®
2 0 1 9
A n n u a l R e p o r t
$7,967
$8,593
$8,978
$9,536
$10,150
$9.17
$10.73
$12.67
$16.10
$17.88
31.5%
34.3%
35.1%
39.5%
38.7%
2016
2015
SALES
(in millions)
2017
2018
2019
2017
2016
2015
2018
DILUTED EARNINGS
per SHARE
2019
2017
2016
2015
RETURN on
INVESTED CAPITAL
2018
FINANCIAL HIGHLIGHTS
In thousands, except earnings per share and ratio data and store count
YEAR ENDED DECEMBER 31,
Store Count
Percentage Increase in Comparable Store Sales
2019
5,460
4.0%
2018
5,219
3.8%
2017
5,019
1.4%
2016
4,829
4.8%
2019
2015
4,571
7.5%
$
10,149,985 $
9,536,428 $
8,977,726 $
8,593,096 $
7,966,674
Sales
Operating Income
Net Income
Accounts Payable to Inventory
Working Capital
Total Assets
Total Debt
Shareholders’ Equity
1,920,726
1,391,042
104.6%
(635,765)
10,717,160
3,890,527
397,340
1,815,184
1,324,487
105.7%
(350,918)
7,980,789
3,417,122
353,667
1,725,400
1,133,804
106.0%
(249,694)
7,571,885
2,978,390
653,046
1,699,206
1,037,691
105.7%
(142,674)
7,204,189
1,887,019
1,627,136
1,514,021
931,216
99.1%
(36,372)
6,676,684
1,390,018
1,961,314
9.17
101,514
Earnings Per Share (assuming dilution)
$
17.88 $
16.10 $
12.67 $
10.73 $
Weighted-Average Common Shares
Outstanding (assuming dilution)
77,788
82,280
89,502
96,720
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
This graph shows the cumulative total shareholder return assuming the investment of $100 on December 31, 2014, and the
reinvestment of dividends thereafter, if any, in the common stock of O’Reilly Automotive, Inc., the Standard and Poor’s S&P 500
Retail Index and the Standard and Poor’s S&P 500 Index.
$1 00
$132
$14 5
$17 9
$12 5
2014
2015
2016
2017
2018
2019
O’Reilly Automotive, Inc.
S&P 500 Retail Index
S&P 500 Index
$228
Our commitment to our customers and our team members:
We are enthusiastic, hardworking professionals who are dedicated to teamwork,
safety/wellness, and excellent customer service. We will practice expense control while
setting an example of respect, honesty, and a win-win attitude in everything we do.
TO OUR FELLOW SHAREHOLDERS:
"Our consistently excellent performance is a testament to the dedication and
hard work of the team members in all of our stores, distribution centers and
offices throughout the United States and Mexico who are intensely driven to
become the dominant auto parts supplier in all of our market areas."
On behalf of over 82,000 enthusiastic and professional O’Reilly Team Members,
we take great pride in writing to you, our shareholders, to report that the
O’Reilly Culture of excellent customer service is thriving and once again resulted in
another year of strong, profitable growth. Our 2019 performance culminated in our
27th consecutive year of generating positive comparable store sales growth, while also
producing record revenue and operating income results, every year since we became a
publicly traded company in April of 1993.
Our profitable growth in 2019 was driven by an industry-leading 4.0% increase in
comparable store sales. Our growth was accelerated with the opening of 200 net, new
greenfield stores across 37 states, coupled with the acquisition of Bennett Auto Supply
in south Florida after the close of business on December 31, 2018, adding 20 net, new
locations. Finally, we capped off our strong growth year in 2019 in late November
with our inaugural expansion outside of the United States with the acquisition of
Mayasa Auto Parts, headquartered in Guadalajara, Mexico. We are pleased with our
team’s ability to drive strong results across our existing business and in these exciting
new markets, and we are looking forward to continuing to grow the O’Reilly brand in
2020 and beyond.
GREG JOHNSON
Chief Executive Officer
and Co-President
JEFF SH AW
Chief Operating Officer
and Co-President
BR AD BECKH AM
Executive Vice President of
Store Operations and Sales
THOM AS MCFALL
Executive Vice President
and Chief Financial Officer
Heather Nagy, Assistant Store Manager (front), and Marcos
Garcia, Store Manager (back), O’Reilly 5176-Bloomfield, CT.
O’REILLY AUTOMOTIVE 2019 ANNUAL REPORT • 1
Our consistently excellent performance is a testament to the dedication and hard
work of the team members in all of our stores, distribution centers and offices
throughout the United States and Mexico who are intensely driven to become
the dominant auto parts supplier in all of our market areas. We win business by
consistent execution, outhustling and outworking the competition every day, and
being the friendliest, most knowledgeable parts store in town.
Kayla Farthing, Outbound Materials
Handler, O’Reilly DC-Twinsburg, OH.
The Mexican automotive aftermarket presents an attractive, profitable growth
opportunity for us, and we have worked diligently over the past few years to
identify the right team to partner with to expand our proven dual market strategy
outside the borders of the United States. Mayasa is a family business founded
over 65 years ago and has a very similar history and culture to O’Reilly. They
currently operate 21 Orma-branded auto parts stores and supply over 2,000
independent jobber customers through six distribution centers. 2020 will be
a learning and planning year as we work hand-in-hand with the experienced
Mayasa leadership team to evaluate the scalability of their systems and, more
importantly, leverage their strong field operations teams, who will be the backbone of our long-term expansion plans.
We are excited for the great opportunity we have to grow our footprint in Mexico over time, but more importantly, for
the addition of over 1,100 Mayasa team members who share our passion for excellent customer service. We extend our
warmest welcome to the Mayasa team and look forward to a strong, profitable future.
As we work hard to win our customers’ business every day and drive our Company to new record performance, our
priority continues to be grounded in sustainable profitable growth. Through unwavering expense control and a relentless
focus on consistent, excellent customer service, our Team delivered a 5.8% increase in operating profit dollar growth
in 2019, which was on top of a 5.2% increase in 2018. We achieved operating profit dollar growth while continuing to
prioritize customer service initiatives during 2019, building on our solid foundation for continued long-term success. Our
solid growth in operating income and the ongoing execution of our share repurchase program resulted in a 11% increase in
diluted earnings per share, marking our 11th consecutive year of annual diluted earnings per share increases in excess of
10%.
Our commitment to driving industry-leading results through excellent customer service is supported by the continued
strength of the long-term drivers for demand in our industry. U.S. consumers continue to steadily increase the annual
In 2019, we completed the
acquisition of Mayoreo de
Autopartes y Aceites, S.A.
de C.V. (“Mayasa Auto
Parts”), a specialty retailer
of automotive aftermarket
parts headquartered in
Guadalajara, Jalisco,
Mexico. Mayasa Auto Parts
operates six distribution
centers, 21 Orma Autopartes
stores and serves over 2,000
independent jobber locations
in 28 Mexican states.
BAJA
CALIFORNIA
SONORA
HERMOSILLO
CHIHUAHUA
COAHULA
BAJA
CALIFORNIA
SUR
SINALOA
CULIACÁN
DURANGO
NUEVO
LEÓN
Denotes DC Locations
18JALISCO
STORES
ZACATECAS
TAMAUILIPAS
PUERTO
VALLARTA
NAYARIT
LEÓN
SAN LUIS
POTOSÍ
HIDALGO
GUADALAJARA
JALISCO
MORELIA
MICHOACÁN
MORELOS
3GUANAJUATO
STORES
YUCATÁN
QUINTANA
ROO
CAMPECHE
TABASCO
VERACRUZ
GUERRERO
OAXACA
CHIAPAS
MAYASA
HEADQUARTERS
O’REILLY AUTOMOTIVE 2019 ANNUAL REPORT • 2
Orma Autopartes located in Zapotlanejo, Jalisco, Mexico. miles they drive each year, again tallying over three trillion miles in 2019, which represents the largest fundamental driver
of demand for our industry, as these consistent miles driven produce ongoing wear and tear to vehicle components and the
corresponding demand for the products we sell. In addition, healthy levels of new car sales and stable, low scrappage rates
incrementally increase the total size of the vehicle fleet, which is now approximately 272 million vehicles. At the same
time, advancements in vehicle engineering and manufacturing have produced vehicles capable of being reliably driven at
higher and higher mileages, pushing the average vehicle age to 11.7 years old. We believe this growing and aging vehicle
fleet will result in continued growth of routine maintenance cycles and ongoing repairs, which are beneficial to the long-
term demand for our industry. The steady growth in miles driven has been supported by sustained healthy levels of total
employment as people commute to from their homes to their workplaces; this positive backdrop also contributes to solid
consumer confidence, another positive for our business.
Parts availability remains the number one buying decision in our industry. The growing and aging vehicle population and
the increasing complexity of vehicles requires an increasing number of SKUs to meet the needs of our customers. Our
proven ability to deploy the right inventory closest to the customer is a key competitive advantage for our Company. We
are very proud of, and continue to expand and improve on, our robust, tiered, regional distribution network comprised of
28 strategically located distribution centers, each with the capacity to deliver hard-to-find parts into the hands of customers
faster than our competitors. A key differentiator for our Company is our multiple times a week store replenishment
frequency directly from one of our distribution centers, which carry on average 159,000 SKUs, allowing our stores to
stock a broader and more diverse inventory assortment. Each store inventory is tailored to the local market based on
vehicle registration data, market demographic information and customer purchasing patterns and consists of an average of
22,000 unique SKUs. The personalized store inventory and nightly distribution network replenishment is augmented by
access, multiple times per day, to hard-to-find parts from nearby distribution centers or from one of our 356 Hub stores.
Our Hub store network is comprised of 85 Super Hubs, which stock on average 68,000 SKUs, and 271 Hub stores, which
stock on average 42,000 SKUs. We continually evaluate and expand our distribution footprint to support our store growth,
exemplified by the opening of our new distribution center in Twinsburg, Ohio, in 2019, as well as the new distribution
center projects underway in Lebanon, Tennessee, and Horn Lake, Mississippi, both of which will open during 2020. Our
industry-leading parts availability allows our Team Members to practice our “Never Say No” commitment to customer
service, and we will continue to make appropriate investments in our store level inventories and distribution network to
guarantee our stores will always have the ability to provide the parts our customers need faster than the competition.
Pietro Affrunti, Merchandising
Specialist, O'Reilly 5075-Johnston RI.
O’REILLY AUTOMOTIVE 2019 ANNUAL REPORT • 3
Our strategic priorities for the use of our shareholders’
capital continue to be to reinvest in our existing store
base and distribution network, grow organically through
greenfield new store openings and the associated
expansion of our distribution network to support new
stores, and consolidate the industry through prudent
acquisitions of existing auto parts suppliers. We remain
pleased with the performance of our new stores, and
we continue to see exciting growth opportunities in
less mature regions in the Northeast, Middle Atlantic
and Southern Florida, as well as strategic backfill
opportunities in our more established markets. In 2020,
we plan to open approximately 180 net, new stores, and
the key ingredient to the success of these stores will be
the teams of friendly, knowledgeable Professional Parts
People who will staff these stores and live out our Culture
of teamwork, honesty, respect, enthusiasm and hard
work. Our top priority continues to be to identify, hire,
train, develop and retain outstanding Team Members who
benefit from our “promote from within” philosophy and
perpetuate our Culture throughout the Company.
Our Team’s commitment to excellent customer service
and expense control also resulted in our generation of
$1.0 billion in free cash in 2019, after reinvesting $628
million in capital projects at our stores, DCs and offices.
During 2019, we returned excess capital of $1.4 billion
to you, our shareholders, through our share repurchase
program. Since we began this program in 2011, we
have returned $12.5 billion through the repurchase of
77 million shares, at an average price of $162.72 per
share. We continue to view the disciplined execution of
our share repurchase program as an effective means of
returning capital after we have exhausted all opportunities
to profitably grow the business and drive a high rate of
return for our shareholders. We remain committed to a
balanced capital structure that supports our investment-
grade credit ratings and provides the flexibility to take
advantage of future growth opportunities while also
providing outstanding returns for our shareholders.
As we conclude this year’s shareholder letter, we would
like to commit to you, our shareholders, we will roll up
our sleeves every day to drive our Company’s success and
perpetuate a Culture that remains the foundation for our
future success. Since our beginning in 1957, our Team
Members’ dedication to excellent customer service has
paved the way for O’Reilly’s growth into an industry-
leading auto parts supplier and will continue to drive our
success on the road ahead. We are very grateful to you,
our shareholders, for your continued trust and confidence,
and we look forward to extending our long record of
profitable growth in 2020.
O’REILLY AUTOMOTIVE 2019 ANNUAL REPORT • 4
Vincent Benjamin, Retail Service
Speicalist, O'Reilly 6316-Sunrise, FL.
THE O'REILLY FOOTPRINT
Store Count 200-700+ 100-199 1-99
Distribution Center
Future Distribution Center
CUSTOMER SERVICE Coast To Coast
Alabama .............. 147
Alaska ................... 15
Arizona ................ 140
Arkansas .............. 114
California .............554
Colorado ............. 105
Connecticut ............23
Florida .................239
Georgia ............... 214
Hawaii ................... 12
Idaho ....................45
Illinois ................. 211
Indiana ................ 147
Iowa ...................... 78
Kansas ..................85
Kentucky ............. 101
Louisiana ............. 124
Maine ....................34
Massachusetts .......46
Michigan ............. 175
Minnesota ............ 126
Mississippi .............80
Missouri ...............203
Montana ................28
Nebraska ............... 47
Nevada ..................56
New Hampshire ......32
New Mexico ...........60
New York .............. 17
North Carolina ...... 185
North Dakota ......... 15
Ohio ....................203
Oklahoma ............ 122
Oregon ..................72
Pennsylvania .........33
Rhode Island .......... 10
South Carolina ..... 110
South Dakota ......... 18
Tennessee ............ 183
Texas ...................735
Utah ......................65
Vermont ................24
Virginia ..................85
Washington ......... 158
West Virginia .......... 17
Wisconsin ............ 124
Wyoming ...............22
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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
Trading Symbol(s)
ORLY
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 ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☐
FORM 10-K
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At June 30, 2019, the aggregate market value of the voting stock held by non-affiliates of the Company was $23,433,046,431 based on
the last price of the common stock reported by The NASDAQ Global Select Market.
At February 24, 2020, an aggregate of 74,897,080 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2020 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2019, are incorporated by reference into Part III.
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Selected Financial Data
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16 Form 10-K Summary
PART IV
Page
3
14
18
18
19
19
20
22
24
39
40
72
72
73
74
74
74
75
75
76
79
1
FORM 10-K
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 “estimate,” “may,” “could,” “will,” “believe,”
“expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” 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, the economy in general,
inflation, tariffs, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired
businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public
debt, governmental regulations, information security and cyber-attacks, 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 in this annual report on Form 10-K for the year ended December 31, 2019, and subsequent Securities and Exchange Commission
filings, 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.
2
FORM 10-K
Item 1. Business
GENERAL INFORMATION
PART I
Unless otherwise indicated, “we,” “us,” “our” and similar terms, as well as references to the “Company,” refer to O’Reilly
Automotive, Inc. and its Subsidiaries. O’Reilly is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies,
equipment and accessories in the United States (“U.S.”), 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.
After the close of business on November 29, 2019, we completed the acquisition of Mayoreo de Autopartes y Aceites, S.A. de C.V.
(“Mayasa”), a specialty retailer of automotive aftermarket parts headquartered in Guadalajara, Jalisco, Mexico pursuant to a stock
purchase agreement. At the time of the acquisition, Mayasa operated six distribution centers, 21 Orma Autopartes stores and served
over 2,000 independent jobber locations in 28 Mexican states.
At December 31, 2019, we operated 5,439 stores in 47 states in the United States and 21 stores in Mexico. Our stores carry an extensive
product line, including
•
•
new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components,
belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze,
appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and
accessories, such as floor mats, seat covers and truck accessories.
Our stores offer many enhanced services and programs to our customers, such as
check engine light code extraction, where allowed by law;
battery diagnostic testing;
battery, wiper and bulb replacement;
•
•
•
•
•
•
•
• machine shops;
•
•
custom hydraulic hoses;
drum and rotor resurfacing;
electrical and module testing;
loaner tool program;
used oil, oil filter and battery recycling.
professional paint shop mixing and related materials; and
See the “Risk Factors” section of this annual report on Form 10-K 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 suppliers and availability of key products, our acquisition strategies, complications in our distribution centers (“DCs”), failure
to achieve high levels of service and product quality, unanticipated fluctuations in our quarterly results, the volatility of the market price
of our common stock, our increased debt levels, a downgrade in our credit ratings, data security, environmental legislation and other
regulations and risks associated with international operations.
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 superior customer service and expense
control. Our intent is to be the dominant auto parts provider in all the markets we serve, by providing a higher level of customer service
and a better value position than our competitors to both DIY and professional service provider customers.
3
FORM 10-K
Competitive Advantages
We believe our effective dual market strategy, superior customer service, technically proficient store personnel, strategic distribution
network and experienced management team make up our key competitive advantages, which cannot be easily duplicated.
Proven Ability to Execute Our Dual Market Strategy:
For more than 40 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 automotive aftermarket parts consumers, 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 provider customers.
In 2019, we derived approximately 56% of our sales from our DIY customers and approximately 44% of our sales from our professional
service provider customers. Historically, we have increased 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. We believe we will continue to have a competitive advantage on the professional service
provider portion of our business, due to our systems, knowledge and experience serving the professional service provider side of the
automotive aftermarket, supported by our approximately 825 full-time sales staff dedicated solely to calling upon and servicing the
professional service provider customer. We will also continue to expand and enhance the level of offerings focused on growing our
DIY business and will continue to execute our proven dual market strategy in both existing and new markets.
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 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 needed to complete their
repairs. Accordingly, each O’Reilly store carries, or has same or next day availability to, 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 and within our network, 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 retain existing customers by offering superior customer
service, the key elements of which are identified below:
superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”);
•
•
• many enhanced service programs, including battery and electrical testing, battery, wiper and bulb replacement and check engine
an extensive selection and availability of products;
•
•
•
light code extractions;
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; and
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
knowledgeable, particularly with respect to hard part repairs, 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.
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,
4
FORM 10-K
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 28 regional
DCs, which provide our stores with same-day or overnight access to an average of 159,000 stock keeping units (“SKUs”), many of
which are hard-to-find items not typically stocked by other auto parts retailers. To augment our robust distribution network, we operate
a total of 356 Hub stores that also provide delivery service and same-day access to an average of 68,000 SKUs from a Super Hub or
42,000 SKUs from a Hub 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 216 senior managers
who average 21 years of service; 270 corporate managers who average 16 years of service; and 540 district managers who average 14
years of service. Our management team has demonstrated the consistent ability to successfully execute our business plan and growth
strategy by generating 27 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 2019, we opened 200 net, new domestic stores, as
well as 20 net, additional stores from the Bennett Auto Supply (“Bennett”), Inc. acquisition and 21 additional stores from the Mayasa
acquisition. In 2020, we plan to open approximately 180 net, new stores, 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 (“jobber 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, vehicles
in operation, number and type of existing automotive repair facilities and competing auto parts stores within a predetermined radius.
We target both small and large markets for expansion of our store network. While we have, and 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 comparable 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, like O’Reilly, to
operate more efficiently and effectively than smaller independent operators, will result in continued industry consolidation. Our
intention is to continue to selectively pursue strategic acquisitions that will strengthen our position as a leading automotive aftermarket
parts supplier in existing markets and provide a springboard for expansion into new markets.
5
FORM 10-K
Continually Enhance Store Design and Location:
Our current prototype store design features optimized square footage, high ceilings, convenient interior store layouts, in-store signage,
bright lighting, convenient ingress, egress and parking, and dedicated counters to serve professional service provider customers, each
designed to increase sales and operating efficiencies to 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
2019, we relocated 12 stores and performed minor to major updates or renovations to approximately 1,500 additional stores. We believe
that our ability to consistently achieve growth in comparable store sales is due in part to our commitment to maintaining an attractive
store network, which is strategically located to best serve our customers.
Omnichannel Growth Strategy:
Our Omnichannel growth strategies reflect the continued evolution of customer preferences in researching and completing purchases.
More than ever before, our customers’ purchase decisions are informed by a range of interactions, whether in-person, over the phone,
or through a variety of digital channels, as they seek to find the professional parts knowledge and the product availability they need to
meet their automotive repair and maintenance needs. Our Omnichannel growth strategies are focused on offering our customers an
enhanced and seamless research and buying experience through any of these channels. We have long been known for excellent customer
service and continue to grow the functionality and user-friendliness of our websites, including www.OReillyAuto.com and
www.FirstCallOnline.com, to enhance our customer’s shopping experience. Many of our customers interact over multiple channels to
research and complete a purchase, and the functionality and features of our digital sites complements the outstanding customer service
provided in our over 5,400 brick and mortar locations.
Team Members
As of January 31, 2020, we employed 82,167 Team Members (53,159 full-time Team Members and 29,008 part-time Team Members),
of whom 68,679 were employed at our U.S. stores, 8,607 were employed at our U.S. DCs, 3,620 were employed at our U.S. corporate
and regional offices, and 1,261 were employed in Mexico. A union represents 50 stores (489 Team Members) in the Greater Bay Area
in California and has for many years, and approximately 34 Team Members who drive over-the-road trucks in two of our domestic DCs
are represented by labor unions as well. In addition, the Company assumed collective bargaining agreements with various unions in
Mexico in connection with its acquisition of Mayasa; however, none of the Company’s Team Members are specifically affiliated with,
or members of, those unions. With the exception of the previously described Team Members, our Team Members are not represented
by labor unions. Our tradition for 63 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 respect has created an industry-leading team, and we consider our relations with
our Team Members to be excellent.
Store Network
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
demographics, including age, ethnicity, life style and per capita income;
number, age and percent of makes and models of registered vehicles;
the number, type and sales potential of existing automotive repair facilities;
population density;
•
•
• market economic strength, retail draw and growth patterns;
•
•
•
•
•
•
the type and size of store that should be developed.
financial review of adjacent existing locations; and
physical location, traffic count, size, economics and presentation of the site;
the number of auto parts stores and other competitors within a predetermined radius;
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 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
6
FORM 10-K
improve the level of service provided in high volume areas. This strategy enables us to achieve additional distribution and advertising
efficiencies in each market.
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 U.S. stores,
on average, carry approximately 22,000 SKUs and average approximately 7,400 total square feet in size. At December 31, 2019, we
had a total of approximately 40 million square feet in our 5,439 domestic stores. Our domestic stores are served primarily by the nearest
DC, which averages 159,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 356 Hub
stores, which are comprised of 85 Super Hubs that average approximately 15,700 square feet and carry an average of 68,000 SKUs and
271 Hubs that average approximately 10,000 square feet and carry an average of 42,000 SKUs.
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
FORM 10-K
The following table sets forth the geographic distribution and activity of our stores as of December 31, 2019 and 2018:
State
Texas
California
Florida
Georgia
Illinois
Missouri
Ohio
North Carolina
Tennessee
Michigan
Washington
Alabama
Indiana
Arizona
Minnesota
Louisiana
Wisconsin
Oklahoma
Arkansas
South Carolina
Colorado
Kentucky
Kansas
Virginia
Mississippi
Iowa
Oregon
Utah
New Mexico
Nevada
Nebraska
Massachusetts
Idaho
Maine
Pennsylvania
New Hampshire
Montana
Vermont
Connecticut
Wyoming
South Dakota
West Virginia
New York
Alaska
North Dakota
Hawaii
Rhode Island
Total U.S. stores
Mexico
Total stores
December 31, 2018
% of Total
Store Count
13.5 %
10.6 %
3.8 %
3.9 %
3.9 %
3.9 %
3.8 %
3.3 %
3.4 %
3.2 %
3.0 %
2.7 %
2.6 %
2.7 %
2.4 %
2.3 %
2.3 %
2.3 %
2.1 %
2.1 %
2.0 %
1.7 %
1.6 %
1.5 %
1.5 %
1.5 %
1.3 %
1.2 %
1.1 %
1.1 %
0.9 %
0.7 %
0.8 %
0.7 %
0.5 %
0.6 %
0.5 %
0.5 %
0.4 %
0.4 %
0.3 %
0.3 %
0.1 %
0.3 %
0.3 %
0.2 %
0.2 %
100.0 %
Store
Count
706
553
200
205
203
201
196
173
176
168
156
139
137
139
125
121
121
121
112
108
102
95
85
78
78
77
70
64
56
56
45
39
44
35
24
32
28
24
20
21
18
15
3
15
15
12
8
5,219
—
5,219
2019 Net, New and
Acquired Stores
% of Total
Store
Change
Store
Change
Store
Count
December 31, 2019
Cumulative
% of Total
Store Count
13.5 %
23.7 %
28.1 %
32.0 %
35.9 %
39.6 %
43.3 %
46.7 %
50.1 %
53.3 %
56.2 %
58.9 %
61.6 %
64.2 %
66.5 %
68.8 %
71.1 %
73.3 %
75.4 %
77.4 %
79.3 %
81.2 %
82.9 %
84.6 %
86.1 %
87.5 %
88.8 %
90.0 %
91.1 %
92.1 %
93.0 %
93.8 %
94.6 %
95.2 %
95.8 %
96.4 %
96.9 %
97.3 %
97.7 %
98.1 %
98.4 %
98.7 %
99.0 %
99.3 %
99.6 %
99.8 %
100.0 %
% of Total
Store Count
13.5 %
10.2 %
4.4 %
3.9 %
3.9 %
3.7 %
3.7 %
3.4 %
3.4 %
3.2 %
2.9 %
2.7 %
2.7 %
2.6 %
2.3 %
2.3 %
2.3 %
2.2 %
2.1 %
2.0 %
1.9 %
1.9 %
1.7 %
1.7 %
1.5 %
1.4 %
1.3 %
1.2 %
1.1 %
1.0 %
0.9 %
0.8 %
0.8 %
0.6 %
0.6 %
0.6 %
0.5 %
0.4 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
0.3 %
0.3 %
0.2 %
0.2 %
100.0 %
735
554
239
214
211
203
203
185
183
175
158
147
147
140
126
124
124
122
114
110
105
101
85
85
80
78
72
65
60
56
47
46
45
34
33
32
28
24
23
22
18
17
17
15
15
12
10
5,439
21
5,460
13.2 %
0.5 %
17.7 %
4.1 %
3.6 %
0.9 %
3.2 %
5.5 %
3.2 %
3.2 %
0.9 %
3.6 %
4.5 %
0.5 %
0.5 %
1.3 %
1.3 %
0.5 %
0.9 %
0.9 %
1.3 %
2.7 %
— %
3.2 %
0.9 %
0.5 %
0.9 %
0.5 %
1.8 %
— %
0.9 %
3.2 %
0.5 %
(0.5) %
4.1 %
— %
— %
— %
1.3 %
0.5 %
— %
0.9 %
6.4 %
— %
— %
— %
0.9 %
100.0 %
29
1
39
9
8
2
7
12
7
7
2
8
10
1
1
3
3
1
2
2
3
6
—
7
2
1
2
1
4
—
2
7
1
(1)
9
—
—
—
3
1
—
2
14
—
—
—
2
220
21
241
8
FORM 10-K
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 540 district managers has
general supervisory responsibility for an average of 10 stores, which provides our stores with strong 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 training, field workshops, regional meetings and our annual leadership 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 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. A significant portion of our business is from professional service provider customers; therefore,
our Professional Parts People are required to be highly technically proficient in automotive products. In addition, we have found that
the typical DIY customer often seeks assistance from Professional Parts People, 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 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 high levels 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. These Team Members then 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 by controlling the depth of our inventory. Moreover, we believe our ongoing, significant capital investments
made in our DC network allow 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, 2019, we had a total growth capacity of more than 695 stores in our distribution center network. Further enhancing our
distribution capabilities in 2020, we plan to relocate and merge our existing Nashville, Tennessee, and Knoxville, Tennessee, DCs into
a larger facility located in Lebanon, Tennessee, providing a larger, more efficient facility to serve both markets, while also allowing us
to convert the existing Knoxville, Tennessee, DC into a large Hub that will continue to provide same day parts availability in the
attractive Knoxville market. Additionally, we plan to open a new DC in Horn Lake, Mississippi, in 2020.
