forward. The automotive
aftermarket has consistently consolidated
over the past decade, but remains a very
fragmented industry with the top ten
automotive aftermarket parts chains in
the U.S. accounting for less than 50%
of the total number of outlets. This
fragmentation is especially prevalent on
the professional service provider side of
the business, and we believe significant
opportunity exists for O’Reilly to continue
to consolidate the industry. Our historical
success in opportunistic acquisitions is
directly tied to the discipline we show in
the deals we complete and the process we
undertake to integrate the acquired
chains. We constantly monitor the
O ’ R E I L LY AU T O M O T I V E 2 01 3 A N N UA L R E P O R T 8
EXPERIENCED MANAGEMENT TEAM
With more than 300 years of automotive industry
experience, O’Reilly’s executive management
team provides something not all companies can
claim – 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: Ted Wise, Greg Henslee,
Randy Johnson, Jeff Shaw, Tony Bartholomew
Back row, left to right: David O’Reilly, Mike
Swearengin, Greg Johnson, Steve Jasinski,
Tom McFall
aftermarket landscape for the right
acquisition target, but we will only buy
at the right price – one that meets our
stringent return metrics. We do not
pursue acquisitions solely for the sake of
growth. Once a deal is completed, our
operations groups work diligently to
quickly convert the physical plant of the
acquired chain to O’Reilly’s systems,
processes and procedures. Most
importantly, however, we work from
day one of the acquisition to instill the
O’Reilly Culture in each of our new Team
Members. Our ability to successfully
spread our Culture in acquisitions ranging
in size from one store to 1,300 stores is the
single most important factor in our past
and future acquisition successes.
Financial Policy We are laser focused on
executing our proven profitable growth
model and our financial policies reflect
that commitment. Our priorities for use
of cash mirror our growth strategies with
the top priority being investment in our
existing store base to provide our teams
with attractive stores, robust inventory
availability and enhanced technology
to capture market share, followed by
new store growth and opportunistic
acquisitions. In 2013, we successfully
followed this playbook, capturing market
share and generating industry leading
4.3% comparable store sales growth,
while opening 190 new stores. This
topline execution, along with disciplined
expense control, generated free cash flow
of $512 million in 2013.
We are also committed to managing
our capital structure to provide robust
returns for shareholders, while prudently
preserving our ability to invest in our
business and take advantage of growth
opportunities. To this end, we established
a targeted leverage ratio of 2.00 to 2.25
times adjusted debt to adjusted EBITDAR
at the beginning of 2011, which we believe
reflects our current optimal capital
structure, and we issued additional debt
in June of 2013 in line with this target.
With this issuance we had intended to
enter our target range in 2013, but did not
because of our very strong earnings
results and we finished 2013 just below
that range. Our continued strong
performance and prudent financial
management earned us an upgrade in our
credit rating from Moody’s during 2013,
moving the rating from Baa3 up to Baa2,
and putting us on par with our BBB flat
rating from S&P. Our investment grade
ratings are a critical component of our
overall capital structure and supplier
financing programs, and we remain
extremely committed to maintaining
these ratings.
Our final priority for use of cash, after we
have exhausted opportunities to invest in
our business, is to return value to our
shareholders in the form of our share
repurchase program. In 2013, our strong
free cash flow results and incremental
debt issuance supported share repurchases
totaling $933 million. Since the inception
of our Board-approved share repurchase
program in January of 2011, we have
repurchased more than 40 million of our
shares, at an average price of $82.61 per
share, for a total investment of $3.35
billion. We believe this program has
created significant value for our
shareholders, and we will continue to
prudently repurchase shares with excess
cash in 2014.
We remain very grateful to all of our
shareholders for the continued trust you
have placed in O’Reilly. We are very proud
of our record-breaking performance in
2013 and remain committed to building
upon this success in 2014 and beyond.
Finally, we would once again like to thank
our 62,000 Team Members for their
unwavering passion for offering the
highest level of customer service in the
industry. You are the reason for our past
success and our very bright future.
GR EG HENSLEE
President and Chief Executive Officer
THOMAS MCFALL
Executive Vice President of Finance
and Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
K
-
0
1
M
R
O
F
(cid:2)
(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
O'REILLY AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction
of incorporation or organization)
000-21318
Commission file
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:2)
No
(cid:3)
(cid:2)
(cid:3)
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
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
No
(cid:3)
(cid:2)
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
No
(cid:3)
(cid:2)
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:3)
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
Smaller Reporting Company
Non-Accelerated Filer
Accelerated Filer
(cid:3)
(cid:3)
(cid:3)
(cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(cid:3)
No
(cid:2)
At February 24, 2014, an aggregate of 106,364,924 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 $16,366,370,856 based on the last
sale price of the common stock reported by The NASDAQ Global Select Market.
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At June 30, 2013, an aggregate of 108,886,775 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 $12,262,828,601 based on the last price of
the common stock reported by The NASDAQ Global Select Market.
As indicated below, portions of the registrant's documents specified below are incorporated here by reference:
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy Statement for 2014 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, 2013
Table of Contents
Part I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
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.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Part III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
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, 2013, 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 December 31, 2013, we operated 4,166 stores in 42 states. Our stores carry an extensive product line, including the products identified
below:
(cid:135)(cid:3)
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;
(cid:135)(cid:3) maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and
(cid:135)(cid:3)
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
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3) machine shops
See "Risk Factors" beginning on page 15 for a description of certain risks relevant to our business. These risk factors include, among
others, deteriorating economic conditions, competition in the automotive aftermarket business, our sensitivity to regional economic and
weather conditions, future growth assurance, our dependence upon key and other personnel, our relationships with key vendors and
availability of key products, our acquisition strategies, complications in our distribution centers (“DC”s), failure to achieve high levels
of services and products, 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, increased debt levels, a downgrade in our credit ratings, data
security, and environmental legislation and other regulations.
4
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, including 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.
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Competitive Advantages
We believe our effective dual market strategy, superior customer service, technically proficient store personnel, strategic distribution
systems and experienced management team make up our key competitive advantages which cannot be easily duplicated.
Proven Ability to Execute Our 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 2013, we derived approximately 58% of our sales from our DIY customers and approximately 42% of our sales from our professional
service provider customers. We believe we will continue to increase our sales to professional service provider customers at a faster pace
than the increase in our sales to DIY customers due to the more fragmented nature of the professional service provider business, which
offers a greater opportunity for consolidation, the opportunities for growth in our less mature markets, and our systems, knowledge and
experience serving the professional service provider side of the automotive aftermarket, supported by 600 full-time sales staff dedicated
solely to calling upon and servicing the professional service provider customer. We believe we will continue to have a competitive
advantage on the professional service provider portion of our business over our competitors who do not have the same historical track
record of serving the professional service provider. We will also continue to expand and enhance the level of offerings focused on the
growth of our DIY business and will continue to execute our proven dual market strategy.
Superior 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.
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:
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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
a robust point-of-sale system integrated with our proprietary electronic catalog, which contains a wide variety of product images,
schematics and technical specifications, and equips our Team Members with highly effective tools to source products in our extensive
supply network
Technically Proficient Professional Parts People:
Our highly-motivated, technically-proficient Professional Parts People provide us with a significant competitive advantage, particularly
over less specialized retail operators. We require our Professional Parts People to undergo extensive and ongoing training and to be
technically knowledgeable, particularly with respect to hard parts, in order to better serve the technically-oriented professional service
provider customers with whom they interact on a daily basis. Such technical proficiency also enhances the customer service we provide
to our DIY customers who value the expert assistance provided by our Professional Parts People.
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Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution network provides 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 147,000 stock keeping units (“SKUs”), many of which are hard-
to-find items not typically stocked by other auto parts retailers. To augment our robust DC network, we operate 266 Hub stores that also
provide delivery service and same-day access to an average of 43,000 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 166 professionals who average 18 years of service; 210 corporate managers who average 16 years of service; and 404 district
managers who average 12 years of service. Our management team has demonstrated the consistent ability to successfully execute our
business plan and growth strategy by generating 21 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 2013, we opened 190 net, new stores and we plan
to open approximately 200 net, new stores in 2014, 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 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 predetermined 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. Therefore, 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:
The automotive aftermarket industry is still highly fragmented and 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. Our
intention is to continue to selectively pursue strategic acquisition targets that will strengthen our position as a leading automotive
aftermarket parts supplier in existing markets and provide a springboard for expansion 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 overall 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
performance. During 2013, we relocated 19 stores and renovated 57 stores. We believe that our ability to consistently achieve growth
6
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 the in-store availability
of our 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, which will continue to build the O’Reilly Brand.
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Team Members
As of January 31, 2014, we employed 62,533 Team Members (31,771 full-time Team Members and 30,762 part-time Team Members),
of whom 53,317 were employed at our stores, 6,613 were employed at our DCs and 2,603 were employed at our corporate and regional
offices. A union represents 50 stores (535 Team Members) in the Greater Bay Area in California, and has for many years. In addition,
approximately 66 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 57 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 24,000 SKUs and average approximately 7,000 total square feet in size. At December 31, 2013, we had a
total of approximately 30 million square feet in our 4,166 stores. Our stores are served primarily by the nearest DC, which averages
147,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 266 Hub stores, which, on
average, carry approximately 43,000 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 or 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.
7
The following table sets forth the geographic distribution and activity of our stores as of December 31, 2013 and 2012:
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State
Texas
California
Missouri
Georgia
Illinois
Tennessee
Washington
North Carolina
Arizona
Ohio
Michigan
Oklahoma
Alabama
Minnesota
Indiana
Arkansas
Louisiana
Wisconsin
Florida
Colorado
South Carolina
Kansas
Mississippi
Iowa
Kentucky
Utah
Oregon
Nevada
Virginia
New Mexico
Maine
Idaho
Nebraska
Montana
New Hampshire
Wyoming
North Dakota
Alaska
Hawaii
South Dakota
West Virginia
Massachusetts
Total
December 31, 2012
2013 Net, New and
Acquired Stores
% of Total
Store Change
10.0 %
7.9 %
1.1 %
3.2 %
6.2 %
3.2 %
1.1 %
1.6 %
0.5 %
7.9 %
5.3 %
1.6 %
0.5 %
1.6 %
4.6 %
0.5 %
3.2 %
4.2 %
16.7 %
1.1 %
3.2 %
1.1 %
0.0 %
0.5 %
1.1 %
0.5 %
2.1 %
1.1 %
3.2 %
1.6 %
0.0 %
0.5 %
1.1 %
0.0 %
0.0 %
0.5 %
0.0 %
0.0 %
0.5 %
0.5 %
0.5 %
0.0 %
100.0%
Store
Count
% of Total
Store Count
Store
Change
584
483
183
167
147
142
145
130
130
115
110
112
112
109
95
101
90
87
58
84
72
72
72
67
65
56
48
48
40
41
35
33
30
24
18
16
13
13
11
11
4
3
3,976
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 %
2.4 %
2.5 %
2.3 %
2.2 %
1.5 %
2.1 %
1.8 %
1.8 %
1.8 %
1.7 %
1.6 %
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%
19
15
2
6
12
6
2
3
1
15
10
3
1
3
9
1
6
8
32
2
6
2
0
1
2
1
4
2
6
3
0
1
2
0
0
1
0
0
1
1
1
0
190
8
December 31, 2013
Store
Count
% of Total
Store Count
Cumulative
% of Total
Store Count
603
498
185
173
159
148
147
133
131
130
120
115
113
112
104
102
96
95
90
86
78
74
72
68
67
57
52
50
46
44
35
34
32
24
18
17
13
13
12
12
5
3
4,166
14.5 %
12.0 %
4.4 %
4.2 %
3.8 %
3.6 %
3.5 %
3.2 %
3.1 %
3.0 %
2.9 %
2.8 %
2.7 %
2.7 %
2.5 %
2.4 %
2.3 %
2.3 %
2.2 %
2.1 %
1.9 %
1.8 %
1.7 %
1.6 %
1.6 %
1.4 %
1.3 %
1.2 %
1.1 %
1.1 %
0.8 %
0.8 %
0.7 %
0.6 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
0.3 %
0.1 %
0.1 %
100.0%
14.5%
26.5%
30.9%
35.1%
38.9%
42.5%
46.0%
49.2%
52.3%
55.3%
58.2%
61.0%
63.7%
66.4%
68.9%
71.3%
73.6%
75.9%
78.1%
80.2%
82.1%
83.9%
85.6%
87.2%
88.8%
90.2%
91.5%
92.7%
93.8%
94.9%
95.7%
96.5%
97.2%
97.8%
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.
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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 uses 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;
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3) market economic strength, retail draw and growth patterns;
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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. As these store clusters mature, we evaluate the need
to open additional locations in the more densely populated markets where we believe opportunities exist to expand our market share or
to improve the level of service provided in high volume 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 404 district managers has general
supervisory responsibility for an average of ten 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 online assignments, field workshops, regional meetings and our annual managers' conference.
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 on individual and/or store sales and profitability. In addition, each
of our district managers participates in our stock option and bonus programs, and store managers participate in bonus programs based
on their store’s performance. We believe 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
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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 a 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.
