®
2 0 2 3
A n n u a l R e p o r t
$10,150
$11,604
$13,328
$14,410
$15,812
$17.88
$23.53
$31.10
$33.44
$38.47
38.7%
48.6%
67.7%
71.6%
76.3%
2020
2019
SALES
(in millions)
2021
2022
2023
2020
2021
2019
2022
DILUTED EARNINGS
per SHARE
2023
2020
2021
2019
RETURN on
INVESTED CAPITAL
2022
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
2023
6,157
7.9%
2022
5,971
6.4%
2021
5,784
13.3%
2020
5,616
10.9%
2023
2019
5,460
4.0%
Sales
Operating Income
Net Income
Accounts Payable to Inventory
Total Assets
Total Debt
Free Cash Flow
Share Repurchases
$ 15,812,250
$ 14,409,860
$ 13,327,563
$ 11,604,493
$ 10,149,985
3,186,376
2,346,581
130.8%
2,954,491
2,172,650
134.9%
2,917,168
2,164,685
127.4%
2,419,336
1,752,302
114.5%
1,920,726
1,391,042
104.4%
13,872,995
12,627,979
11,718,707
11,596,642
10,717,160
5,570,125
1,987,720
3,151,120
4,371,653
2,371,123
3,282,215
3,826,978
2,548,922
2,476,003
4,123,217
2,189,995
2,087,146
3,890,527
1,020,649
1,432,752
Earnings Per Share (assuming dilution)
$ 38.47 $ 33.44
$ 31.10
$ 23.53
$ 17.88
Weighed-Average Common Shares
Outstanding (assuming dilution)
60,998
64,962
69,611
74,462
77,788
COMPARISON OF TEN-YEAR CUMULATIVE RETURN
This graph shows the cumulative total shareholder return assuming the investment of $100 on December 31, 2013, 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.
800
700
600
500
400
300
$100
200
100
$ 15 0
$197
$216
$187
$26 8
$34 1
$35 2
$738
$65 6
$54 9
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
O’Reilly Automotive, Inc.
S&P 500 Retail Index
S&P 500 Index
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.
FELLOW SHAREHOLDERS:
We began 2023 by gathering more
than 8,000 of our company’s
leadership team for our first in-
person annual conference since 2020, with the
theme of “One Team Reunited.” It was important
to get back together in person to celebrate our
successes and strategize for the future. Most
importantly, this time each year is our opportunity
to build upon our biggest competitive advantages:
our team and our culture. The culture values you
see to the bottom left, when combined with the
heart and ambition of our team, are the spirit that
has driven our past successes and will continue to
unite and propel us into the future.
Thank you, Team O’Reilly, for your daily commitment
to our culture and for consistently providing the
best customer service in the industry.
O’REILLY AUTOMOTIVE 2023 ANNUAL REPORT • 1
Matt Pruett, Assistant Store Manager,
O’Reilly 6620-Fort Gibson, OK.
Team O’Reilly at the opening of our new DC-Guadalajara, Mexico in July of 2023.
Our team delivered an industry-leading 7.9% increase in
comparable store sales in 2023, driven by our third consecutive
year of double-digit comparable store sales growth in our
professional customer business. We accomplished this by
executing on our playbook of serving both the do-it-yourself
and do-it-for-me sides of our business, and ensuring we have the
parts our customers need, when and where they need them.
We are relentlessly dedicated to sustainable profitable
growth. In just the last four years, our company has more
than doubled diluted earnings per share, generating $38.47
in 2023 – 115% above the $17.88 in 2019. We’re proud to
continue our 31-year winning streak of sales and earnings
growth for you, our shareholders, a group which includes so
many of our team members.
Alongside those record sales and earnings, we have made
strategic investments to position us for continued success, with
a solid discipline that we will gain a strong return on every dollar
we spend.
• In 2023, we opened 186 net, new stores, including our
6,000th store.
• We rebranded our stores in Mexico, uniting us further with
the O’Reilly name.
• We worked to further expand our robust, tiered distribution
network, with three new distribution centers under construction
and the addition of larger hub stores in strategic locations.
• We entered the Puerto Rico market, opening a distribution
center and three stores.