Distribution Centers:
As of December 31, 2019, we operated 28 domestic DCs comprised of approximately 11.4 million operating square feet (see the
“Properties” table in Item 2 of this annual report on Form 10-K for more information about DC operating square footages). Our DCs
stock an average of 159,000 SKUs and most DCs are linked to and have the ability to access multiple other regional DCs’ inventory.
9
FORM 10-K
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,” many of
which receive this service seven days per week. Our DCs provide weekend service to not only the stores they service via their city
counters but also to strategic Hub locations, which redistribute products to surrounding stores. Our national Hub store network provides
additional service throughout the week, and on weekends, to surrounding stores.
As part of our continuing efforts to enhance our distribution network in 2020, we plan to
continue to utilize routing software to continue to enhance logistics efficiencies;
continue to enhance our distribution network through the engineering, design, expansion or relocation of new or current DCs;
•
•
•
•
• make proven, return-on-investment based capital enhancements to material handling equipment in DCs, including conveyor
continue to implement labor management software to improve DC productivity and overall operating efficiency;
continue to define and implement best practices in all DCs; and
systems, picking modules, lift equipment and computer hardware.
Hub Stores:
We currently operate a total of 356 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 store network consists of 85 Super Hubs that average approximately 15,700
square feet and carry an average of 68,000 SKUs and 271 Hubs that average approximately 10,000 square feet and carry an average of
42,000 SKUs.
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of 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, Castrol, Dorman, Fel-Pro, Gates Rubber, Lucas Oil, Mobil1, Monroe, Moog, Pennzoil, Prestone, Standard,
STP, Turtle Wax, Valvoline, Wagner, and Wix, and a wide selection of quality proprietary private label products, which span the entire
good, better and best value spectrum, under our BestTest®, BrakeBest®, Cartek®, Import Direct®, MasterPro®, MicroGard®,
Murray®, Omnispark®, O’Reilly Auto Parts®, Precision®, Power Torque®, Super Start®, and Ultima® brands. Our proprietary
private label products are produced by respected automotive manufacturers, meet or exceed original equipment manufacturer
specifications and consist of house brands and nationally recognized proprietary bands, which we have acquired or developed over time.
Our “good” proprietary brands provide a great combination of quality and value, a characteristic important to our DIY customers, while
our “better” and “best” proprietary brands offer options for our more heavy-duty DIY customers, as well as our professional service
provider customers, who often prefer higher quality products that can be relied upon to support and grow their businesses.
We have no long-term contracts with material purchase commitments with any of our suppliers, 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 suppliers and to utilize extended dating terms available from suppliers. We have entered into various programs
and arrangements with certain suppliers that provided for extended dating and payment terms for inventory purchases. As a whole, we
consider our relationships with our suppliers to be very good.
We purchase automotive products in substantial quantities from over 735 suppliers, the five largest of which accounted for approximately
24% of our total purchases in 2019. Our largest supplier in 2019 accounted for approximately 7% of our total purchases and the next
four largest suppliers each accounted for approximately 3% to 6% of our total purchases.
Marketing
Retail and Online Marketing:
Our integrated marketing strategy and Omnichannel efforts include national media channels, in-store, digital, and social media
activation, as well as marketing the O’Reilly brand through automotive event sponsorships and on-site appearances throughout the
country. Our O’Rewards loyalty program encourages repeat customers, as they accumulate points from their O’Reilly purchases that
are redeemable for rewards at various purchase levels. Our marketing efforts also target the Spanish-speaking market through radio,
print, and sports marketing, as well as sponsorships of local and regional events.
10
FORM 10-K
Professional Marketing:
To develop our continued relationships with professional service providers and installers, we employ Territory Sales Managers in nearly
every market to ensure complete sales territory coverage and personalized service for these customers. Flyers, quick reference guides,
and catalogs are distributed on a regular basis to all professional service providers, including paint and body shops and fleet maintenance
customers to encourage brand and program awareness. In addition, our professional customer program, First Call, also offers an ordering
website, www.FirstCallOnline.com, dedicated to Professional Service Specialists in stores, multiple daily deliveries and access to
training opportunities, shop management, maintenance supplies and the Certified Auto Repair program, which offers professional
service providers with the business tools they need to profitably grow and market their business.
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 $297 billion, according to The Auto Care Association.
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. We estimate that O’Reilly’s addressable market within this industry is approximately $90 billion
to $100 billion, which includes the auto parts share of professional service provider sales at wholesale and DIY sales at retail. We do
not sell tires or perform for-fee automotive repairs or installations.
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
•
national retail and wholesale automotive parts chains (such as AutoZone, Inc., Advance Auto Parts, CARQUEST, NAPA and
the Pep Boys - Manny, Moe and Jack, Inc.);
regional retail and wholesale automotive parts chains;
•
• 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; and
•
• mass merchandisers and online retailers that carry automotive replacement parts, maintenance items and accessories (such as
Wal-Mart Stores, Inc. and Amazon.com, 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, continually enhancing the Omnichannel experience and convenient and accessible
store locations. Our dual market strategy requires significant capital, 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 supplier
incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the extent our
acquisition costs increase due to 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, but not limited to, 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.
11
FORM 10-K
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 suppliers. The batteries and used lubricants are collected by our Team Members, deposited into supplier-provided containers
and pallets, and then recycled by the third-party suppliers. In general, our agreements with such suppliers 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 supplier.
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.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Gregory D. Johnson, age 54, Chief Executive Officer and Co-President, has been an O’Reilly Team Member for 37 years, which includes
continuous years of service with a company acquired by O’Reilly. Mr. Johnson’s O’Reilly career began as a part-time Distribution
Center Team Member and progressed through the roles of Retail Systems Manager, Warehouse Management Systems (WMS)
Development Manager, Director of Distribution, Vice President of Distribution Operations, Senior Vice President of Distribution
Operations, and Executive Vice President of Supply Chain. Mr. Johnson has held the position of Co-President since 2017. Mr. Johnson
was promoted to Chief Executive Officer and Co-President in 2018.
Jeff M. Shaw, age 57, Chief Operating Officer and Co-President, has been an O’Reilly Team Member for 31 years. Mr. Shaw’s primary
areas of responsibility are Store Operations, Sales, Distribution Operations, Real Estate, Jobber Sales and Acquisitions. Mr. Shaw’s
O’Reilly career began as a Parts Specialist and progressed through the roles of Store Manager, District Manager, Regional Manager,
Vice President of the Southern Division, Vice President of Sales and Operations, Senior Vice President of Sales and Operations, and
Executive Vice President of Store Operations and Sales. Mr. Shaw has held the position of Co-President since 2017. Mr. Shaw was
promoted to Chief Operating Officer and Co-President in 2018.
Brad Beckham, age 41, Executive Vice President of Store Operations and Sales, has been an O’Reilly Team Member for 23 years.
Mr. Beckham’s primary areas of responsibility are Store Operations and Sales for O’Reilly’s Store Operations. Mr. Beckham’s O’Reilly
career began as a Parts Specialist and progressed through the roles of Store Manager, District Manager, Regional Manager, Divisional
Vice President, Vice President of Eastern Store Operations and Sales, Senior Vice President of Eastern Store Operations and Sales, and
Senior Vice President of Central Store Operations. Mr. Beckham has held the position of Executive Vice President of Store Operations
and Sales since 2018.
Tom McFall, age 49, Executive Vice President and Chief Financial Officer, has been an O’Reilly Team Member for 13 years.
Mr. McFall’s primary areas of responsibility are Finance, Accounting, Information Technology, Legal, and Risk Management.
Mr. McFall’s career began with Ernst & Young LLP in Detroit, Michigan, where he achieved the position of Audit Manager, before
accepting a position with Murray’s Discount Auto Stores (“Murray’s”). Mr. McFall served Murray’s for eight years through the roles
of Controller, Vice President of Finance, and Chief Financial Officer, with direct responsibility for finance, accounting, and distribution
and logistics operations. After Murray’s was acquired by CSK Auto Corporation (“CSK”) in 2005, Mr. McFall held the position of
Chief Financial Officer of Midwest Operation for CSK. In 2006, Mr. McFall joined O’Reilly as Senior Vice President of Finance and
Chief Financial Officer. Mr. McFall has held the position of Executive Vice President and Chief Financial Officer since 2007.
Jonathan Andrews, age 52, Senior Vice President of Human Resources and Training, has been an O’Reilly Team Member for seven
years. Mr. Andrews’s primary areas of responsibility are Human Resources and Training. Mr. Andrews has over 25 years of human
resources experience. Mr. Andrews’s career includes human resource positions with Cargill, Inc., Tyson Foods, Inc. and AutoNation,
Inc. Mr. Andrews served AutoNation for 10 years as Director of Human Resources and Senior Director of Human Resources. In 2012,
Mr. Andrews joined O’Reilly as Vice President of Human Resources and progressed through the role of Vice President of Human
Resources and Training. Mr. Andrews has held the position of Senior Vice President of Human Resources and Training since January of
2019.
Doug Bragg, age 50, Senior Vice President of Central Store Operations and Sales, has been an O’Reilly Team Member for 29 years.
Mr. Bragg’s primary areas of responsibility are Store Operations and Sales for O’Reilly Central Store Operations. Mr. Bragg’s O’Reilly
career began as a Distribution Center Team Member and progressed through the roles of Assistant Store Manager, Store Manager,
District Manager, Regional Manager, and Divisional Vice President. Mr. Bragg has held the position of Senior Vice President of Central
Store Operations since 2018.
12
FORM 10-K
Robert Dumas, age 46, Senior Vice President of Eastern Store Operations and Sales, has been an O’Reilly Team Member for 28 years,
which includes continuous years of service with a company acquired by O’Reilly. Mr. Dumas’s primary areas of responsibility are
Store Operations and Sales for O’Reilly’s Eastern Store Operations. Mr. Dumas’s O’Reilly career began as a Parts Specialist and
progressed through the roles of Installer Service Specialist, Night Manager, Associate Manager, Store Manager, District Manager,
Regional Manager, and Divisional Vice President. Mr. Dumas has held the position of Senior Vice President of Eastern Store Operations
and Sales since 2016.
Larry L. Ellis, age 64, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member for 44 years, which includes
continuous years of service with a company acquired by O’Reilly. Mr. Ellis’s primary areas of responsibility are Distribution Operations
and Logistics. Mr. Ellis’s O’Reilly career began as a Distribution Center Team Member and progressed through the roles of Distribution
Center Supervisor, Distribution Center Manager, Director of Distribution Operations, Vice President of Logistics, Vice President of
Western Division Distribution Operations, and Vice President of Distribution Operations. Mr. Ellis has held the position of Senior Vice
President of Distribution Operations since 2014.
Jeremy Fletcher, age 42, Senior Vice President of Finance and Controller, has been an O’Reilly Team Member for 14 years.
Mr. Fletcher’s primary area of responsibility is Finance. Mr. Fletcher’s O’Reilly career began as the Financial Reporting and Budgeting
Manager and progressed through the roles of Director of Finance, and Vice President of Finance and Controller. Prior to joining
O’Reilly, Mr. Fletcher worked as a Certified Public Accountant with a public accounting firm and in a financial reporting and planning
role for a Fortune 1000 corporation. Mr. Fletcher has held the position of Senior Vice President of Finance and Controller since 2017.
Jeffrey L. Groves, age 54, Senior Vice President of Legal and General Counsel, has been an O’Reilly Team Member for 15 years.
Mr. Groves’s primary areas of responsibility are Corporate Governance, Regulatory Matters, and Internal Audit. Mr. Groves’s O’Reilly
career began as Director of Legal and Claim Services and progressed through the roles of Director of Legal and Claim Services and
General Counsel and Vice President of Legal and Claim Services and General Counsel. Prior to joining O’Reilly, Mr. Groves worked
in a private civil defense trial practice. Mr. Groves has held the position of Senior Vice President of Legal and General Counsel since
2016.
Brent Kirby, age 51, Senior Vice President of Omnichannel, has been an O’Reilly Team Member since 2018. Mr. Kirby’s primary areas
of responsibility are Marketing, Advertising, Electronic Catalog, Customer Satisfaction and Digital business areas while working cross
functionally to deliver our Omnichannel strategy. Mr. Kirby has over 30 years of experience in the retail industry. Prior to joining
O’Reilly, Mr. Kirby held the position of Chief Supply Chain Officer for Lowe’s Companies, Inc. (“Lowe’s”), with direct responsibility
for leading the global supply chain supporting Lowe’s U.S.-based home improvement business. In this role, Mr. Kirby was responsible
for team members across a diverse network of distribution centers, manufacturing facilities, direct-to-consumer parcel operations and
last mile delivery operations. Mr. Kirby began his retail career as a hardware associate with Lowe’s and progressed through various
positions at the store, district and regional levels before being promoted to Senior Vice President of Store Operations and later Chief
Omnichannel Officer. In 2018, Mr. Kirby joined O’Reilly as Senior Vice President of Omnichannel and has held this position since
that time.
Scott Kraus, age 43, Senior Vice President of Real Estate and Expansion, has been an O’Reilly Team Member for 21 years. Mr. Kraus’s
primary areas of responsibility are Real Estate Expansion and Acquisitions. Mr. Kraus’s O’Reilly career began as a Parts Specialist and
progressed through the roles of Store Manager, District Manager, Regional Field Sales Manager, Regional Manager, Divisional Vice
President, and Vice President of Real Estate. Mr. Kraus has held the position of Senior Vice President of Real Estate and Expansion
since 2016.
Jeffrey A. Lauro, age 53, Senior Vice President of Information Technology, has been an O’Reilly Team Member since 2015. Mr. Lauro’s
primary area of responsibility is Information Technology. Mr. Lauro has over 30 years of information technology experience primarily
in the retail industry. Prior to joining O’Reilly, Mr. Lauro held the position of Chief Information Officer for Payless ShoeSource
(“Payless”), with direct responsibility for solution delivery, infrastructure and operations, and enterprise architecture. Prior to joining
Payless, Mr. Lauro was the Vice President, Global Information Technology Service Delivery Director for The TJX Companies, Inc.,
with direct responsibility for global information technology service management, operations, implementation and disaster recovery. In
2015, Mr. Lauro joined O’Reilly as Senior Vice President of Information Technology and has held this position since that time.
Jason Tarrant, age 39, Senior Vice President of Western Store Operations and Sales, has been an O’Reilly Team Member for 18 years,
which includes continuous years of service with a company acquired by O’Reilly. Mr. Tarrant’s primary areas of responsibility are
Store Operations and Sales for O’Reilly Western Store Operations. Mr. Tarrant’s O’Reilly career began as a Parts Specialist and
progressed through the roles of Assistant Store Manager, Store Manager, District Manager, Regional Field Sales Manager, Regional
Manager, and Divisional Vice President. Mr. Tarrant has held the position of Senior Vice President of Western Store Operations and
Sales since 2018.
13
FORM 10-K
Darin Venosdel, age 49, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 22 years.
Mr. Venosdel’s primary areas of responsibility are Inventory Management, Purchasing and Store Design. Mr. Venosdel’s O’Reilly
career began as a Programmer/Analyst and progressed through the roles of Application Development Manager, Director of Application
Development, Director of Inventory Management, and Vice President of Inventory Management. Mr. Venosdel has held the position
of Senior Vice President of Inventory Management since 2018.
David Wilbanks, age 48, Senior Vice President of Merchandise, has been an O’Reilly Team Member for seven years. Mr. Wilbanks’s
primary areas of responsibility are Merchandise and Pricing. Mr. Wilbanks has over 30 years of experience in the automotive
aftermarket industry. Mr. Wilbanks’s career began as a counter technician for an independent jobber and progressed to becoming an
ASE Certified Master Technician for an automotive dealership, before accepting a position with AutoZone, Inc. (“AutoZone”).
Mr. Wilbanks served AutoZone for twelve years as a financial analyst, Category Manager, and Director of Merchandise. In 2012,
Mr. Wilbanks joined O’Reilly as Vice President of Merchandise and has held the position of Senior Vice President of Merchandise since
2016.
SERVICE MARKS AND TRADEMARKS
We have registered, acquired and/or been assigned the following service marks and trademarks in the United States: BENNETT AUTO
SUPPLY®; BESTEST®; BETTER PARTS. BETTER PRICES.®; BETTER PARTS, BETTER PRICES....EVERYDAY!®; BOND
AUTO PARTS®; BRAKEBEST®; BRAKEBEST HD®; CARTEK®; CARTEK PRO®; CERTIFIED AUTO REPAIR®; CHECKER
AUTO PARTS®; CSK PROSHOP®; CUSTOMIZE YOUR RIDE®; DO IT RIGHT DEALS®; DO IT RIGHT REBATE®; DRIVE
WITH THE LEADER!®; FIRST CALL®; FLEET & HEAVY DUTY PROFESSIONAL PARTS PEOPLE®; FRIENDLIEST PARTS
STORE IN TOWN®; FROM OUR STORE TO YOUR DOOR®; IMPORT DIRECT®; KRAGEN AUTO PARTS®; MASTER PRO®;
MASTER PRO REFINISHING®; MASTERPRO SELECT®; MASTERPRO UNDERCAR®; MICROGARD®; MURRAY®;
MURRAY CLIMATE CONTROL®; MURRAY TEMPERATURE CONTROL®; MURRAY’S MASCOT® (Design only);
MURRAY PLUS®; MURRAY ULTRA®; MURRAY’S AUTO PARTS®; O LOW PRICE GUARANTEE! ®; O® (Shamrock inside
of “O”); OMNISPARK®; O’REILLY®; O’REILLY AUTO COLOR PROFESSIONAL PAINT PEOPLE®; O’REILLY AUTO
PARTS®; O’REILLY AUTO PARTS PROFESSIONAL PARTS PEOPLE®; O’REILLY AUTOMOTIVE®; O’REILLY
O’REWARDS®; O’REILLY RACING®; O’REILLY SELECT®; O’REWARDS®; PARTNERSHIP NETWORK®; PARTS CITY®;
PARTS CITY AUTO COLOR PROFESSIONAL PAINT PEOPLE®; PARTS CITY AUTO PARTS®; PARTS CITY TOOL BOX®;
PARTS FOR YOUR CAR WHEREVER YOU ARE®; PARTS PAYOFF®; POWER TORQUE®; PRECISION®; PRECISION HUB
ASSEMBLIES®; PRIORITY PARTS®; QUIETECH®; REAL WORLD TRAINING®; ¡SIGUE ADELANTE CON O’REILLY!®;
SCHUCK’S AUTO SUPPLY®; SUPER START®; TOOLBOX®; ULTIMA®; and ULTIMA SELECT®. 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 above list includes only the trademarks and service marks that are
currently and validly registered with the United States Patent and Trademark Office. It does not include trademarks or service marks
which may also be in use, but are not yet registered. We believe that our business is not otherwise dependent upon any patent, trademark,
service mark or copyright.
Solely for convenience, our service marks and trademarks may appear in this report without the ® or ™ symbol, which is not intended
to indicate that we will not assert, to the fullest extent under applicable law, our rights or the right to these service marks and trademarks.
AVAILABLE INFORMATION
Our Internet address is www.OReillyAuto.com. Interested readers can access, free of charge, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, through the Securities and Exchange Commission website at www.sec.gov
and searching with our ticker symbol “ORLY.” Such reports are generally available the day they are filed. Upon request, we will
furnish interested readers a paper copy of such reports free of charge by contacting Mark Merz, Vice President of Investor Relations,
Financial Reporting and Planning, 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
14
FORM 10-K
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.
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, such as a prolong public health crisis or epidemic (such as the coronavirus).
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 or political uncertainty. In addition, restrictions on access to telematics, diagnostic tools and repair information imposed by
the original vehicle manufacturers or by governmental regulations may force vehicle owners to rely on dealers to perform maintenance
and repairs. 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 that are counterparties to our credit facilities. Furthermore, 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, the cause of which could include a prolonged public health crisis or epidemic (such as the coronavirus), and
provide us with the merchandise we need, or if counterparties to our credit facilities do not perform their obligations, our business,
results of operations, financial condition and cash flows could be adversely affected.
The automotive aftermarket business is highly competitive, and we may have to risk our capital to remain competitive, all of which
could adversely impact our business, results of operations, financial condition and cash flows.
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. Online and mobile platforms
may allow customers to quickly compare prices and product assortments between us and a range of competitors, which could result in
pricing pressure. Some online competitors may have a lower cost structure than we do, as a result of our strategy of providing an
exceptional in-store experience and superior parts availability supported by our extensive store network and robust, regional distribution
footprint, which could also create pricing pressure. We may have to expend more resources and risk additional capital to remain
competitive, and our results of operations, financial condition and cash flows could be adversely affected. For a list of our principal
competitors, see the “Competition” section of Item 1 of this annual report on Form 10-K.
We are sensitive to regional economic and weather conditions that could impact our costs and sales.
Our business is sensitive to national and regional economic and weather conditions, 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, financial condition and cash flows 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 2020 and beyond will be achieved. Failure
15
FORM 10-K
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, results of operations and cash flows 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 suppliers, the unavailability of our key products at competitive prices or changes in
trade policies could affect our financial health.
Our business depends on developing and maintaining close relationships with our suppliers and on our suppliers’ 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 suppliers to sell us products on favorable terms. For example, financial or operational difficulties that our
suppliers may face could increase the cost of the products we purchase from them or our ability to source products from them. In
addition, the trend toward 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 suppliers 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, a prolonged public health crisis
or epidemic (such as the coronavirus) or other interruptions to, or difficulties in the, manufacture or supply of the products we purchase
from them. Changes in U.S. trade policies, practices, tariffs or taxes could affect our ability and our suppliers’ ability to source product
at current volumes and/or prices.
Risks associated with future acquisitions may not lead to expected growth and could result in increased costs and inefficiencies.
We expect to continue to make acquisitions as an element of our growth strategy. Acquisitions involve certain risks that could cause
our actual growth and profitability to differ from our expectations. Examples of such risks include the following:
• We may not be able to continue to identify suitable acquisition targets or to acquire additional companies at favorable prices
or on other favorable terms.
• Our management’s attention may be distracted.
• We may fail to retain key personnel from acquired businesses.
• We may assume unanticipated legal liabilities and other problems.
• We may not be able to successfully integrate the operations (accounting and billing functions, for example) of businesses we
acquire to realize economic, operational and other benefits.
• We may fail, or be unable to, discover liabilities of businesses that we acquire for which we or the subsequent owner or operator
may be liable.
Business interruptions in our distribution centers or other facilities may affect our store hours, operability of our computer systems,
and/or availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters, or the threat of them, may result in the closure of one or more of our 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, financial condition and cash flows.
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, financial condition and cash flows.
16
FORM 10-K
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.
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 growth plans and business
strategies 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 and 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 initiated against such companies. If similar litigation were initiated 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 debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.
We have an unsecured revolving credit facility and unsecured senior notes, which could have important consequences to our financial
health. For example, our level of indebtedness could, among other things,
• make it more difficult to satisfy our financial obligations, including those relating to the senior unsecured notes and our credit
•
•
•
•
•
facility;
increase our vulnerability to adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a
competitive disadvantage;
require us to dedicate a substantial portion of our cash flows to service the principal and interest on the debt, reducing the funds
available for other business purposes, such as working capital, capital expenditures or other cash requirements;
limit our ability to incur additional debt with acceptable terms, if at all; and
expose us to fluctuations in interest rates, including changes that may result from the implementation of new benchmark rates
that replace LIBOR.
In addition, the terms of our financing obligations include restrictions, such as affirmative, negative and financial 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, results of operations and cash flows.
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 supplier financing programs.
Credit ratings are an important component 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 unsecured revolving credit facility and a higher facility fee on commitments under our unsecured revolving credit facility. A
downgrade in our current credit rating could also adversely affect the market price and/or liquidity of our unsecured senior notes,
preventing a holder from selling the unsecured senior notes at a favorable price, as well as adversely affect our ability to issue new notes
in the future. In addition, a downgrade in our current credit rating could limit the financial institutions willing to commit funds to our
17
FORM 10-K
supplier financing programs at attractive rates. Decreased participation in our supplier financing programs would lead to an increase in
working capital needed to operate the business, adversely affecting our cash flows.
A breach of customer, supplier, Team Member or Company information could damage our reputation or result in substantial
additional costs or possible litigation.
Our business involves the storage of information about our customers, suppliers, Team Members and the Company, some of which is
entrusted to third-party service providers and vendors. We and our third-party service providers and vendors have taken reasonable and
appropriate steps to protect this information; however, these security measures may be breached due to cyber-attacks, Team Member
error, system compromises, fraud, hacking or other intentional or unintentional acts, which could result in unauthorized parties gaining
access to such information. The methods used to obtain unauthorized access are constantly evolving and may be difficult to anticipate
or detect for long periods of time. If we experience a significant data security breach, we could be exposed to damage to our reputation,
additional costs, lost sales, litigation or possible regulatory action. In addition, 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 and our third-party service providers and vendors 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, financial condition and cash flows.
Litigation, governmental proceedings, environmental legislation and regulations and employment legislation and regulations may
affect our business, financial condition, results of operations and cash flows.
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, financial condition and cash flows.
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 legislation 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
legislation and/or regulations could hinder our ability to control costs, which could have a material adverse effect on our business, results
of operations, financial condition and cash flows.
Risks associated with international operations could result in additional costs and inefficiencies.
In addition to many of the risks we face in our U.S. operations, international operations present a unique set of risks and challenges,
including local laws and customs, U.S. laws applicable to foreign operations, and political and socio-economic conditions. Our ability
to operate effectively and grow in international markets could be impacted by these risks resulting in legal liabilities, additional costs,
and the distraction of management’s attention. Compliance with the Foreign Corrupt Practices Act and protection of intellectual property
rights surrounding items such as tradenames and trademarks in foreign jurisdictions can pose significant challenges.