Distribution Systems
We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while lowering our
inventory carrying costs and controlling inventory. Moreover, we believe the 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 and additional penetration into existing markets in the regions surrounding each DC. As of December 31, 2013, we had a total
growth capacity of over 225 stores in our distribution center network, which increased by 300 stores with the completion of our Lakeland,
Florida DC in January of 2014, and will increase by 250 stores with the completion of our Chicago, Illinois, DC in the second half of
2014 and 210 net stores with the relocation of our existing Lewiston, Maine, DC to a facility in Devens, Massachusetts, in the second
half of 2014. Including this planned growth, we expect to end the year in 2014 with a total growth capacity in our distribution system
of over 750 stores.
Distribution Centers:
As of December 31, 2013, we operated 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 147,000 SKUs and most DCs are linked to and have the ability to access
multiple other regional DCs’ on-hand 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 an individual DC's metropolitan area receive multiple daily
deliveries from the DC's “city counter”, most of which receive this service seven days per week. Our DCs also provide weekend service
not only to stores they service via their city counters, but also to strategic Hub locations, which redistribute to surrounding stores. Our
national Hub store network provides additional service throughout the week, and on weekends, to surrounding stores. With our planned
DC expansion during 2014, we expect to end the year in 2014 operating 26 DCs comprised of approximately 9.9 million operating square
feet.
As part of our continuing efforts to enhance our distribution network in 2014, we plan to:
continue to implement voice picking technology in additional DCs;
continue to implement our warehouse management system in additional DCs;
continue to 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;
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(cid:135)(cid:3) make proven, return-on-investment based capital enhancements to material handling equipment in DCs including conveyor systems,
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picking modules and lift equipment; and
expand our distribution network by adding two additional new DCs to our network and relocating one DC to a larger, state-of-the
art facility.
Hub stores:
We currently operate 266 strategically located 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 and 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 43,000 SKUs.
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Products and Purchasing
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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 competitive 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 2013, 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
24% of our total purchases in 2013. Our largest vendor in 2013 accounted for approximately 7% of our total purchases and the next four
largest vendors each accounted for approximately 3% to 6% of our total purchases.
Marketing
Marketing to the DIY Customer:
We use an integrated marketing program, which includes television, radio, direct mail and newspaper distribution, in-store, online, and
social media 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 42 states
during 2013. We were the title sponsor of two National Association for Stock Car Racing (“NASCAR”) National series events in Texas
and four National Hot Rod Association (“NHRA”) races across the country.
During the fall and winter months, we strategically sponsor National Collegiate Athletic Association (“NCAA”) basketball. Our
relationships with over 30 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 Spanish speaking auto
parts consumer.
In 2013, 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.
In 2013, we launched our O’Reilly O’Rewards® DIY customer loyalty program. The program provides members with the opportunity
to earn points through purchases and other special events and allows members to redeem those points toward coupons, which provide
discounts on future merchandise purchases in our stores. The programs allow us to enhance engagement with our customers to earn more
of their business and target promotions tailored to their specific needs and purchasing patterns, while also rewarding our customers for
their continued business.
Marketing to the Professional Service Provider Customer:
We have over 600 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,
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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
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(cid:135)(cid:3) multiple, daily deliveries from our stores
same-day or overnight access to an average of 147,000 SKUs through seven day store inventory replenishments
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separate service counter and phone line in our stores dedicated exclusively to service professional service providers
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trade credit for qualified accounts
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(cid:135)(cid:3) Mitchell shop management systems
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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
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(cid:135)(cid:3) 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 181 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 trademarked 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.
Pricing
We believe that competitive pricing is essential to successfully operate in the automotive aftermarket business. Product pricing is generally
established to compete with the pricing 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 $239 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
$136 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.
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Competition
The sale of automotive aftermarket items is highly competitive in many areas, including customer service, product availability, store
location, brand recognition and price. 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:
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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
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(cid:135)(cid:3) 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
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(cid:135)(cid:3) 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
to support, such as the capital expenditures required for our distribution and store networks and working capital needed to maintain
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 costs increase 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.
Regulations
We are subject to 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 stores as a service to our customers pursuant to agreements with
third-party vendors. The batteries and used lubricants are collected by our Team Members, 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. However, we cannot
give any assurance 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 53, President and Chief Executive Officer, has been an O’Reilly Team Member for 29 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.
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Mr. Henslee has held the position of Chief Executive Officer since 2005, held the position of Co-President between the years of 2005
and 2012, and has held the position of President since January of 2013.
Thomas McFall, age 43, 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 Auto Corporation ("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 51, Executive Vice President of Store Operations and Sales, has been an O'Reilly Team Member for 25 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 of 2013.
Ted F. Wise, age 63, Executive Vice President of Expansion, has been an O’Reilly Team Member for 43 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 was promoted to President of Sales, Operations and Real Estate in 1999, and
in 2005 became Chief Operating Officer and Co-President, until January of 2013 when he became Executive Vice President of Expansion.
Tony Bartholomew, age 52, Senior Vice President of Professional Sales, has been an O’Reilly Team Member for 31 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 of 2013.
Stephen L. Jasinski, age 48, Senior Vice President of Information Systems, has been an O’Reilly Team Member for 21 years. Mr. Jasinski’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 systems, PC
support, store support services and telecommunications. Mr. Jasinski has held the position of Senior Vice President of Information
Systems since January of 2013.
Gregory D. Johnson, age 48, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member for 31 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. Mr. Johnson has held the position of Senior Vice President since 2007.
Randy Johnson, age 58, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 40 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. Mr. Johnson has held the position of Senior Vice President of Inventory Management since 2010.
Michael Swearengin, age 53, Senior Vice President of Merchandise, has been an O'Reilly Team Member for 20 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. Mr.
Swearengin has held the position of 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.®, BETTER PARTS, BETTER PRICES....EVERYDAY!®, 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®,
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O’REILLY AUTO COLOR PROFESSIONAL PAINT PEOPLE®, O’REILLY AUTO PARTS®, O’REILLY AUTO PARTS
PROFESSIONAL PARTS PEOPLE®, O’REILLY AUTOMOTIVE®, O'REILLY O'REWARDS®, O’REILLY RACING®,
O'REWARDS®, PARTNERSHIP NETWORK®, PARTS CITY®, PARTS CITY AUTO COLOR PROFESSIONAL PAINT PEOPLE®,
PARTS CITY AUTO PARTS®, PARTS CITY TOOL BOX®, PARTS PAYOFF®, POWER TORQUE®, PRECISION®, QUIETECH®,
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.
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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 levels 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 in 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. 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.
15
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.
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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 and natural disasters. 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 2014 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.
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:
(cid:135)(cid:3) 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;
(cid:135)(cid:3)
(cid:135)(cid:3) we may fail to retain key personnel from acquired businesses;
(cid:135)(cid:3) we may assume unanticipated legal liabilities and other problems;
(cid:135)(cid:3) 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
(cid:135)(cid:3) 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.
16
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 one or more of our distribution centers
(“DCs”) 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.
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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 effects 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 our 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, that future sales of shares of our 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 our 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 stock price would likely suffer.
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 of 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:
(cid:135)(cid:3) make it more difficult to satisfy our financial obligations, including those relating to the notes and our credit facility;
(cid:135)(cid:3)
(cid:135)(cid:3)
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.
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
17
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In addition, the terms of our 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 our 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. These ratings 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 evolving, 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 related mandates
could potentially be forthcoming and these matters, if enacted, could adversely impact our costs, by, among other things, increasing fuel
prices.
Our business is subject to employment laws and regulations, including requirements related to minimum wage. Our success depends,
in part, on our ability to manage operating costs and identify 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 employment laws and/or
regulations could hinder our ability to control costs, which 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
legislatures, significantly impacts our healthcare cost structure and increases our healthcare-related expenses. We are currently evaluating
the potential additional impact the healthcare reform legislation will have on our business and the steps necessary to mitigate such impact,
including potential further modifications to our current benefit plans, operational changes to minimize the effect of the legislation on 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
None.
18
Item 2. Properties
Distribution centers, stores, and other properties
As of December 31, 2013, we operated 24 regional distribution centers (“DC”s), of which nine were leased (2.9 million operating square
footage) and 15 were owned (5.7 million operating square footage) for total DC operating square footage of 8.6 million square feet. The
following table provides information regarding our DCs, returns facilities and corporate offices as of December 31, 2013:
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Principal Use(s)
Operating Square
Footage (1)
Nature of
Occupancy
Location
Atlanta, GA
Belleville, MI
Billings, MT
Dallas, TX
Denver, CO
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Distribution Center
Des Moines, IA
Distribution Center
Devens, MA
Distribution Center (to open in 2014)
Greensboro, NC
Distribution Center
Houston, TX
Distribution Center
Indianapolis, IN
Distribution Center
Kansas City, MO
Distribution Center
Knoxville, TN
Lakeland, FL
Lewiston, ME
Distribution Center
Distribution Center (opened in January, 2014)
Distribution Center (to be relocated in 2014)
Little Rock, AR
Distribution Center
Lubbock, TX
Mobile, AL
Distribution Center
Distribution Center
Moreno Valley, CA Distribution Center
Naperville, IL
Nashville, TN
Distribution Center (to open in 2014)
Distribution Center
Oklahoma City, OK Distribution Center
Phoenix, AZ
Distribution Center
Salt Lake City, UT
Distribution Center
Seattle, WA
Distribution Center
Springfield, MO
Distribution Center
St. Paul, MN
Stockton, CA
Auburn, WA
McAllen, TX
Springfield, MO
Springfield, MO
Phoenix, AZ
Springfield, MO
Springfield, MO
Springfield, MO
Distribution Center
Distribution Center
Bulk Facility
Bulk Facility
Bulk Facility
Return/Deconsolidation Facility, Corporate
Offices
Corporate Offices
Corporate Offices
Corporate Offices
Corporate Offices, Training and Technical Center
Total operating square footage
Lease Term
Expiration
10/31/2024
2/28/2025
1/31/2031
12/31/2014
3/31/2017
12/31/2022
12/31/2018
6/22/2015
6/30/2025
6/30/2018
4/30/2017
11/30/2022
8/31/2024
492,350
333,262
128,300
442,000
321,242
253,886
370,545
441,600
532,615
657,603
299,018
150,766
569,419
131,184
122,969
276,896
301,068
547,478
499,471
315,977
320,667
383,570
294,932
533,790
294,486
324,668
720,836
81,761
24,560
35,200
290,580
12,327
435,600
46,970
22,000
11,009,596
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Leased (2)
Owned
Owned
Leased
Owned
Leased
Owned
(1)
(2)
Includes floor and mezzanine operating square footage, excludes subleased square footage.
Occupied under the terms of a lease with an affiliated party.
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
19
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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 4,166 stores that we operated at December 31, 2013, 1,469 stores were owned, 2,620 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 three 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 April 30, 2014, 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 4,400 stores, providing a growth capacity of more
than 225 stores, which increased by 300 stores with the completion of our Lakeland, Florida, DC in January of 2014 and will increase
by 250 stores with the completion of our Chicago, Illinois, DC and 210 stores with the completion of our Devens, Massachusetts, DC,
both of which are expected to open in the second half of 2014. We believe the growth capacity in our 24 existing DCs, along with the
additional capacity of our new Lakeland, Chicago and Devens DCs, 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 Auto Corporation
("CSK") and CSK’s former officers and other litigation, prior to its acquisition by O’Reilly in 2008, 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 $13.4
million at December 31, 2013, which relates to the payment of those legal fees and costs already incurred. It is possible that in a particular
quarter or annual period the Company’s results of operations and cash flows could be materially affected by resolution of such matter,
depending, in part, upon the results of operations or cash flows for such period. However, at this time, management believes that the
ultimate outcome of this matter, after consideration of applicable reserves, should not have a material adverse effect on the Company’s
consolidated financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
20
PART II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common stock:
Shares of O’Reilly Automotive, Inc. (the “Company”) common stock are traded on The NASDAQ Global Select Market (“Nasdaq”)
under the symbol “ORLY”. The Company’s common stock began trading on April 22, 1993; no cash dividends have been declared since
that time, and we do not anticipate paying any cash dividends in the foreseeable future.
As of February 19, 2014, the Company had approximately 106,000 shareholders of common stock based on the number of holders of
record and an estimate of individual participants represented by security position listings.
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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
2013
2012
High
Low
High
Low
$
$
104.70
113.09
128.20
135.19
135.19
$
$
87.74
98.67
113.91
120.96
87.74
$
$
$
91.51
106.71
94.56
94.08
106.71
$
78.15
81.34
80.37
79.92
78.15
Sales of unregistered securities:
There were no sales of unregistered securities during the year ended December 31, 2013.