Pilar Fontanez, Retail Service Specialist,
O’Reilly 6595-Bayamon, Puerto Rico.
O’REILLY AUTOMOTIVE 2023 ANNUAL REPORT • 2
Team O’Reilly unveiled our rebranded Mexico stores in December of 2023.
• We announced our entry into Canada with the acquisition
of Groupe Del Vasto, a highly respected, family-owned and
operated auto parts supplier headquartered in Montreal,
Quebec. We completed the deal in January 2024. This
strategic acquisition is an important milestone for O’Reilly as
we partner with Vast-Auto’s seasoned management team to
extend our footprint into Canada.
As we’ve stated, the most important factors in our success are our
people and our culture. We further invested in our team members
in 2023, implementing a new paid time off plan, enhancing our
401(k) plan, and improving the technology our teams use daily.
After investing in our business in line with our capital allocation
priorities, we were pleased to be able to return $3.2 billion in
excess capital during 2023 directly to you, our shareholders,
through the prudent execution of our share repurchase program.
Our promote-from-within philosophy is the bedrock of our
leadership succession strategy across the company. It ensures our
culture is perpetuated and that those with firsthand knowledge
of our business carry forward and replicate that wisdom.
After 41 years of dedicated service to O’Reilly, CEO Greg
Johnson announced his retirement. We are fortunate to have
Greg continue to serve O’Reilly through his nomination to our
Board of Directors, subject to his election as a director. Upon
Greg’s retirement in January 2024, Brad Beckham was promoted
to Chief Executive Officer and Brent Kirby was promoted to
President. Both are proven leaders who will perpetuate our
culture and lead our teams to expand our market share and
generate long-term value for our shareholders.
Lamar Dunlap, Store Manager, O’Reilly 2133-Jacksonville, FL
O’REILLY AUTOMOTIVE 2023 ANNUAL REPORT • 3
O’Reilly completed the acquisition of Groupe Del Vasto headquartered in Montreal,
Canada in January of 2024.
As we look ahead to another exciting year, we are in motion —
operating from a position of strength as we grow our business
in a stable, strong industry. Miles driven continues to rise, and
coupled with a growing and aging vehicle fleet, there is strong
demand for the products we sell. Consumers recognize the
compelling value in investing in the repair and maintenance of
their current vehicles, and our Professional Parts People are
ready to help them do just that.
Thank you for your faith in our company, and in the more than
90,000 team members who unite to serve our customers every
day. Their commitment, hard work, and dedication are unmatched
in the automotive aftermarket, and they are poised to extend our
record of long-term profitable growth.
BRAD BECKHAM
Chief Executive Officer
BRENT KIRBY
President
JEREMY FLETCHER
Executive Vice President and
Chief Financial Officer
SCOTT ROSS
Executive Vice President and
Chief Information Officer
JASON TARRANT
Executive Vice President of
Store Operations and Sales
CUSTOMER SERVICE Coast to Coast
United States
Alabama ................ 162
Alaska ....................... 16
Arizona .................... 150
Arkansas ................. 122
California ................589
Colorado ................ 123
Connecticut ............. 36
Florida .....................290
Georgia ..................235
Hawaii ....................... 19
Idaho ......................... 55
Illinois ......................230
Indiana ................... 170
Iowa ........................... 83
Kansas ....................... 88
Kentucky ................. 110
Louisiana ................ 148
Maine ........................ 37
Maryland .....................1
Massachusetts ......... 58
Michigan ................ 189
Minnesota .............. 135
Mississippi ................. 86
Missouri ................... 210
Montana ................... 30
Mexico
Baja California ...........5
Colima .........................4
Guanajuato ................8
Jalisco ....................... 30
Nebraska .................. 53
Nevada ..................... 60
New Hampshire ....... 37
New Mexico ............. 66
New York .................. 31
North Carolina .......220
North Dakota ............17
Ohio .........................226
Oklahoma .............. 129
Oregon...................... 77
Pennsylvania ............ 47
Rhode Island ............ 16
South Carolina ....... 128
South Dakota ........... 21
Tennessee ...............203
Texas ........................ 831
Utah ........................... 74
Vermont ................... 24
Virginia .................... 103
Washington ............ 169
West Virginia ............ 24
Wisconsin ................ 141
Wyoming .................. 23
Puerto Rico ..................3
Michoacan .................2
Nayarit .........................1
Sinaloa .........................4
Sonora ..........................8
Store Count 200-800+ 100-199 1-99
Distribution Center
Future Distribution Center
Satellite Warehouse
O’REILLY AUTOMOTIVE 2023 ANNUAL REPORT • 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2023
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 ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2023, the aggregate market value of the voting stock held by non-affiliates of the Company was $48,266,172,701 based on
the last price of the common stock reported by The Nasdaq Global Select Market.