In addition, our operations in international markets are conducted primarily in the local currency of those countries. Given that our
Consolidated Financial Statements are denominated in U.S. dollars, amounts of assets, liabilities, net sales, and other revenues and
expenses denominated in local currencies must be translated into U.S. dollars using exchange rates for the current period. As a result,
foreign currency exchange rates and fluctuations in those rates may adversely impact our financial performance.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Stores, distribution centers and other properties:
Of the 5,460 stores that we operated at December 31, 2019, 2,235 stores were owned, 3,151 stores were leased from unaffiliated parties,
21 of which were located in Mexico, and 74 stores were leased from entities that include one or more of our affiliated directors or
members of their immediate family. 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
18
FORM 10-K
option. We have entered into separate master lease agreements with each of the affiliated entities for the occupancy of the stores covered
thereby. Such master lease agreements with two of the seven 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 July 31, 2020, to
September 30, 2031. We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from
third parties.
The following table provides information regarding our U.S. domestic regional DCs in operation as of December 31, 2019:
Principal Use
Distribution center
Distribution center
Total
Nature of Occupancy
Owned
Leased (2)
Number of Locations
20
8
28
(in thousands)
8,595
2,799
11,394
Operating Square Footage (1)
(1) DC operating square footage includes floor and mezzanine operating square footage and excludes subleased square footage.
(2) Terms expiring on dates ranging from March 31, 2022, to June 30, 2035.
In addition, we acquired six small distribution centers in Mexico from the Mayasa acquisition; these distribution centers do not serve
U.S. stores and are immaterial in the aggregate. We have two distribution system expansion projects under construction in the Nashville
and Memphis, Tennessee, markets, both of which are expected to be completed in 2020. With the completion of our new Nashville area
DC, two of our smaller, existing Tennessee DCs will cease being used as distribution facilities.
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 28 existing U.S. DCs is approximately 6,135 stores, providing a growth capacity of
more than 695 U.S. stores, which will increase by approximately 190 stores with the completion of our two Tennessee market area DCs
in 2020. We believe the growth capacity in our DCs, along with the additional capacity of our new Nashville and Memphis, Tennessee,
markets 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.
Our corporate office operations occur primarily in Springfield, Missouri, and as of December 31, 2019, the total square footage was 0.6
million square feet, substantially all of which was owned.
We also own or lease other properties that are not material in the aggregate.
Item 3. Legal Proceedings
The Company is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company accrues
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 accrues 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 accruals, will have a material adverse effect on its consolidated
financial position, results of operations or cash flows in a particular quarter or annual period.
Item 4. Mine Safety Disclosures
Not applicable.
19
FORM 10-K
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common stock:
Shares of the Company’s 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 the Company
does not anticipate paying any cash dividends in the foreseeable future.
As of February 14, 2020, the Company had approximately 392,000 shareholders of common stock based on the number of holders of
record and an estimate of individual participants represented by security position listings.
Sales of unregistered securities:
There were no sales of unregistered securities during the year ended December 31, 2019.
Issuer purchases of equity securities:
The following table identifies all repurchases during the fourth quarter ended December 31, 2019, of any of the Company’s securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended, by or on behalf of the Company or any affiliated
purchaser (in thousands, except per share data):
Period
October 1, 2019, to October 31, 2019
November 1, 2019, to November 30, 2019
December 1, 2019, to December 31, 2019
Total as of December 31, 2019
Total
Number of
Average Shares Purchased as
Price Paid
Part of Publicly
Shares Purchased per Share Announced Programs
Total Number of
Maximum Dollar Value
of Shares that May Yet
Be Purchased Under the
Programs (1)
88 $ 393.84
441.75
61
143
441.93
292 $ 427.33
88 $
61
143 $
292
658,656
631,663
568,684
(1) Under the Company’s share repurchase program, as approved by its Board of Directors on January 11, 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 not to exceed a dollar limit
authorized by the Board of Directors. The Company’s Board of Directors may increase or otherwise modify, renew, suspend or terminate the
share repurchase program at any time, without prior notice. As announced on May 31, 2019, and February 5, 2020, the Company’s Board of
Directors each time approved a resolution to increase the authorization amount under the share repurchase program by an additional $1.0 billion,
resulting in a cumulative authorization amount of $13.8 billion. Each additional authorization is effective for a three–year period, beginning on
its respective announcement date. The authorizations under the share repurchase program that currently have capacity are scheduled to expire on
May 31, 2022, and February 5, 2023. No other share repurchase programs existed during the twelve months ended December 31, 2019.
The Company repurchased a total of 3.9 million shares of its common stock under its publicly announced share repurchase program
during the year ended December 31, 2019, at an average price per share of $369.55, for a total investment of $1.4 billion. Subsequent
to the end of the year and through February 28, 2020, the Company repurchased an additional 0.9 million shares of its common stock,
at an average price per share of $400.78, for a total investment of $363.4 million. The Company has repurchased a total of 77.1 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, 2020, at an average price of $162.72, for a total aggregate investment of $12.5 billion.
20
FORM 10-K
Stock performance graph:
The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 31, 2014, and the
reinvestment of dividends thereafter, if any, in the Company’s common stock versus the Standard and Poor’s S&P 500 Retail Index
(“S&P 500 Retail Index”) and the Standard and Poor’s S&P 500 Index (“S&P 500”).
Company/Index
O’Reilly Automotive, Inc.
S&P 500 Retail Index
S&P 500
2014
$
2015
December 31,
2017
2016
2018
2019
100 $
100
100 $
132 $
124
99 $
145 $
130
109 $
125 $
168
130 $
179 $
189
122 $
228
237
157
$
21
FORM 10-K
Item 6. Selected Financial Data
The table below compares the “Company’s selected financial data over a ten-year period:
Years ended December 31,
(In thousands, except per
share, Team Members, stores
and ratio data)
INCOME STATEMENT
DATA:
Sales ($)
Cost of goods sold, including
warehouse and distribution
expenses
Gross profit
Selling, general and
administrative expenses
Former CSK officer
clawback
Legacy CSK Department of
Justice investigation charge
Operating income
Write-off of asset-based
revolving credit agreement
debt issuance costs
Termination of interest rate
swap agreements
Gain on settlement of note
receivable
Other income (expense), net
Total other income (expense)
Income before income taxes
Provision for income taxes
(a)(b)
Net income ($) (a)(b)
Basic earnings per common
share:
Earnings per share – basic ($)
Weighted-average common
shares outstanding – basic
Earnings per common share -
assuming dilution: (a)(b)
Earnings per share –
assuming dilution ($)
Weighted-average common
shares outstanding –
assuming dilution
SELECTED OPERATING
DATA:
Number of Team Members
at year end (c)
Total number of stores
at year end (d)(e)
Number of U.S. stores at year
end (d)
Number of Mexico stores
at year end (e)
Store square footage at year
end (c)(f)
Sales per weighted-average
store ($) (c)(g)
Sales per weighted-average
square foot ($) (c)(f)(h)
Percentage increase in
comparable store sales (c)(i)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
10,149,985
9,536,428
8,977,726
8,593,096
7,966,674
7,216,081
6,649,237
6,182,184
5,788,816
5,397,525
4,755,294
5,394,691
4,496,462
5,039,966
4,257,043
4,720,683
4,084,085
4,509,011
3,804,031
4,162,643
3,507,180
3,708,901
3,280,236
3,369,001
3,084,766
3,097,418
2,951,467
2,837,349
2,776,533
2,620,992
3,473,965
3,224,782
2,995,283
2,809,805
2,648,622
2,438,527
2,265,516
2,120,025
1,973,381
1,887,316
—
—
—
—
—
—
—
—
(2,798)
—
—
1,920,726
—
1,815,184
—
1,725,400
—
1,699,206
—
1,514,021
—
1,270,374
—
1,103,485
—
977,393
—
866,766
20,900
712,776
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(130,397)
(130,397)
1,790,329
—
(121,097)
(121,097)
1,694,087
—
(87,596)
(87,596)
1,637,804
—
(62,015)
(62,015)
1,637,191
—
(53,655)
(53,655)
1,460,366
—
(48,192)
(48,192)
1,222,182
—
(44,543)
(44,543)
1,058,942
—
(35,872)
(35,872)
941,521
(21,626)
(4,237)
—
(25,130)
(50,993)
815,773
—
—
11,639
(35,042)
(23,403)
689,373
399,287
1,391,042
369,600
1,324,487
504,000
1,133,804
599,500
1,037,691
529,150
931,216
444,000
778,182
388,650
670,292
355,775
585,746
308,100
507,673
270,000
419,373
18.07
16.27
12.82
10.87
9.32
7.46
6.14
4.83
3.77
3.02
76,985
81,406
88,426
95,447
99,965
104,262
109,244
121,182
134,667
138,654
17.88
16.10
12.67
10.73
9.17
7.34
6.03
4.75
3.71
2.95
77,788
82,280
89,502
96,720
101,514
106,041
111,101
123,314
136,983
141,992
81,223
78,882
75,552
74,580
71,621
67,569
61,909
53,063
49,324
46,858
5,460
5,439
5,219
5,019
4,829
4,571
4,366
4,166
3,976
3,740
3,570
5,219
5,019
4,829
4,571
4,366
4,166
3,976
3,740
3,570
21
—
—
—
—
—
—
—
—
—
40,227
38,455
36,685
35,123
33,148
31,591
30,077
28,628
26,530
25,315
1,881
255
1,842
1,807
1,826
1,769
1,678
1,614
1,590
1,566
1,527
251
248
251
244
232
224
224
221
216
4.0 %
3.8 %
1.4 %
4.8 %
7.5 %
6.0 %
4.6 %
3.5 %
4.6 %
8.8 %
22
FORM 10-K
Years ended December 31,
(In thousands, except per
share, Team Members, stores
and ratio data)
SELECT BALANCE
SHEET AND CASH
FLOW DATA:
Working capital ($) (j)
Total assets ($) (j)
Inventory turnover (c)(k)
Accounts payable to
inventory (c)(l)
Current portion of long-term
debt and short-term debt ($)
Long-term debt, less current
portion ($) (j)
Shareholders’ equity ($) (a)
Cash provided by operating
activities ($) (m)
Capital expenditures ($)
Free cash flow ($) (m)(n)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
(635,765)
10,717,160
1.4
(350,918)
7,980,789
1.4
(249,694)
7,571,885
1.4
(142,674)
7,204,189
1.5
(36,372)
6,676,684
1.5
252,082
6,532,083
1.4
430,832
6,057,895
1.4
478,093
5,741,241
1.4
1,028,330
5,494,174
1.5
1,029,861
5,031,950
1.4
104.6 %
105.7 %
106.0 %
105.7 %
99.1 %
94.6 %
86.6 %
84.7 %
64.4 %
44.3 %
—
—
—
—
—
25
67
222
662
1,431
3,890,527
397,340
3,417,122
353,667
2,978,390
653,046
1,887,019
1,627,136
1,390,018
1,961,314
1,388,397
2,018,418
1,386,828
1,966,321
1,087,789
2,108,307
790,585
2,844,851
357,273
3,209,685
1,708,479
628,057
1,020,649
1,727,555
504,268
1,188,584
1,403,687
465,940
889,059
1,510,713
476,344
978,375
1,345,488
414,020
868,390
1,190,430
429,987
760,443
908,026
395,881
512,145
1,251,555
300,719
950,836
1,118,991
328,319
790,672
703,687
365,419
338,268
(a) During the year ended December 31, 2017, the Company adopted a new accounting standard that requires excess tax benefits related to share-based compensation
payments to be recorded through the income statement. In compliance with the standard, the Company did not restate prior period amounts to conform to current
period presentation. The Company recorded a cumulative effect adjustment to opening retained earnings, due to the adoption of the new accounting standard. See
Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on Form 10-K for the year ended December 31,
2017, for more information.
(b) Following the enactment of the U.S. Tax Cuts and Jobs Act in December of 2017, the Company revalued its deferred income tax liabilities, which resulted in a one-
time benefit to the Company’s Consolidated Statement of Income for the year ended December 31, 2018 and 2017. See Note 13 “Income Taxes” to the Consolidated
Financial Statements of the annual report on Form 10-K for the year ended December 31, 2018, for more information.
(c) Represents O’Reilly U.S. operations only.
(d)
In 2008, 2012, 2016, and 2018, the Company acquired CSK Auto Corporation (“CSK”), materially all assets of VIP Parts, Tires & Service (“VIP”), Bond Auto
Parts (“Bond”) and Bennett Auto Supply, Inc. (“Bennett”), respectively. The 2008 CSK acquisition added 1,342 stores, the 2012 VIP acquisition added 56 stores
and the 2016 Bond acquisition added 48 stores to the O’Reilly store count. After the close of business on December 31, 2018, the Company acquired substantially
all of the non-real estate assets of Bennett, including 33 stores that were not included in the 2018 store count and were not operated by the Company in 2018, but
beginning January 1, 2019, the operations of the acquired Bennett locations were included in the Company’s store count, and during the year ended December 31,
2019, the Company merged 13 of these acquired Bennett stores into existing O’Reilly locations and rebranded the remaining 20 Bennett stores as O’Reilly stores.
Financial results for these acquired companies have been included in the Company’s consolidated financial statements from the dates of the acquisitions forward.
(e)
In 2019, the Company acquired Mayoreo de Autopartes y Aceites, S.A. de C.V. (“Mayasa”), which added 21 stores to the O’Reilly store count. Financial results
for this acquired company have been included in the Company’s consolidated financial statements beginning from the date of the acquisition.
Square footage includes normal selling, office, stockroom and receiving space.
(f)
(g) Sales per weighted-average store are weighted to consider the approximate dates of store openings, acquisitions or closures.
(h) Sales per weighted-average square foot are weighted to consider the approximate dates of domestic store openings, acquisitions, expansions or closures.
(i) Comparable store sales are calculated based on the change in sales of U.S. stores open at least one year and excludes sales of specialty machinery, sales to independent
parts stores, sales to Team Members, sales from Leap Day during the years ended December 31, 2016 and 2012, and sales during the one to two week period certain
CSK branded stores were closed for conversion. Online sales, resulting from ship-to-home orders and pick-up-in-store orders, for U.S. stores open at least one year,
are included in the comparable store sales calculation.
(j) Certain prior period amounts have been reclassified to conform to current period presentation, due to the Company’s adoption of new accounting standards during
the fourth quarter ended December 31, 2015. See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual
report on Form 10-K for the year ended December 31, 2015, for more information.
(k)
Inventory turnover is calculated as cost of goods sold for the last 12 months divided by average inventory. Average inventory is calculated as the average of
inventory for the trailing four quarters used in determining the denominator.
(l) Accounts payable to inventory is calculated as accounts payable divided by inventory.
(m) Certain prior period amounts have been reclassified to conform to current period presentation, due to the Company’s adoption of a new accounting standard during
the first quarter ended March 31, 2017. See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of the annual report on
Form 10-K for the year ended December 31, 2017, for more information.
(n) Free cash flow is calculated as net cash provided by operating activities less capital expenditures, excess tax benefit from share-based compensation payments, and
investment in tax credit equity investments for the period.
23
FORM 10-K
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results
of operations, liquidity and certain other factors that may affect our future results, including
•
•
•
•
•
•
•
•
•
•
an overview of the key drivers of the automotive aftermarket industry;
key events and recent developments within our company;
our results of operations for the years ended December 31, 2019, 2018, and 2017;
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, 2019, and 2018; 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 other 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 “estimate,” “may,” “could,” “will,” “believe,”
“expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” 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, the economy in general,
inflation, tariffs, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired
businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public
debt, governmental regulations, information security and cyber-attacks, 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 in this annual report on Form 10-K for the year ended December 31, 2019, and subsequent Securities and Exchange Commission
filings, 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 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 profit 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. We have ongoing initiatives focused on marketing and
training to educate customers on the advantages of ongoing vehicle maintenance, as well as “purchasing up” on the value spectrum.
Our stores also offer enhanced services and programs to our customers, including 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, 2019, we operated 5,439 stores in 47 U.S. states and 21 stores in Mexico.
We are influenced by a number of general macroeconomic factors that influence both our industry and our consumers, including, but
not limited to, fuel costs, unemployment trends, interest rates, and other economic factors. Due to the nature of these macroeconomic
24
FORM 10-K
factors, we are unable to determine how long current conditions will persist and the degree of impact future changes may have on our
business.
The sustained trends of low U.S. unemployment have been favorable to our industry through the support of miles driven and consumer
confidence; however, this has also resulted in pressure on wages, particularly when combined with legislated wage increases in certain
market areas.
We believe the key drivers of current and future long-term demand for 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 and average vehicle age.
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. In total, vehicles in the U.S. are driven approximately three trillion miles per year, resulting in ongoing wear and tear and
a corresponding continued demand for the repair and maintenance products necessary to keep these vehicles in operation. According
to the Department of Transportation, the number of total miles driven in the U.S. increased 0.4% and 1.2% in 2018 and 2017,
respectively, and through November of 2019, year-to-date miles driven increased 0.9%. We would expect to continue to see modest
improvements in total miles driven in the U.S., supported by an increasing number of registered vehicles on the road, resulting in
continued demand for automotive aftermarket products.
Size and Age of the Vehicle Fleet
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 Auto Care Association, the total number of registered vehicles increased
8.1% from 2008 to 2018, bringing the number of light vehicles on the road to 272 million by the end of 2018. For the year ended
December 31, 2019, the seasonally adjusted annual rate of light vehicle sales in the U.S. (“SAAR”) was approximately 16.7 million,
contributing to the continued growth in the total number of registered vehicles on the road. In the past decade, vehicle scrappage rates
have remained relatively stable, ranging from 4.4% to 5.7% annually. As a result, over the past decade, the average age of the U.S.
vehicle population has increased, growing 20.6%, from 9.7 years in 2008 to 11.7 years in 2018.
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, interiors and exteriors, and the consumer’s willingness to invest in maintaining
these higher-mileage, better built vehicles. As the average age of vehicles on the road increases, a larger percentage of miles are being
driven by vehicles that 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. 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.
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:
• After the close of business on December 31, 2018, we completed an asset purchase of Bennett, a privately held automotive
parts supplier operating 33 stores and a warehouse in Florida. These stores were not operated by the Company in 2018 and
were therefore not included in our 2018 store count. Beginning January 1, 2019, the operations of the acquired Bennett
locations were included in the Company’s store count, consolidated financial statements and results of operations. During the
year ended December 31, 2019, the Company merged 13 of these acquired Bennett stores into existing O’Reilly locations and
rebranded the remaining 20 Bennett stores as O’Reilly stores.
• Under the Company’s share repurchase program, as approved by our Board of Directors in January of 2011, we may, from
time to time, repurchase shares of our common stock, solely through open market purchases effected through a broker dealer
at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
conditions. Our Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase
program at any time, without prior notice. As announced on May 31, 2019, and February 5, 2020, our Board of Directors
approved a resolution each time to increase the authorization amount under our share repurchase program by an additional
$1.00 billion, resulting in a cumulative authorization amount of $13.75 billion. Each additional authorization is effective for a
25
FORM 10-K
three-year period, beginning on its respective announcement date. As of February 28, 2020, we had repurchased approximately
77.1 million shares of our common stock at an aggregate cost of $12.54 billion under this program.
• On May 20, 2019, we issued $500 million aggregate principal amount of unsecured 3.900% Senior Notes due 2029 (“3.900%
Senior Notes due 2029”) at a price to the public of 99.991% of their face value with U.S. Bank National Association (“U.S.
Bank”) as trustee. Interest on the 3.900% Senior Notes due 2029 is payable on June 1 and December 1 of each year, which
began on December 1, 2019, and is computed on the basis of a 360-day year.
• After the close of business on November 29, 2019, we completed the acquisition of Mayasa, a specialty retailer of automotive
aftermarket parts headquartered in Guadalajara, Jalisco, Mexico pursuant to a stock purchase agreement. At the time of the
acquisition, Mayasa operated six distribution centers, 21 Orma Autopartes stores and served over 2,000 independent jobber
locations in 28 Mexican states. The results of Mayasa’s operations have been included in the Company’s consolidated financial
statements and results of operations beginning from the date of acquisition. Pro forma results of operations related to the
acquisition of Mayasa are not presented as Mayasa’s results are not material to the Company’s results of operations.
RESULTS OF OPERATIONS
The following table includes income statement data as a percentage of sales for the years ended December 31, 2019, 2018 and 2017
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Interest income
Income before income taxes (1)
Provision for income taxes
Net income
For the Year Ended
December 31,
2019
100.0 %
46.9
53.1
34.2
18.9
(1.4)
0.1
17.6
3.9
13.7 %
2018
100.0 %
47.2
52.8
33.8
19.0
(1.3)
—
17.8
3.9
13.9 %
2017
100.0 %
47.4
52.6
33.4
19.2
(1.0)
—
18.2
5.6
12.6 %
(1) Each percentage of sales amount is computed independently and may not compute to presented totals.
2019 Compared to 2018
Sales:
Sales for the year ended December 31, 2019, increased $614 million, or 6%, to $10.15 billion from $9.54 billion for the same period in
2018. Comparable store sales for stores open at least one year increased 4.0% and 3.8% for the years ended December 31, 2019 and
2018, respectively. U.S. domestic comparable store sales are calculated based on the change in sales for stores open at least one year
and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members. Online sales, resulting from
ship-to-home orders and pickup in-store orders, for stores open at least one year, are included in the comparable store sales calculation.
26
FORM 10-K
The following table presents the components of the increase in sales for the year ended December 31, 2019 (in millions):
Increase in Sales for the Year Ended
December 31, 2019
Compared to the Same Period in 2018
Store sales:
Comparable store sales
Non-comparable store sales:
$
Sales for stores opened throughout 2018, excluding stores open at least one year that
are included in comparable store sales
Sales for stores opened throughout 2019 and sales from the acquired Bennett and
Mayasa stores
Decline in sales for stores that have closed
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team Members
Total increase in sales
$
375
87
141
(8)
19
614
We believe the increased sales achieved by our stores were the result of store growth, the high levels of customer service provided by
our well-trained and technically proficient Team Members, superior inventory availability, including same day and over-night access to
inventory in our regional distribution centers, enhanced services and programs offered in our stores, a broad selection of product
offerings in most of our 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, 2019, was driven by an increase in average ticket values for both
DIY and professional service provider customers. Transaction counts were flat for the year ended December 31, 2019, comprised of
positive transaction counts for professional service provider customers, offset by negative transaction counts for DIY customers. The
improvement in average ticket values was the result of the increasing complexity and cost of replacement parts necessary to maintain
the newer population of vehicles and increased selling prices on a same-SKU basis, as compared to one year ago. The increased
complexity and replacement costs are a result of the current population of better-engineered and more technically advanced vehicles
that require less frequent repairs, as the component parts are more durable and last for longer periods of time, which creates pressure on
customer transaction counts. However, when repairs are needed, the cost of replacement parts is, on average, greater, which benefits
average ticket values. The increase in selling prices on a same-SKU basis was driven by increases in acquisition costs of inventory,
which were passed through in market prices. Transaction counts for the year ended December 31, 2019, as compared to the same period
in 2018, were also negatively impacted by wetter, cooler than normal temperatures in many of our markets during the first half of 2019,
which is a headwind to DIY business. DIY transaction counts continue to be impacted by the inflationary environment.
We opened 200 net, new U.S. stores during the year ended December 31, 2019, compared to opening 200 net, new U.S. stores during
the year ended December 31, 2018. In addition, on January 1, 2019, we began operating 33 acquired Bennett stores, and during the year
ended December 31, 2019, we merged 13 of these acquired Bennett stores into existing O’Reilly locations and rebranded the remaining
20 Bennett stores as O’Reilly stores. After the close of business on November 29, 2019, we acquired 21 stores from Mayasa. As of
December 31, 2019, we operated 5,439 stores in 47 U.S. states and 21 stores in Mexico compared to 5,219 U.S. stores in 47 states at
December 31, 2018. We anticipate U.S. new store growth will be approximately 180 net, new store openings in 2020.
Gross profit:
Gross profit for the year ended December 31, 2019, increased 7% to $5.39 billion (or 53.1% of sales) from $5.04 billion (or 52.8% of
sales) for the same period in 2018. The increase in gross profit dollars for the year ended December 31, 2019, was primarily the result
of sales from new stores and the increase in comparable store sales at existing stores. The increase in gross profit as a percentage of
sales for the year ended December 31, 2019, was due to a benefit from selling through inventory purchased prior to recent industry-wide
acquisition cost increases and corresponding selling price increases. Beginning in the last six months of 2018, inventory acquisition
costs in our industry increased, as a result of tariffs on products imported from China and other increases in supplier input costs, which
were passed through in higher retail and wholesale prices in our industry. We determine inventory cost using the last-in, first-out
(“LIFO”) method, but have, over time, seen our LIFO reserve balance exhausted, as a result of cumulative historical acquisition cost
decreases. Our policy is to not write up inventory in excess of replacement cost, and accordingly, we are effectively valuing our
inventory at replacement cost.
27
FORM 10-K
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2019, increased 8% to $3.47 billion (or 34.2%
of sales) from $3.22 billion (or 33.8% of sales) for the same period in 2018. The increase in total SG&A dollars for the year ended
December 31, 2019, was the result of Team Members, facilities and vehicles to support our increased sales and store count. The increase
in SG&A as a percentage of sales for the year ended December 31, 2019, was principally due to wage pressure, driven by a low
unemployment, inflationary environment, and other variable costs, including health benefit costs and cost of insurance, primarily auto
related, and increased spending on Omnichannel and technology initiatives.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2019, increased 6% to $1.92 billion (or
18.9% of sales) from $1.82 billion (or 19.0% of sales) for the same period in 2018.
Other income and expense:
Total other expense for the year ended December 31, 2019, increased 8% to $130 million (or 1.3% of sales), from $121 million (or 1.3%
of sales) for the same period in 2018. The increase in total other expense for the year ended December 31, 2019, was the result of
increased interest expense on higher average outstanding borrowings, partially offset by an increase in the value of our trading securities.
Income taxes:
Our provision for income taxes for the year ended December 31, 2019, increased 8% to $399 million (22.3% effective tax rate) from
$370 million (21.8% effective tax rate) for the same period in 2018. The increase in our provision for income taxes for the year ended
December 31, 2019, was the result of higher taxable income and lower excess tax benefits from share-based compensation. The increase
in our effective tax rate for the year ended December 31, 2019, was the result of lower excess tax benefits from share-based
compensation. During the years ended December 31, 2019 and 2018, excess tax benefits from share-based compensation were
approximately $26 million and $35 million, respectively.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2019, increased 5% to $1.39 billion (or 13.7%
of sales), from $1.32 billion (or 13.9% of sales) for the same period in 2018.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2019, increased 11% to $17.88 on 78 million shares from
$16.10 on 82 million shares for the same period in 2018.