Issuer purchases of equity securities:
The following table identifies all repurchases during the fourth quarter ended December 31, 2013, 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, 2013, to October 31, 2013
November 1, 2013, to November 30, 2013
December 1, 2013, to December 31, 2013
Total as of December 31, 2013
Total
Number of
Shares
Purchased
325
857
799
1,981
Average
Price Paid
per Share
$
125.55
123.77
123.88
124.11
$
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)
$
325
857
799
1,981
350,747
244,689
145,734
(1) Under our share repurchase program, as approved by our Board of Directors on January 11, 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. We may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. On
May 29, 2013, our Board of Directors approved a resolution to increase the authorization under the share repurchase program by an additional $500
million, raising the cumulative authorization under the share repurchase program to $3.5 billion, which was previously announced. The additional
$500 million authorization is effective for a three-year period, beginning on May 29, 2013. The current authorization under the share repurchase
program is scheduled to expire on May 29, 2016. No other share repurchase programs existed during the three or twelve months ended December
31, 2013.
The Company repurchased a total of 8.5 million shares of its common stock under its publicly announced share repurchase program
during the year ended December 31, 2013, at an average price per share of $109.38. Subsequent to the end of the year and through
February 28, 2014, the Company did not repurchase a material number of shares of its common stock. The Company repurchased a total
of 40.6 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and
through February 28, 2014, at an average price of $82.61, for a total aggregate investment of $3.4 billion.
Stock performance graph:
The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 31, 2008, and the
reinvestment of dividends thereafter, if any, in the Company’s common stock versus the Nasdaq Retail Trade Stocks Total Return Index
21
(“Nasdaq Retail Trade”), the Nasdaq United States Stock Market Total Returns (“Nasdaq US”), the Standard and Poor’s S&P 500 Index
(“S&P 500”), and the Standard and Poor’s S&P 500 Retail Index (“S&P 500 Retail Index”). The Company has added the S&P Retail
Index as its components include many of the Company’s peers and, in the future, the Company plans to discontinue the use of the Nasdaq
US and the Nasdaq Retail Trade indices in its comparison graph.
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Company/Index
Dec 31, 2008 Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Dec 31, 2013
O'Reilly Automotive, Inc.
$
Nasdaq Retail Trade
Nasdaq US
S&P 500
S&P 500 Retail Index
$
100
100
100
100
100
$
124
136
144
123
147
$
197
170
170
139
182
$
260
191
171
139
187
$
291
225
202
158
234
419
292
282
205
337
22
Item 6. Selected Financial Data
The table below compares O’Reilly Automotive, Inc.’s (the “Company’s”) selected financial data over a ten-year period.
Years ended December 31,
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
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(In thousands, except per share
data)
INCOME STATEMENT
DATA:
Sales ($)
6,649,237
6,182,184
5,788,816
5,397,525
4,847,062
3,576,553
2,522,319
2,283,222
2,045,318
1,721,241
Cost of goods sold, including
warehouse and distribution
expenses
3,280,236
3,084,766
2,951,467
2,776,533
2,520,534
1,948,627
1,401,859
1,276,511
1,152,815
Gross profit
3,369,001
3,097,418
2,837,349
2,620,992
2,326,528
1,627,926
1,120,460
1,006,711
892,503
978,076
743,165
Selling, general and
administrative expenses
Former CSK officer clawback
Legacy CSK DOJ investigation
charge
2,265,516
2,120,025
1,973,381
1,887,316
1,788,909
1,292,309
815,309
724,396
639,979
552,707
—
—
—
—
(2,798)
—
—
20,900
—
—
—
—
—
—
—
—
—
—
—
—
Operating income
1,103,485
977,393
866,766
712,776
537,619
335,617
305,151
282,315
252,524
190,458
Write-off of asset-based
revolving credit agreement debt
issuance costs
Termination of interest rate
swap agreements
Gain on settlement of note
receivable
—
—
—
—
—
—
Other income (expense), net
Total other income (expense)
(44,543)
(44,543)
(35,872)
(35,872)
(21,626)
(4,237)
—
(25,130)
(50,993)
—
—
11,639
(35,042)
(23,403)
—
—
—
—
—
—
—
—
—
(40,721)
(40,721)
(33,085)
(33,085)
2,337
2,337
—
—
—
(50)
(50)
—
—
—
—
—
—
(1,455)
(1,455)
(2,721)
(2,721)
Income before income taxes
and cumulative effect of
accounting change
Provision for income taxes
Income before cumulative
effect of accounting change
Cumulative effect of
accounting change, net of tax
(a)
1,058,942
388,650
941,521
355,775
815,773
308,100
689,373
270,000
496,898
189,400
302,532
116,300
307,488
113,500
282,265
104,180
251,069
187,737
86,803
70,063
670,292
585,746
507,673
419,373
307,498
186,232
193,988
178,085
164,266
117,674
—
—
—
—
—
—
—
—
—
21,892
Net income ($)
670,292
585,746
507,673
419,373
307,498
186,232
193,988
178,085
164,266
139,566
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
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
6.14
—
6.14
4.83
—
4.83
3.77
—
3.77
3.02
—
3.02
2.26
—
2.26
1.50
—
1.50
1.69
—
1.69
1.57
—
1.57
1.47
—
1.47
1.07
0.20
1.27
109,244
121,182
134,667
138,654
136,230
124,526
114,667
113,253
111,613
110,020
6.03
—
6.03
4.75
—
4.75
3.71
—
3.71
2.95
—
2.95
2.23
—
2.23
1.48
—
1.48
1.67
—
1.67
1.55
—
1.55
1.45
—
1.45
1.05
0.20
1.25
111,101
123,314
136,983
141,992
137,882
125,413
116,080
115,119
113,385
111,423
23
Years ended December 31,
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
F
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SELECTED OPERATING
DATA:
Number of Team Members at
year end
Number of stores at year end
(c)
Total store square footage at
year end (in 000s)(d)
Sales per weighted-average
store (in 000s)(d)($)
Sales per weighted-average
square foot (in 000s)(d)($)
Percentage increase in same
store sales (e)(f)
61,909
53,063
49,324
46,858
44,880
40,735
23,576
21,920
19,614
17,410
4,166
3,976
3,740
3,570
3,421
3,285
1,830
1,640
1,470
1,249
30,077
28,628
26,530
25,315
24,200
23,205
12,439
11,004
9,801
8,318
1,614
1,590
1,566
1,527
1,424
1,379
1,430
1,439
1,478
1,443
224
224
221
216
202
201
212
215
220
217
4.3%
3.8%
4.6%
8.8%
4.6%
1.5%
3.7%
3.3%
7.5%
6.8%
Years ended December 31,
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
(In thousands, except ratio
data)
BALANCE SHEET DATA:
Working capital ($)
412,191
460,083
1,027,600
1,072,294
1,007,576
821,932
573,328
566,892
424,974
479,662
Total assets ($)
Inventory turnover
Inventory turnover, net of
payables
Accounts payable to
inventory
Current portion of long-term
debt and short-term debt ($)
Long-term debt, less current
portion ($)
6,067,208
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
1.4
10.7
1.4
7.4
1.5
3.4
1.4
2.5
1.4
2.6
1.6
3.1
1.6
3.0
1.6
2.8
1.7
2.8
1.6
2.5
86.6%
84.7%
64.4%
44.3%
42.8%
46.9%
43.2%
39.2%
40.3%
38.5%
67
222
662
1,431
106,708
8,131
25,320
309
75,313
592
Shareholders’ equity ($)
1,966,321
2,108,307
2,844,851
3,209,685
2,685,865
2,282,218
1,592,477
1,364,096
1,145,769
1,396,141
1,095,734
796,912
357,273
684,040
724,564
75,149
110,170
25,461
100,322
947,817
Years ended December 31,
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
(In thousands)
CASH FLOW DATA:
Cash provided by operating
activities ($)
Capital expenditures
Free cash flow (g)
908,026
1,251,555
1,118,991
395,881
512,145
300,719
950,836
328,319
790,672
703,687
365,419
285,200
414,779
298,542
341,679
299,418
282,655
185,928
228,871
206,685
205,159
338,268
(129,579)
(43,137)
16,763
(42,943)
1,526
226,536
173,486
53,050
(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)
In 2005, 2008 and 2012, the Company acquired Midwest Auto Parts Distributors (“Midwest”), CSK Auto Corporation (“CSK”) and VIP Parts, Tires & Service
(“VIP”), respectively. The 2005 Midwest acquisition added 72 stores, the 2008 CSK acquisition added 1,342 stores and the 2012 VIP acquisition added 56 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.
(d) 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, expansions, closures or acquisitions.
(e) 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.
(f) 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.
(g) Free cash flow is calculated as net cash provided by operating activities, less capital expenditures for the period.
24
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:
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(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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 2013, 2012 and 2011;
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, 2013, and 2012; 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 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, 2013, 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 U.S. automotive aftermarket specialty retailers, selling our products to both do-it-yourself (“DIY”) customers and professional
service providers – our “dual market strategy”. 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. Our stores also offer
enhanced services and programs to our customers: 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; and machine shops. As of December 31, 2013, we operated
4,166 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.
25
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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(cid:135)(cid:3) Number of Miles Driven - The number of total miles driven in the U.S. influences the demand for repair and maintenance
products sold within the automotive aftermarket. According to the Department of Transportation, prior to 2007, the annual
number of total miles driven in the U.S. had steadily increased; however, since that time, as the U.S. experienced difficult
macroeconomic conditions and historically high levels of unemployment, the number of total miles driven in the U.S. have
remained relatively flat. Although total miles driven have not significantly increased since 2007, vehicles in the U.S. continue
to be driven approximately three trillion miles per year, resulting in ongoing wear and tear and continued demand for the repair
and maintenance products sold within the automotive aftermarket. In addition, we believe that as the U.S. economy continues
to recover and the level of unemployment declines, total miles driven in the U.S. will return to a period of annual growth,
supporting continued demand for automotive aftermarket products.
(cid:135) 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 vehicle population 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 8% over the past decade, from 229 million light vehicles in 2002 to 247 million light vehicles
in 2012. Annual new light vehicle registrations declined 14% over the past decade, from 16.7 million registrations in 2002 to
14.3 million registrations in 2012; 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, 2013, indicating that the trend of declining new light vehicle registrations has
reversed. In addition, during the past decade, vehicle scrappage rates remained relatively stable, ranging from just 4.6% to 5.7%
annually. The stable scrappage rates over the past decade have contributed to an increase in the average age of the U.S. vehicle
population over that period, growing 16%, from 9.6 years in 2002 to 11.1 years in 2012. We believe this increase in average
age can be attributed to better engineered and manufactured vehicles, which can be reliably driven at higher mileages due to
better quality power trains and interiors and exteriors, and the consumer’s willingness to invest in maintaining these 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. As the U.S. economy recovers, we believe consumers will continue
to invest in these reliable, higher-quality, higher-mileage vehicles and these investments, along with an increasing total light
vehicle fleet, will support continued demand for automotive aftermarket products.
(cid:135)(cid:3) Unemployment - Unemployment, underemployment, the threat of future joblessness and the 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. 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. However, as of December 31, 2013, the U.S. unemployment rate decreased to 6.7%, its lowest rate in over
five years. We believe that as the economy continues to recover, unemployment rates should decline and we would expect to
see a corresponding increase in commuter traffic as unemployed individuals return to work. Aided by the anticipated increase
in commuter miles, we believe overall annual U.S. miles driven should return to a period of annual growth, 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 hard work and excellent customer service.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
(cid:135)(cid:3) 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, which was announced on May 29, 2013, and
an additional $500 million, which was announced on February 5, 2014, raising the cumulative authorization under the share
repurchase program to $4.0 billion. These additional $500 million authorizations are effective for a three-year period following
26
their respective announcement dates. As of February 28, 2014, we had repurchased approximately 40.6 million shares of our
common stock at an aggregate cost of $3.4 billion under this program.
(cid:135)(cid:3) On June 20, 2013, the Company issued $300 million aggregate principal amount of unsecured 3.850% Senior Notes due 2023
(“3.850% Senior Notes due 2023”) at a price to the public of 99.992% of their face value with United Missouri Bank, N.A.
(“UMB”) as trustee. Interest on the 3.850% Senior Notes due 2023 is payable on June 15 and December 15 of each year, which
began on December 15, 2013, and is computed on the basis of a 360-day year.
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(cid:135)(cid:3) On July 2, 2013, the Company amended its credit agreement, which it entered into in January of 2011. The amendment lowered
the maximum borrowing capacity under the unsecured revolving credit facility to $600 million, extended the maturity date of
the credit agreement to July of 2018 and lowered the interest rate margins on borrowings under the unsecured revolving credit
facility and facility fees applicable to the commitments thereunder.
RESULTS OF OPERATIONS
The following table includes income statement data as a percentage of sales for the years ended December 31, 2013, 2012 and 2011:
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Former CSK officer clawback
Operating income
Interest expense
Interest income
Write-off of asset-based revolving credit facility debt issuance costs
Termination of interest rate swap agreements
Income before income taxes
Provision for income taxes
Net income
2013 Compared to 2012
For the Year Ended December 31,
2013
2012
2011
100.0%
100.0%
100.0%
49.3
50.7
34.1
—
16.6
(0.7)
—
—
—
15.9
5.8
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
10.1%
9.5%
8.8%
Sales:
Sales for the year ended December 31, 2013, increased $467 million to $6.65 billion from $6.18 billion for the same period one year ago,
representing an increase of 8%. Comparable store sales for stores open at least one year increased 4.3% and 3.8% for the years ended
December 31, 2013 and 2012, 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, sales to Team Members and sales from the VIP Parts,
Tires & Service ("VIP") stores acquired on December 31, 2012, due to the significant change in the business model and lack of historical
data.