At February 19, 2024, an aggregate of 59,036,585 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2024 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2023, are incorporated by reference into Part III.
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
[Reserved]
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
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16 Form 10-K Summary
PART IV
Page
5
18
23
23
25
25
26
27
28
29
40
41
73
73
74
74
75
75
76
76
76
77
80
3
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; consumer debt levels; product demand; a public health crisis; the market for auto parts; competition; weather; tariffs;
availability of key products and supply chain disruptions; business interruptions, including terrorist activities, war and the threat of war;
failure to protect our brand and reputation; challenges in international markets; volatility of the market price of our common stock; our
increased debt levels; credit ratings on public debt; damage, failure, or interruption of information technology systems, including
information security and cyber-attacks; historical growth rate sustainability; our ability to hire and retain qualified employees; risks
associated with the performance of acquired businesses; and governmental regulations. 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, 2023, 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.
4
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.
At December 31, 2023, we operated 6,095 stores in 48 states in the United States and Puerto Rico and 62 stores in Mexico. On December
18, 2023, we announced that we had entered into a definitive stock purchase agreement with the shareholders of Groupe Del Vasto, an
auto parts supplier headquartered in Montreal, Quebec, Canada, under which O’Reilly would acquire all of the outstanding shares of
Groupe Del Vasto and its affiliated entities. In January of 2024, we completed the acquisition of Groupe Del Vasto.
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
•
•
•
•
•
•
•
•
•
battery diagnostic testing;
battery, wiper, and bulb replacement;
check engine light code extraction, where allowed by law, with diagnostic information, list of possible repair fixes, and referrals
to trusted local repair shops provided;
custom hydraulic hoses;
drum and rotor resurfacing;
electrical and module testing;
loaner tool program;
professional paint shop mixing and related materials; and
used oil, oil filter, and battery recycling.
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, risks related to deteriorating economic conditions; competition in the automotive aftermarket business;
our sensitivity to regional economic and weather conditions; our relationships with key suppliers and availability of key products;
business interruptions; failure to protect our brand and reputation; risks associated with international operations; 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; information and systems security, damage, and failure; failure to achieve our growth objectives; our dependence upon
key personnel; our acquisition success; and litigation, environmental legislation, and other regulations.
OUR BUSINESS
Our goal is to continue to achieve growth in sales and profitability by capitalizing on our competitive advantages and executing our
growth strategies. 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 hard work, superior customer service, and
expense control. Our mission 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.
5
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 store and distribution infrastructure, operating profitably in both large markets and less densely populated geographic
areas that typically attract fewer national chain 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 2023, we derived approximately 53% of our sales from our DIY customers and approximately 47% 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, industry-leading parts availability, and experience serving the
professional service provider side of the automotive aftermarket, augmented by our approximately 775 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 correct 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
an extensive selection and superior availability of products;
•
•
•
•
•
engine light code extractions with diagnostic support;
attractive stores in convenient locations;
competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and
value preferences;
a robust point-of-sale system integrated with our proprietary electronic catalog, which contains a wide variety of product
images, schematics and technical specifications, and equips our Team Members with highly effective tools to source products
in our extensive supply network;
online ordering
www.FirstCallOnline.com, with local delivery available; and
for our professional customers
through our proprietary professional customer platform,
online ordering, featuring “chat with a parts professional,” parts look up assistance for our DIY customers through our retail
platform, www.OReillyAuto.com, with convenient store locations for pick up in store orders or home delivery.