2018 Compared to 2017
Sales:
Sales for the year ended December 31, 2018, increased $559 million, or 6%, to $9.54 billion from $8.98 billion for the same period in
2017. Comparable store sales for stores open at least one year increased 3.8% and 1.4% for the years ended December 31, 2018 and
2017, respectively. Comparable store sales are calculated based on the change in sales for stores open at least one year and exclude
sales of specialty machinery, sales to independent parts stores and sales to Team Members. Online sales, resulting from ship-to-home
orders and pickup in-store orders, for stores open at least one year, are included in the comparable store sales calculation.
28
FORM 10-K
The following table presents the components of the increase in sales for the year ended December 31, 2018 (in millions):
Increase in Sales for the Year Ended
December 31, 2018,
Compared to the Same Period in 2017
Store sales:
Comparable store sales
Non-comparable store sales:
$
Sales for stores opened throughout 2017, excluding stores open at least one year that
are included in comparable store sales
Sales for stores opened throughout 2018
Decline in sales for stores that have closed
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team Members
Total increase in sales
$
336
101
120
(7)
9
559
We believe the increased sales achieved by our stores were the result of store growth, the high levels of customer service provided by
our well-trained and technically proficient Team Members, superior inventory availability, including same day and over-night access to
inventory in our regional distribution centers, enhanced services and programs offered in our stores, a broad selection of product
offerings 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, 2018, was driven by an increase in average ticket values for both
DIY and professional service provider customers and positive transaction counts for professional service provider customers, offset by
negative transaction counts for DIY customers. The improvement in average ticket values was the result of the increasing complexity
and cost of replacement parts necessary to maintain the current population of better-engineered and more technically advanced vehicles
and same SKU inflation. These better-engineered, more technically advanced vehicles require less frequent repairs, as the component
parts are more durable and last for longer periods of time. This decrease in repair frequency creates pressure on customer transaction
counts; however, when repairs are needed, the cost of replacement parts is, on average, greater, which is a benefit to average ticket
values. During the year ended December 31, 2018, DIY transaction counts also continued to be pressured by increased gas prices and
other inflationary impacts, resulting in an increased deferral of vehicle maintenance and repairs over the short term.
We opened 200 net, new stores during the year ended December 31, 2018, compared to opening 190 net, new stores during the year
ended December 31, 2017. As of December 31, 2018, we operated 5,219 stores in 47 states compared to 5,019 stores in 47 states at
December 31, 2017. After the close of business on December 31, 2018, we acquired the 33 Bennett stores that were not included in our
2018 store count and were not operated by the Company in 2018.
Gross profit:
Gross profit for the year ended December 31, 2018, increased 7% to $5.04 billion (or 52.8% of sales) from $4.72 billion (or 52.6% of
sales) for the same period in 2017. The increase in gross profit dollars for the year ended December 31, 2018, was primarily the result
of sales from new stores and the increase in comparable store sales at existing stores. The increase in gross profit as a percentage of
sales for the year ended December 31, 2018, was primarily due to a non-cash LIFO charge in 2017, partially offset by an increase in
distribution expenses. The increase in distribution expenses was primarily due to wage pressure and increased transportation costs, as
compared to 2017. During the year ended December 31, 2018, we did not realize net acquisition cost decreases, and as a result, we did
not record a LIFO charge. During the year ended December 31, 2017, our LIFO costs were written down by approximately $22 million
to reflect replacement cost.
Selling, general and administrative expenses:
SG&A for the year ended December 31, 2018, increased 8% to $3.22 billion (or 33.8% of sales) from $3.00 billion (or 33.4% of sales)
for the same period in 2017. The increase in total SG&A dollars for the year ended December 31, 2018, was primarily the result of
additional Team Members, facilities and vehicles to support our increased sales and store count, the planned allocation of a portion of
the tax savings realized as a result of the U.S. Tax Cuts and Jobs Act, enacted in December 2017 (the “Tax Act”) and unfavorable
comparison to a 2017 benefit of $9.1 million from the reduction in our legal accrual following the expiration of the statute of limitations
related to a legacy claim. The increase in SG&A as a percentage of sales for the year ended December 31, 2018, was primarily due to
our tax savings allocation initiatives and the 2017 legal accrual benefit.
29
FORM 10-K
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2018, increased 5% to $1.82 billion (or
19.0% of sales) from $1.73 billion (or 19.2% of sales) for the same period in 2017.
Other income and expense:
Total other expense for the year ended December 31, 2018, increased 38% to $121 million (or 1.3% of sales), from $88 million (or 1.0%
of sales) for the same period in 2017. The increase in total other expense for the year ended December 31, 2018, was primarily the
result of increased interest expense on higher average outstanding borrowings.
Income taxes:
Our provision for income taxes for the year ended December 31, 2018, decreased 27% to $370 million (21.8% effective tax rate) from
$504 million (30.8% effective tax rate) for the same period in 2017. The decreases in our provision for income taxes and our effective
tax rate for the year ended December 31, 2018, were primarily the result of the lower federal corporate tax rate set forth by the Tax Act,
partially offset by a $53 million benefit in 2017 from the required revaluation of our deferred income tax liabilities based on the lower
federal corporate tax rate set forth by the Tax Act and lower excess tax benefits from share-based compensation in 2018, as compared
2017. During the year ended December 31, 2018 and 2017, excess tax benefits from share-based compensation were approximately
$35 million and $49 million, respectively.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2018, increased 17% to $1.32 billion (or 13.9%
of sales), from $1.13 billion (or 12.6% of sales) for the same period in 2017.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2018, increased 27% to $16.10 on 82 million shares from
$12.67 on 90 million shares for the same period in 2017. Due to the revaluation of our deferred income tax liabilities in 2017, our
diluted earnings per common share for the year ended December 31, 2017, included a one-time benefit of $0.59.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure,
operate and maintain our 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, 2019 and 2018 (dollars in millions):
Liquidity and Related Ratios
Current assets
Current liabilities
Working capital (1)
Total debt
Total equity
Debt to equity (2)
(1) Working capital is calculated as current assets less current liabilities.
(2) Debt to equity is calculated as total debt divided by total equity.
December 31,
Percentage
2019
2018
Change
$
$
3,834 $
4,469
(636)
3,891
397 $
9.79:1
3,543
3,894
(351)
3,417
354
9.66:1
8.2 %
14.8 %
(81.2) %
13.9 %
12.3 %
1.3 %
Current assets increased 8%, current liabilities increased 15%, total debt increased 14% and total equity increased 12% from 2018 to
2019. The increase in current assets was primarily due to the increase in inventory, resulting from our distribution expansion projects
and the opening and acquiring of 241 net, new stores in 2019. The increase in current liabilities was primarily due to the adoption of
30
FORM 10-K
ASC 842 during 2019, resulting in the recognition of $316 million of current operating lease liabilities at December 31, 2019, and an
increase in accounts payable, resulting from inventory growth related to distribution expansion projects and new store openings. Our
accounts payable to inventory ratio was 104.4% as of December 31, 2019, as compared to 105.7% for the same period in 2018. The
increase in total debt was attributable to the issuance of $500 million of 3.900% Senior Notes due 2029 and borrowings of $261 million
on our revolving credit facility at December 31, 2019. The increase in total equity was due to a decrease in retained deficit, resulting
from net income for the year ended December 31, 2019, and increased additional paid-in-capital, which was due to employee stock
option exercises, partially offset by the impact of share repurchase activity, under our share repurchase program, on retained deficit and
additional paid-in capital.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended
December 31, 2019, 2018 and 2017 (in thousands):
Liquidity:
Total cash provided by/(used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Capital expenditures
Free cash flow (1)
For the Year Ended
December 31,
2018
2017
2019
$ 1,708,479 $ 1,727,555 $ 1,403,687
(464,223)
(1,039,714)
—
(100,250)
(534,302)
(1,208,286)
—
(15,033) $
(796,746)
(902,811)
169
9,091 $
$
$
628,057 $
504,268 $
1,020,649
1,188,584
465,940
889,059
(1) Calculated as net cash provided by operating activities, less capital expenditures, excess tax benefit from share-based compensation payments,
and investment in tax credit equity investments for the period.
Cash and cash equivalents balances held outside of the U.S. were $5.7 million as of December 31, 2019, which was generally utilized
to support the liquidity needs of foreign operations in Mexico, and no cash or cash equivalents were held outside of the U.S. as of
December 31, 2018 and 2017.
Operating activities:
The decrease in net cash provided by operating activities in 2019 compared to 2018 was primarily due to a decrease in income taxes
payable, a larger increase in net inventory investment and an increase in accounts receivable, primarily offset by increased operating
income. The decrease from income taxes payable in 2019, compared to the increase in income taxes payable in 2018, was primarily the
result of a prepaid income taxes position at the end of 2019, versus an income taxes payable position at the end of 2018. The increase
in net inventory investment was the result of a larger increase in inventory in 2019, compared to 2018, primarily driven by our
distribution expansion projects. The increase in accounts receivable during 2019, as compared to the decrease in 2018, was primarily
due to the respective year-over-year business day timing of year-end.
The increase in net cash provided by operating activities in 2018 compared to 2017 was primarily due to increased operating income,
reduced cash taxes paid, due to the Tax Act, and a reduction of accounts receivable, due to the business day timing of year-end 2018, as
compared to 2017.
Investing activities:
The increase in net cash used in investing activities in 2019 compared to 2018 was primarily the result of an increase in capital
expenditures, investments in tax credit equity investments and an increase in other investing activities. Total capital expenditures were
$628 million in 2019 versus $504 million in 2018, and the increase was primarily related to distribution expansion projects, the timing
of property acquisitions and construction costs for new stores and technology investments during 2019, as compared to 2018.
Investments in tax credit equity investments were the result of entering into tax credit equity investments for the purpose of receiving
renewable energy tax credits. The increase in other investing activities was due to the acquisition of Mayasa in 2019.
The increase in net cash used in investing activities in 2018 compared to 2017 was primarily the result of an increase in capital
expenditures in 2018 and an increase in other investing activities. Total capital expenditures were $504 million and $466 million in
2018 and 2017, respectively, and the increase was primarily related to the timing of property acquisitions, closings, construction costs
for new stores and the mix of owned versus leased stores opened during 2018, as compared to 2017. The increase in other investing
activities was primarily due to more acquisition related expenditures in 2018, as compared to 2017.
31
FORM 10-K
We opened 200, 200, and 190 net, new domestic stores in 2019, 2018 and 2017, respectively. In addition, on January 1, 2019, we began
operating 33 acquired Bennett stores, and during the year ended December 31, 2019, we merged 13 of these acquired Bennett stores
into existing O’Reilly locations and rebranded the remaining 20 Bennett stores as O’Reilly stores. After the close of business on
November 29, 2019, we acquired 21 stores from Mayasa. We plan to open approximately 180 net, new domestic stores in 2020. The
current costs associated with the opening of a new store, including the cost of land acquisition, building improvements, fixtures, vehicles,
net inventory investment and computer equipment, are estimated to average approximately $1.5 million to $1.8 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 in 2019 compared to 2018 was primarily attributable to a lower level of repurchases
of our common stock in 2019, compared to 2018, and a higher level of net borrowings during 2019, as compared to 2018.
The increase in net cash used in financing activities in 2018 compared to 2017 was primarily attributable to a lower level of net
borrowings during 2018, as compared to 2017, partially offset by a lower level of repurchases of our common stock in 2018, as compared
to 2017.
Unsecured revolving credit facility:
On April 5, 2017, the Company entered into a credit agreement (the “Credit Agreement”). The Credit Agreement provides for a five-
year $1.20 billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by JPMorgan Chase Bank, N.A., which
is scheduled to mature in April 2022. 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, the
Company may, from time to time, subject to certain conditions, increase the aggregate commitments under the Revolving Credit Facility
by up to $600 million, provided that the aggregate amount of the commitments does not exceed $1.80 billion at any time.
As of December 31, 2019 and 2018, we had outstanding letters of credit, primarily to support obligations related to workers’
compensation, general liability and other insurance policies, in the amounts of $39 million and $35 million, respectively, reducing the
aggregate availability under the Credit Agreement by those amounts. As of December 31, 2019 and 2018, we had outstanding
borrowings under the Revolving Credit Facility in the amounts of $261 million and $287 million, respectively.
Senior Notes:
On May 20, 2019, we issued $500 million aggregate principal amount of unsecured 3.900% Senior Notes due 2029 (“3.900% Senior
Notes due 2029”) at a price to the public of 99.991% of their face value with U.S. Bank National Association (“U.S. Bank”) as trustee.
Interest on the 3.900% Senior Notes due 2029 is payable on June 1 and December 1 of each year, which began on December 1, 2019,
and is computed on the basis of a 360-day year.
We have issued a cumulative $3.65 billion aggregate principal amount of unsecured senior notes, which are due between 2021 and 2029,
with UMB Bank, N.A. and U.S. Bank as trustees. Interest on the senior notes, ranging from 3.550% to 4.875%, is payable semi-annually
and is computed on the basis of a 360-day year. None of our subsidiaries is a guarantor under our senior notes.
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, create certain liens on assets to secure certain debt and enter into certain sale and leaseback transactions, and limit our
ability to merge or consolidate with another company or transfer all or substantially all of our property, in each case as set forth in the
indentures. These covenants are, however, subject to a number of important limitations and exceptions. As of December 31, 2019, we
were in compliance with the covenants applicable to our senior notes.
The Credit Agreement contains certain covenants, including limitations on indebtedness, a minimum consolidated fixed charge coverage
ratio of 2.50:1.00 and a maximum consolidated leverage ratio of 3.50:1.00. The consolidated fixed charge coverage ratio includes a
calculation of earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based compensation expense to fixed
charges. Fixed charges include interest expense, capitalized interest and rent expense. The consolidated leverage ratio includes a
calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based compensation
expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit and similar instruments, five-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 commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the Credit
Agreement and litigation from our lenders.
32
FORM 10-K
We had a consolidated fixed charge coverage ratio of 5.21 times and 5.38 times as of December 31, 2019 and 2018, respectively, and a
consolidated leverage ratio of 2.20 times and 2.10 times as of December 31, 2019 and 2018, respectively, remaining in compliance with
all covenants related to the borrowing arrangements.
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 years ended December 31, 2019 and 2018 (dollars in
thousands):
GAAP net income
Add: Interest expense
Rent expense (1)
Provision for income taxes
Depreciation expense
Amortization expense
Non-cash share-based compensation
Non-GAAP EBITDAR
Interest expense
Capitalized interest
Rent expense (1)
Total fixed charges
Consolidated fixed charge coverage ratio
GAAP debt
Add: Stand-by letters of credit
Discount on senior notes
Debt issuance costs
Five-times rent expense
Non-GAAP adjusted debt
Consolidated leverage ratio
For the Year Ended
December 31,
2019
2018
1,391,042
139,975
338,697
399,287
270,076
799
21,921
2,561,797
139,975
12,998
338,697
491,670
5.21
3,890,527
38,870
3,515
16,958
1,693,485
5,643,355
$
$
$
$
$
$
1,324,487
122,129
317,283
369,600
255,866
3,071
20,176
2,412,612
122,129
9,092
317,283
448,504
5.38
3,417,122
35,148
4,294
15,584
1,586,415
5,058,563
2.20
2.10
$
$
$
$
$
$
(1) The table below outlines the calculation of Rent expense and reconciles Rent expense to Total lease cost, per Accounting Standard Codification
842 (“ASC 842”), adopted and effective January 1, 2019, the most directly comparable GAAP financial measure, for the twelve months ended
December 31, 2019 (in thousands):
Total lease cost, per ASC 842, for the year ended December 31, 2019
Less: Variable non-contract operating lease components, related to property taxes and insurance, for the year
$
ended December 31, 2019
Rent expense for the year ended December 31, 2019
$
398,294
59,597
338,697
The table below outlines the calculation of Free cash flow and reconciles Free cash flow to Net cash provided by operating activities,
the most directly comparable GAAP financial measure, for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Cash provided by operating activities
Less: Capital expenditures
Excess tax benefit from share-based compensation payments
Investment in tax credit equity investments
Free cash flow
$
$
33
For the Year Ended
December 31,
2018
1,727,555 $
504,268
34,703
—
1,188,584 $
2019
1,708,479 $
628,057
25,992
33,781
1,020,649 $
2017
1,403,687
465,940
48,688
—
889,059
FORM 10-K
Free cash flow, the consolidated fixed charge coverage ratio and the consolidated leverage ratio discussed and presented in the tables
above are 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 our free cash flow, consolidated fixed charge coverage ratio and consolidated leverage
ratio provides meaningful supplemental information to both management and investors and reflects the required covenants under the
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:
In January of 2011, our Board of Directors approved a share repurchase program. Under the program, 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. Our Board of
Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice.
As announced on May 31, 2019, and February 5, 2020, our Board of Directors each time approved a resolution to increase the
authorization amount under our share repurchase program by an additional $1.00 billion, resulting in a cumulative authorization amount
of $13.75 billion. Each additional authorization is effective for a three-year period, beginning on its respective announcement date.
The following table identifies shares of our common stock that have been repurchased as part of our publicly announced share repurchase
program for the year ended December 31, 2019 and 2018 (in thousands, except per share data):
Shares repurchased
Average price per share
Total investment
For the Year Ended
December 31,
2019
3,877
369.55
1,432,752
$
$
2018
6,061
282.80
1,713,953
$
$
As of December 31, 2019, we had $569 million remaining under our share repurchase program. Subsequent to the end of the year and
through February 28, 2020, we repurchased an additional 0.9 million shares of our common stock under our share repurchase program,
at an average price of $400.78, for a total investment of $363 million. We have repurchased a total of 77.1 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, 2020, at an
average price of $162.72 for a total aggregate investment of $12.54 billion. As of February 28, 2020, we had approximately $1.21
billion remaining under our share repurchase program.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2019, 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, purchase
obligations for construction contract commitments and other long-term liabilities, which are identified in the table below and are fully
disclosed in Note 5 “Leases,” Note 11 “Share-Based Compensation and Benefit Plans” 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 suppliers 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 2020,
which are included in “Current liabilities” on our Consolidated Balance Sheets.
We record a reserve for potential liabilities related to uncertain tax positions, including estimated interest and penalties, which are fully
disclosed in Note 15 “Income Taxes” to the Consolidated Financial Statements. These estimates are not included in the table below
because the timing related to the ultimate resolution or settlement of these positions cannot be determined. As of December 31, 2019,
we recorded a net liability of $36.6 million related to these uncertain tax positions on our Consolidated Balance Sheets, all of which was
included in “Other liabilities.”
We record a reserve for the projected obligation related to future payments under the Company’s nonqualified deferred compensation
plan, which is fully disclosed in Note 11 “Share-Based Compensation and Benefit Plans” to the Consolidated Financial Statements.
This estimate is not included in the table below because the timing related to the ultimate payment cannot be determined. As of
34
FORM 10-K
December 31, 2019, we recorded a liability of $32 million related to this uncertain liability on our Consolidated Balance Sheets, all of
which was included in “Other liabilities.”
The following table identifies the estimated payments of the Company’s contractual obligations as of December 31, 2019 (in thousands):
Contractual Obligations
Long-term debt principal and interest payments (1)
Future minimum lease payments under operating leases (2)
Self-insurance reserves (3)
Construction commitments
Capital contributions to certain tax credit equity investments (4)
Total contractual cash obligations
Payments Due By Period
Before
Years
1 Year 1 and 2
Years
Years 5
3 and 4 and Over
Total
$ 4,779,438 $ 157,958 $ 1,624,882 $ 477,935 $ 2,518,663
1,090,210
13,280
—
—
$ 7,580,022 $ 748,173 $ 2,253,132 $ 956,564 $ 3,622,153
2,437,219
168,279
100,086
95,000
316,050
79,079
100,086
95,000
456,857
21,772
—
—
574,102
54,148
—
—
(1) Our Revolving Credit Facility, which has a maximum aggregate commitment of $1.20 billion and matures in April 2022, bears interest (other than
swing line loans), at our option, at either the Alternate Base Rate or Adjusted LIBO Rate (both as defined in the Credit Agreement) plus a margin,
that will vary from 0.000% to 0.250% in the case of loans bearing interest at the Alternate Base Rate and 0.680% to 1.250% in the case of loans
bearing interest at the Adjusted LIBO 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 Alternate 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 0.070% to 0.250% per annum 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 Alternate Base Rate loans was 0.000%, our margin for Eurodollar Revolving Loans was 0.900% and our facility fee was
0.100%. As of December 31, 2019, we had outstanding borrowings in the amount of $261 million under our Revolving Credit Facility.
(2) The minimum lease payments above do not include potential amounts for percentage rent and other variable operating lease related costs, which
are also required contractual obligations under our operating leases but are generally not fixed and can fluctuate from year to year. See Note 5
“Leases” to the Consolidated Financial Statements for further information on our operating leases.
(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. See Note 13 “Commitments” to the Consolidated Financial Statements for
further information on our self-insurance reserves.
(4) We have entered into an agreement to make capital contributions to certain tax credit equity investments for the purpose of receiving renewable
energy tax credits. We are required to make capital contributions upon achievement of project milestones by the solar energy farms, the timing
of which is variable and outside of the Company’s control. See Note 13 “Commitments” to the Consolidated Financial Statements for further
information on our capital contribution obligations.
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 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 10 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 $39 million and $35 million were outstanding at December 31, 2019 and 2018,
respectively.
We have entered into an agreement to make capital contributions to certain tax credit equity investments for the purpose of receiving
renewable energy tax credits. We are required to make capital contributions totaling $95 million upon achievement of project milestones
by the solar energy farms, the timing of which is variable and outside of the Company’s control.
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.
35
FORM 10-K
CRITICAL ACCOUNTING POLICIES AND 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 in establishing these
estimates. Management continues to review these critical accounting policies and estimates to ensure that the consolidated financial
statements are presented fairly in accordance with GAAP. However, actual results could differ from our assumptions and estimates and
such differences could be material.
Inventory Obsolescence and Shrink:
Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market.
The extended nature of the life cycle of our products is such that the risk of obsolescence of our inventory is minimal. The products that
we sell generally have applications in our markets for a 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
products 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 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 the shrink reserve changed 10% from the estimate that we recorded based on our historical experience at
December 31, 2019, the financial impact would have been approximately less than $1 million or less than 0.1% of pretax income for
the year ended December 31, 2019.
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 never recorded an impairment to goodwill. The process of
evaluating goodwill for impairment involves a detailed qualitative assessment to be performed first and then, based on the conclusion
of the totality of events and circumstances, a quantitative assessment may be performed, which involves the determination of the fair
value of our Company using the market approach. When a quantitative assessment is performed, inherent in such fair value
determinations are certain judgments and estimates, including estimates that 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. Based on our
qualitative assessment, 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, 2019, nor do we believe goodwill would be at risk of failing impairment testing.
Supplier Concessions:
We receive concessions from our suppliers 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
36
FORM 10-K
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 supplier concessions are recognized as a
reduction to the cost of sales. Amounts receivable from suppliers also include amounts due to us relating to supplier purchases and
product returns. Management regularly reviews amounts receivable from suppliers and assesses the need for a reserve for uncollectible
amounts based on our evaluation of our suppliers’ 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 suppliers to pay us the obliged amounts could differ from our assumptions and estimates, and
we may be exposed to losses or gains that could be material.
Warranty Reserves:
We offer warranties on certain merchandise we sell with warranty periods ranging from 30 days to limited lifetime warranties. The risk
of loss arising from warranty claims is typically the obligation of our suppliers. Certain suppliers 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 supplier allowances received in lieu of warranty obligations and estimated warranty expense
are recorded as an adjustment to the 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, 2019, the financial impact would have been approximately $6 million or 0.3% of pretax income for the year ended
December 31, 2019.
Self-Insurance Reserves:
We use a combination of insurance and self-insurance mechanisms to provide for potential liabilities from workers’ compensation,
general liability, vehicle liability, property loss, and Team Member health care benefits. With the exception of certain Team Member
health care benefit liabilities, employment related claims and litigation, certain commercial litigation and certain regulatory matters, we
obtain third-party insurance coverage to limit our exposure for any individual workers’ compensation, general liability, vehicle liability
or property loss claim. When estimating our self-insurance liabilities, we consider a number of factors, including historical claims
experience and trend-lines, projected medical and legal inflation, growth patterns and exposure forecasts. The assumptions made by
management as they relate to each of these factors represent our judgment as to the most probable cumulative impact of each factor to
our future obligations. Our calculation of self-insurance liabilities requires management to apply judgment to estimate the ultimate cost
to settle reported claims and claims incurred but not yet reported as of the balance sheet date, and the application of alternative
assumptions could result in a different estimate of these liabilities. Actual claim activity or development may vary from our assumptions
and estimates, which may result in material losses or gains. As we obtain additional information that affects the assumptions and
estimates we used to recognize liabilities for claims incurred in prior accounting periods, we adjust our self-insurance liabilities to reflect
the revised estimates based on this additional information. These liabilities are recorded at our estimate of their net present value, using
a credit-adjusted discount rate. These liabilities do not have scheduled maturities, but we can estimate the timing of future payments
based upon historical patterns. We could apply alternative assumptions regarding the timing of payments or the applicable discount rate
that could result in materially different estimates of the net present value of the liabilities. If self-insurance reserves were changed 10%
from our estimated reserves at December 31, 2019, the financial impact would have been approximately $16 million or 0.9% of pretax
income for the year ended December 31, 2019.
Legal Reserves:
We maintain reserves for expenses associated with litigation, for which O’Reilly is currently involved. We are currently involved in
litigation incidental to the ordinary conduct of our business. Management, with the assistance of outside legal counsel, must make
estimates of potential legal obligations and possible liabilities arising from such litigation and records reserves for these expenditures.
If legal reserves were changed 10% from our estimated reserves at December 31, 2019, the financial impact would have been
approximately $1 million or less than 0.1% of pretax income for the year ended December 31, 2019.
Taxes:
We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues,
which may require an extended period of time to resolve. We regularly review our potential tax liabilities for tax years subject to audit.
The amount of such liabilities is based on various factors, such as differing interpretations of tax regulations by the responsible tax
authority, experience with previous tax audits and applicable tax law rulings. Changes in our tax liability may occur in the future as our
assessments change based on the progress of tax examinations in various jurisdictions and/or changes in tax regulations. In
management’s opinion, adequate provisions for income taxes have been made for all years presented. The estimates of our potential tax
liabilities contain uncertainties because management must use judgment to estimate the exposures associated with our various tax
37
FORM 10-K
positions and actual results could differ from our estimates. Alternatively, we could have applied assumptions regarding the eventual
outcome of the resolution of open tax positions that could differ from our current estimates but would still be reasonable given the nature
of a particular position. While our estimates are subject to the uncertainty noted in the preceding discussion, our initial estimates of our
potential tax liabilities have historically not been materially different from actual results, except in instances where we have reversed
liabilities that were recorded for periods that were subsequently closed with the applicable taxing authority.