27
The following table presents the components of the increase in sales for the year ended December 31, 2013 (in millions):
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Store sales:
Comparable store sales
Non-comparable store sales:
Sales for stores opened throughout 2012, excluding stores open at
least one year that are included in comparable store sales
Sales in 2012 for stores that have closed
Sales for stores opened throughout 2013 and acquired VIP stores
Non-store sales:
Includes sales of machinery and sales to independent parts stores and
Team Members
Total increase in sales
Increase in Sales for the Year Ended December 31, 2013,
Compared to the Same Period in 2012
$
$
259
74
(3)
134
3
467
We believe the increased sales achieved by our stores are the result of store growth and the high levels of customer service provided by
our well-trained and technically proficient Team Members, superior inventory availability, enhanced services and programs offered in
most stores, a broader selection of product offerings in most stores with a dynamic catalog system to identify and source parts, 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, 2013, was driven by an increase in average ticket values for both
DIY and commercial business, and an increase in customer transaction counts for commercial business, slightly offset by a small decrease
in customer transaction counts for DIY business. The improvements in average ticket values were the 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 was driven by the increase
of professional service provider 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 existing vehicles. The increases in our professional service provider customer transaction counts
were driven by the chainwide growth of our professional business, while macroeconomic pressures on disposable income continue to
negatively impact DIY customer transaction counts. 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, on average, greater.
We opened 190 net, new stores during the year ended December 31, 2013, compared to 180 net, new stores and 56 acquired stores for
the year ended December 31, 2012. At December 31, 2013, we operated 4,166 stores in 42 states compared to 3,976 stores in 42 states
at December 31, 2012. We anticipate new store unit growth to increase to 200 net, new stores in 2014.
Gross profit:
Gross profit for the year ended December 31, 2013, increased to $3.37 billion (or 50.7% of sales) from $3.10 billion (or 50.1% 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 increase
in comparable store sales at existing stores and sales from new stores. The increase in gross profit as a percentage of sales was primarily
due to acquisition cost improvements, improved inventory shrinkage and distribution system efficiencies, partially offset by a smaller
amount of capitalized distribution costs in the current year, the non-cash impact to gross margin resulting from the depletion of our last-
in, first-out ("LIFO") reserve and the impact of increased commercial sales as a percentage of our total sales mix. 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.
Distribution system efficiencies are the result of continued leverage on our increased sales volumes and more tenured and experienced
DC Team Members in our maturing DCs. The decrease in capitalized distribution costs in the current year is the result of the larger than
typical benefit from capitalized distribution costs in the prior year associated with our initiative to increase our store-level inventories.
The costs to move this additional inventory into the stores in the prior year were more efficient than routine restocking activity; as a
result, we realized a larger than normal benefit from capitalized distribution costs. The depletion of our LIFO reserve during the year
resulted from the acquisition cost improvements we have realized over time. The Company's policy is not to write up inventory in excess
of replacement cost and, accordingly, we are now effectively valuing our inventory at replacement cost. During 2013, our LIFO cost
was written down by approximately $21.6 million to reflect replacement cost. We expect to incur pressure from product acquisition cost
reductions in the first quarter of 2014; however, at this time, we do not anticipate material charges for the last three quarters of 2014.
Unforeseen significant acquisition cost decreases could occur and may create additional LIFO gross margin headwinds during 2014.
28
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, outsized growth, as compared to DIY, creates 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, 2013, increased to $2.27 billion (or 34.1% of
sales) from $2.12 billion (or 34.3% 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 Team Members, facilities and vehicles to support our increased store count. The
decrease in SG&A as a percentage of sales was primarily the result of improved leverage of store payroll and occupancy costs on strong
comparable store sales results.
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Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2013, increased to $1.10 billion (or 16.6%
of sales) from $977 million (or 15.8% 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, 2013, increased to $45 million (or 0.7% of sales), from $36 million (or 0.6% of
sales) for the same period one year ago, representing an increase of 24%. The increase in total other expense for the year ended December
31, 2013, was primarily due to increased interest expense on higher average outstanding borrowings.
Income taxes:
Our provision for income taxes for the year ended December 31, 2013, increased to $389 million (36.7% effective tax rate) from $356
million (37.8% effective tax rate) for the same period one year ago, representing an increase of 9%. The increase in our provision for
income taxes was due to the increase in our taxable income. The decrease in our tax rate was primarily due to the benefits of employment
tax credits realized in the current year, adjustments to tax reserves related to the favorable resolution of certain income tax audits during
the current year and unfavorable adjustments relating to certain income tax audits in the prior year.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2013, increased to $670 million (or 10.1% of
sales), from $586 million (or 9.5% of sales) for the same period one year ago, representing an increase of 14%.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2013, increased 27% to $6.03 on 111 million shares from $4.75
on 123 million shares for the same period one year ago.
2012 Compared to 2011
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
29
$
$
215
78
(3)
96
7
393
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We believe the increased sales achieved by our stores were 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.
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 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. 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.
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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%.
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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.
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.
For the Year Ended December 31,
2012
2011
Amount
% of Sales
Amount
% of Sales
GAAP Operating income
Former CSK officer clawback
Non-GAAP adjusted operating income
$
977,393
15.8% $
—
—%
$
977,393
15.8% $
866,766
(2,798)
863,968
GAAP net income
$
585,746
9.5% $
507,673
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
—
—
—
$
585,746
—%
—%
—%
9.5% $
13,458
2,637
(1,741)
522,027
15.0 %
(0.1)%
14.9 %
8.8 %
0.2 %
— %
— %
9.0 %
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
4.75
—
—
—
Non-GAAP adjusted diluted earnings per common share
$
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
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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
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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 unsecured
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 unsecured revolving credit facility.
We believe that cash expected to be provided by operating activities and availability under our unsecured 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.
Liquidity and related ratios:
The following table highlights our liquidity and related ratios as of December 31, 2013 and 2012 (dollars in millions):
Liquidity and Related Ratios
Current assets
Current liabilities
Working capital (1)
Total debt
Total equity
Debt to equity (2)
December 31,
2013
2012
Percentage
Change
$
2,835
$
2,423
412
1,396
1,966
0.71:1
2,733
2,273
460
1,096
2,108
0.52:1
3.7 %
6.6 %
(10.4)%
27.4 %
(6.7)%
36.5 %
(1) Working capital is calculated as current assets less current liabilities.
(2) Debt to equity is calculated as total debt divided by total equity.
Current liabilities increased 7%, total debt increased 27% and total equity decreased 7% from 2012 to 2013. 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, which allowed us to obtain more favorable payment terms. Our accounts payable to
inventory ratio was 86.6% as of December 31, 2013, as compared to 84.7% one year prior. The increase in total debt was attributable to
the issuance of $300 million of 3.850% Senior Notes due 2023. The decrease in total equity resulted from the impact of share 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.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended December
31, 2013, 2012 and 2011 (in thousands):
Liquidity
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash and cash equivalents
Capital expenditures
Free cash flow (a)
$
$
$
For the Year Ended December 31,
2013
2012
2011
908,026
(388,754)
(536,082)
(16,810) $
$ 1,251,555
$ 1,118,991
(317,407)
(1,047,572)
(319,653)
(467,507)
(113,424) $
331,831
395,881
512,145
$
300,719
950,836
$
328,319
790,672
(a) Calculated as net cash provided by operating activities, less capital expenditures for the period.
Operating activities:
The decrease in net cash provided by operating activities in 2013 compared to 2012 was primarily due to a smaller decrease in net
inventory investment and a smaller increase in income taxes payable, offset in part by an increase in net income for the year. Net inventory
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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 86.6%,
84.7% and 64.4% at December 31, 2013, 2012 and 2011, respectively. The smaller increase in our accounts payable to inventory ratio
in 2013 is the result of a smaller increase in the number of new vendors added to our financing programs in the current year versus the
prior year. We launched our enhanced vendor financing program in January of 2011, and were able to add a large number of vendors to
the programs during 2011 and 2012. As we anniversary these vendor additions to the programs, we expect to see a slower rate of growth
in our accounts payable to inventory ratio. The smaller increase in income taxes payable was primarily the result of a prepaid tax position
at the beginning of 2012 versus a payable position at the beginning of 2013.
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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 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. Our accounts payable to inventory ratio was 84.7%, 64.4% and
44.3% at December 31, 2012, 2011 and 2010, 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.
Investing activities:
The increase in net cash used in investing activities in 2013 compared to 2012 was primarily the result of an increase in capital expenditures
during the current year related to the purchase and construction of new distribution facilities during 2013 to support our ongoing store
growth. The total capital expenditures were $396 million and $301 million in 2013 and 2012, respectively.
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 and $328 million in 2012
and 2011, 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 rates 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.
We opened 190, 180, and 170 net, new stores in 2013, 2012, and 2011, respectively, and acquired 56 stores in 2012. We plan to open
200 net, new stores in 2014. 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 $1.3 million to $1.5 million;
however, such costs may be significantly reduced where we lease, rather than purchase, the store site.
Financing activities:
The decrease in net cash used in financing activities during 2013 compared to 2012 is primarily attributable to the impact of fewer share
repurchases of our common stock during the current year, in accordance with our Board-approved share repurchase program.
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.
Credit facilities:
On January 14, 2011, we entered into a credit agreement (the "Credit Agreement") for a five-year $750 million unsecured revolving credit
facility (the "Revolving Credit Facility") arranged by Bank of America, N.A. and Barclays Capital, originally scheduled to mature in
January of 2016. During 2011, we completed our first amendment to the Revolving Credit Facility, decreasing the aggregate commitments
under the Revolving Credit Facility to $660 million, extending the maturity date of the Credit Agreement to September of 2016 and
reducing the facility fee and interest rate margins for borrowings under the Revolving Credit Facility. In conjunction with the first
amendment to the Revolving Credit Facility, we 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. In July of 2013, we completed our second amendment to the Credit Agreement, decreasing the aggregate commitments under
the Revolving Credit Facility to $600 million, extending the maturity date on the Credit Agreement to July of 2018 and reducing the
facility fee and interest rate margins for borrowings under the Revolving Credit Facility. 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. 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 outstanding stand-by letters of credit, primarily to support obligations
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related to workers’ compensation, general liability and other insurance policies, in the amount of $52 million and $57 million as of
December 13, 2013 and 2012, respectively, reducing the aggregate availability under the Revolving Credit Facility by those amounts.
As of December 31, 2013 and 2012, 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 (the "ABL 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 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 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, which began on March 1, 2013, and is computed on the basis of a 360-day
year.
3.850% Senior Notes due 2023:
On June 20, 2013, we issued $300 million aggregate principal amount of unsecured 3.850% Senior Notes due 2023 (“3.850% Senior
Notes due 2023”) at a price to the public of 99.992% of their face value with UMB as trustee. Interest on the 3.850% Senior Notes due
2023 is payable on June 15 and December 15 of each year, which began on December 15, 2013, and is computed on the basis of a 360-
day year. The net proceeds from the issuance of the 3.850% Senior Notes due 2023 were used to pay fees and expenses related to the
offering 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 sale or other disposition of a
majority of the voting power of the capital interest in, or of all or substantially all the property of, the subsidiary guarantor. Each of the
Subsidiary Guarantors is 100% 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, 2013.
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 certain covenants, including limitations on indebtedness, a minimum consolidated fixed charge coverage
ratio of 2.25 times through December 31, 2014, and 2.50 times thereafter through maturity, and a maximum consolidated leverage ratio
of 3.00 times through maturity. The consolidated leverage ratio includes a calculation of adjusted debt to adjusted earnings before interest,
taxes, depreciation, amortization, rent and stock-based compensation expense (“EBITDAR”). Adjusted debt includes outstanding debt,
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outstanding stand-by letters of credit and similar instruments, 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, including, but not limited to, possible termination of credit extensions, immediate payment of
outstanding principal amounts plus accrued interest and other amounts payable under the Credit Agreement and litigation from our lenders.
We had a consolidated fixed charge coverage ratio of 4.98 times and 4.95 times as of December 31, 2013 and 2012, respectively, and a
consolidated leverage ratio of 1.90 times and 1.83 times as of December 31, 2013 and 2012, 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.