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
6
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. See our “Team Members and Human
Capital Management” disclosure of the “Business” section of this annual report on Form 10-K for more information about our technically
proficient 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,
tiered distribution network includes distribution centers (“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 30 regional DCs, which provide our stores with same-day or overnight access to an average of 152,000 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 385 Hub stores that also provide delivery service and same-day access to stores within the surrounding
areas to an average of 52,000 SKUs, with Hubs in select markets carrying further enhanced inventory levels up to approximately 106,000
SKUs. More than 95% of our stores receive multiple same-day deliveries and deliveries on weekends of hard to find parts from our
DCs and Hub stores. 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 managers, 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, technical proficiency, or subject matter expertise. We have a strong
management Team that has demonstrated the consistent ability to successfully execute our business plan and growth strategy by
generating 31 consecutive years of record revenues and earnings and positive comparable store sales results since becoming a public
company in April of 1993. See our “Team Members and Human Capital Management” disclosure of the “Business” section of this
annual report on Form 10-K for more information about our experienced management Team.
Growth Strategy
Aggressively Open New Stores:
We intend to continue to consolidate the fragmented automotive aftermarket. During 2023, we opened 166 net, new domestic stores
and 20 new stores in Mexico. In 2024, we plan to open 190 to 200 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
7
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 sustainable 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 domestic and international markets.
Continually Enhance Store Design and Location:
Our current prototype store design features optimized square footage, high ceilings, convenient interior store layouts, in-store signage,
multilingual signage, bright lighting, convenient ingress and egress, ample 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 2023, we relocated 24 stores and performed minor to major updates or renovations to approximately 1,100
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 attract and 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 digital platforms, including www.OReillyAuto.com and
www.FirstCallOnline.com, to enhance our customers’ 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 complement the outstanding customer service
provided in our brick and mortar locations.
Team Members and Human Capital Management
Our tradition for 67 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.
We are committed to providing a work environment that allows Team Members to feel highly valued and to be productive and effective
in their jobs by maintaining an inclusive environment and healthy work/life balance, which we believe increases employee engagement.
Our ongoing emphasis on diversity and inclusion, including our policies, recruitment and selection procedures, onboarding processes,
and training efforts, positively builds upon our successful “promote from within” philosophy and growth strategies.
Talent Acquisition, Retention, and Training:
Our Company knows the value of a tenured Team, which is why our philosophy is to “promote from within” first. As management
opportunities arise, we look first within the Company and promote those who have performed well, have the right expertise, and have
shown leadership potential before looking outside the Company; however, we augment this philosophy by pursuing strategic hires with
a strong emphasis on automotive aftermarket experience, customer service excellence, subject matter expertise, and strong culture fit.
This comprehensive approach increases Team Member commitment and has resulted in a very experienced leadership Team. As of
December 31, 2023, our strong management Team was comprised of 241 senior managers who average 19 years of service, 329
corporate managers who average 15 years of service, and 616 district managers who average 14 years of service.
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 616 district managers has
general supervisory responsibility for an average of 10 stores, which provides our stores with strong operational support.
We offer a variety of specific training programs that address a broad spectrum of topics from store and distribution center operations to
customer service. We believe our highly trained Team of Professional Parts People is essential in providing superior customer service
8
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 and
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. Each Team Member engaged in such sales activities
participates in quarterly advanced training programs for sales and business development.
Additionally, we have extensive processes in place to specifically identify emerging talent and conduct formalized training focused on
leadership development. 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 programs, field workshops, regional meetings, and
our annual leadership conference.
Diversity and Inclusion:
At O’Reilly, valuing diversity and inclusion is about creating an environment in which our Team Members feel included, respected, and
have opportunities to do their best work and achieve their greatest potential. We believe diversity within the workplace is crucial in
running our business and building the best Team of Professional Parts People to serve our customers. We are committed to recruiting
and building a diverse team through inclusive talent acquisition, ongoing leadership development, and actively identifying emerging
talent. We have worked to expand opportunities for all of our Team Members through programs designed to prepare them to take on
more responsibilities at every level of the organization. We firmly believe that promoting from within is a differentiator in maximizing
our diversity across the entire company. In order to ensure our diversity and inclusion efforts are successful, we survey our Team
Members, provide enhanced, collaborative learning through diversity and inclusion training and resources, and build network groups,
action plans, and programs aimed at improving our work environments for our Team Members and customers.