INFLATION AND SEASONALITY
We have generally been successful in reducing the effects of merchandise cost increases principally by taking advantage of supplier
incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the extent our
acquisition cost increased due to 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 inflation has had a material adverse effect on our operations.
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 tables set forth certain quarterly unaudited operating data for fiscal years ended December 31, 2019 and 2018. The
unaudited quarterly information includes all adjustments, which management considers necessary for a fair presentation of the
information shown (in thousands, except per share and comparable store sales data):
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)
First
Quarter
3.2 %
2,410,608
1,279,290
444,786
321,152
4.09
4.05
First
Quarter
3.4 %
2,282,681
1,201,258
422,846
304,906
3.65
3.61
$
$
$
$
$
$
Fiscal 2019
Second
Quarter
3.4 %
2,589,874
1,368,287
498,074
353,681
4.56
4.51
Third
Quarter
5.0 %
2,666,528
1,422,530
536,363
391,293
5.14
5.08
$
$
$
Fiscal 2018
Second
Quarter
4.6 %
2,456,073
1,288,638
479,150
353,073
4.32
4.28
Third
Quarter
3.9 %
2,482,717
1,315,755
485,148
366,151
4.54
4.50
$
$
$
$
$
$
$
$
$
Fourth
Quarter
4.4 %
2,482,975
1,324,584
441,503
324,916
4.29
4.25
Fourth
Quarter
3.3 %
2,314,957
1,234,315
428,040
300,357
3.76
3.72
$
$
$
$
$
$
(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 amount.
The unaudited operating data presented above 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.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for information about recent
accounting pronouncements.
38
FORM 10-K
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest rate 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 an Alternative Base Rate or Adjusted LIBO Rate, as defined in the credit agreement
governing the Revolving Credit Facility. As of December 31, 2019, we had outstanding borrowings under our Revolving Credit Facility
in the amount of $261 million, at the weighted-average variable interest rate of 3.318%. At this borrowing level, a 0.25% increase in
interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows in the amount of $0.7 million.
We had outstanding fixed rate debt of $3.65 billion and $3.15 billion as of December 31, 2019 and 2018, respectively. The fair value
of our fixed rate debt was estimated at $3.88 billion and $3.12 billion as of December 31, 2019 and 2018, respectively, which was
determined by reference to quoted market prices.
Cash equivalents risk:
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, 2019, our cash and cash equivalents totaled $40 million.
Foreign currency risk:
Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency
other than our entities’ functional currencies. To minimize our risk, we generally enter into transactions denominated in the respective
functional currencies. Our foreign currency exposure arises from Mexican peso-denominated revenues and profits and their translation
into U.S. dollars.
We view our investments in Mexican subsidiaries as long-term. The net asset exposure in the Mexican subsidiaries translated into U.S.
dollars using the year-end exchange rates was $151.9 million at December 31, 2019. The year-end exchange rates of the Mexican peso
with respect to the U.S. dollar increased by approximately 3% from the acquisition date of November 29, 2019. The potential loss in
value of our net assets in the Mexican subsidiaries resulting from a 10% change in quoted foreign currency exchange rates at
December 31, 2019, would be approximately $13.8 million. Any changes in our net assets in the Mexican subsidiaries relating to foreign
currency exchange rates would be reflected in the financial statement through the foreign currency translation component of accumulated
other comprehensive income, unless the Mexican subsidiaries are sold or otherwise disposed.
A 10% change in average exchange rates would not have had a material impact on our results of operations.
39
FORM 10-K
Item 8. Financial Statements and Supplementary Data
Index
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm: Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
41
42
43
45
46
47
48
49
50
40
FORM 10-K
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.
Internal control over financial reporting includes all policies and procedures that
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. 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 (2013 framework). Based on this assessment, management believes that as of
December 31, 2019, the Company’s internal control over financial reporting is effective based on those criteria.
As permitted by guidance issued by the Securities and Exchange Commission, management excluded from its assessment of its system
of internal control over financial reporting the operations associated with the acquisition of Mayoreo de Autopartes y Aceites, S.A. de
C.V. (“Mayasa”), pursuant to a stock purchase agreement, which was completed after the close of business on November 29, 2019. The
acquired operations were included in the consolidated financial statements of the Company, which constituted 2% of total assets as of
December 31, 2019, and less than 1% of revenues and less than 1% of net income for the year ended December 31, 2019.
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/ Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer and
Co-President
February 28, 2020
/s/ Thomas McFall
Thomas McFall
Executive Vice President and
Chief Financial Officer
February 28, 2020
41
FORM 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of O’Reilly Automotive, Inc. and Subsidiaries
Opinion on Internal Control Over Financial Reporting
We have audited O’Reilly Automotive, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, O’Reilly Automotive, Inc. and Subsidiaries (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the
COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of
and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Mayoreo de
Autopartes y Aceites, S.A. de C.V. (Mayasa), which is included in the 2019 consolidated financial statements of the Company and
constituted 2% of total assets as of December 31, 2019 and less than 1% of revenues and less than 1% of net income for the year ended
December 31, 2019. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the
internal control over financial reporting of Mayasa.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Company as of December 31, 2019 and 2018, 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, 2019, and the
related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 28, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2020
42
FORM 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of O’Reilly Automotive, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of O’Reilly Automotive, Inc. and Subsidiaries (the Company) as of
December 31, 2019 and 2018, 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, 2019, and the related notes and financial statement schedule listed
in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results
of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated February 28, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leasing
arrangements upon the adoption of Accounting Standard Codification Topic 842, Leases (“ASC 842”), on January 1, 2019. See below
for discussion of our related critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Valuation of Self-insurance Reserves
Description of the
Matter
At December 31, 2019, the Company’s self-insurance reserve was $157 million. As discussed in Note 1 of the
financial statements, self-insurance liabilities are estimated based upon historical claim experience and trend-
lines. Furthermore, certain of these liabilities were recorded at an estimate of their net present value, using a
discount rate.
Auditing management’s self-insurance reserves was complex and judgmental and required us to use our
actuarial specialists due to the estimation required in determining the ultimate claim value and net present value
43
FORM 10-K
of certain liabilities. The estimate is sensitive to assumptions such as the projected cost inflation, claim growth
patterns and exposure forecasts.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design of controls over the Company’s self-insurance estimation
process and tested the operating effectiveness of those controls including management’s controls over reviewing
the appropriateness of assumptions and the completeness and accuracy of the data underlying the reserves.
To test the Company’s determination of the estimated self-insurance reserves, we performed audit procedures
that included, among others, involving a specialist to assist in the development of an independent actuarial
estimate for the reserve balance based upon current industry and economic trends, comparing certain selected
assumptions used by management to our independent estimates which were developed with the assistance of
our specialists, testing the underlying data used by management in the development of the reserves and testing
the mathematical accuracy of the calculations.
Adoption of New Lease Accounting Standard
Description of the
Matter
As discussed above and in Note 1 to the consolidated financial statements, the Company adopted Accounting
Standard Codification Topic 842, Leases (“ASC 842”), on January 1, 2019. The adoption of ASC 842 resulted
in the recognition of right-of-use operating lease assets and operating lease liabilities of approximately $1.9
billion as of January 1, 2019. Since most of the leases do not provide a determinable implicit rate, the Company
estimated its incremental borrowing rate (IBR) used to calculate its right of use assets and lease liabilities.
Auditing the Company’s adoption of ASC 842 was challenging and involved subjective auditor judgment
because the Company is party to a significant number of lease contracts and certain aspects of adopting ASC
842 required management to exercise judgment in applying the new standard to its portfolio of lease contracts.
In particular, auditing management’s estimate of the incremental borrowing rate was especially challenging as
it involved a high degree of subjective auditor judgment when testing the reasonableness of the inputs and
appropriateness of the rates applied to each lease.
How We Addressed
the Matter in Our
Audit
We obtained an understanding and evaluated the design of controls over the Company’s accounting for the
adoption of the ASC 842. We tested the operating effectiveness of those controls over management’s
application of accounting policies, evaluation of the completeness of the lease portfolio, and over management’s
review of the IBR.
To test the Company’s implementation of the new leasing standard, our audit procedures included, among
others, an evaluation of the completeness of the population of contracts that meet the definition of a lease under
ASC 842 and testing the accuracy of the Company’s calculations of initial right-of-use assets and lease
liabilities. Additionally, we evaluated management’s methodology for developing the IBR, sensitized the
impacts of discounting, and compared the management’s IBRs to the Company’s existing market transactions
with comparable terms.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Kansas City, Missouri
February 28, 2020
44
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts $14,417 in 2019 and $13,238 in 2018
Amounts receivable from suppliers
Inventory
Other current assets
Total current assets
$
40,406 $
214,915
79,492
3,454,092
44,757
3,833,662
31,315
192,026
78,155
3,193,344
48,262
3,543,102
December 31,
2019
2018
Property and equipment, at cost
Less: accumulated depreciation and amortization
Net property and equipment
Operating lease, right-of-use assets
Goodwill
Other assets, net
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Self-insurance reserves
Accrued payroll
Accrued benefits and withholdings
Income taxes payable
Current portion of operating lease liabilities
Other current liabilities
Total current liabilities
Long-term debt
Operating lease liabilities, 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 –
75,618,659 as of December 31, 2019, and
79,043,919 as of December 31, 2018
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income
Total shareholders’ equity
6,191,427
2,243,224
3,948,203
1,928,369
936,814
70,112
$ 10,717,160 $
5,645,552
2,058,550
3,587,002
—
807,260
43,425
7,980,789
$
3,604,722 $
79,079
100,816
98,539
—
316,061
270,210
4,469,427
3,890,527
1,655,297
133,280
171,289
3,376,403
77,012
86,520
89,082
11,013
—
253,990
3,894,020
3,417,122
—
105,566
210,414
—
—
756
1,280,760
(889,066)
4,890
397,340
790
1,262,063
(909,186)
—
353,667
Total liabilities and shareholders’ equity
$ 10,717,160 $
7,980,789
See accompanying Notes to consolidated financial statements.
45
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Year Ended
December 31,
2018
2017
2019
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expense):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
$ 10,149,985 $ 9,536,428 $ 8,977,726
4,257,043
4,720,683
4,496,462
5,039,966
4,755,294
5,394,691
3,473,965
1,920,726
3,224,782
1,815,184
2,995,283
1,725,400
(139,975)
2,545
7,033
(130,397)
(122,129)
2,521
(1,489)
(121,097)
(91,349)
2,347
1,406
(87,596)
1,790,329
399,287
1,637,804
504,000
$ 1,391,042 $ 1,324,487 $ 1,133,804
1,694,087
369,600
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
$
18.07 $
76,985
16.27 $
81,406
12.82
88,426
$
17.88 $
77,788
16.10 $
82,280
12.67
89,502
See accompanying Notes to consolidated financial statements.
46
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income:
Foreign currency translation adjustments
Total other comprehensive income
For the Year Ended
December 31,
2018
2017
2019
$ 1,391,042 $ 1,324,487 $ 1,133,804
4,890
4,890
—
—
—
—
Comprehensive income
$ 1,395,932 $ 1,324,487 $ 1,133,804
See accompanying Notes to consolidated financial statements.
47
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Balance at December 31, 2016
Cumulative effective adjustment from
adoption of ASU 2016-09
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
Share based compensation
Share repurchases, including fees
Balance at December 31, 2017
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
Share based compensation
Share repurchases, including fees
Balance at December 31, 2018
Cumulative effective adjustment from
adoption of ASU 2016-02
Net income
Other comprehensive 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
Share based compensation
Share repurchases, including fees
Balance at December 31, 2019
Additional
Common Stock
Paid-In
Shares Par Value Capital
Retained
Earnings
(Deficit)
92,852 $
929 $ 1,336,707 $
289,500 $
Accumulated
Other
Comprehensive
Income
Total
— $ 1,627,136
—
—
—
—
434
—
(266)
1,133,804
—
—
168
1,133,804
66
—
13,466
—
—
13,466
685
—
(9,301)
84,302 $
—
33,222
17,773
(136,559)
—
7
—
—
(93)
(2,035,878)
843 $ 1,265,043 $ (612,840) $
1,324,487
—
—
—
—
—
— $
—
33,229
17,773
(2,172,530)
653,046
1,324,487
58
—
14,173
—
—
14,173
745
—
(6,061)
79,044 $
—
8
—
—
(61)
(1,620,833)
790 $ 1,262,063 $ (909,186) $
57,160
18,806
(93,119)
—
—
—
— $
57,168
18,806
(1,714,013)
353,667
—
—
—
—
—
—
—
—
—
(1,410)
1,391,042
—
—
4,890
(1,410)
1,391,042
4,890
46
—
15,302
—
—
15,302
406
—
(3,877)
75,619 $
—
5
—
—
(39)
(1,369,512)
756 $ 1,280,760 $ (889,066) $
46,101
20,534
(63,240)
—
—
—
4,890 $
46,106
20,534
(1,432,791)
397,340
See accompanying Notes to consolidated financial statements.
48
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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 discount and issuance costs
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
Investment in tax credit equity investments
Other, including acquisitions, net of cash acquired
Net cash used in investing activities
Financing activities:
Proceeds from borrowings on revolving credit facility
Payments on revolving credit facility
Proceeds from the issuance of long-term debt
Payment of debt issuance costs
Repurchases of common stock
Net proceeds from issuance of common stock
Other
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental disclosures of cash flow information:
Income taxes paid
Interest paid, net of capitalized interest
For the Year Ended
December 31,
2018
2017
2019
$ 1,391,042 $ 1,324,487 $ 1,133,804
270,875
3,916
21,158
21,921
7,529
(15,577)
(239,912)
213,423
(20,139)
14,296
16,868
23,079
1,708,479
(628,057)
7,118
(33,781)
(142,026)
(796,746)
258,937
3,470
20,160
20,176
9,895
18,138
(163,367)
177,676
22,903
9,373
28,022
(2,315)
1,727,555
233,845
2,871
(4,593)
19,401
11,790
(27,742)
(231,802)
253,265
14,220
5,430
3,042
(9,844)
1,403,687
(504,268)
4,784
—
(34,818)
(534,302)
(465,940)
4,464
—
(2,747)
(464,223)
2,708,000
(2,734,000)
499,955
(3,990)
(1,432,791)
60,206
(191)
(902,811)
2,414,000
(2,473,000)
498,660
(3,923)
(1,714,013)
72,146
(2,156)
(1,208,286)
3,101,000
(2,755,000)
748,800
(7,590)
(2,172,530)
45,762
(156)
(1,039,714)
169
9,091
31,315
40,406 $
—
(15,033)
46,348
31,315 $
—
(100,250)
146,598
46,348
$
$
394,931 $
134,634
311,376 $
117,938
496,728
77,766
See accompanying Notes to consolidated financial statements.
49
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
O’Reilly Automotive, Inc. and its Subsidiaries, collectively, “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, 2019, the Company owned and operated 5,439
stores in 47 U.S. states and 21 stores in Mexico, servicing both do-it-yourself (“DIY”) and the professional service provider customers.
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, types of customers 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 inter-company
balances and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of the consolidated financial statements, in conformity with United States (“U.S.”) generally accepted accounting
principles (“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.
Foreign Currency:
The Company accounts for its Mexican operations using the local market currency, the Mexican peso, and converts its financial
statements compiled for these operations from the Mexican peso to U.S. dollars. The cumulative gain on currency translation is included
as a component of “Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets. See Note 12 for
further information concerning the Company’s accumulated other comprehensive income.
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. Allowances for doubtful accounts are determined based on historical experience and an evaluation of the current
composition of accounts receivable. Amounts due to the Company from its Team Members are included in “Accounts receivable” on
the accompanying Consolidated Balance Sheets. These amounts consist primarily of purchases of merchandise on Team Member
accounts. Accounts receivable due from Team Members was approximately $0.9 million and $1.1 million as of December 31, 2019
and 2018, 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.
50
FORM 10-K
Amounts receivable from suppliers:
The Company receives concessions from its suppliers 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 supplier concessions are recognized as a reduction to
the cost of sales. Amounts receivable from suppliers also include amounts due to the Company for changeover merchandise and product
returns. The Company regularly reviews supplier receivables for collectability and assesses the need for a reserve for uncollectable
amounts based on an evaluation of the Company’s suppliers’ 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
suppliers and the Company did not record a reserve for uncollectable amounts from suppliers in the consolidated financial statements
as of December 31, 2019 or 2018.
Inventory:
Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market.
Inventory also includes capitalized costs related to procurement, warehousing and distribution centers (“DC”s). 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 merchandise inventory purchases have increased, the Company negotiated improved acquisition costs from its suppliers and
the corresponding price deflation exhausted the Company’s LIFO reserve balance. The Company’s policy is to not write up the value
of its inventory in excess of its replacement cost, and accordingly, the Company’s merchandise inventory has been effectively recorded
at replacement cost since December 31, 2013. The replacement cost of inventory was $3.47 billion and $3.20 billion as of
December 31, 2019 and 2018, respectively. LIFO costs exceeded replacement costs by $31.0 million and $107.3 million at
December 31, 2019 and 2018, respectively.
Fair value of financial instruments:
The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial
instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and
market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth below:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at
the measurement date.
• Level 2 – Inputs other than quoted prices in active markets included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
• Level 3 – Unobservable inputs for the asset or liability.
See Note 3 for further information concerning the Company’s financial and non-financial assets and liabilities measured at fair value on
a recurring and non-recurring basis.
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 recognized 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. See Note 4 for further information concerning
the Company’s property and equipment.
Goodwill and other intangibles:
The accompanying Consolidated Balance Sheets at December 31, 2019 and 2018, include goodwill and other intangible assets recorded
as the result of acquisitions. The Company operates a single reporting unit and 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. During 2019, the goodwill impairment test included a qualitative assessment. During 2018, 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’s qualitative assessment found no evidence to suggest it is more likely than not that its fair value is less than its carrying
amount, including goodwill, as of December 31, 2019. The Company’s quantitative assessment determined that its fair value exceeded
51
FORM 10-K
its carrying value, including goodwill, as of December 31, 2018. As such, no goodwill impairment adjustment was required as of
December 31, 2019 and 2018. Finite-lived intangibles are carried at amortized cost and amortization is calculated using the straight-
line method, generally over the estimated useful lives of the intangibles. See Note 6 for further information concerning the Company’s
goodwill and other 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 charges to its long-
lived assets; however, during the years ended December 31, 2019 and 2018, the Company recorded a charge of $1.9 million and $11.4
million, respectively, related to its long-lived assets, primarily due to the disposal of certain software projects that were no longer
expected to provide a long-term benefit.
Valuation of investments:
The Company has an unsecured obligation to pay, in the future, the value of deferred compensation and a Company match relating to
employee participation in the Company’s nonqualified deferred compensation plan (the “Deferred Compensation Plan”). The future
obligation is adjusted to reflect the performance, whether positive or negative, of selected investment measurement options, chosen by
each participant. The Company invests in various marketable securities with the intention of selling these securities to fulfill its future
obligations under the Deferred Compensation Plan. The investments in this plan were stated at fair value based on quoted market prices,
were accounted for as trading securities and were included in “Other assets, net” on the accompanying Consolidated Balance Sheets as
of December 31, 2019 and 2018. See Note 3 for further information concerning the fair value measurements of the Company’s
marketable securities. See Note 11 for further information concerning the Company’s benefit plans.
Leases:
The Company leases certain office space, retail stores, distribution centers and equipment under long-term, non-cancelable operating
leases. Lease components are not accounted for separately from nonlease components. Leases generally include renewal options and
some include options to purchase, provisions for percentage rent based on sales and/or incremental step increase provisions. The exercise
of renewal options is typically at the Company’s sole discretion and all operating lease expense is recognized on a straight-line basis
over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive
covenants. The Company rents or subleases certain surplus real estate to third parties. Right-of-use assets and corresponding operating
lease liabilities are recognized for all leases with an initial term greater than 12 months. See Note 5 for further information concerning
the Company’s operating leases.
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, 2019 and 2018 (in
thousands):
Self-insurance reserves (undiscounted)
Self-insurance reserves (discounted)
December 31,
$
2019
168,397
156,585
$
2018
157,538
146,718
The current portion of the Company’s discounted self-insurance reserves totaled $79.1 million and $77.0 million as of
December 31, 2019 and 2018, respectively, which was included in “Self-insurance reserves” on the accompanying Consolidate Balance
Sheets as of December 31, 2019 and 2018. The remainder was included in “Other liabilities” on the accompanying Consolidated
Balance Sheets as of December 31, 2019 and 2018.
52
FORM 10-K
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 suppliers. Certain suppliers 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 supplier allowances received by the Company,
in lieu of warranty obligations and estimated warranty expense, are recorded as an adjustment to cost of sales. Estimated warranty costs,
which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product line. The
Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty
claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of
individual claims. See Note 8 for further information concerning the Company’s aggregate product warranty liabilities.
Litigation accruals:
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company accrues 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 accrues 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 accruals, will have a material adverse effect on its consolidated financial
position, results of operations or cash flows in a particular quarter or annual period.
Share repurchases:
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may,
from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at
prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market conditions.
All shares repurchased under the share repurchase program are retired and recorded under the par value method on the accompanying
Consolidated Balance Sheets. See Note 9 for further information concerning the Company’s share repurchase program.
Revenue recognition:
The Company’s primary source of revenue is derived from the sale of automotive aftermarket parts and merchandise to its customers.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, in an amount
representing the consideration the Company expects to receive in exchange for transferring goods to the customer. Generally, the
Company’s performance obligations are satisfied when the customer takes possession of the merchandise, which normally occurs
immediately at the point of sale or through same day delivery of the merchandise. All sales are recorded net of estimated returns
allowances, discounts and taxes. The company does not recognize revenue related to product warranties, as these are considered
assurance warranty obligations.
Over-the-counter retail sales to DIY customers are recorded when the customer takes possession of the merchandise. Internet retail
sales, included in sales to DIY customers, are recorded when the merchandise is shipped or when the customer picks up the merchandise
at a store. 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. Other sales and sales adjustments primarily includes
sales to Team Members, wholesale sales to other retailers (“jobber sales”), equipment sales, discounts, rebates, deferred revenue
adjustments relating to the Company’s retail loyalty program and adjustments to estimated sales returns allowances. Sales to Team
Members are recorded when the Team Member takes possession of the merchandise. Jobber sales are recorded upon shipment of the
merchandise from a regional distribution center with same-day delivery to the jobber customer’s location.
The Company maintains a retail loyalty program named O’Reilly O’Rewards, which represents a performance obligation. The Company
records a deferred revenue liability, based on a breakage adjusted, estimated redemption rate, and a corresponding reduction in revenue
in periods when loyalty points are earned by members. The Company recognizes revenue and a corresponding reduction to the deferred
revenue liability in periods when loyalty program issued coupons are redeemed by members, generally within a period of three months
from issuance, or when unredeemed points expire, generally within 12 months after the date they were earned, which satisfies the
Company’s performance obligation. See Note 10 for further information concerning the Company’s revenue.
53
FORM 10-K
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:
Selling, general and administrative expenses
Payroll and benefit costs for store and corporate Team
Members
Occupancy costs of store and corporate facilities
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
Supplier allowances and incentives, including:
Allowances that are not reimbursements for specific, incremental and
identifiable costs
Cash discounts on payments to suppliers
Costs associated with the Company’s supply chain, including:
Payroll and benefit costs
Warehouse occupancy costs
Transportation costs
Depreciation
Inventory shrinkage
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
Advertising expenses:
Advertising expense consists primarily of expenses related to the Company’s integrated marketing program, which includes radio, in-
store, digital and social media promotions, as well as sports and event sponsorships and direct mail and newspaper promotional
distribution. The Company expenses advertising costs as incurred. The Company also participates in cooperative advertising
arrangements with certain of its suppliers. Advertising expense, net of cooperative advertising allowances from suppliers that were
incremental to the advertising program, specific to the product or event and identifiable for accounting purposes, total $79.3 million,
$81.4 million and $83.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, which were included in “Selling,
general and administrative expenses” on the accompanying Consolidated Statements of Income.
Share-based compensation and benefit plans:
The Company sponsors share-based compensation plans and benefit plans. The Company recognizes compensation expense over the
requisite service period 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, restricted stock awards and stock appreciation rights issued under the Company’s incentive
plans and stock issued through the Company’s employee stock purchase plan. See Note 11 for further information concerning the
Company’s share-based compensation and benefit plans.
Pre-opening expenses:
Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to “Selling, general
and administrative expenses” on the accompanying Consolidated Statements of Income as incurred. Costs associated with the opening
of new distribution centers, which consist primarily of payroll and occupancy costs, are included in “Cost of goods sold, including
warehouse and distribution expenses” on the accompanying Consolidated Statements of Income as incurred.
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, 2019, 2018 and 2017, were $13.0 million,
$9.1 million and $8.5 million, respectively, which were included in “Interest expense” on the accompanying Consolidated Statements
of Income.
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. Debt issuance costs related to the Company’s long-
term unsecured senior notes are recorded as a reduction of the principal amount of the corresponding unsecured senior notes. Debt
issuance costs related to the Company’s unsecured revolving credit facility are recorded as an asset. These debt issuance costs have
been deferred and are being amortized over the term of the corresponding debt instrument and the amortization expense is included in
“Interest expense” on the accompanying Consolidated Statements of Income. Deferred debt issuance costs totaled $18.0 million and
$17.1 million, net of accumulated amortization, as of December 31, 2019 and 2018, respectively, of which $1.1 million and $1.5 million
54
FORM 10-K
were included in “Other assets, net” as of December 31, 2019 and 2018, respectively, with the remainder included in “Long-term debt”
on the accompanying Consolidated Balance Sheets.
The Company issued its long-term unsecured senior notes at a discount. The original issuance discounts on the senior notes are recorded
as a reduction of the principal amount of the corresponding senior notes and are accreted over the term of the applicable senior note,
with the accretion expense included in “Interest expense” on the accompanying Consolidated Statements of Income. Original issuance
discounts, net of accretion, totaled $3.5 million and $4.3 million as of December 31, 2019 and 2018, respectively.
See Note 7 for further information concerning debt issuance costs and original issuance discounts associated with the Company’s
issuances of 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 U.S. 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, 2019 and 2018, 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 invests in certain tax credit funds that promote renewable energy. These investments generate a return primarily through
the realization of federal tax credits and other tax benefits. The Company accounts for its renewable energy investments using the
deferral method. Under this method, realized investment tax credits are recognized as a reduction of the renewable energy investments.
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. 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. See Note 15 for further
information concerning the Company’s income taxes.
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 16 for further information concerning the Company’s common stock
equivalents.
New accounting pronouncements:
In February of 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity is
required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing
arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and
lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. In July of 2018, the FASB issued ASU No.