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The table below outlines the calculations of the consolidated fixed charge coverage ratio and consolidated leverage ratio covenants, as
defined in the Credit Agreement governing the Revolving Credit Facility, for the twelve months ended December 31, 2013 and 2012
(dollars in thousands):
For the Year Ended December 31,
2013
2012
GAAP net income
Add: Interest expense
Rent expense
Provision for income taxes
Depreciation expense
Amortization (benefit) expense
Non-cash share-based compensation
Non-GAAP adjusted net income (EBITDAR)
Interest expense
Capitalized interest
Rent expense
Total fixed charges
Consolidated fixed charge coverage ratio
GAAP debt
Stand-by letters of credit
Discount on senior notes
Six-times rent expense
Non-GAAP adjusted debt
Consolidated leverage ratio
$
$
$
$
$
$
670,292
$
49,074
254,892
388,650
183,220
(40)
21,722
1,567,810
49,074
10,644
254,892
314,610
4.98
$
$
$
1,396,208
$
51,715
3,890
1,529,352
2,981,165
$
1.90
585,746
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
The consolidated fixed charge coverage ratio and consolidated leverage 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 consolidated fixed charge coverage ratio
and consolidated leverage ratio 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 tables above, a 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 2013, we announced that our Board of Directors
approved a resolution to increase the cumulative authorization amount by $500 million, which is effective for a three-year period and
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expires May 29, 2016. As of December 31, 2013, the cumulative authorization amount under the program was $3.5 billion. On February
5, 2014, we announced that our Board of Directors approved a resolution to increase the cumulative authorization amount by an additional
$500 million, which is effective for a three-year period and expires February 5, 2017. As of February 5, 2014, the cumulative authorization
amount under the program was $4.0 billion.
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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,
2013
2012
$
$
8,529
109.38
932,900
$
$
16,201
89.20
1,445,044
As of December 31, 2013, we had $146 million remaining under our share repurchase program. Subsequent to the end of the year and
through February 28, 2014, we did not repurchase a material number of shares of our common stock. We repurchased a total of 41 million
shares of our common stock under our share repurchase program since the inception of the program in January of 2011 and through
February 28, 2014, at an average price of $82.61 for a total aggregate investment of $3.4 billion. As of February 28, 2014, we had
approximately $645 million remaining under our share repurchase program.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2013, 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 6 “Leasing” and Note 13
“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, 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 2014,
which are included in “Current liabilities” on our Consolidated Balance Sheets.
Total
Before
1 Year
Payments Due By Period
Years
1 and 2
(In thousands)
Years
3 and 4
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
$1,905,981
$
61,200
$ 122,400
$ 122,400
$1,599,981
103
77
26
—
—
1,941,490
247,126
445,887
355,336
893,141
1,800
126,715
600
57,700
1,200
38,292
—
17,805
—
12,918
80,803
$4,056,892
80,803
$ 447,506
—
$ 607,805
—
$ 495,541
—
$2,506,040
(1) Our Revolving Credit Facility, which has a maximum aggregate commitment of $600 million and matures in July of 2018, 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 0.000%,
our margin for Eurodollar Rate loans is 0.975% and our facility fee is 0.150%. As of December 31, 2013, we had no outstanding borrowings under
our Revolving Credit Facility.
36
(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.
K
-
0
1
M
R
O
F
We record a reserve for potential liabilities related to uncertain tax positions, including estimated interest and penalties, which are fully
disclosed in Note 16 “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, 2013,
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 $52 million and $57 million were outstanding at December 31, 2013 and 2012,
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 13 “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.
(cid:135)(cid:3)
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. 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
37
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, 2013, the financial impact would have been approximately $1 million or 0.1% of pretax income for the year ended
December 31, 2013.
F
O
R
M
1
0
-
K
(cid:135)(cid:3) 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, 2013, the financial impact would have been approximately
$1 million or 0.1% of pretax income for the year ended December 31, 2013.
(cid:135)(cid:3) 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
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, 2013, 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.
(cid:135)(cid:3) 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.
(cid:135)(cid:3) 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, 2013, the financial impact would have been approximately $3 million
or 0.3% of pretax income for the year ended December 31, 2013.
38
(cid:135)(cid:3)
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(cid:21)(cid:19)(cid:20)(cid:22)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)$(cid:20)(cid:21)(cid:3)million(cid:3)(cid:82)(cid:85)(cid:3)1.1%(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:91)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)
2013.
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(cid:135)(cid:3) Closed Property Reserves(cid:3) (cid:176)(cid:3)W(cid:72)(cid:3) (cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:3) (cid:86)(cid:87)(cid:82)(cid:85)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:81)(cid:82)(cid:3) (cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:3) (cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)
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(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)$(cid:20)(cid:3)million(cid:3)(cid:82)(cid:85)(cid:3)0.1%(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:91)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:17)(cid:3)(cid:3)
(cid:135)(cid:3) Legal Reserves(cid:3)(cid:176)(cid:3)W(cid:72)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:50)(cid:181)(cid:53)(cid:72)(cid:76)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)W(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
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(cid:79)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:69)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:38)(cid:54)(cid:46)(cid:3)(cid:36)(cid:88)(cid:87)(cid:82)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:5)(cid:38)(cid:54)(cid:46)(cid:5)(cid:12)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)CSK’(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:72)(cid:74)(cid:72)(cid:71)(cid:3)
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(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:71)(cid:3)10%(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)
$(cid:21)(cid:3)million(cid:3)(cid:82)(cid:85)(cid:3)0.2%(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:87)(cid:68)(cid:91)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)2013.
(cid:135)(cid:3) Taxes (cid:176)(cid:3)W(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:76)(cid:81)(cid:74)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:77)(cid:88)(cid:85)(cid:76)(cid:86)(cid:71)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:91)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:17)(cid:3)(cid:3)W(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)
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INFLATION AND SEASONALITY
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39
to pass along these increased costs through higher retail prices for the affected products. As a result, we do not believe inflation has had
a material adverse effect on our operations.
F
O
R
M
1
0
-
K
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 2013 and 2012. 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.
Comparable store sales
Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
Comparable store sales
Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
Fiscal 2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
0.6%
6.5%
4.6%
5.4%
$
$
$
1,585,009
798,663
251,084
154,329
1.38
1.36
$
$
$
1,714,969
871,875
296,261
177,127
1.61
1.58
$
$
$
1,728,025
879,163
300,380
186,489
1.72
1.69
$
$
$
1,621,234
819,300
255,760
152,347
1.43
1.40
Fiscal 2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share and comparable store sales data)
6.1%
2.5%
1.3%
4.2%
$
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
(1) Earnings per share amounts are computed independently for each quarter and annual period. The quarterly earnings per share amounts may not
sum to equal the full-year earnings per share.
RECENT ACCOUNTING PRONOUNCEMENTS
In July of 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). Under ASU 2013-11, an entity is required
to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should
be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2013. We will adopt this guidance beginning
with our first quarter ending March 31, 2014; the application of this guidance affects presentation only and, therefore, it is not expected
to have a material impact on our consolidated financial condition, results of operations or cash flows.
40
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, 2013, we did not have any
interest rate swap contracts and had no outstanding borrowings under our Revolving Credit Facility.
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We had outstanding fixed rate debt of $1.40 billion and $1.10 billion as of December 31, 2013 and 2012, respectively. The fair value of
our fixed rate debt was estimated at $1.41 billion and $1.20 billion as of December 31, 2013 and 2012, 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, 2013, our cash and cash equivalents totaled $231 million.
41
Item 8. Financial Statements and Supplementary Data
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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
Page
43
44
45
46
47
48
49
50
51
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MANAGEMENT’S REPORT ON 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.
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Internal control over financial reporting includes all policies and procedures that:
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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, 2013. 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 (1992 framework). Based on this assessment, management believes that as of December 31, 2013, 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, 2014
/s/ Thomas McFall
Thomas McFall
Executive Vice President of Finance &
Chief Financial Officer
February 28, 2014
43
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2013, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (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, 2013, 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 of O'Reilly Automotive, Inc. and Subsidiaries as of December 31, 2013 and 2012, 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, 2013, of O’Reilly Automotive, Inc. and Subsidiaries and our report dated February 28, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2014
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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, 2013
and 2012, 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, 2013. 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, 2013 and 2012, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated February 28, 2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2014
45
Consolidated Balance Sheets
(In thousands, except share data)
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Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts $6,661 in 2013 and $6,447 in 2012
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 –
105,939,766 as of December 31, 2013, and
112,963,413 as of December 31, 2012
Additional paid-in capital
Retained earnings
Total shareholders’ equity
$
$
$
December 31,
2013
2012
$
$
$
231,318
131,504
66,619
2,375,047
30,713
2,835,201
3,606,837
1,181,734
2,425,103
13,066
756,225
37,613
6,067,208
2,056,521
57,700
65,520
41,262
20,222
—
181,718
67
2,423,010
1,396,141
80,713
201,023
248,128
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
—
—
1,059
1,118,929
846,333
1,966,321
1,130
1,083,910
1,023,267
2,108,307
Total liabilities and shareholders’ equity
$
6,067,208
$
5,749,187
See accompanying Notes to consolidated financial statements.
46
Consolidated Statements of Income
(In thousands, except per share data)
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Former CSK officer clawback
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
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,
2012
6,182,184
3,084,766
3,097,418
2013
6,649,237
3,280,236
3,369,001
2011
5,788,816
2,951,467
2,837,349
$
$
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2,265,516
—
1,103,485
2,120,025
—
977,393
1,973,381
(2,798)
866,766
(49,074)
1,992
—
—
2,539
(44,543)
(40,200)
2,441
—
—
1,887
(35,872)
(28,165)
2,245
(21,626)
(4,237)
790
(50,993)
1,058,942
941,521
815,773
388,650
670,292
6.14
109,244
6.03
111,101
$
$
$
355,775
585,746
4.83
121,182
4.75
123,314
$
$
$
308,100
507,673
3.77
134,667
3.71
136,983
See accompanying Notes to consolidated financial statements.
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Consolidated Statements of Comprehensive Income
(In thousands)
For the Year Ended December 31,
2012
2011
2013
Components of comprehensive income:
Net income
Reclassification adjustment for unrealized losses on cash flow hedges, net of tax,
included in net income
Other comprehensive income
Total comprehensive income
$
$
670,292
$
585,746
$
507,673
—
—
670,292
$
—
—
585,746
$
2,970
2,970
510,643
See accompanying Notes to consolidated financial statements.
48
Consolidated Statements of Shareholders' Equity
(In thousands)
Common Stock
Shares
Par Value
Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
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Balance at December 31, 2010
141,026
$
1,410
$
1,141,749
$
2,069,496
$
(2,970) $
3,209,685
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
507,673
—
507,673
—
—
—
—
—
2,970
2,970
—
—
—
—
—
9,039
50,309
22,885
18,922
(976,632)
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
$
— $
2,844,851
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
—
—
—
585,746
9,552
54,857
38,572
19,996
—
—
—
—
Share repurchases, including fees
(16,201)
(162)
(149,172)
(1,295,953)
—
—
—
—
—
—
585,746
9,553
54,876
38,572
19,996
(1,445,287)
Balance at December 31, 2012
112,963
$
1,130
$
1,083,910
$
1,023,267
$
— $
2,108,307
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
Share repurchases, including fees
—
113
1,393
—
—
(8,529)
—
—
14
—
—
—
670,292
10,663
59,731
30,811
19,531
—
—
—
—
(85)
(85,717)
(847,226)
—
—
—
—
—
—
670,292
10,663
59,745
30,811
19,531
(933,028)
Balance at December 31, 2013
105,940
$
1,059
$
1,118,929
$
846,333
$
— $
1,966,321
See accompanying Notes to consolidated financial statements.
49
Consolidated Statements of Cash Flows
(In thousands)
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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
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 (decrease) increase 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
For the Year Ended December 31,
2012
2011
2013
$
670,292
$
585,746
$
507,673
183,180
2,054
—
(30,811)
1,919
21,722
7,405
(16,937)
(96,876)
127,178
24,777
5,400
2,355
6,368
908,026
(395,881)
1,731
5,396
—
(388,754)
—
—
299,976
(2,967)
(224)
(933,028)
30,811
69,350
(536,082)
(16,810)
248,128
231,318
362,596
46,760
$
$
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
$
$
See accompanying Notes to consolidated financial statements.
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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, 2013, the Company owned and operated 4,166 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
$1.0 million and $2.1 million as of December 31, 2013 and 2012, 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, 2013 or 2012.
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 (“DCs”). Cost has been determined
using the last-in, first-out (“LIFO”) method, which more accurately matches costs with related revenues. Over time, as the Company's
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merchandise inventory purchases have increased, this has resulted in improved acquisition costs from its suppliers and the corresponding
price deflation exhausted the Company's LIFO reserve balance during the year ended December 31, 2013. The Company's policy is not
to write up the value of its inventory in excess of its replacement cost. Accordingly, the Company's merchandise inventory is effectively
being recorded at replacement cost as of December 31, 2013. The replacement cost of inventory was $2.38 billion and $2.31 billion as
of December 31, 2013 and 2012, respectively. LIFO costs exceeded replacement costs by $21.6 million at December 31, 2013.
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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.
Notes receivable:
The Company had notes receivable from vendors and other third parties amounting to $17.2 million and $9.5 million at December 31,
2013 and 2012, 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, 2013 or 2012.
Goodwill and other intangibles:
The accompanying Consolidated Balance Sheets at December 31, 2013 and 2012, 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 2013 and 2012, the goodwill impairment test included a quantitative assessment, which compared the
fair value of the 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, 2013 and 2012; as such, no
goodwill impairment adjustment was required as of December 31, 2013 and 2012. 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
and the Company did not record an impairment to its long-lived assets during the year ended December 31, 2013 or 2012.