Compensation, Benefits, and Recognition:
Our compensation philosophy has always been to incentivize Team Members to “run it like you own it,” and we continually evaluate
and benchmark our comprehensive compensation programs to ensure they remain competitive, providing an important tool to attract
and retain the best and most qualified Team Members in every market. We provide financial incentives to all store Team Members
through various incentive compensation programs. Store team members have the opportunity to earn incentive pay that increases their
base hourly wage consistent with their individual performance or the performance of their store. Store managers, district managers,
region directors, and division vice presidents have the ability to earn additional compensation above their salary or base hourly wage
based upon the performance of their stores. In addition, beginning with the district manager level, we augment our competitive programs
with share-based compensation. We believe our incentive compensation programs significantly increase the motivation and overall
performance of our Team Members.
Just as pay, benefits, and growth opportunities are critically important to our Team Members’ success, we believe it is equally important
to recognize Team Members for a job well done. We regularly present many awards that range from recognizing individual service
longevity to performance, allowing peer-to-peer recognition, or management nomination of an individual’s excellent performance.
Team Composition:
We recognize that each and every one of our Team Members plays a very important role in our ability to provide outstanding customer
service and achieve consistent, successful performance. As of January 31, 2024, we employed 90,302 Team Members (75,614 full-time
Team Members and 14,688 part-time Team Members), of whom 73,578 were employed at our stores, 11,807 were employed at our
9
DCs, and 4,917 were employed at our corporate and regional offices. Ours is an increasingly technical business creating the need for
knowledgeable Professional Parts People, and our ongoing focus on developing a technically proficient Team has resulted in the growth
of the mix of our full-time work force, increasing from 65% at January 31, 2020 to 84% at January 31, 2024. While full-time Professional
Parts People play a vital role in our ongoing success, the flexibility of incorporating part-time employment into our work force is also
an important component of providing excellent customer service. Many of our part-time Team Members choose to work at O’Reilly
while attending school, or during other transitional periods in their lives, or simply because of their passion for cars and knowledge of
auto parts. Part-time Team Members have the opportunity to become career Professional Parts People because of our “promote from
within” philosophy, and many of our leaders today began their careers as part-time Team Members in our stores or distribution centers.
A union represents 405 Team Members in 48 stores in the Greater Bay Area in California and has for many years. There are 27 Team
Members that drive over-the-road trucks in one of our domestic DCs that are also represented by a labor union. Additionally, two unions
represent approximately 1,126 Team Members in Mexico and two unions represent approximately 112 Team Members in Canada. We
consider our current relationship with these unions and union Team Members to be excellent. With the exception of the previously
described Team Members, our Team Members are not represented by labor unions.
Additional information about our Team Member population and human capital management practices can be found in our most recent
Environmental, Social, and Governance report, which is available on our website at www.OReillyAuto.com. Our Environmental, Social,
and Governance report is not, and will not be deemed to be, a part of this annual report on Form 10-K for the year ended December 31,
2023, or incorporated by reference into any of our other filings with the Securities and Exchange Commission.
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
number, age, and percent of makes and models of registered vehicles;
population density;
demographics, including age, life style, and per capita income;
•
•
• 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
the number, type, and sales potential of existing automotive repair facilities;
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 may, when appropriate, 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 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 domestic
stores, on average, carry approximately 22,000 SKUs and average approximately 7,700 total square feet in size. At December 31, 2023,
we had a total of approximately 47 million square feet in our 6,095 domestic stores. Our domestic stores are served primarily by the
nearest DC, which averages 152,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our
385 Hub stores that average 14,300 square feet in size and carry an average of 52,000 SKUs, with Hubs in select markets carrying
further enhanced inventory levels up to approximately 106,000 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
10
near major traffic thoroughfares and offer ample parking, easy customer access, and are generally located in close proximity to our
professional service provider customers.