2018-11, “Leases (Topic 842): Targeted Improvement” (“ASU 2018-11”), to provide an additional, optional transition method for
adopting ASU 2016-02, which allows for an entity to choose to apply the new lease standard at adoption date and recognize a cumulative-
effective adjustment to the opening balance of retained earnings in the period of adoption, while comparative periods presented will
continue to be in accordance with current U.S. GAAP Topic 840. For public companies, Topic 842 is effective for annual reporting
periods beginning after December 15, 2018, including interim periods within that reporting period. The Company adopted this new
guidance with its first quarter ending March 31, 2019, using the additional, optional transition method, the package of transitional
practical expedients relating to the identification, classification and initial direct costs of leases commencing before the effective date of
55
FORM 10-K
Topic 842, the transitional practical expedient for the treatment of existing land easements and the practical expedient to make an
accounting policy election, by class of underlying asset, to not separate nonlease components from lease components; however, the
Company did not elect the hindsight transitional practical expedient. The Company made an accounting policy election to not apply
recognition requirements of the guidance to short-term leases. Due to the adoption of this new guidance, the Company recognized right-
of-use assets and lease liabilities of $1.9 billion and $2.0 billion, respectively, on the accompanying Condensed Consolidated Balance
Sheets as of December 31, 2019. The difference between the right-of-use assets and lease liabilities on the accompanying Condensed
Consolidated Balance Sheet was primarily due to the accrual for straight-line rent expense. The Company made an adjustment to
opening “Retained Deficit” on the accompanying Condensed Consolidated Balance Sheet in the amount of $1.4 million, net of the
deferred tax impact, related to the adoption of this new guidance. With the adoption of this new guidance, the Company’s favorable
lease assets and unfavorable lease liabilities, from a previous acquisition, were eliminated through an adjustment to opening “Operating
lease, right-of-use assets” on the accompanying Condensed Consolidated Balance Sheet. The adoption of this new guidance did not
have a material impact on the Company’s results of operations, cash flows, liquidity or the Company’s covenant compliance under its
existing credit agreement.
In June of 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments” (“ASU 2016-13”). Under ASU 2016-13, businesses and other organizations are required to present financial
assets, measured at amortized costs basis, at the net amount expected to be collected. The allowance for credit losses is a valuation
account that is deducted from the amortized cost basis, such as trade receivables. The measurement of expected credit loss will be based
on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.
For public companies, ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim
periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company will
adopt this guidance beginning with its first quarter ending March 31, 2020. The application of this new guidance is not expected to
have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
In January of 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates the second step in the previous process for goodwill impairment
testing; instead, the test is now a one-step process that calls for goodwill impairment loss to be measured as the excess of the reporting
unit’s carrying amount over its fair value. For public companies, ASU 2017-04 is effective for annual reporting periods beginning after
December 15, 2019, including interim periods within that reporting period, and requires prospective adoption, with early adoption after
January 1, 2017. The Company early adopted this guidance beginning with its first quarter ending March 31, 2019. The application of
this new guidance did not have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.
NOTE 2 – BUSINESS COMBINATION
After the close of business on November 29, 2019, the Company completed the acquisition of Mayoreo de Autopartes y Aceites, S.A.
de C.V. (“Mayasa”), a specialty retailer of automotive aftermarket parts headquartered in Guadalajara, Jalisco, Mexico pursuant to a
stock purchase agreement. At the time of the acquisition, Mayasa operated six distribution centers, 21 Orma Autopartes stores and
served over 2,000 independent jobber locations in 28 Mexican states. The results of Mayasa’s operations have been included in the
Company’s consolidated financial statements beginning from the date of acquisition. Pro forma results of operations related to the
acquisition of Mayasa are not presented as Mayasa’s results are not material to the Company’s results of operations.
The purchase price allocation process consists of collecting data and information to enable the Company to value the assets acquired
and liabilities assumed as a result of the business combination. Potential identifiable intangible assets under evaluation include, but are
not limited to, trade names and trademarks, non-compete agreements and customer relationships. In addition, other assets, including
internal use software, and other liabilities may be identified, valued and recorded. Due to the close proximity of the Mayasa acquisition
closing date and the Company’s fiscal year end, the Company remains in the initial measurement period.
The preliminary purchase price allocation, which is provisional and will change as additional information is obtained and valuation work
is completed during the initial measurement period, resulted in the initial recognition of $128.1 million of goodwill and intangible assets
included in “Goodwill” on the accompanying Consolidated Balance Sheets as of December 31, 2019. Goodwill generated from this
acquisition is not amortizable for tax purposes.
See Note 6 for further information concerning the Company’s goodwill and other intangible assets.
56
FORM 10-K
NOTE 3 – FAIR VALUE MEASUREMENTS
Financial assets and liabilities measured at fair value on a recurring basis:
The Company’s marketable securities were accounted for as trading securities and the carrying amount of its marketable securities were
included in “Other assets, net” on the accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018. The Company
recorded an increase in fair value related to its marketable securities in the amount of $5.8 million for the year ended December 31, 2019,
and a decrease in the amount of $1.7 million for the year ended December 31, 2018, which were included in “Other income (expense)”
on the accompanying Consolidated Statements of Income.
The tables below identify the estimated fair value of the Company’s marketable securities, determined by reference to quoted market
prices (Level 1), as of December 31, 2019 and 2018 (in thousands):
Quoted Priced in Active Markets Significant Other
Significant
for Identical Instruments
(Level 1)
Observable Inputs Unobservable Inputs
(Level 2)
(Level 3)
Total
December 31, 2019
Marketable securities
$
32,201 $
— $
— $
32,201
Quoted Prices in Active Markets
Significant Other
Significant
for Identical Instruments
(Level 1)
Observable Inputs Unobservable Inputs
(Level 2)
(Level 3)
Total
December 31, 2018
Marketable securities
$
25,493 $
— $
— $
25,493
Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain
circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired
in a business combination or property and equipment that are determined to be impaired. As of December 31, 2019 and 2018, the
Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.
Fair value of financial instruments:
The carrying amounts of the Company’s senior notes and unsecured revolving credit facility borrowings are included in “Long-term
debt” on the accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018.
The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair values as of
December 31, 2019 and 2018, were determined by reference to quoted market prices of the same or similar instruments (Level 2) (in
thousands):
December 31, 2019
December 31, 2018
Senior Notes
$
3,629,527
Carrying Amount
Estimated Fair Value
3,881,925
$
Carrying Amount
$
3,130,122
Estimated Fair Value
3,116,046
$
The carrying amount of the Company’s unsecured revolving credit facility approximates fair value, as borrowings under the facility bear
variable interest at current market rates. See Note 7 for further information concerning the Company’s senior notes and unsecured
revolving credit facility.
The accompanying Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts
receivable, amounts receivable from suppliers and accounts payable. Due to the short-term nature of these financial instruments, the
Company believes that the carrying values of these instruments approximate their fair values.
57
FORM 10-K
NOTE 4 – PROPERTY AND EQUIPMENT
The following table identifies the types and balances of property and equipment included in “Property and equipment, at cost” on the
accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018, and includes the estimated useful lives for its types of
property and equipment (in thousands, except original useful lives):
Original Useful
Lives
Land
Buildings and building improvements
Leasehold improvements
Furniture, fixtures and equipment
Vehicles
Construction in progress
Total property and equipment
Less: accumulated depreciation and amortization
Net property and equipment
15 – 39 years
3 – 25 years
3 – 20 years
5 – 10 years
$
805,556 $
December 31, 2019 December 31, 2018
745,050
2,147,969
686,058
1,350,808
424,421
291,246
5,645,552
2,058,550
3,587,002
2,378,074
751,155
1,450,444
447,939
358,259
6,191,427
2,243,224
3,948,203
$
$
The Company recorded depreciation and amortization expense related to property and equipment in the amounts of $267.3 million,
$246.0 million and $232.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, which were primarily included
in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.
The Company recorded a charge of $1.9 million and $11.4 million related to property and equipment for the year ended
December 31, 2019 and 2018, respectively, primarily due to the disposal of certain software projects that were no longer expected to
provide a long-term benefit, which was included in “Selling, general and administrative expenses” on the accompanying Consolidated
Statements of Income.
NOTE 5 – LEASES
Operating lease commitments:
See Note 1 for further information concerning the Company’s adoption of Accounting Standard Codification 842 - Leases.
The following table summarizes Total lease cost for the year ended December 31, 2019, which was primarily included in “Selling,
general and administrative expenses” on the accompanying Consolidated Statements of Income (in thousands):
Operating lease cost
Short-term operating lease cost
Variable operating lease cost
Sublease income
Total lease cost
For the Year Ended
December 31, 2019
320,480
5,899
76,027
(4,112)
398,294
$
$
The following table summarizes the Net rent expense amounts, prior to the adoption of Accounting Standard Codification 842 – Leases,
for the years ended December 31, 2018 and 2017, which were included in “Selling, general and administrative expenses” on the
accompanying Consolidated Statements of Income (in thousands):
Minimum operating lease expense
Contingent rents
Other lease related occupancy costs
Total rent expense
Less: sublease income
Net rent expense
58
For the Year Ended
December 31,
2018
2017
305,613 $
806
14,449
320,868
3,585
317,283 $
289,245
1,049
12,478
302,772
4,158
298,614
$
$
FORM 10-K
The following table summarizes other lease related information for the year ended December 31, 2019:
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases (in thousands)
Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - operating leases
$
$
For the Year Ended
December 31, 2019
318,048
233,584
10.4 Years
4.1 %
The following table identifies the future minimum lease payments under all of the Company’s operating leases for each of the next five
years, and in the aggregate thereafter, and reconciles to the present value of the “Operating lease liabilities, less current portion” included
in the accompanying Consolidated Balance Sheet as of December 31, 2019 (in thousands):
December 31, 2019
2020
2021
2022
2023
2024
Thereafter
Total operating lease payments
Less: present value discount
Total operating lease liabilities
Less: current portion of operating lease liabilities
Operating lease liabilities, less current portion
Related Parties Non-Related Parties
311,285 $
$
294,909
271,256
240,815
211,352
1,087,409
2,417,026
463,812
1,953,214
311,296
1,641,918 $
4,765 $
4,347
3,590
3,218
1,472
2,801
20,193
2,049
18,144
4,765
13,379 $
$
Total
316,050
299,256
274,846
244,033
212,824
1,090,210
2,437,219
465,861
1,971,358
316,061
1,655,297
See Note 14 for further information concerning the Company’s related party operating leases.
The future minimum lease payments under the Company’s operating leases, in the table above, do not include potential amounts for
percentage rent and other variable operating lease related costs and have not been reduced by expected future minimum sublease income
under non-cancelable subleases, which was approximately $18.6 million as of December 31, 2019.
The present value discount component of the future minimum lease payments under the Company’s operating leases, in the table above,
was primarily calculated using the Company’s incremental borrowing rate based on information available at the lease commencement
or modification date. Inputs for the calculation of the Company’s incremental borrowing rate include valuations and yields of U.S.
domestic investment grade corporate bonds and the applicable credit spread over comparable U.S. Treasury rates, adjusted to a
collateralized basis by estimating the credit spread improvement that would result from an upgrade of one ratings classification. For
leases that commenced prior to January 1, 2019, the incremental borrowing rate used was as of January 1, 2019. When the implicit rate
of a lease is available, the implicit rate is used in the calculation and not the Company’s incremental borrowing rate.
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
Goodwill:
Goodwill is reviewed for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances
indicate that impairment may exist. Goodwill is not amortizable for financial statement purposes. The Company did not record any
goodwill impairment during the years ended December 31, 2019 or 2018.
The carrying amount of the Company’s goodwill was included in “Goodwill” on the accompanying Consolidated Balance Sheets as of
December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, the Company recorded an increase
in goodwill of $1.5 million and $18.2 million, respectively, resulting from small acquisitions.
The preliminary purchase price allocation related to the acquisition of Mayasa resulted in the initial recognition of goodwill and
intangible assets in the amount of $128.1 million as of December 31, 2019, including changes resulting from foreign currency
translations. This provisional amount will change as additional information is obtained and valuation work is completed during the
initial measurement period.
59
FORM 10-K
The following table identifies the changes in goodwill and acquisition intangibles, which were included in “Goodwill” on the
accompanying Consolidated Balance Sheets for the years ended December 31, 2019 and 2018 (in thousands):
Goodwill, balance at January 1,
Change in goodwill related to small acquisitions
Provisional goodwill and intangibles related to Mayasa acquisition
Goodwill, balance at December 31,
2019
2018
$
$
807,260
1,464
128,090
936,814
$
$
789,058
18,202
—
807,260
As of December 31, 2019 and 2018, other than goodwill, the Company did not have any indefinite-lived intangible assets. Indefinite
lived intangible assets related to the acquisition of Mayasa may be identified, valued and recorded during the measurement period.
Intangibles other than goodwill:
The following table identifies the components of the Company’s amortizable intangibles as of December 31, 2019 and 2018 (in
thousands):
Cost of Amortizable
Intangibles
Accumulated Amortization
(Expense) Benefit
Net Amortizable Intangibles
December 31, December 31, December 31, December 31, December 31, December 31,
2019
2018
2019
2018
2019
2018
Amortizable
intangible assets:
Favorable leases
Non-compete
agreements
$
— $
18,930 $
— $
(12,564) $
— $
6,366
Total amortizable
intangible assets
$
2,717
2,757
(928)
(679)
1,789
2,078
2,717 $
21,687 $
(928) $
(13,243) $
1,789 $
8,444
Unfavorable leases
$
— $
10,180 $
— $
8,486 $
— $
1,694
During the years ended December 31, 2019 and 2018, the Company recorded non-compete agreement assets in conjunction with small
acquisitions in the amounts of less than $0.1 million and $0.9 million, respectively.
With the adoption of Accounting Standard Codification 842 – Leases, the Company’s favorable lease assets and unfavorable lease
liabilities, from a previous acquisition, were eliminated. See Note 1 for further information concerning the Company’s adoption of
Accounting Standard Codification 842 – Leases.
In prior years, the Company recorded favorable lease assets in conjunction with a previous acquisition; these favorable lease assets
represent the values of operating leases acquired with favorable terms. For the years ended December 31, 2018 and 2017, the Company
recorded amortization expense of $1.4 million and $1.6 million, respectively, related to its amortizable intangible assets, which were
included in “Other assets, net” on the accompanying Consolidated Balance Sheets as of December 31, 2018.
In prior years, the Company recorded unfavorable lease liabilities in conjunction with a previous acquisition; these unfavorable lease
liabilities represent the values of operating leases acquired with unfavorable terms. For the years ended December 31, 2018 and 2017,
the Company recognized an amortized benefit of $0.9 million and $1.5 million, respectively, related to these unfavorable operating
leases, which were included in “Other liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2018.
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, 2019 (in thousands):
2020
2021
2022
2023
2024
Total
December 31, 2019
Amortization Expense
$
$
296
275
247
218
201
1,237
60
FORM 10-K
NOTE 7 – FINANCING
The following table identifies the amounts of the Company’s financing facilities, which were included in “Long-term debt” on the
accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018 (in thousands):
Revolving Credit Facility, weighted-average variable interest rate of 3.318%
4.875% Senior Notes due 2021, effective interest rate of 4.949%
4.625% Senior Notes due 2021, effective interest rate of 4.644%
3.800% Senior Notes due 2022, effective interest rate of 3.845%
3.850% Senior Notes due 2023, effective interest rate of 3.851%
3.550% Senior Notes due 2026, effective interest rate of 3.570%
3.600% Senior Notes due 2027, effective interest rate of 3.619%
4.350% Senior Notes due 2028, effective interest rate of 4.383%
3.900% Senior Notes due 2029, effective interest rate of 3.901%
Principal amount of long-term debt
Less: Unamortized discount and debt issuance costs
Long-term debt
December 31,
2019
261,000 $
500,000
300,000
300,000
300,000
500,000
750,000
500,000
500,000
3,911,000
20,473
3,890,527 $
2018
287,000
500,000
300,000
300,000
300,000
500,000
750,000
500,000
—
3,437,000
19,878
3,417,122
$
$
The following table identifies the principal maturities of the Company’s financing facilities as of December 31, 2019 (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Scheduled Maturities
$
$
—
800,000
561,000
300,000
—
2,250,000
3,911,000
Unsecured revolving credit facility:
On April 5, 2017, the Company entered into a credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $1.2
billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by JPMorgan Chase Bank, N.A., which is
scheduled to mature in April 2022. 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 $600 million, provided that the aggregate amount of the commitments does not exceed $1.8
billion at any time.
As of December 31, 2019 and 2018, the Company had outstanding letters of credit, primarily to support obligations related to workers’
compensation, general liability and other insurance policies, in the amounts of $38.9 million and $35.1 million, respectively, reducing
the aggregate availability under the Revolving Credit Facility by those amounts.
Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at either an
Alternate Base Rate or an Adjusted LIBO Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans
made under the Revolving Credit Facility bear interest at an Alternate Base Rate plus the applicable margin for Alternate Base Rate
loans. In addition, the Company pays a facility fee on the aggregate amount of the commitments under the Credit Agreement 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 Ratings Services, subject to limited
exceptions. As of December 31, 2019, based upon the Company’s current credit ratings, its margin for Alternate Base Rate loans was
0.000%, its margin for Eurodollar Revolving Loans was 0.900% and its facility fee was 0.100%.
The Credit Agreement contains certain covenants, including limitations on subsidiary indebtedness, a minimum consolidated fixed
charge coverage ratio of 2.50:1.00 and a maximum consolidated leverage ratio of 3.50:1.00. The consolidated fixed charge coverage
ratio includes a calculation of earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based compensation
expense to fixed charges. Fixed charges include interest expense, capitalized interest and rent expense. The consolidated leverage ratio
61
FORM 10-K
includes a calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based
compensation expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit and similar instruments, five-
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 (subject to customary grace periods, cure rights and materiality thresholds) contained in
the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of commitments, 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, 2019, the Company remained in compliance with all covenants under the Credit Agreement.
Senior notes:
On May 20, 2019, the Company issued $500 million aggregate principal amount of unsecured 3.900% Senior Notes due 2029 (“3.900%
Senior Notes due 2029”) at a price to the public of 99.991% of their face value with U.S. Bank National Association (“U.S. Bank”) as
trustee. Interest on the 3.900% Senior Notes due 2029 is payable on June 1 and December 1 of each year, which began on December 1,
2019, and is computed on the basis of a 360-day year.
The Company has issued a cumulative $3.7 billion aggregate principal amount of unsecured senior notes, which are due between 2021
and 2029, with UMB Bank, N.A. and U.S. Bank as trustees. Interest on the senior notes, ranging from 3.550% to 4.875%, is payable
semi-annually and is computed on the basis of a 360-day year. None of the Company’s subsidiaries is a guarantor under the senior
notes. Each of the senior notes is subject to certain customary covenants, with which the Company complied as of December 31, 2019.
NOTE 8 – WARRANTIES
The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Consolidated Balance Sheets
as of December 31, 2019 and 2018. The following table identifies the changes in the Company’s aggregate product warranty liabilities
for the years ended December 31, 2019 and 2018 (in thousands):
Warranty liabilities, balance at January 1,
Warranty claims
Warranty accruals
Warranty liabilities, balance at December 31,
NOTE 9 – SHARE REPURCHASE PROGRAM
2019
2018
$
$
52,220
(99,267)
108,116
61,069
$
$
44,398
(89,557)
97,379
52,220
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.
The Company’s Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any
time, without prior notice. As announced on May 31, 2019, and February 5, 2020, the Company’s Board of Directors each time approved
a resolution to increase the authorization amount under the share repurchase program by an additional $1.0 billion, resulting in a
cumulative authorization amount of $13.8 billion. Each additional authorization is effective for a three-year period, beginning on its
respective announcement date.
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 for the year ended December 31, 2019 and 2018 (in thousands, except per share data):
Shares repurchased
Average price per share
Total investment
For the Year Ended
December 31,
2019
3,877
369.55
1,432,752
$
$
2018
6,061
282.80
1,713,953
$
$
As of December 31, 2019, the Company had $568.7 million remaining under its share repurchase program. Subsequent to the end of
the year and through February 28, 2020, the Company repurchased an additional 0.9 million shares of its common stock under its share
repurchase program, at an average price of $400.78, for a total investment of $363.4 million. The Company has repurchased a total of
77.1 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, 2020, at an average price of $162.72, for a total aggregate investment of $12.5 billion.
62
FORM 10-K
NOTE 10 – REVENUE
The table below identifies the Company’s revenues disaggregated by major customer type for the years ended December 31, 2019, 2018
and 2017 (in thousands):
Sales to do-it-yourself customers
Sales to professional service provider customers
Other sales and sales adjustments
Total sales
For the Year Ended
December 31,
2018
5,351,035 $
4,035,898
149,495
9,536,428 $
2019
5,612,390 $
4,369,541
168,054
10,149,985 $
$
$
2017
5,113,288
3,724,220
140,218
8,977,726
As of December 31, 2019 and 2018, the Company had recorded a deferred revenue liability of $4.1 million and $4.3 million,
respectively, related to its loyalty program, which were included in “Other liabilities” on the accompanying Consolidated Balance
Sheets. During the years ended December 31, 2019, 2018 and 2017, the Company recognized $15.6 million, $15.9 million and $17.6
million, respectively, of revenue related to its loyalty program, which were included in “Sales” on the accompanying Consolidated
Statements of Income.
NOTE 11 – 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, restricted stock awards and stock appreciation rights
issued under the Company’s incentive plans and stock issued through the Company’s employee stock purchase plan.
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, 2019 (in thousands):
Plans
Incentive Plans
Employee Stock Purchase Plan
Profit Sharing and Savings Plan
Total Shares Authorized for Shares Available for Future
Issuance under the Plans
Issuance under the Plans
December 31, 2019
34,650
4,250
4,200
5,749
551
349
Stock options:
The Company’s 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 10 years and typically
vest 25% per year, over four years. The Company records compensation expense for the grant date fair value of the option awards
evenly over the vesting period or minimum required service period.
The table below identifies the employee stock option activity under these plans during the year ended December 31, 2019:
Shares
(in thousands)
Weighted- Average
Exercise Price
Contractual Terms
Average
Remaining
Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2018
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2019
Vested or expected to vest at December 31, 2019
Exercisable at December 31, 2019
1,860 $
214
(406)
(33)
1,635 $
1,598 $
1,033 $
178.57
370.63
113.66
263.15
218.10
215.97
170.77
5.9 Years $
5.9 Years $
4.6 Years $
360,003
355,172
276,414
63
FORM 10-K
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-
Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected dividend
yield.
• Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected
life.
• Expected life – Represents the period of time that options granted are expected to be outstanding. The Company uses historical
experience to estimate the expected life of options granted.
• Expected volatility – Measure of the amount, by which the Company’s stock price is expected to fluctuate, based on a historical
trend.
• 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 stock options awarded by the Company during the years ended
December 31, 2019, 2018 and 2017:
Risk free interest rate
Expected life
Expected volatility
Expected dividend yield
2019
2.26 %
5.7 Years
25.1 %
— %
December 31,
2018
2.63 %
5.9 Years
24.0 %
— %
2017
1.98 %
5.4 Years
22.4 %
— %
Upon adoption of ASU 2016-09, during the three months ended March 31, 2017, the Company elected to change its accounting policy
to account for forfeitures as they occur. Prior to the year ended December 31, 2017, the Company’s forfeiture rate was the
estimated percentage of options awarded that were expected to be forfeited or canceled prior to becoming fully vested, and the estimate
was evaluated periodically and was based upon historical experience at the time of evaluation and reduced expense ratably over the
vesting period or the minimum required service period.
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2019, 2018
and 2017:
Compensation expense for stock options awarded (in thousands)
Income tax benefit from compensation expense related to stock options (in
thousands)
Total intrinsic value of stock options exercised (in thousands)
Cash received from exercise of stock options (in thousands)
Weighted-average grant-date fair value of options awarded
Weighted-average remaining contractual life of exercisable options (in years)
For the Year Ended
December 31,
2018
2017
2019
$
18,044 $
16,521 $
15,561
4,436
117,489
46,106
105.37 $
4.6
4,093
156,327
61,403
76.57 $
4.4
5,934
135,533
33,229
62.79
3.8
$
At December 31, 2019, the remaining unrecognized compensation expense related to unvested stock option awards was $33.7 million,
and the weighted-average period of time, over which this cost will be recognized, is 2.6 years.
Restricted stock:
The Company’s incentive plans provide for the awarding of shares of restricted stock to certain key employees 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 these plans is based on the closing market price of the Company’s common
stock on the date of award and compensation expense is recorded over the vesting period or minimum required service period.
64
FORM 10-K
The table below identifies employee restricted stock activity under these plans during the year ended December 31, 2019 (in thousands,
except per share data):
Non-vested at December 31, 2018
Granted during the period
Vested during the period (1)
Forfeited during the period
Non-vested at December 31, 2019
Shares
Weighted-Average Grant-Date
Fair Value
4 $
2
(2)
—
4 $
260.42
344.66
259.43
—
301.40
(1)
Includes less than one thousand shares withheld to cover employees’ taxes upon vesting.
The Company’s incentive plans provide for the awarding of shares of restricted stock to the directors of the Company that vest evenly
over a three-year period and are held in escrow until such vesting has occurred. Unvested shares are forfeited when a director ceases
their service on the Company’s Board of Directors for reasons other than death or retirement. The fair value of shares awarded under
these plans 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 minimum required service period.
The table below identifies director restricted stock activity under these plans during the year ended December 31, 2019 (in thousands,
except per share data):
Non-vested at December 31, 2018
Granted during the period
Vested during the period
Forfeited during the period
Non-vested at December 31, 2019
Shares
Fair Value
Weighted-Average Grant-Date
5 $
2
(3)
—
4 $
261.07
367.77
280.41
—
312.96
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2019,
2018 and 2017 (in thousands, except per share data):
Compensation expense for restricted shares awarded
Income tax benefit from compensation expense related to restricted shares
Total fair value of restricted shares at vest date
Shares awarded under the plans
Weighted-average grant-date fair value of shares awarded under the plans
For the Year Ended
December 31,
2018
2019
$
$
$
$
1,387 $
341 $
1,633 $
4
355.91 $
1,370 $
340 $
1,230 $
5
263.89 $
2017
1,628
621
1,202
4
253.78
At December 31, 2019, the remaining unrecognized compensation expense related to unvested restricted share awards was $0.3 million,
and the weighted-average period of time, over which this cost will be recognized, is 0.5 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.
65
FORM 10-K
The table below summarizes activity related to the Company’s ESPP for the years ended December 31, 2019, 2018 and 2017 (in
thousands, except per share data):
Compensation expense for shares issued under the ESPP
$
Income tax benefit from compensation expense related to shares issued under the ESPP $
Shares issued under the ESPP
Weighted-average price of shares issued under the ESPP
$
2,490 $
612 $
43
329.69 $
2,285 $
566 $
53
245.26 $
For the Year Ended
December 31,
2018
2019
2017
2,212
844
64
196.72
Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan (the “401(k) Plan”) that covers substantially all employees who
are at least 21 years of age and have completed one year 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. An
employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching
contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned.