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for 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-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 an estimate of their net present value, using a credit-adjusted discount
rate.
The following table identifies the components of the Company’s self-insurance reserves as of December 31, 2013 and 2012 (in thousands):
Self-insurance reserves (undiscounted)
Self-insurance reserves (discounted)
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December 31,
2013
2012
$
$
126,715
116,062
$
$
122,866
111,840
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The current portion of the Company’s discounted self-insurance reserves totaled $57.7 million and $54.2 million as of December 31,
2013 and 2012, respectively. The remainder was included within “Other liabilities” on the accompanying Consolidated Balance Sheets
as of December 31, 2013 and 2012.
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 9 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 in 2008; as a result, O’Reilly incurred legal fees and costs related to potential indemnification obligations.
See Note 14 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 7 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, 2013 and 2012, 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 10 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 DC with same-day delivery to the jobber customer's location. Internet retail sales are recorded when the
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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.
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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
expenses
Total cost of merchandise sold, including:
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
Selling, general and administrative expenses
Payroll and benefit costs for store and corporate Team Members
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, net of cooperative advertising allowances from vendors that were incremental to the specific advertising program
and identifiable, included as a component of “Selling, general and administrative expenses” (“SG&A”) on the accompanying Consolidated
Statements of Income amounted to $78.3 million, $74.8 million and $73.8 million for the years ended December 31, 2013, 2012 and
2011, 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 12 for further information concerning these plans.
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.
54
Interest expense:
The Company capitalizes interest costs as a component of construction in progress, based on the weighted-average interest rates incurred
on its long-term borrowings. Total interest costs capitalized for the years ended December 31, 2013, 2012 and 2011, were $10.6 million,
$6.1 million and $4.7 million, respectively.
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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 $11.5 million and $10.1 million, net of
amortization, as of December 31, 2013 and 2012, respectively, of which $1.6 million and $1.5 million were included within “Other current
assets” on the accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012, with the remainder included within “Other
assets, net” on the accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012. See Note 5 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, 2013 and 2012, 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, the
common stock equivalents associated with the potential impact of dilutive stock options. 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 17 for further information concerning these common stock equivalents.
New accounting pronouncements:
In July of 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). Under ASU 2013-11, an entity is required
to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred
tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the
financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2013. The Company will adopt this guidance beginning with its first
quarter ending March 31, 2014; the application of this guidance affects presentation only and, therefore, it is not expected to have a
material 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:
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(cid:135)(cid:3) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:20)(cid:3)(cid:176)(cid:3)(cid:52)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:11)(cid:88)(cid:81)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)date.
(cid:135)(cid:3) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:21)(cid:3)(cid:176)(cid:3)(cid:44)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:20)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)liability(cid:15)(cid:3)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)
indirectly.
(cid:135)(cid:3) (cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:176)(cid:3)(cid:56)(cid:81)(cid:82)(cid:69)(cid:86)(cid:72)(cid:85)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:83)(cid:88)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)liability.
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Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
(cid:38)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:79)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:81)(cid:82)(cid:81)(cid:85)(cid:72)(cid:70)(cid:88)(cid:85)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)
(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)
(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)
(cid:71)(cid:76)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)recognition.
Fair value of financial instruments:
(cid:55)(cid:75)(cid:72)(cid:3) (cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) Company’(cid:86)(cid:3) (cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3) (cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:178)(cid:47)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3) (cid:71)(cid:72)(cid:69)(cid:87)(cid:15)(cid:3) (cid:79)(cid:72)(cid:86)(cid:86)(cid:3) (cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3) (cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:179)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:17)(cid:3)(cid:3)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)Company’(cid:86)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:84)(cid:88)(cid:82)(cid:87)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:80)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:11)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:21)(cid:12)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)
thousands):
(cid:23)(cid:17)(cid:27)(cid:26)(cid:24)(cid:8)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)
(cid:23)(cid:17)(cid:25)(cid:21)(cid:24)(cid:8)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)
(cid:22)(cid:17)(cid:27)(cid:19)(cid:19)(cid:8)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21)
(cid:22)(cid:17)(cid:27)(cid:24)(cid:19)(cid:8)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:49)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:22)
December 31, 2013
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)
Carrying
Amount
Estimated Fair
Value
(cid:38)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)
Amount
(cid:40)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)
Value
$
$
$
$
497,525
299,598
299,011
299,976
$
$
$
$
524,434
310,141
290,453
289,362
$
$
$
$
497,173
299,545
298,916
$
$
$
— $
559,870
331,224
313,890
—
(cid:55)(cid:75)(cid:72)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3) (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:37)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:54)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:89)(cid:72)(cid:81)(cid:71)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:68)(cid:92)(cid:68)(cid:69)(cid:79)(cid:72)(cid:17)(cid:3)(cid:3)(cid:39)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:75)(cid:82)(cid:85)(cid:87)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:81)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)values.
NOTE 3 – PROPERTY AND EQUIPMENT
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:92)(cid:83)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)(cid:11)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:88)(cid:86)(cid:68)(cid:81)(cid:71)(cid:86)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:88)(cid:86)(cid:72)(cid:73)(cid:88)(cid:79)(cid:3)lives):
Land
(cid:37)(cid:88)(cid:76)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
(cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
(cid:41)(cid:88)(cid:85)(cid:81)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3)(cid:73)(cid:76)(cid:91)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)
Vehicles
(cid:38)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:47)(cid:72)(cid:86)(cid:86)(cid:29)(cid:3)(cid:3)(cid:68)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:50)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:56)(cid:86)(cid:72)(cid:73)(cid:88)(cid:79)(cid:3)(cid:47)(cid:76)(cid:89)(cid:72)(cid:86)
(cid:20)(cid:24)(cid:3)(cid:176)(cid:3)(cid:22)(cid:28)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)
(cid:22)(cid:3)(cid:176)(cid:3)(cid:21)(cid:24)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)
(cid:22)(cid:3)(cid:176)(cid:3)(cid:21)(cid:19)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)
(cid:24)(cid:3)(cid:176)(cid:3)(cid:20)(cid:19)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)
December 31, 2013 (cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)
$
420,292
457,858
$
1,197,369
1,078,265
483,578
960,928
251,505
255,599
3,606,837
1,181,734
$
2,425,103
$
447,046
932,406
231,615
159,946
3,269,570
1,057,980
2,211,590
(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:89)(cid:72)(cid:75)(cid:76)(cid:70)(cid:79)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:89)(cid:72)(cid:75)(cid:76)(cid:70)(cid:79)(cid:72)(cid:86)(cid:3)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:72)(cid:71)(cid:15)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:82)(cid:85)(cid:87)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)
(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)lessor(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)“V(cid:72)(cid:75)(cid:76)(cid:70)(cid:79)(cid:72)(cid:86)(cid:179)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)
$(cid:26)(cid:17)(cid:19)(cid:3)million(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)$(cid:27)(cid:17)(cid:23)(cid:3)million(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)respectively(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)$(cid:26)(cid:17)(cid:19)(cid:3)million(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)$(cid:27)(cid:17)(cid:23)(cid:3)million(cid:15)(cid:3)respectively(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)
(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:178)(cid:68)(cid:70)(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:179)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)table.
56
NOTE 4 – 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,
2013, the Company recorded a decrease in goodwill of $2.2 million, resulting from adjustments to purchase price allocations related to
small acquisitions. 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 years ended December
31, 2013 or 2012.
K
-
0
1
M
R
O
F
The following table identifies the changes in goodwill for the years ended December 31, 2013 and 2012 (in thousands):
Balance at December 31, 2011
Activity
Balance at December 31, 2012
Activity
Balance at December 31, 2013
$
$
743,907
14,503
758,410
(2,185)
756,225
As of December 31, 2013 and 2012, other than goodwill, the Company did not have any other indefinite lived intangible assets.
Intangibles other than goodwill:
The following table identifies the components of the Company’s amortizable intangibles as of December 31, 2013 and 2012 (in thousands):
Cost of Amortizable
Intangibles
Accumulated Amortization
(Expense) Benefit
Net Amortizable Intangibles
December 31,
2013
December 31,
2012
December 31,
2013
December 31,
2012
December 31,
2013
December 31,
2012
Amortizable intangible assets:
Favorable leases
Non-compete agreements
Total amortizable intangible
assets
Unfavorable leases
$
$
$
50,910
$
50,910
$
647
717
(32,463) $
(428)
(28,566) $
(447)
219
18,447
$
22,344
51,557
49,380
$
$
51,627
49,380
$
$
(32,891) $
(29,013) $
18,666
36,758
$
32,210
$
12,622
270
22,614
17,170
$
$
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 10.0 years as of December 31, 2013. For the years ended December 31, 2013, 2012 and 2011, the Company recorded
amortization expense of $4.0 million, $4.7 million and $6.1 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 4.9 years as of December 31, 2013. For the years ended December 31, 2013, 2012 and 2011, the Company
recognized an amortized benefit of $4.5 million, $5.7 million and $6.7 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.
57
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, 2013 (in thousands):
F
O
R
M
1
0
-
K
2014
2015
2016
2017
2018
Total
$
$
Amortization Expense
Amortization Benefit
Total Amortization (Expense) Benefit
(3,109) $
(2,679)
(2,323)
(1,907)
(1,444)
(11,462) $
3,642
$
2,794
2,076
1,493
923
10,928
$
533
115
(247)
(414)
(521)
(534)
NOTE 5 – FINANCING
The following table identifies the balances of the Company’s financing facilities as of December 31, 2013 and 2012 (in thousands):
Revolving Credit Facility
4.875% Senior Notes due 2021 (1), effective interest rate of 4.970%
4.625% Senior Notes due 2021 (2), effective interest rate of 4.649%
3.800% Senior Notes due 2022 (3), effective interest rate of 3.845%
3.850% Senior Notes due 2023 (4), effective interest rate of 3.851%
December 31,
2013
2012
—
497,525
299,598
299,011
299,976
—
497,173
299,545
298,916
—
(1) Net of unamortized discount of $2.5 million and $2.8 million as of December 31, 2013 and 2012, respectively.
(2) Net of unamortized discount of $0.4 million and $0.5 million as of December 31, 2013 and 2012, respectively.
(3) Net of unamortized discount of $1.0 million and $1.1 million as of December 31, 2013 and 2012, respectively.
(4) Net of unamortized discount of less than $0.1 million as of December 31, 2013.
The following table identifies the principal maturities of the Company’s financing facilities as of December 31, 2013 (in thousands):
Scheduled Maturities
2014
2015
2016
2017
2018
Thereafter
Total
$
$
—
—
—
—
—
1,400,000
1,400,000
Unsecured revolving credit facility:
In January of 2011, the Company entered into a credit agreement (the "Credit Agreement") for a five-year $750 million unsecured revolving
credit facility (the "Revolving Credit Facility") arranged by Bank of America, N.A. and Barclays Capital, originally scheduled to mature
in January of 2016. In September of 2011, the Company amended 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 borrowings 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. In July of 2013, the Company
again amended the Credit Agreement, decreasing the aggregate commitments under the Revolving Credit Facility to $600 million,
extending the maturity date on the Credit Agreement to July of 2018 and reducing the facility fee and interest rate margins for borrowings
under the Revolving Credit Facility. 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, 2013 and 2012, 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
58
$51.7 million and $57.3 million, respectively, reducing the aggregate availability under the Revolving Credit Facility by those amounts.
As of December 31, 2013 and 2012, 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 for 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, 2013, its margin for Base Rate
loans was 0.000%, its margin for Eurodollar Rate loans was 0.975% and its facility fee was 0.150%.
The Credit Agreement contains certain covenants, including limitations on indebtedness, a minimum consolidated fixed charge coverage
ratio of 2.25 times through December 31, 2014, and 2.50 times thereafter through maturity, and a maximum consolidated leverage ratio
of 3.00 times through maturity. The consolidated leverage ratio includes a calculation of adjusted debt to adjusted earnings before interest,
taxes, depreciation, amortization, rent and stock-based compensation expense. Adjusted debt includes outstanding debt, outstanding
stand-by letters of credit and similar instruments, 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 amounts plus accrued interest and other amounts payable under the Credit Agreement and litigation from lenders. As of December
31, 2013, the Company remained in compliance with all covenants under the Credit Agreement.
K
-
0
1
M
R
O
F
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 and is computed on the basis of a 360-day year.
3.850% Senior Notes due 2023:
On June 20, 2013, the Company issued $300 million aggregate principal amount of unsecured 3.850% Senior Notes due 2023 (“3.850%
Senior Notes due 2023”) at a price to the public of 99.992% of their face value with UMB as trustee. Interest on the 3.850% Senior Notes
due 2023 is payable on June 15 and December 15 of each year, which began on December 15, 2013, and is computed on the basis of a
360-day year. The net proceeds from the issuance of the 3.850% Senior Notes due 2023 were used to pay fees and expenses related to
the offering, with the remainder intended to be used 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 100% 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, 2013.