11
The following table sets forth the geographic distribution and opening activity of our stores as of December 31, 2023 and 2022:
December 31, 2022
2023 Net, New Stores
December 31, 2023
State
Texas
California
Florida
Georgia
Illinois
Ohio
North Carolina
Missouri
Tennessee
Michigan
Indiana
Washington
Alabama
Arizona
Louisiana
Wisconsin
Minnesota
Oklahoma
South Carolina
Colorado
Arkansas
Kentucky
Virginia
Kansas
Mississippi
Iowa
Oregon
Utah
New Mexico
Nevada
Massachusetts
Idaho
Nebraska
Pennsylvania
Maine
New Hampshire
Connecticut
New York
Montana
Vermont
West Virginia
Wyoming
South Dakota
Hawaii
North Dakota
Alaska
Rhode Island
Puerto Rico
Maryland
Total domestic stores
Mexico
Total stores
% of Total
Store Count
13.5 %
9.8 %
4.6 %
3.9 %
3.8 %
3.8 %
3.6 %
3.5 %
3.4 %
3.2 %
2.8 %
2.8 %
2.6 %
2.5 %
2.3 %
2.2 %
2.2 %
2.1 %
2.1 %
2.0 %
2.1 %
1.8 %
1.7 %
1.5 %
1.4 %
1.4 %
1.2 %
1.2 %
1.1 %
1.0 %
1.0 %
0.9 %
0.9 %
0.7 %
0.6 %
0.6 %
0.5 %
0.4 %
0.5 %
0.4 %
0.4 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
0.3 %
— %
— %
100.0 %
Store
Count
798
579
275
233
227
224
216
207
199
187
168
165
157
148
143
132
131
125
125
119
122
109
99
87
85
83
74
71
65
60
58
52
51
44
37
36
30
26
29
24
23
23
21
15
16
16
15
—
—
5,929
42
5,971
Cumulative
% of Total
Store Count
13.6 %
23.3 %
28.1 %
32.0 %
35.8 %
39.5 %
43.1 %
46.5 %
49.8 %
52.8 %
55.6 %
58.4 %
61.1 %
63.6 %
66.0 %
68.3 %
70.5 %
72.6 %
74.7 %
76.7 %
78.7 %
80.5 %
82.1 %
83.5 %
84.9 %
86.3 %
87.6 %
88.8 %
89.9 %
90.9 %
91.9 %
92.8 %
93.7 %
94.5 %
95.1 %
95.7 %
96.3 %
96.8 %
97.3 %
97.7 %
98.1 %
98.5 %
98.8 %
99.1 %
99.4 %
99.7 %
100.0 %
100.0 %
100.0 %
% of Total
Store Count
13.6 %
9.7 %
4.8 %
3.9 %
3.8 %
3.7 %
3.6 %
3.4 %
3.3 %
3.0 %
2.8 %
2.8 %
2.7 %
2.5 %
2.4 %
2.3 %
2.2 %
2.1 %
2.1 %
2.0 %
2.0 %
1.8 %
1.6 %
1.4 %
1.4 %
1.4 %
1.3 %
1.2 %
1.1 %
1.0 %
1.0 %
0.9 %
0.9 %
0.8 %
0.6 %
0.6 %
0.6 %
0.5 %
0.5 %
0.4 %
0.4 %
0.4 %
0.3 %
0.3 %
0.3 %
0.3 %
0.3 %
— %
— %
100.0 %
% of Total
Store
Store
Growth
Growth
Store
Count
19.9 %
6.0 %
9.0 %
1.2 %
1.8 %
1.2 %
2.4 %
1.8 %
2.4 %
1.2 %
1.2 %
2.4 %
3.1 %
1.2 %
3.1 %
5.4 %
2.4 %
2.4 %
1.8 %
2.4 %
— %
0.6 %
2.4 %
0.6 %
0.6 %
— %
1.8 %
1.8 %
0.6 %
— %
— %
1.8 %
1.2 %
1.8 %
— %
0.6 %
3.6 %
3.1 %
0.6 %
— %
0.6 %
— %
— %
2.4 %
0.6 %
— %
0.6 %
1.8 %
0.6 %
100.0 %
33
10
15
2
3
2
4
3
4
2
2
4
5
2
5
9
4
4
3
4
—
1
4
1
1
—
3
3
1
—
—
3
2
3
—
1
6
5
1
—
1
—
—
4
1
—
1
3
1
166
20
186
12
831
589
290
235
230
226
220
210
203
189
170
169
162
150
148
141
135
129
128
123
122
110
103
88
86
83
77
74
66
60
58
55
53
47
37
37
36
31
30
24
24
23
21
19
17
16
16
3
1
6,095
62
6,157
Distribution Systems
We believe that our tiered distribution model provides industry-leading parts availability and store in-stock positions, while optimizing
our inventory investment by controlling the depth of our store stocked inventory. Our distribution expansion strategy, supported by our
ongoing, significant capital investments, 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, 2023, we had a total growth
capacity of 150 to 300 U.S. stores in our distribution network.