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 make any discretionary contributions to the 401(k) Plan during the years ended
December 31, 2019, 2018 or 2017. The Company expensed matching contributions under the 401(k) Plan in the amounts of $27.5
million, $24.8 million and $22.6 million for the years ended December 31, 2019, 2018 and 2017, respectively, which were primarily
included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.
Nonqualified deferred compensation plan:
The Company sponsors a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for highly compensated
employees whose contributions to the 401(k) Plan are limited due to the application of the annual limitations under the Internal Revenue
Code. The Deferred Compensation Plan provides these employees with the opportunity to defer the full 6% of matched compensation,
including salary and incentive based compensation, that was precluded under the Company’s 401(k) Plan, which is then matched by the
Company using the same formula as the 401(k) Plan. An employee generally must be employed on December 31 to receive that year’s
Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following
the year in which the matching contribution was earned. In the event of bankruptcy, the assets of this plan are available to satisfy the
claims of general creditors. The Company has an unsecured obligation to pay, in the future, the value of the deferred compensation and
Company match, adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen
by each participant during the deferral period. The liability for compensation deferred under the Deferred Compensation Plan was $32.2
million and $25.5 million as of December 31, 2019 and 2018, respectively, which were included in “Other liabilities” on the
Consolidated Balance Sheets. The Company expensed matching contributions under the Deferred Compensation Plan in the amounts
of $0.2 million, $0.1 million and $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively, which were primarily
included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.
Stock appreciation rights:
During the year ended December 31, 2019, the Company awarded 8,009 stock appreciation rights under the incentive plan, all of which
were outstanding at December 31, 2019. Stock appreciation rights granted under the plan expire after 10 years and vest 25% per year,
over four years, and are settled in cash. As of December 31, 2018, there were no stock appreciation rights outstanding. The liability for
compensation to be paid for redeemed stock appreciation rights was less than $0.1 million as of December 31, 2019, which was included
in “Other liabilities” on the Consolidated Balance Sheets. Compensation expense for stock appreciation rights was less than $0.1 million
for the year ended December 31, 2019, which was included in “Selling, general and administrative expenses” on the accompanying
Consolidated Statements of Income.
66
FORM 10-K
NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income includes adjustments for foreign currency translations. The table below summarizes activity
for changes in accumulated other comprehensive income included in “Accumulated other comprehensive income” on the accompanying
Consolidated Balance Sheets as of December 31, 2019 and 2018 (in thousands):
Accumulated other comprehensive income, balance at December 31, 2017 $
Change in accumulated other comprehensive income
Accumulated other comprehensive income, balance at December 31, 2018
Change in accumulated other comprehensive income
Accumulated other comprehensive income, balance at December 31, 2019 $
— $
—
—
4,890
4,890 $
—
—
—
4,890
4,890
(1) Foreign currency is not shown net of additional U.S. tax, as other basis differences of non-U.S. subsidiaries are intended to be permanently
Foreign
Currency (1)
Total Accumulated Other
Comprehensive Income
reinvested.
NOTE 13 – COMMITMENTS
Construction commitments:
As of December 31, 2019, the Company had construction commitments in the amount of $100.1 million.
Letters of credit commitments:
As of December 31, 2019, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability
and other insurance policies, in the amount of $38.9 million. See Note 7 for further information concerning the Company’s letters of
credit commitments.
Debt financing commitments:
Each series of senior notes is 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 values 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 indenture governing such series of senior notes; provided, that on or after the date that is three months prior to
the maturity date of the series of senior notes, such series of senior notes is redeemable at a redemption price equal to par plus accrued
and unpaid interest to, but not including, the redemption date. In addition, if at any time the Company undergoes a Change of Control
Triggering Event, as defined in the indenture governing such series of senior notes, the holders may require the Company to repurchase
all or a portion of their senior notes at a price equal to 101% of the principal amount of the notes being repurchased, plus accrued and
unpaid interest, if any, but not including the repurchase date. See Note 7 for further information concerning the Company’s debt
financing commitments.
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 to this obligation.
Solar investment:
The Company has entered into an agreement to make capital contributions to certain tax credit equity investments for the purpose of
receiving renewable energy tax credits. The Company is required to make capital contributions totaling $95.4 million upon achievement
of project milestones by the solar energy farms, the timing of which is variable and outside of the Company’s control.
NOTE 14 – RELATED PARTIES
The Company leases certain land and buildings related to 74 of its O’Reilly Auto Parts stores under fifteen- or twenty-year operating
lease agreements with entities that include one or more of the Company’s affiliated directors or members of an affiliated director’s
immediate family. 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 $4.7 million, $4.6 million and $4.6 million during the years ended
67
FORM 10-K
December 31, 2019, 2018 and 2017, respectively. The Company believes that the lease agreements with the affiliated entities are on
terms comparable to those obtainable from third parties. See Note 5 for further information concerning the Company’s operating leases.
NOTE 15 – INCOME TAXES
The following table identifies components of income from continuing operations before income taxes included in “Income before
income taxes” on the accompanying Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 (in
thousands):
Domestic
International
Income before income taxes
$
$
For the Year Ended
December 31,
2018
1,694,087 $
—
1,694,087 $
2019
1,790,207 $
122
1,790,329 $
2017
1,637,804
—
1,637,804
Provision for income taxes:
The following tables reconcile the amounts included in “Provision for income taxes” on the accompanying Consolidated Statements of
Income for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Current:
Federal income tax expense
State income tax expense
International income tax expense
Total current
Deferred:
Federal income tax expense (benefit)
State income tax expense
International income tax benefit
Total deferred
For the Year Ended
December 31,
2018
2017
2019
$
315,061 $
62,795
273
378,129
289,953 $
59,487
—
349,440
467,577
41,183
—
508,760
19,367
2,027
(236)
21,158
16,309
3,851
—
20,160
(13,053)
8,293
—
(4,760)
Net income tax expense
$
399,287 $
369,600 $
504,000
The following table outlines the reconciliation of the “Provision for income taxes” amounts included on the accompanying Consolidated
Statements of Income to the amounts computed at the federal statutory rate for the years ended December 31, 2019, 2018 and 2017 (in
thousands):
Federal income taxes at statutory rate
State income taxes, net of federal tax benefit
Excess tax benefit from share-based compensation
Revaluation of deferred tax liability
Other items, net
Total provision for income taxes
$
$
For the Year Ended
December 31,
2018
355,758 $
2019
375,942 $
54,739
(25,992)
—
(5,402)
399,287 $
2017
573,231
39,062
(48,688)
(53,240)
(6,365)
504,000
56,345
(34,703)
(1,262)
(6,538)
369,600 $
The U.S. Tax Cuts and Jobs Act, enacted in December 2017 (the “Tax Act”), significantly reduced the federal corporate income tax rate
for tax years beginning in 2018 and required the Company to revalue its deferred income tax liabilities. The Company recorded a one-
time tax benefit of $53.2 million in “Provision for income taxes” on the accompanying Consolidated Statements of Income for the year
ended December 31, 2017, to reflect the reduced federal corporate income tax rate in the tax years the deferred tax differences are
expected to reverse. This provisional tax benefit from the revaluation of the Company’s deferred income tax liabilities was recorded
based on the Company’s initial evaluation of the impact of the Tax Act. During the year ended December 31, 2018, the Company
completed its evaluation of the impact of the Tax Act and recorded an additional $1.3 million of tax benefit, finalizing the revaluation
68
FORM 10-K
of its deferred income tax liabilities due to the Tax Act, which was recorded in “Provision for income taxes” on the accompanying
Consolidated Statements of Income for the year ended December 31, 2018.
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.
The following table identifies significant components of the Company’s net deferred tax liabilities included in “Deferred income taxes”
on the accompanying Consolidated Balance Sheets as of December 31, 2019 and 2018 (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
Tax credits
Other accruals
Operating lease liability
Other
Total deferred tax assets
Deferred tax liabilities:
Inventories
Property and equipment
Operating lease asset
Other
Total deferred tax liabilities
Net deferred tax liabilities
$
December 31,
2019
2018
$
2,008
3,417
97,189
494,093
15,732
612,439
65,346
162,613
479,821
37,939
745,719
1,944
5,606
105,894
—
14,770
128,214
62,846
140,019
—
30,915
233,780
$
(133,280)
$
(105,566)
As of December 31, 2019, the Company had tax credit carryforwards available for state tax purposes, net of federal impact, in the
amount of $3.4 million, which generally expire in 2024.
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, 2019, 2018 and 2017 (in thousands):
Unrealized tax benefit, balance at 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
Unrealized tax benefit, balance at December 31,
2019
33,766 $
4,627
—
(443)
(6,475)
31,475 $
2018
35,388 $
3,550
4,255
(2,792)
(6,635)
33,766 $
2017
34,798
6,299
—
—
(5,709)
35,388
$
$
For the years ended December 31, 2019, 2018 and 2017, the Company recorded a reserve for unrecognized tax benefits, including
interest and penalties, in the amounts of $36.6 million, $38.9 million and $40.9 million, respectively. All of the unrecognized tax
benefits recorded as of December 31, 2019, 2018 and 2017, respectively, would affect the Company’s effective tax rate if recognized,
generally net of the federal tax effect of approximately $7.7 million. The Company recognizes interest and penalties related to uncertain
tax positions in income tax expense. As of December 31, 2019, 2018 and 2017, the Company had accrued approximately $5.1 million,
$5.1 million and $5.5 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, 2019, 2018 and 2017, the Company recorded tax expense
related to an increase in its liability for interest and penalties in the amounts of $2.7 million, $2.3 million and $2.0 million, respectively.
Although unrecognized tax benefits for individual tax positions may increase or decrease during 2020, the Company expects a reduction
of $7.8 million of unrecognized tax benefits during the one-year period subsequent to December 31, 2019, resulting from settlement or
expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2016 and beyond remain subject to examination by the Internal
Revenue Service (“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2014, 2015 and 2016 federal income tax
69
FORM 10-K
returns in the third quarter of 2018. The Company’s state income tax returns remain subject to examination by various state authorities
for tax years ranging from 2008 through 2018.
NOTE 16 – EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted earnings per share for the years ended December 31, 2019, 2018 and
2017 (in thousands, except per share data):
Numerator (basic and diluted):
Net income
Denominator:
For the Year Ended
December 31,
2018
2017
2019
$ 1,391,042 $ 1,324,487 $ 1,133,804
Weighted-average common shares outstanding – basic
Effect of stock options (1)
Weighted-average common shares outstanding – assuming dilution
76,985
803
77,788
81,406
874
82,280
88,426
1,076
89,502
Earnings per share:
Earnings per share-basic
Earnings per share-assuming dilution
$
$
18.07 $
17.88 $
16.27 $
16.10 $
12.82
12.67
Antidilutive potential common shares not included in the calculation of diluted
earnings per share:
Stock options (1)
Weighted-average exercise price per share of antidilutive stock options (1)
229
368.11 $
567
268.55 $
715
252.16
$
(1) See Note 11 for further information concerning the terms of the Company’s share-based compensation plans.
Subsequent to the end of the year and through February 28, 2020, the Company repurchased 0.9 million shares of its common stock, at
an average price of $400.78, for a total investment of $363.4 million.
NOTE 17 – QUARTERLY RESULTS (Unaudited)
The following tables set forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2019 and 2018. The
unaudited quarterly information includes all adjustments, which the Company considers necessary for a fair presentation of the
information shown (in thousands, except per share data):
Fiscal 2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
1,279,290
444,786
321,152
$ 2,410,608 $ 2,589,874 $ 2,666,528 $ 2,482,975
1,324,584
441,503
324,916
4.29
4.25
1,368,287
498,074
353,681
1,422,530
536,363
391,293
5.14 $
5.08 $
4.56 $
4.51 $
4.09 $
4.05 $
$
$
70
FORM 10-K
Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
Fiscal 2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
1,201,258
422,846
304,906
$ 2,282,681 $ 2,456,073 $ 2,482,717 $ 2,314,957
1,234,315
428,040
300,357
3.76
3.72
1,288,638
479,150
353,073
1,315,755
485,148
366,151
4.54 $
4.50 $
4.32 $
4.28 $
3.65 $
3.61 $
$
$
(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 amount.
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.
71
FORM 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company’s management, under the supervision and with the participation of its
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s 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
the Company’s 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 the Company, including its 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 the Company’s 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, 2019,
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 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 Exchange Act. The Company’s internal
control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes all policies and procedures that
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer,
management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013 framework). Based on this assessment, management believes that as of
December 31, 2019, the Company’s internal control over financial reporting was effective based on those criteria.
As permitted by guidance issued by the Securities and Exchange Commission, management excluded from its assessment of its system
of internal control over financial reporting the operations associated with the acquisition of Mayoreo de Autopartes y Aceites, S.A. de
C.V. (“Mayasa”), pursuant to a stock purchase agreement, which was completed after the close of business on November 29, 2019. The
acquired operations were included in the consolidated financial statements of the Company, which constituted 2% of total assets as of
December 31, 2019, and less than 1% of revenues and less than 1% of net income for the year ended December 31, 2019.
72
FORM 10-K
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 of this annual report on Form 10-K.
Item 9B. Other Information
Not Applicable.
73
FORM 10-K
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
2020 Annual Meeting of Shareholders (“Proxy Statement”), which will be filed with the Securities and Exchange Commission (the
“SEC”) within 120 days of the end of the Company’s 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 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 the Company’s 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 the Company’s executive officers who are not also directors.
Code of Ethics:
The Company’s Board of Directors has adopted a code of ethics that applies to all of its 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. The Company’s Code of Ethics is available on its website at www.OReillyAuto.com, under the “Corporate Home”
caption. The information on the Company’s 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 the Company’s 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 Exchange Act. The Audit Committee
currently consists of Jay D. Burchfield, Thomas T. Hendrickson, John R. Murphy, Dana M. Perlman and Andrea M. Weiss, 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. Hendrickson, Chairperson 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 “Compensation of Directors” 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 Company’s 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 Company’s 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
FORM 10-K
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.
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 Company’s Proxy Statement under the caption “Fees
Paid to Independent Registered Public Accounting Firm” and is incorporated herein by reference.
75
FORM 10-K
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements - O’Reilly Automotive, Inc. and Subsidiaries
The following consolidated financial statements of O’Reilly Automotive, Inc. and Subsidiaries included in the Annual
Shareholders’ Report of the registrant for the year ended December 31, 2019, 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, 2019 and 2018
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017
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
Exhibit No.
Description
3.1
Amended and Restated Articles of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K dated May 9, 2013, is incorporated herein by this reference.
3.2
Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.1 to the Registrant’s Current Report on
Form 8-K dated November 29, 2016, is incorporated herein by this reference.
4.1
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.
4.2
4.3
4.4
4.5
Indenture, dated as of January 14, 2011, by and among O’Reilly Automotive, Inc., the subsidiaries party thereto
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.
Form of 4.875% Note due 2021, included in 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, by and among O’Reilly Automotive, Inc., the subsidiaries party
thereto 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 September 19, 2011, is incorporated herein by this reference.
Form of 4.625% Note due 2021, included in Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated
September 19, 2011, is incorporated herein by this reference.
76
FORM 10-K
Exhibit No.
Description
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
10.1 (a)
10.2 (a)
10.3 (a)
10.4 (a)
Indenture, dated as of August 21, 2012, by and among O’Reilly Automotive, Inc., the subsidiaries party thereto
as guarantors, and UMB Bank, N.A., as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated August 21, 2012, is incorporated herein by this reference.
Form of 3.800% Note due 2022, included in 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, by and among O’Reilly Automotive, Inc., the subsidiaries party thereto 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.
Form of 3.850% Note due 2023, included in Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated
June 20, 2013, is incorporated herein by this reference.
Indenture, dated as of March 8, 2016, by and among O’Reilly Automotive, Inc., the subsidiaries party thereto
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 March 8, 2016, is incorporated herein by this reference.
Supplemental Indenture, dated as of March 8, 2016, by and among O’Reilly Automotive, Inc., the subsidiaries
party thereto 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 March 8, 2016, is incorporated herein by this reference.
Form of 3.550% Note due 2026, included in Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated
March 8, 2016, is incorporated herein by this reference.
Second Supplemental Indenture, dated as of August 17, 2017, by and between O’Reilly Automotive, Inc. and
UMB Bank N.A., as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated
August 17, 2017, is incorporated herein by this reference.
Form of Note for 3.600% Senior Notes due 2027, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated August 17, 2017, is incorporated herein by this reference.
Third Supplemental Indenture, dated as of May 17, 2018, by and between O’Reilly Automotive, Inc. and UMB
Bank N.A., as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated May 17, 2018,
is incorporated herein by this reference.
Form of Note for 4.350% Senior Notes due 2028, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated May 17, 2018, is incorporated herein by this reference.
Indenture, dated as of May 20, 2019, by and between O’Reilly Automotive, Inc. and U.S. Bank National
Association, as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated May 20,
2019, is incorporated herein by this reference.
First Supplemental Indenture, dated as of May 20, 2019, by and between O’Reilly Automotive, Inc. and U.S.
Bank National Association, as Trustee, filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K
dated May 20, 2019, is incorporated herein by this reference.
Form of Note for 3.900% Senior Notes due 2029, included in Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K dated May 20, 2019, is incorporated herein by this reference.
Description of Capital Stock Exchange Act Section 12 Registered Securities of O’Reilly Automotive, Inc., filed
herewith.
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.
O’Reilly Automotive, Inc. Profit Sharing and Savings Plan, filed as Exhibit 4.1 to the Registration Statement of
the Registrant on Form S-8, File No. 33-73892, is incorporated herein by this reference.
O’Reilly Automotive, Inc. Performance Incentive Plan, filed as Exhibit 10.18 to the Registrant’s Annual
Shareholders’ Report on Form 10-K dated March 31, 1997, 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 dated March 31, 1998, is incorporated herein by this
reference.
77
FORM 10-K
Exhibit No.
Description
10.5 (a)
10.6 (a)
10.7 (a)
10.8 (a)
10.9 (a)
10.10 (a)
10.11 (a)
10.12 (a)
10.13 (a)
10.14 (a)
10.15 (a)
10.16 (a)
10.17
O’Reilly Automotive, Inc. Deferred Compensation Plan, filed as Exhibit 10.23 to the Registrant’s Quarterly
Report on Form 10-Q dated May 15, 1998, 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 dated March 29, 2002, is incorporated herein by this reference.
O’Reilly Automotive, Inc. 2009 Stock Purchase Plan, filed as Annex A to the Registrant’s Proxy Statement for
2009 Annual Meeting of Shareholders on Schedule 14A dated March 20, 2009, is incorporated herein by this
reference.
O’Reilly Automotive, Inc. 2009 Incentive Plan, filed as Annex B to the Registrant’s Proxy Statement for 2009
Annual Meeting of Shareholders on Schedule 14A dated March 20, 2009, is incorporated herein by this
reference.
O’Reilly Automotive, Inc. 2009 Incentive Plan, 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 dated February 26,
2010, 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 dated March 23, 2012, 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 dated August 8, 2012, is incorporated
herein by this reference.
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 19, 2013, is incorporated herein by this reference.
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 19, 2013, is incorporated herein by this reference.
Form of O’Reilly Automotive, Inc. Executive Incentive Compensation Clawback Policy Acknowledgment,
between O’Reilly Automotive, Inc. and certain O’Reilly Automotive, Inc. Executive Officers, filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 4, 2015, is incorporated herein by
this reference.
Form of Change in Control Severance Agreement between O’Reilly and certain O’Reilly Executive Officers,
filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 4, 2015, is incorporated
herein by this reference.
O’Reilly Automotive, Inc. 2017 Incentive Award Plan, filed as Annex A to the Registrant’s Proxy Statement
for 2017 Annual Meeting of Shareholders on Schedule 14A dated March 24, 2017, is incorporated herein by
this reference.
Credit Agreement, dated as of April 5, 2017, among O’Reilly Automotive, Inc., as Borrower, JPMorgan Chase
Bank, N.A., as Administrative Agent, Swing Line Lender, Letter of Credit Issuer and a Lender, and other lenders
party thereto, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 11, 2017, is
incorporated herein by this reference.
10.18 (a)
O’Reilly Automotive, Inc. 2017 Incentive Award Plan, Form of Stock Option Grant Notice and Agreement,
dated as of July 10, 2017, filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q dated
August 7, 2017, is incorporated herein by this reference.
10.19 (a)
O’Reilly Automotive, Inc. 2017 Incentive Award Plan, Form of Director Restricted Stock Agreement, filed
herewith.
21.1
23.1
31.1
31.2
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.
78
FORM 10-K
Exhibit No.
Description
32.1 *
32.2 *
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
iXBRL Instance Document – the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
iXBRL Taxonomy Extension Schema.
iXBRL Taxonomy Extension Calculation Linkbase.
iXBRL Taxonomy Extension Definition Linkbase.
iXBRL Taxonomy Extension Label Linkbase.
iXBRL Taxonomy Extension Presentation Linkbase.
Cover Page Interactive Data File, formatted as Inline XBRL, contained in Exhibit 101 attachments.
(a)
*
Management contract or compensatory plan or arrangement.
Furnished (and not filed) herewith pursuant to Item 601 (b)(32)(ii) of Regulation S-K.
Item 16. Form 10-K Summary
Not applicable.
79
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Description
Allowance for doubtful accounts:
For the year ended December 31, 2019
For the year ended December 31, 2018
For the year ended December 31, 2017
(1) Uncollectable accounts written off.
Additions - Additions -
Charged to
Balance at Charged to
Beginning of Costs and Other Accounts - Deductions - End of
Period
Expenses
Describe
Describe
Period
Balance at
$
$
13,238 $
12,717
12,040 $
9,461 $
9,475
8,598 $
— $
—
— $
8,282 (1) $
8,954 (1)
7,921 (1) $
14,417
13,238
12,717
80
FORM 10-K
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.
SIGNATURES
O’REILLY AUTOMOTIVE, INC.
(Registrant)
Date: February 28, 2020
By:
/s/ Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer and
Co-President
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.
Date: February 28, 2020
/s/ David O’Reilly
David O’Reilly
Director and Chairman of the Board
/s/ Rosalie O’Reilly Wooten
Rosalie O’Reilly Wooten
Director
/s/ Jay D. Burchfield
Jay D. Burchfield
Director
/s/ John R. Murphy
John R. Murphy
Director
/s/ Andrea M. Weiss
Andrea M. Weiss
Director
/s/ Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer and
Co-President
(Principal Executive Officer)
/s/ Larry O’Reilly
Larry O’Reilly
Director and Vice Chairman of the Board
/s/ Greg Henslee
Greg Henslee
Executive Vice Chairman of the Board
/s/ Thomas T. Hendrickson
Thomas T. Hendrickson
Director
/s/ Dana M. Perlman
Dana M. Perlman
Director
/s/ Thomas McFall
Thomas McFall
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
81
FORM 10-K
DESCRIPTION OF CAPITAL STOCK
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
Exhibit 4.20 – Description of Capital Stock
The following is a description of the capital stock of O’Reilly Automotive, Inc. (“O’Reilly,” “our” or “the Company”). Our authorized
capital stock consists of 245,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share.
The following summary description of the terms of our capital stock is not complete and is qualified by reference to our Amended and
Restated Articles of Incorporation (“Articles”) and our Amended and Restated Bylaws (“Bylaws”), both of which are exhibits to our
Annual Report on Form 10-K.
COMMON STOCK
Voting Rights
The holders of our common stock are entitled to cast one vote for each share held of record on all matters to be voted on by shareholders,
including the election of directors. If an action is to be taken by vote of the shareholders, it will be authorized by the affirmative vote
of a majority of the shares present and entitled to vote on the action, unless a greater vote is required by the Articles, Bylaws or applicable
law. Directors are elected by the affirmative vote of a majority of the shares present and entitled to vote. There is no cumulative voting
with respect to the election of directors.
Dividends
The holders of our common stock are entitled to such dividends as our Board of Directors (“Board”) may declare from time to time from
legally available funds, subject to limitations under Missouri law and the preferential rights of the holders of any outstanding shares of
preferred stock.
Liquidation
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of our common stock are entitled to
share, on a pro rata basis, in all assets remaining after payment to creditors and subject to prior distribution rights granted to the holders
of any outstanding shares of preferred stock.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, conversion or other rights to subscribe for additional securities and there are no
redemption or sinking fund provisions applicable to our common stock other than such, if any, as the Board may in its discretion from
time to time determine pursuant its authority under the Articles.
PREFERRED STOCK
Our Articles authorize the Board to establish one or more series of preferred stock and to determine, with respect to any series of
preferred stock, the terms, rights and preferences of such series including voting, dividend, liquidation, conversion and other rights. The
authorized shares of preferred stock will be available for issuance without further action by our shareholders, unless such action is
required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or
traded. Any issuance of preferred stock could discourage, impede, delay or prevent a transaction which would result in a change of
control of the Company.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
We may issue additional shares of common stock or preferred stock without shareholder approval, subject to applicable rules of The
Nasdaq Stock Market and Missouri law, for a variety of corporate purposes, including future public or private offerings to raise capital,
corporate acquisitions, and employee benefit plans and equity grants. The existence of unissued and unreserved common stock and
preferred stock may enable us to issue shares to persons who are friendly to current management, which could discourage an attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES AND BYLAWS
The following is a brief description of the provisions in our Articles and Bylaws that could have an effect of delaying, deferring or
preventing a change in control of the Company.
FORM 10-K
Advance Notice for Shareholder Proposals and Nominations
Our Bylaws contain advance notice provisions with respect to shareholder nominations of candidates for election as directors and any
other business that the shareholder intends to bring at a meeting of shareholders.
No Cumulative Voting
Our Bylaws do not provide for cumulative voting in the election of directors. The absence of cumulative voting may make it more
difficult for shareholders owning less than a majority of our common stock to elect any directors to our Board.
Limitations on Liability of Directors; Indemnification of Directors and Officers
Missouri law authorizes corporations to limit the personal liability of directors to corporations and shareholders for monetary damages
for breaches of directors’ fiduciary duties. Our Articles and Bylaws limit, to the fullest extent permitted by Missouri law, the liability
of our directors to us or our shareholders for monetary damages for any breach of fiduciary duty as a director; provided, that the foregoing
does not eliminate or limit the liability of a director who has not met the applicable standard of conduct set forth in The General and
Business Corporation Law of Missouri (the “MGBCL”).
Subject to certain limitations, our Articles and Bylaws provide that our directors and officers must be indemnified and other persons
may be indemnified and provide for the advancement to them of expenses incurred in connection with actual or threatened proceedings
and claims arising out of their status as our director or officer, or if serving at our request, to the fullest extent permitted by Missouri
law. In addition, Missouri law expressly authorizes us to purchase and maintain directors’ and officers’ insurance providing
indemnification for our directors, officers, employees or agents or if serving at the request of such persons. We believe that these
indemnification provisions and insurance are useful to attract and retain qualified directors, officers, employees and other agents.