59
NOTE 6 – LEASING
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, 2013 (in thousands):
F
O
R
M
1
0
-
K
2014
2015
2016
2017
2018
Thereafter
Total
Operating Leases
Related Parties
4,555
$
Non-Related
Parties
$
242,571
$
4,621
4,633
4,405
4,196
11,331
33,741
$
228,364
208,269
186,686
160,049
881,810
1,907,749
$
$
Capital Leases
Non-Related
Parties
77
26
—
—
—
—
103
$
$
Total
247,203
233,011
212,902
191,091
164,245
893,141
1,941,593
Capital lease agreements:
The Company assumed certain vehicle capital leases in the acquisition of CSK. The remaining vehicle capital lease agreements expired
on October 15, 2013. There were no future minimum lease payments under these vehicle capital leases as of December 31, 2013. The
present value of the future minimum lease payments under these vehicle capital leases totaled approximately $0.2 million at December
31, 2012, 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 years ended December 31, 2013 or 2012.
The Company assumed certain building capital leases in the acquisition of CSK. The remaining building capital lease agreement will
expire on April 30, 2015. The present value of future minimum lease payments under this building capital lease totaled approximately
$0.1 million and $0.2 million at December 31, 2013 and 2012, 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 years ended
December 31, 2013 or 2012. See Note 15 for further information on the Company's related party operating leases.
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 $15.8 million at December 31, 2013.
The following table summarizes the net rent expense amounts for the years ended December 31, 2013, 2012 and 2011:
Minimum operating lease expense
Contingent rents
Other lease related occupancy costs
Total rent expense
Less: sublease income
Net rent expense
NOTE 7 – EXIT ACTIVITIES
2013
For the Year Ended December 31,
2012
2011
247,039
$
234,113
$
701
11,257
258,997
4,105
744
10,043
244,900
4,031
254,892
$
240,869
$
226,158
534
8,821
235,513
4,616
230,897
$
$
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations.
60
The following table identifies the closure reserves for stores and administrative office and distribution facilities, at December 31, 2013
and 2012 (in thousands):
Store Closure
Liabilities
Administrative Office and Distribution
Facilities Closure Liabilities
K
-
0
1
M
R
O
F
Balance at December 31, 2011
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2012
Additions and accretion
Payments
Revisions to estimates
Balance at December 31, 2013
$
$
11,312
$
584
(2,998)
(561)
8,337
459
(2,458)
(499)
5,839
$
3,544
170
(2,038)
—
1,676
105
(422)
—
1,359
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 30, 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 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 reserves for store and administrative
office closure liabilities are included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements
of Income for the year ended December 31, 2013 and 2012. Revisions to estimates and additions or accretions to reserves for distribution
facility closure liabilities are included in “Cost of goods sold, including warehouse and distribution expenses” on the accompanying
Consolidated Statements of Income for the years ended December 31, 2013 and 2012.
The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through December 31, 2013, was
$24.4 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit activity
through December 31, 2013, was $10.1 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, 2013 and 2012, based upon the dates when the reserves
are expected to be settled.
NOTE 8 – 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 previously outstanding borrowings under its asset-based revolving credit facility (the "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. As of December 31, 2013 and 2012, the Company did not hold any instruments that
qualified as cash flow hedge derivatives.
61
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, 2013, 2012 and 2011 (in thousands):
F
O
R
M
1
0
-
K
Derivatives Designated as Hedging Instruments
For the Year Ended December 31,
Location and Amount of Loss Recognized in Income on Derivatives
Interest rate swap contracts
Other income (expense)
$
— $
— $
(4,237)
Classification
2013
2012
2011
NOTE 9 – WARRANTIES
The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Consolidated Balance Sheets
as of December 31, 2013 and 2012. The following table identifies the changes in the Company’s aggregate product warranty liabilities
for the years ended December 31, 2013 and 2012 (in thousands):
Balance at January 1,
Warranty claims
Warranty accruals
Balance at December 31,
NOTE 10 – SHARE REPURCHASE PROGRAM
2013
2012
$
$
$
28,001
(50,859)
56,244
33,386
$
21,642
(50,009)
56,368
28,001
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,
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 2013, the Company announced that its Board of Directors approved
a resolution to increase the cumulative authorization amount by an additional $500 million, which is effective for a three-year period and
expires May 29, 2016. As of December 31, 2013, the cumulative authorization amount under the program was $3.5 billion. On February
5, 2014, the Company announced that its Board of Directors approved a resolution to increase the cumulative authorization amount by
an additional $500 million, which is effective for a three-year period and expires February 5, 2017. As of February 5, 2014, the cumulative
authorization amount under the program was $4.0 billion.
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):
Shares repurchased
Average price per share
Total investment
For the Year Ended December 31,
2013
2012
$
$
8,529
109.38
932,900
$
$
16,201
89.20
1,445,044
As of December 31, 2013, the Company had $145.7 million remaining under its share repurchase program. Subsequent to the end of the
year and through February 28, 2014, the Company did not repurchase a material number of shares of its common stock. The Company
repurchased a total of 40.6 million shares of its common stock under its share repurchase program since the inception of the program in
January of 2011 and through February 28, 2014, at an average price of $82.61 for a total aggregate investment of $3.4 billion. As of
February 28, 2014, the Company had approximately $645.1 million remaining under its share repurchase program.
62
NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The table below identifies reclassification adjustments from “Accumulated other comprehensive loss” and the affect on the Consolidated
Statements of Income for the year ended December 31, 2011 (in thousands):
K
-
0
1
M
R
O
F
Affected Line Item in the Consolidated Statements of Income
Unrealized loss on cash flow hedges:
Termination of interest rate swap agreements, before tax
Tax expense
Net of tax as of December 31, 2011
$
$
Amount Reclassified from Accumulated Other
Comprehensive Loss
4,237
(1,267)
2,970
No adjustments to “Accumulated other comprehensive loss” were recorded during the years ended December 31, 2013 or 2012.
NOTE 12 – SHARE-BASED 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, 2013 (in thousands):
Plans
Employee Incentive Plans
Director Stock Plan
Performance Incentive Plan
Employee Stock Purchase Plans
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
6,711
267
378
901
349
Stock options:
The Company’s employee incentive plans provide for the granting of stock options for the purchase of 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, 2013:
Outstanding at December 31, 2012
Granted
Exercised
Forfeited
Outstanding at December 31, 2013
Vested or expected to vest at December 31, 2013
Exercisable at December 31, 2013
Weighted-
Average Exercise
Price
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic Value
(in thousands)
$
$
$
$
51.03
105.11
43.09
76.77
54.28
52.87
36.92
6.1
6.0
4.8
$
$
$
385,330
372,291
290,911
Shares
(in thousands)
6,721
363
(1,375)
(532)
5,177
4,909
3,169
63
The Company’s director stock plan provides for the granting of stock options for the purchase of 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.
F
O
R
M
1
0
-
K
The table below identifies the director stock option activity under this plan during the year ended December 31, 2013:
Outstanding at December 31, 2012
Granted
Exercised
Forfeited
Outstanding at December 31, 2013
Vested or expected to vest at December 31, 2013
Exercisable at December 31, 2013
Shares
(in thousands)
68
—
(18)
—
50
50
50
Weighted-
Average Exercise
Price
Average
Remaining
Contractual
Terms
(in years)
Aggregate
Intrinsic Value
(in thousands)
$
$
$
$
35.03
—
28.54
—
37.37
37.37
37.37
2.5
2.5
2.5
$
$
$
4,567
4,567
4,567
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.
(cid:135)(cid:3) Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected
life.
(cid:135)(cid:3)
(cid:135)(cid:3) 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.
(cid:135)(cid:3) Expected volatility – Measure of the amount by which the Company’s stock price has historically fluctuated.
(cid:135)(cid:3) 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, 2013, 2012
and 2011:
Risk free interest rate
Expected life
Expected volatility
Expected dividend yield
2013
0.96%
December 31,
2012
0.59%
2011
1.16%
5.0 Years
3.9 Years
3.7 Years
31.0%
—%
33.5%
—%
33.3%
—%
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or canceled prior to
becoming fully vested. The Company’s estimate is evaluated periodically, and is based upon historical experience at the time of evaluation
and reduces expense ratably over the vesting period or the minimum required service period.
64
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2013, 2012
and 2011:
For the Year Ended December 31,
2013
2012
2011
K
-
0
1
M
R
O
F
Compensation expense for stock options awarded (in millions)
$
17.8
$
18.5
$
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)
6.8
95.8
59.7
7.1
113.6
54.9
Weighted-average grant-date fair value of options awarded
$
29.98
$
23.57
$
Weighted-average remaining contractual life of exercisable options (in years)
4.77
5.13
17.6
6.8
71.5
50.3
16.93
5.12
The remaining unrecognized compensation expense related to unvested stock option awards at December 31, 2013, was $36.6 million
and the weighted-average period of time over which this cost will be recognized is 2.5 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, 2013:
Non-vested at December 31, 2012
Granted during the period
Vested during the period (1)
Forfeited during the period
Non-vested at December 31, 2013
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
27
$
16
(22)
(1)
20
$
70.64
100.82
73.67
83.06
92.02
(1)
Includes 9 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, 2013:
Non-vested at December 31, 2012
Granted during the period
Vested during the period
Forfeited during the period
Non-vested at December 31, 2013
Shares
(in thousands)
Weighted-Average Grant-Date
Fair Value
10
5
(4)
—
11
$
$
79.58
109.45
75.39
—
94.18
65
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2013,
2012 and 2011:
F
O
R
M
1
0
-
K
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,
2013
2012
2011
$
$
$
$
2.2
0.8
3.3
21.2
102.63
$
$
$
$
2.0
0.8
2.7
23.7
90.10
$
$
$
$
1.7
0.6
2.6
49.9
56.18
The remaining unrecognized compensation expense related to unvested restricted share awards at December 31, 2013, was $2.9 million
and the weighted-average period of time over which this cost will be recognized is 2.1 years.
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, 2013, 2012 and 2011:
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,
2013
2012
2011
$
$
$
1.7
0.6
100.6
95.51
$
$
$
1.5
0.6
114.6
75.42
$
$
$
1.3
0.5
134.5
53.93
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, 2013, 2012 or 2011. 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 $16.5 million, $15.6 million and $11.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.
NOTE 13 – COMMITMENTS
Construction commitments:
As of December 31, 2013, the Company had construction commitments in the amount of $80.8 million.
Letter of credit commitments:
As of December 31, 2013, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability
and other insurance policies, in the amount of $51.7 million (see Note 5).
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 (ii) 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
66
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 5).
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.
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NOTE 14 – 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 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 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 $13.4
million at December 31, 2013, 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 15 – 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. Lease payments under these operating leases totaled $4.4 million, $4.4
million and $4.2 million during the years ended December 31, 2013, 2012 and 2011, respectively. We believe that the lease agreements
with the affiliated entities are on terms comparable to those obtainable from third parties. See Note 6 for further information on the
Company's operating leases.
NOTE 16 – INCOME TAXES
Deferred income tax assets and 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.
67
The following table identifies significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and
2012 (in thousands):
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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
December 31,
2013
2012
$
$
1,997
1,636
61,100
64,733
5,333
1,180
59,176
65,689
1,937
1,583
55,683
59,203
5,333
2,077
58,605
66,015
130,422
125,218
84,955
84,955
131,851
14,551
146,402
231,357
(100,935) $
$
78,675
78,675
132,547
13,012
145,559
224,234
(99,016)
The following table reconciles the above net deferred tax assets (liabilities) as presented on the accompanying Consolidated Balance
Sheets as of December 31, 2013 and 2012 (in thousands):
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
December 31,
2013
2012
$
64,733
(84,955)
(20,222) $
59,203
(78,675)
(19,472)
65,689
(146,402)
(80,713) $
66,015
(145,559)
(79,544)
(100,935) $
(99,016)
$
$
$
$
68
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, 2013, 2012 and 2011 (in thousands):
2013
Federal
State
2012
Federal
State
2011
Federal
State
Current
Deferred
Total
$
$
$
$
$
$
348,303
38,428
386,731
311,631
35,982
347,613
228,443
25,537
253,980
$
$
$
$
$
$
847
1,072
1,919
10,030
(1,868)
8,162
55,175
(1,055)
54,120
$
$
$
$
$
$
349,150
39,500
388,650
321,661
34,114
355,775
283,618
24,482
308,100
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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, 2013, 2012 and 2011 (in
thousands):
For the Year Ended December 31,
2012
2011
2013
Federal income taxes at statutory rate
State income taxes, net of federal tax benefit
Other items, net
Total provision for income taxes
$
$
370,632
$
329,532
$
285,524
26,802
(8,784)
388,650
22,426
3,817
16,132
6,444
$
355,775
$
308,100
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, 2013, the Company had tax credit carryforwards available for state tax purposes, net of federal impact, of $7.0
million. As of December 31, 2013, the Company had net operating loss carryforwards available for state purposes of $23.2 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 expire in 2024.
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.