The limitation of liability and indemnification provisions in our Articles and Bylaws may discourage shareholders from bringing a
lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of
derivative litigation against directors, officers, employees and other agents, even though such an action, if successful, might otherwise
benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and
damage awards against directors, officers, employees, and other agents pursuant to these indemnification provisions.
MISSOURI STATUTORY PROVISIONS
Missouri law also contains certain provisions that may have an anti-takeover effect and otherwise discourage third parties from effecting
transactions with us, including those discussed below.
Limitations on Shareholder Action by Written Consent
The MGBCL provides that any action by written consent of shareholders in lieu of a meeting must be unanimous.
Business Combination Statute
The MGBCL contains a “business combination statute,” which restricts certain “business combinations” between us and an “interested
shareholder,” or affiliates or associates of the interested shareholder, for a period of five years after the date of the transaction in which
the person becomes an interested shareholder, unless either such transaction or the interested shareholder’s acquisition of stock is
approved by our Board on or before the date the interested shareholder obtains such status.
The statute also prohibits business combinations after the five-year period following the transaction in which the person becomes an
interested shareholder unless the business combination or purchase of stock prior to becoming an interested shareholder is approved by
our board prior to the date the interested shareholder obtains such status. The statute provides that, after the expiration of such five-year
period, business combinations are prohibited unless:
•
•
•
the holders of a majority of the outstanding voting stock, other than the stock owned by the interested shareholder, approve the
business combination; or
the business combination satisfies certain detailed fairness and procedural requirements.
A “business combination” for this purpose includes a merger or consolidation, some sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock, the liquidation or dissolution of the corporation by the interested shareholder or any of its
affiliates or associates, any reclassifications, recapitalizations or other transactions that increase the proportionate voting power of the
interested shareholder, and the receipt of any benefit of any loans, advances or other financial assistance, or tax advantages by the
corporation where such benefit is not proportional to the other shareholders of the corporation. An “interested shareholder” for this
purpose generally means any person, other than the corporation or its subsidiaries, who, together with its, his, or her affiliates and
associates, owns or controls, or by agreement or other understanding has the right to own or control in the future, 20% or more of the
outstanding shares of the corporation’s voting stock, including affiliates or associates of such corporation who possessed such ownership
or control, or right of ownership or control, within the five-year period prior to the date of the transaction at issue.
FORM 10-K
A Missouri corporation may opt out of coverage by the business combination statute by including a provision to that effect in its articles
of incorporation. We do not have such a provision in our Articles.
Control Share Acquisition Statute
The MGBCL also has a “control share acquisition statute.” This statute, among other things, may limit the rights of a shareholder to
vote some or all of his shares. A shareholder whose acquisition of shares results in that shareholder having voting power, when added
to the shares previously held by such shareholder, except the shares owned or controlled for more than ten years prior to the date of the
control share acquisition, to exercise or direct the exercise of more than a specified percentage of our outstanding stock (beginning at
20%) will lose the right to vote some or all of his shares in excess of such percentage unless the shareholders approve the acquisition of
such shares.
A Missouri corporation may opt out of coverage by the control share acquisition statute by including a provision to that effect in its
governing corporate documents. We have a provision in our Articles that opts out of this statute.
LISTING
Our common stock is traded on The Nasdaq Global Select Market under the symbol “ORLY.”
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Computershare Investor Services.
FORM 10-K
Exhibit 10.19 – Form of Director Restricted Stock Agreement
O’REILLY AUTOMOTIVE, INC.
2017 INCENTIVE AWARD PLAN
DIRECTOR RESTRICTED STOCK AGREEMENT
This Restricted Stock Award Agreement (this “Restricted Stock Agreement”), dated as of [
], 2020
(the “Date of Grant”), is made by and between O’Reilly Automotive, Inc., a Missouri corporation (the “Company”) and [ ]
(the “Director”). Capitalized terms not defined herein shall have the meaning ascribed to them in the O’Reilly Automotive, Inc. 2017
Incentive Award Plan (as amended from time to time, the “Plan”). Where the context permits, references to the Company shall
include any successor to the Company.
“Restricted Stock”), subject to all of the terms and conditions of this Restricted Stock Agreement and the Plan.
1.
Grant of Restricted Stock. The Company hereby grants to the Director ________ Shares (such Shares, the
2.
Lapse of Restrictions.
(a)
General. Except as otherwise set forth in this Section 2, the restrictions on Transfer (as defined in
Section 6(a)) set forth in Section 2 shall lapse with respect to [ ]1 (each anniversary of the Date of Grant, a “Vesting Date”), subject
to the continued service of the Director for the Company from the date hereof through the applicable Vesting Date, and provided that
the Director has not given notice of resignation as of such Vesting Date.
(b)
Following Certain Terminations of Service. Subject to the next sentence, upon termination of the
Director’s service with the Company and its Affiliates for any reason, any Restricted Stock in respect of which the restrictions on
Transfer described in this Section 2 shall not already have lapsed shall be canceled and immediately forfeited and neither the Director
nor any of the Director’s successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in
such Restricted Stock. Notwithstanding the foregoing, in the event that the Director’s service with the Company is terminated as a
result of the death or Disability of the Director, then 100% of the Restricted Stock shall immediately vest, and the restrictions on
Transfer of such Restricted Stock set out in this Section 2 shall lapse.
(c)
Restrictions. Until the restrictions on Transfer of the Restricted Stock lapse as provided in this
Section 2, or as otherwise provided in the Plan, no Transfer of the Restricted Stock or any of the Director’s rights with respect to the
Restricted Stock, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Unless the Administrator
determines otherwise, upon any attempt to Transfer Restricted Stock or any rights in respect of Restricted Stock, before the lapse of
such restrictions, such Restricted Stock, and all of the rights related thereto, shall be immediately canceled and forfeited.
3.
Adjustments. Pursuant to Section 13.2 of the Plan, in the event of a change in capitalization, the
Administrator shall make such equitable changes or adjustments to the number and kind of securities or other property (including
cash) issued or issuable in respect of outstanding Restricted Stock as it determines to be necessary in its sole discretion.
Certain Changes. The Administrator may accelerate the date on which the restrictions on transfer set forth
in Section 2 shall lapse or otherwise adjust any of the terms of the Restricted Stock; provided that, subject to Section 13.2 of the Plan,
no action under this Section shall adversely affect the Director’s rights hereunder.
4.
5.
Notices. All notices and other communications under this Restricted Stock Agreement shall be in writing
and shall be given by email, facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to
have been duly given three days after mailing or 24 hours after transmission by facsimile to the respective parties, as follows: (i) if to
the Company, addressed to the Company in care of the Secretary at the Company’s principal office and (ii) if to the Director, using the
last address reflected on the Company's records. Either party hereto may change such party’s address for notices by notice duly given
pursuant hereto.
6.
Protections Against Violations of Agreement.
sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other
disposition of, or creation of a security interest in or lien on, any of the Restricted Stock or any agreement or commitment to do any of
(a)
Until such time as the Restricted Stock is fully vested in accordance with Section 2, no purported
1 Vesting schedule to be inserted.
E-1
FORM 10-K
the foregoing (each a “Transfer”) by any holder thereof in violation of the provisions of this Restricted Stock Agreement will be
valid, except with the prior written consent of the Administrator (such consent shall be granted or withheld in the sole discretion of the
Administrator).
(b)
In addition to Section 2, any purported Transfer of Restricted Stock or any economic benefit or
interest therein in violation of this Restricted Stock Agreement shall be null and void ab initio, and shall not create any obligation or
liability of the Company, and any person purportedly acquiring any Restricted Stock or any economic benefit or interest therein
transferred in violation of this Restricted Stock Agreement shall not be entitled to be recognized as a holder of such Shares.
7.
Taxes.
(a)
Tax Withholding.
i
Regardless of any action the Company or any applicable Affiliate takes with respect to
any or all federal, state, local and foreign taxes (including the Director’s social security, Medicare and any other employment tax
obligation) (collectively, the “Tax Liabilities”), the Director understands that he or she (and not the Company or any applicable
Affiliate) shall be responsible for any Tax Liabilities that may arise as a result of the transactions contemplated by this Restricted
Stock Agreement. The Director further acknowledges that the Company and any applicable Affiliate (i) make no representations or
undertakings regarding the treatment of any Tax Liabilities in connection with any aspect of the Restricted Stock, including, but not
limited to, the grant or vesting of the Restricted Stock, the subsequent sale of Shares acquired pursuant to this Restricted Stock
Agreement and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or
any aspect of the Restricted Stock to reduce or eliminate the Director’s liability for any Tax Liabilities or achieve any particular tax
result. Further, if the Director is subject to Tax Liabilities in more than one jurisdiction, the Director acknowledges that the Company
and/or applicable Affiliate may be required to withhold or account for Tax Liabilities in more than one jurisdiction. Notwithstanding
anything herein to the contrary, withholding for Tax Liabilities shall not apply to any Director who is not an employee of the
Company or any Affiliate.
ii
Prior to the relevant taxable or tax withholding event, as applicable, the Director agrees to
make adequate arrangements satisfactory to the Company and/or the applicable Affiliate to satisfy any and all Tax Liabilities. Absent
any other arrangement to satisfy the Tax Liabilities, the Company shall retain the number of Shares with a value up to the maximum
amount of Tax Liabilities required to be withheld. In addition, the Administrator may in its sole discretion satisfy any withholding
obligations for Tax Liabilities by (a) withholding from the Director's wages or other compensation; or (b) withholding from proceeds
of the sale of the Shares either through a voluntary sale or through a mandatory sale arranged by the Company (on the Director’s
behalf pursuant to this authorization without further consent).
iii
Depending on the withholding method, the Company may withhold or account for the
Tax Liabilities by considering applicable statutory withholding rates or other applicable withholding rates, including maximum
applicable rates, in which case the Director may receive a refund of any over-withheld amount in cash and will have no entitlement to
the equivalent in Shares. In the case of withholding in Shares, the Company shall issue the net number of Shares to the Director by
deducting the Shares retained for the Tax Liabilities from the Shares granted pursuant to this Restricted Stock Agreement. For tax
purposes, the Director is deemed to have been issued the full number of Shares subject to the Restricted Stock Agreement,
notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax Liabilities.
Tax Liabilities that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or
the proceeds of the sale of Shares, if the Director fails to comply with his or her obligations in connection with the Tax Liabilities.
iv
Finally, the Director agrees to pay the Company or the applicable Affiliate any amount of
the Code.
(b)
The Director shall promptly notify the Company of any election made pursuant to Section 83(b) of
THE DIRECTOR ACKNOWLEDGES THAT IT IS THE DIRECTOR’S SOLE RESPONSIBILITY AND NOT THE
COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE
DIRECTOR REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE
DIRECTOR’S BEHALF.
the disposition of the Restricted Stock following vesting are complex and subject to change, and it is the sole responsibility of the
Director to obtain his or her own advice as to the tax treatment of the terms of this Restricted Stock Agreement.
(c)
The Director acknowledges that the tax laws and regulations applicable to the Restricted Stock and
E-2
FORM 10-K
BY SIGNING THIS RESTRICTED STOCK AGREEMENT, THE DIRECTOR REPRESENTS THAT HE OR SHE
HAS REVIEWED WITH HIS OR HER OWN TAX ADVISORS THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THIS RESTRICTED STOCK
AGREEMENT AND THAT HE OR SHE IS RELYING SOLELY ON SUCH ADVISORS AND NOT ON ANY
STATEMENTS OR REPRESENTATIONS OF THE COMPANY OR ANY OF ITS AGENTS. THE DIRECTOR
UNDERSTANDS AND AGREES THAT HE OR SHE (AND NOT THE COMPANY) SHALL BE RESPONSIBLE
FOR ANY TAX LIABILITY THAT MAY ARISE AS A RESULT OF THE TRANSACTIONS CONTEMPLATED
BY THIS RESTRICTED STOCK AGREEMENT.
Restricted Stock Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.
8.
Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of this
9.
Confidentiality.
(a)
The Director acknowledges that during the period of the Director’s service with the Company the
Director shall have access to the Company’s Confidential Information (as defined below). All books of account, records, systems,
correspondence, documents, and any and all other data, in whatever form, concerning or containing any reference to the works and
business of the Company or its affiliated companies shall belong to the Company and shall be given up to the Company whenever the
Company requires the Director to do so. The Director agrees that the Director shall not at any time during the term of the Director’s
service or thereafter, without the Company’s prior written consent, disclose to any person (individual or entity) any information or any
trade secrets, plans or other information or data, in whatever form, (including, without limitation, (i) any financing strategies and
practices, pricing information and methods, training and operational procedures, advertising, marketing, and sales information or
methodologies or financial information and (ii) any Proprietary Information (as defined below)), concerning the Company’s or any of
its affiliated companies’ or customers’ practices, businesses, procedures, systems, plans or policies (collectively, “Confidential
Information”), nor shall the Director utilize any such Confidential Information in any way or communicate with or contact any such
customer other than in connection with the Director’s service by the Company. The Director hereby confirms that all Confidential
Information constitutes the Company’s exclusive property, and that all of the restrictions on the Director’s activities contained in this
Restricted Stock Agreement and such other nondisclosure policies of the Company are required for the Company’s reasonable
protection. Confidential Information shall not include any information that has otherwise been disclosed to the public not in violation
of this Restricted Stock Agreement. This confidentiality provision shall survive the termination of this Restricted Stock Agreement
and shall not be limited by any other confidentiality agreements entered into with the Company or any of its affiliates.
(b) With respect to any Confidential Information that constitutes a “trade secret” pursuant to applicable
law, the restrictions described above shall remain in force for so long as the particular information remains a trade secret or for the two
year period immediately following termination of the Director’s service for any reason, whichever is longer. With respect to any
Confidential Information that does not constitute a “trade secret” pursuant to applicable law, the restrictions described above shall
remain in force during the Director’s service and for the two year period immediately following termination of Director’s service for
any reason.
(c)
The Director agrees that the Director shall promptly disclose to the Company in writing all
information and inventions generated, conceived or first reduced to practice by the Director alone or in conjunction with others, during
or after working hours, while in the employ of the Company (all of which is collectively referred to in this Restricted Stock
Agreement as “Proprietary Information”); provided, however, that such Proprietary Information shall not include (i) any
information that has otherwise been disclosed to the public not in violation of this Restricted Stock Agreement and (ii) general
business knowledge and work skills of the Director, even if developed or improved by the Director while in the employ of the
Company. All such Proprietary Information shall be the exclusive property of the Company and is hereby assigned by the Director to
the Company. The Director’s obligation relative to the disclosure to the Company of such Proprietary Information anticipated in this
Section shall continue beyond the Director’s termination of service and the Director shall, at the Company’s expense, give the
Company all assistance it reasonably requires to perfect, protect and use its right to the Proprietary Information.
(d)
Defend Trade Secrets Act. Pursuant to Section 1833(b) of the Defend Trade Secrets Act of 2016,
the Director acknowledges that the Director shall not have criminal or civil liability under any federal or State trade secret law for the
disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to
an attorney and solely for the purpose of reporting or investigating a suspected violation of law; or that is made in a complaint or other
document filed in a lawsuit or other proceeding, if such filing is made under seal. Nothing in this Restricted Stock Agreement is
intended to conflict with Section 1833(b) of the Defend Trade Secrets Act of 2016 or create liability for disclosures of trade secrets
that are expressly allowed by such Section. Notwithstanding anything set forth in this Restricted Stock Agreement to the contrary, the
Director shall not be prohibited from reporting possible violations of federal or state law or regulation to any governmental agency or
entity or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation, nor is the
Director required to notify the Company regarding any such reporting, disclosure or cooperation with the government.
E-3
FORM 10-K
10.
Governing Law. This Restricted Stock Award Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Missouri applicable to contracts made and to be performed therein. Any suit, action or
proceeding with respect to this Restricted Stock Agreement, or any judgment entered by any court in respect of any thereof, shall be
brought in any court of competent jurisdiction in the State of Missouri, and the Company and the Director hereby submit to the
exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. The Director and the Company
hereby irrevocably waive (i) any objections which it may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Restricted Stock Agreement brought in any court of competent jurisdiction in the State of
Missouri, (ii) any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum
and (iii) any right to a jury trial.
11.
Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and the
Restricted Stock and this Restricted Stock Agreement shall be subject to all terms and conditions of the Plan and this Restricted Stock
Agreement.
12.
Amendments; Construction. The Administrator may amend the terms of this Restricted Stock Agreement
prospectively or retroactively at any time, but no such amendment shall impair the rights of the Director hereunder without his or her
consent. To the extent the terms of Section 9 conflict with any prior agreement between the parties related to such subject matter, the
terms of Section 9 shall supersede such conflicting terms and control. Headings to Sections of this Restricted Stock Agreement are
intended for convenience of reference only, are not part of this Restricted Stock Agreement and shall have no effect on the
interpretation hereof.
and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.
13.
Survival of Terms. This Restricted Stock Agreement shall apply to and bind the Director and the Company
14.
Rights as a Shareholder. During the period until the restrictions on Transfer of the Restricted Stock lapse
as provided in Section 2, the Director shall have all the rights of a shareholder with respect to the Restricted Stock save only the right
to Transfer the Restricted Stock. Accordingly, the Director shall have the right to vote the Restricted Stock and to receive any
ordinary dividends paid to or made with respect to the Restricted Stock.
15.
Agreement Not a Contract for Services. Neither the Plan, the granting of the Restricted Stock, this
Restricted Stock Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Director has a right to continue to provide services as an officer, director, employee,
consultant or advisor of the Company or any Subsidiary or Affiliate for any period of time or at any specific rate of compensation.
16.
Authority of the Administrator; Disputes. The Administrator shall have full authority to interpret and
construe the terms of the Plan and this Restricted Stock Agreement. The determination of the Administrator as to any such matter of
interpretation or construction shall be final, binding and conclusive.
17.
Severability. Should any provision of this Restricted Stock Agreement be held by a court of competent
jurisdiction to be unenforceable, or enforceable only if modified, such holding shall not affect the validity of the remainder of this
Restricted Stock Agreement, the balance of which shall continue to be binding upon the parties hereto with any such modification (if
any) to become a part hereof and treated as though contained in this Restricted Stock Agreement.
18.
Acceptance. The Director hereby acknowledges receipt of a copy of the Plan and this Restricted Stock
Agreement. The Director has read and understands the terms and provisions of the Plan and this Restricted Stock Agreement, and
accepts the Restricted Stock subject to all the terms and conditions of the Plan and this Restricted Stock Agreement. The Director
hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising
under this Restricted Stock Agreement.
[Signature Page Follows]
E-4
FORM 10-K
day and year first above written.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Restricted Stock Agreement on the
O’REILLY AUTOMOTIVE, INC.
By
Name
Title
DIRECTOR
___________________________________________
E-5
FORM 10-K
Exhibit 21.1 – Subsidiaries of the Registrant
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
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
State of Incorporation
Missouri
Missouri
Missouri
Missouri
Delaware
In addition, 16 subsidiaries operating in the United States and Mexico 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.
FORM 10-K
Exhibit 23.1 – Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
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 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;
(3) 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;
(4) Registration Statement (Form S-8 No. 333-181364) pertaining to the O’Reilly Automotive, Inc. 2012 Incentive Award Plan
and Post-Effective Amendment No. 1 (Form S-8 No. 333-181364) pertaining to the O’Reilly Automotive, Inc. 2012 Incentive
Award Plan and to the O’Reilly Automotive, Inc. 2017 Incentive Award Plan; and
(5) Registration Statement (Form S-3ASR No. 333-230033) pertaining to the offer from time to time of debt securities;
of our reports dated February 28, 2020 with respect to the consolidated financial statements 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) of O’Reilly Automotive, Inc. and Subsidiaries for the year ended December 31, 2019.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2020
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Gregory D. Johnson, 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, 2020
/s/ Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer and
Co-President
(Principal Executive Officer)
FORM 10-K
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Thomas McFall, certify that
1.
I have reviewed this report on Form 10-K of O’Reilly Automotive, Inc.;
Exhibit 31.2 - CFO Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
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, 2020
/s/ Thomas McFall
Thomas McFall
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
FORM 10-K
Exhibit 32.1 - CEO 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
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory D. Johnson, 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/ Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer
February 28, 2020
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.
FORM 10-K
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
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019,
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, 2020
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.
FORM 10-K
BOARD of DIRECTORS
DAVID O’REILLY
Director and Chairman of the Board
LARRY O’REILLY
Director and
Vice Chairman of the Board
ROSALIE O’REILLY WOOTEN
Director
Mrs. Wooten is expected to retire
from the Board at the end of the
2019 director term, Maria A. Sastre
has been nominated by the Board as
independent director.
GREG HENSLEE
Director Since 2017 and
Executive Vice Chairman of the Board
JAY D. BURCHFIELD
Director Since 1997; Lead Director
Since 2018
Audit Committee
Compensation Committee
THOMAS T. HENDRICKSON
Director Since 2010
Audit Committee - Chairperson
Compensation Committee
JOHN R. MURPHY
Director Since 2003
Audit Committee
Compensation Committee - Chairperson
Corporate Governance/
Nominating Committee
DANA M. PERLMAN
Director Since 2017
Audit Committee
Corporate Governance/Nominating
Committee - Chairperson
ANDREA M. WEISS
Director Since 2019
Audit Committee
Corporate Governance/Nominating
Committee
EXECUTIVE COMMITTEE and DIVISIONAL VICE PRESIDENTS
GREG JOHNSON
Chief Executive Officer and Co-President
JEFF SHAW
Chief Operating Officer and Co-President
BRAD BECKHAM
Executive Vice President of Store
Operations and Sales
TOM MCFALL
Executive Vice President and
Chief Financial Officer
JONATHAN ANDREWS
Senior Vice President of
Human Resources and Training
DOUG BRAGG
Senior Vice President of Central Store
Operations and Sales
ROBERT DUMAS
Senior Vice President of Eastern Store
Operations and Sales
LARRY ELLIS
Senior Vice President of
Distribution Operations
JEREMY FLETCHER
Senior Vice President of
Finance and Controller
JEFF GROVES
Senior Vice President of Legal and
General Counsel
BRENT KIRBY
Senior Vice President of Omnichannel
SCOTT KRAUS
Senior Vice President of
Real Estate and Expansion
JEFF LAURO
Senior Vice President of
Information Technology
JASON TARRANT
Senior Vice President of Western Store
Operations and Sales
DARIN VENOSDEL
Senior Vice President of
Inventory Management
DAVID WILBANKS
Senior Vice President of Merchandise
TRICIA HEADLEY
Vice President and Corporate Secretary
and Secretary to the Board
STEVE ABARR
Vice President of Northwest Division
DOUG ADAMS
Vice President of Southeast Division
GREG BECK
Vice President of Purchasing
AARON BIGGS
Vice President of Southern Division
CORY BLACKBURN
Vice President of Merchandise - Out Front
SCOTT BLACKBURN
Vice President of Store Operations
ROB BODENHAMER
Vice President of Information Technology
Infrastructure and Operations
GUY BROYLES
Vice President of Merchandise – Backroom
CHIP CARLSON
Vice President of International
Business Development
TAMARA DE WILD
Deputy General Counsel and
Vice President of Legal Services
JIM DICKENS
Vice President of Gulf States Division
JOE EDWARDS
Vice President of Store Installations
CHRIS FARROW
Vice President of Northern Division
ALAN FEARS
Vice President of Jobber Sales
and Acquisitions
JULIE GRAY
Vice President of Corporate Services and
Assistant Corporate Secretary
LARRY GRAY
Vice President of Distribution Operations
Eastern Division
DAN GRIFFIN
Vice President of East-Central Division
TOM HARRINGTON
Vice President of New England Division
GARTH HILL
Vice President of Transportation
PHIL HOPPER
Vice President of Real Estate Expansion
and Property Management
JUSTIN KALE
Vice President of Central Division
CHAD KEEL
Vice President of Acquisitions
and Integrations
DAVID LEONHART
Vice President of Distribution Operations
Western Division
STEVE LUELLEN
Vice President of Mid-Atlantic Division
CHRIS MANCINI
Vice President of Western Division
MARK MERZ
Vice President of Investor Relations,
Financial Reporting and Planning
RYAN MOORE
Vice President of Pricing
RAMON ODEMS
Vice President of Great Lakes Division
DAVID P. ORTEGA
Vice President of Electronic
Catalog Systems
WAYNE PRICE
Vice President of Treasury and
Risk Management
TIM RATHBUN
Vice President of Inventory Management
SHARI REAVES
Vice President of Human Resources
CHUCK ROGERS
Vice President of Professional Sales
BARRY SABOR
Vice President of Loss Prevention
HUGO SANCHEZ
Vice President of Marketing
and Advertising
DIEGO SANTILLANA
Vice President of Southwestern Division
KARLA WILLIAMS
Vice President of Solution Delivery
MIKE YOUNG
Vice President of Real Estate Development
and Facilities
SHAREHOLDER INFORMATION
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 505000 • Louisville, Kentucky 40233
800-884-4225 • www.computershare.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
One Kansas City Place • 1200 Main Street, Suite 2500
Kansas City, Missouri 64105-2167
Inquiries regarding stock transfers, lost certificates or address
changes should be directed to Computershare Investor Services at
the above address.
ANALYST COVERAGE
The following analysts provide research coverage of O’Reilly Automotive, Inc.:
ATLANTIC EQUITIES Sam Hudson
BANK OF AMERICAN MERRILL LYNCH Elizabeth Suzuki
CONSUMER EDGE RESEARCH David A. Schick
CREDIT SUISSE - NORTH AMERICA Seth Sigman
EDGEWATER RESEARCH Daryl Boehringer
EVERCORE ISI Greg Melich
GOLDMAN SACHS Kate McShane
GUGGENHEIM SECURITIES LLC Ali Faghri
JEFFERIES EQUITY RESEARCH Bret Jordan
J.P. MORGAN Christopher Horvers
MORGAN STANLEY RESEARCH Simeon Gutman
MORNINGSTAR, INC. Zain Akbari
NOMURA | INSTINET Mike Baker
NORTHCOAST RESEARCH Tim Vierengel
OPPENHEIMER & CO., INC. Brian Nagel
RAYMOND JAMES Matthew McClintock
RBC CAPITAL MARKETS Scot Ciccarelli
STEPHENS INC. Daniel Imbro
UBS SECURITIES Michael Lasser
WEDBUSH SECURITIES INC. Seth Basham
WELLS FARGO SECURITIES, LLC Zachary Fadem
WILLIAM BLAIR & COMPANY Daniel Hofkin
WOLFE RESEARCH Chris Bottiglieri
®
2 3 3 S o u t h P a t t e r s o n • S p r i n g f i e l d , M i s s o u r i 6 5 8 0 2 • 4 1 7 - 8 6 2 - 3 3 3 3 • w w w . O R e i l l y A u t o . c o m