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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, 2013, 2012 and 2011 (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 items settled with taxing authorities
Reductions due to the lapse of statute of limitations and settlements
Balance as of December 31,
$
For the Year Ended December 31,
2013
2012
2011
$
51,004
$
45,800
$
36,710
7,046
—
(1,056)
(6,535)
50,459
$
8,100
1,301
(451)
(3,746)
51,004
7,308
4,060
—
(2,278)
45,800
$
For the years ended December 31, 2013, 2012 and 2011, the Company recorded a reserve for unrecognized tax benefits (including interest
and penalties) of $58.6 million, $59.3 million and $53.0 million, respectively. All of the unrecognized tax benefits recorded as of December
31, 2013, would affect the Company’s effective tax rate if recognized, generally net of the federal tax effect of approximately $16.6
million. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of the years ended
December 31, 2013, 2012 and 2011, the Company had accrued approximately $8.1 million, $8.3 million and $7.2 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, 2013, 2012 and 2011, the Company recorded tax expense related to an increase in its liability for
interest and penalties of $2.1 million, $2.6 million and $3.9 million, respectively. Although unrecognized tax benefits for individual tax
positions may increase or decrease during 2014, the Company expects a reduction of $4.3 million of unrecognized tax benefits during
the one-year period subsequent to December 31, 2013, 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 2009 and prior
expired on September 15, 2013. The statute of limitations for the Company’s U.S. federal income tax return for 2010 will expire on
September 15, 2014, 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 2012.
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NOTE 17 – 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, 2013, 2012 and 2011 (in thousands, except per share data):
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Numerator (basic and diluted):
Net income
Denominator:
For the Year Ended December 31,
2013
2012
2011
$
670,292
$
585,746
$
507,673
Denominator for basic earnings per share - weighted-average shares
Effect of stock options (1)
Denominator for diluted earnings per share - weighted-average shares
109,244
1,857
111,101
121,182
2,132
123,314
134,667
2,316
136,983
Earnings per share:
Earnings per share-basic
Earnings per share-assuming dilution
$
$
6.14
6.03
$
$
4.83
4.75
Antidilutive common stock equivalents not included in the calculation of
diluted earnings per share:
Stock options (1)
Weighted-average exercise price per share of antidilutive stock options (1)
498
$
103.80
$
1,816
87.88
(1) See Note 12 for further discussion on the terms of the Company's share-based compensation plans.
$
$
$
3.77
3.71
1,756
62.79
Subsequent to the end of the year and through February 28, 2014, the Company did not repurchase a material number of shares of its
common stock.
NOTE 18 – QUARTERLY RESULTS (Unaudited)
The following table sets forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2013 and 2012. 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 (1)
Earnings per share – assuming dilution (1)
Fiscal 2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(In thousands, except per share data)
$ 1,585,009
$ 1,714,969
$
1,728,025
$
1,621,234
798,663
251,084
154,329
871,875
296,261
177,127
879,163
300,380
186,489
$
$
1.38
1.36
$
$
1.61
1.58
$
$
1.72
1.69
$
$
819,300
255,760
152,347
1.43
1.40
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Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
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
(1) Earnings per share amounts are computed independently for each quarter and annual period. The quarterly earnings per share amounts may not
sum to equal the full-year earnings per share.
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.
72
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
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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.
CHANGES IN INTERNAL CONTROLS
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2013,
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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:
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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, 2013. 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 (1992 framework). Based on this assessment, management believes that as of December 31, 2013, 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.
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Item 10. Directors, Executive Officers and Corporate Governance
PART III
Certain information required by Part III is incorporated by reference from the Company’s Proxy Statement on Schedule 14A for the 2014
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.
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.
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.
74
Item 13. Certain Relationships and Related Transactions, and Director Independence
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.
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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.
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.
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PART IV
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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
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, 2013, 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, 2013 and 2012
Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements for the years ended December 31, 2013, 2012 and 2011
2. Financial Statement Schedules - O'Reilly Automotive, Inc. and Subsidiaries
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.
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
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Column A
Column B
Column C
Column D
Column E
Description
(amounts in thousands)
Sales and returns
allowances
For the year ended
December 31, 2013
For the year ended
December 31, 2012
For the year ended
December 31, 2011
Allowance for doubtful
accounts
For the year ended
December 31, 2013
For the year ended
December 31, 2012
For the year ended
December 31, 2011
Balance at
Beginning of
Period
Additions -
Charged to
Costs and
Expenses
Additions -
Charged to Other
Accounts -
Describe
Deductions -
Describe
Balance at End
of Period
$
7,326
$
(826) $
— $
6,406
5,634
920
772
—
—
$
—
—
—
$
6,447
$
8,499
$
— $
8,285 (1)
$
6,403
8,349
8,043
7,695
—
—
7,999 (1)
9,641 (1)
6,500
7,326
6,406
6,661
6,447
6,403
(1) Uncollectable accounts written off.
77
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.
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SIGNATURES
O'REILLY AUTOMOTIVE, INC.
(Registrant)
Date: February 28, 2014
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
/s/ Rosalie O'Reilly-Wooten
Rosalie O'Reilly-Wooten
/s/ Jay D. Burchfield
Jay D. Burchfield
/s/ Thomas T. Hendrickson
Thomas T. Hendrickson
/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 and Chairman of the Board
February 28, 2014
Director and Vice-Chairman of the Board
February 28, 2014
Director and Vice-Chairman of the Board
February 28, 2014
Director
Director
Director
Director
Director
Director
President and Chief Executive Officer
(Principal Executive Officer)
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
February 28, 2014
Executive Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2014
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EXHIBIT INDEX
Exhibit No.
Description
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
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.
Amended and Restated Articles of Incorporation of the Registrant, as Exhibit 3.1 to the Registrant's Current Report on
Form 8-K dated May 9, 2013, is incorporated herein by this reference.
Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K
dated May 9, 2013, 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.
Indenture, dated as of June 20, 2013, 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 June 20, 2013, 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
10.4 (a)
10.5 (a)
10.6 (a)
10.7 (a)
10.8 (a)
10.9 (a)
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.
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 reference.
Page E-1
EXHIBIT INDEX (continued)
Exhibit No.
10.11 (a)
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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.
Description
10.12 (a)
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.
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
10.15 (a)
10.16 (a)
10.17 (a)
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.
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)
10.21 (a)
10.22 (a)
10.23
10.24
10.25
10.26 (a)
10.27 (a)
10.28 (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.
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.
Amendment No. 2 to the Credit Agreement and Amendment No. 1 to Guaranty, dated as of July 2, 2013, by and among
O'Reilly Automotive, Inc., as borrower, Bank of America, N.A., as Administrative Agent, L/C Issuer, Swing Line Lender
and a Lender, and the other lenders party thereto, filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated July 3, 2013, is incorporated herein by this reference.
O’Reilly Automotive, Inc. Director Compensation Program, 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.
10.29 (a)
Form of O'Reilly Automotive, Inc. Director Indemnification Agreement, filed as Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated August 14, 2013, is incorporated herein by this reference.
Page E-2
EXHIBIT INDEX (continued)
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Exhibit No.
10.30 (a)
18.1
21.1
23.1
31.1
31.2
32.1 *
32.2 *
Description
Form of O'Reilly Automotive, Inc. Executive Officer Indemnification Agreement, filed as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K dated August 14, 2013, 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.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
(a)
*
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
Exhibit 21.1 – Subsidiaries of the Registrant
Subsidiary
O’Reilly Automotive Stores, Inc.
Ozark Automotive Distributors, Inc.
Ozark Services, Inc.
Ozark Purchasing, LLC
O'Reilly Auto Enterprises, LLC (formerly known as CSK Auto, Inc.)
State of
Incorporation
Missouri
Missouri
Missouri
Missouri
Delaware
In addition, three 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.
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
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Exhibit 23.1 – Consent of Independent Registered Public Accounting Firm
(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, 2014, 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, 2013.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2014
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Greg Henslee, certify that:
1. I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
Exhibit 31.1 - CEO 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;
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:
(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;
(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
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 the 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
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, 2014 /s/ Greg Henslee
Greg Henslee, President and
Chief Executive Officer (Principal Executive Officer)
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
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Exhibit 31.2 - CFO Certification
I, Thomas McFall, certify that:
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;
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:
(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;
(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
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 the 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
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, 2014
/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.
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
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31,
2013, 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:
(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
operations of the Company.
/s/ Greg Henslee
Greg Henslee
Chief Executive Officer
February 28, 2014
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.
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
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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,
2013, 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
amended; and
(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, 2014
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.
E X E C U T I V E C O M M I T T E E a n d D I V I S I O N A L V I C E P R E S I D E N T S
GREG HENSLEE
President and Chief
Executive Officer
TOM MCFALL
Executive Vice President
of Finance and Chief
Financial Officer
TED WISE
Executive Vice President
of Expansion
JEFF SHAW
Executive Vice President
of Store Operations
and Sales
TONY BARTHOLOMEW
Senior Vice President of
Professional Sales
STEVE JASINSKI
Senior Vice President of
Information Systems
GREG JOHNSON
Senior Vice President of
Distribution
RANDY JOHNSON
Senior Vice President of
Inventory Management
MIKE SWEARENGIN
Senior Vice President of
Merchandise and
Marketing
TRICIA HEADLEY
Vice President and
Corporate Secretary/
Secretary to Board
JONATHAN ANDREWS
Vice President of Human
Resources
B O A R D o f D I R E C T O R S
GREG BECK
Vice President of
Purchasing
LARRY ELLIS
Vice President of
Distribution Operations
CHAD KEEL
Vice President of
Southwest Division
WAYNE PRICE
Vice President of Treasury
& Risk Management
BRAD BECKHAM
Vice President of Eastern
Store Operations & Sales
ALAN FEARS
Vice President of Jobber
Sales & Acquisitions
SCOTT KRAUS
Vice President of Real
Estate Expansion
SCOTT BLACKBURN
Vice President of Store
Operations
JEREMY FLETCHER
Vice President of Finance &
Controller
SCOTT LEONHART
Vice President of
Northeast Division
DOUG RUBLE
Vice President of
Marketing/Advertising
BARRY SABOR
Vice President of Loss
Prevention
DOUG BRAGG
Vice President of Central
Division
JEFF GROVES
Vice President of Legal &
General Counsel
KENNY MARTIN
Vice President of Northern
Division
RO SALAZAR
Vice President of
Northwest Division
KEITH CHILDERS
Vice President of Western
Store Operations & Sales
BILLY HARRIS
Vice President of Eastern
Division
ROBERT DUMAS
Vice President of
Southeast Division
JAIME HINOJOSA
Vice President of Southern
Division
RYAN MOORE
Vice President of Pricing
DAVID ORTEGA
Vice President of Electronic
Catalog Systems
TOM SEBOLDT
Vice President of
Merchandise
DAVID WILBANKS
Vice President of
Merchandise
Term expiring in 2014
Term expiring in 2014
Term expiring in 2015
DAVID O’REILLY
Chairman of the Board
LARRY O’REILLY
Vice Chairman of the Board
ROSALIE O’REILLY WOOTEN
Director
JAY D. BURCHFIELD
Director Since 1997
Compensation
Committee - Chairman
Audit & Corporate Governance/
Nominating Committees
THOMAS T. HENDRICKSON
Director Since 2010
Audit Committee
PAUL R. LEDERER
Lead Director 1993-July 1997;
Since February 2001
Corporate Governance/Nominating
Committee - Chairman
Audit & Compensation Committees
CHARLIE O’REILLY
Vice Chairman of the Board
JOHN R. MURPHY
Director Since 2003
Audit Committee - Chairman
Corporate Governance/Nominating
Committee
RONALD RASHKOW
Director Since 2003
Audit & Compensation
Committees
S H A R E H O L D E R I N F O R M A T I O N
CORPORATE ADDRESS
233 South Patterson Avenue
Springfield, Missouri 65802
417-862-3333
www.oreillyauto.com
REGISTRAR AND
TRANSFER AGENT
Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078
800-884-4225
www.computershare.com
Inquiries regarding stock
transfers, lost certificates or
address changes should be
directed to Computershare
Investor Services at the
above address.
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
One Kansas City Place
1200 Main Street, Suite 2500
Kansas City, Missouri
64105-2167
ANALYST COVERAGE
The following analysts provide
research coverage of O’Reilly
Automotive, Inc.:
BAIRD EQUITY RESEARCH
Craig R Kennison
BANK OF AMERICA/
MERRILL LYNCH
Denise Chai
BARCLAYS CAPITAL
Alan M Rifkin
BB&T CAPITAL MARKETS
Bret D Jordan
ISI GROUP LLC
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Colin McGranahan
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Gary Balter
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Michael Baker
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Brian Sponheimer
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Matthew J Fassler
JP MORGAN EQUITY RESEARCH
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RBC CAPITAL MARKETS LLC
Scot Ciccarelli
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David Gober
STEPHENS INC
John R Lawrence
MORNINGSTAR EQUITY
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Liang Feng
NOMURA EQUITY RESEARCH
Aram Rubinson
NORTHCOAST RESEARCH
Nick Mitchell
OPPENHEIMER & CO INC
Brian Nagel
PIPER JAFFRAY
Peter J Keith
STIFEL NICOLAUS
David A Schick
UBS INVESTMENT RESEARCH
Michael Lasser
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Seth Basham
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