Distribution Centers:
As of December 31, 2023, we operated 30 regional DCs comprised of approximately 12.6 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 footage). Our DCs
stock an average of 152,000 SKUs and most DCs are linked to and have access to multiple other regional DCs’ inventory. Our DCs
provide five-night-a-week delivery, primarily via a Company-owned fleet, to substantially 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 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 2024, we plan to
continue to utilize routing software 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 enhance labor management software to improve DC productivity and overall operating efficiency;
continue to refine best practices in all DCs;
systems, picking modules, lift equipment, and computer hardware; and
•
continue to augment our robust distribution network, when and where appropriate, through the use of strategically located
Hubs.
Hub Stores:
We currently operate a total of 385 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 385 Hubs that average approximately 14,300
square feet and carry an average of 52,000 SKUs, with Hubs in select markets carrying further enhanced inventory levels up to
approximately 106,000 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 BesTest®, BrakeBest®, Cartek®, Import Direct®, MasterPro®, MicroGard®,
Murray®, Omnispark®, O’Reilly Auto Parts®, Precision®, Power Torque®, Super Start®, Syntec®, 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 brands, 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
13
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 675 suppliers, the five largest of which accounted for approximately
25% of our total purchases in 2023. Our largest supplier in 2023 accounted for approximately 8% 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 broadcast
media, print, and sports marketing, as well as sponsorships of local and regional events.
Professional Marketing:
To develop our continued relationships with professional service providers and installers, we employ Territory Sales Managers in all
major markets to ensure complete sales territory coverage and personalized service for professional 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 also offers a
proprietary ordering and other services platform called www.FirstCallOnline.com, dedicated 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 U.S. automotive aftermarket is estimated to be approximately $389 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 U.S. addressable market within this industry is
approximately $145 billion to $155 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, and NAPA);
•
•
• wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as
regional retail and wholesale automotive parts chains;
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, helpfulness
of store personnel, price, store layout, the Omnichannel experience, and convenient and accessible store locations. Our dual market
strategy requires significant capital, including 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.
14
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 costs 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, 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, as well as the health and safety of
our Team Members and customers, 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.
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 used oil, oil filter, 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 onto/in pallets
and containers, and then recycled by 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 recycling 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
Brad Beckham, age 45, Chief Executive Officer, has been an O’Reilly Team Member for 27 years. 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, Senior
Vice President of Central Store Operations, Executive Vice President of Store Operations and Sales, Executive Vice President and Chief
Operating Officer, and Co-President. Mr. Beckham has held the position of Chief Executive Officer since January of 2024.
Brent G. Kirby, age 55, President, has been an O’Reilly Team Member for five years. Mr. Kirby’s primary areas of responsibility are
Merchandise, Distribution, Logistics, Inventory Management, Pricing, Store Design, Marketing, Advertising/Marketing, Electronic
Catalog, Customer Satisfaction, Human Resources, Omnichannel, and Information Technology. Mr. Kirby began his retail career of
over 35 years with Lowe’s Companies, Inc. (“Lowe’s”) as a hardware associate 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’s O’Reilly career began as Senior Vice President of Omnichannel and progressed through the roles of Executive
Vice President of Supply Chain, Executive Vice President and Chief Supply Chain Officer, and Co-President. Mr. Kirby has held the
position of President since January of 2024.
Doug Bragg, age 54, Executive Vice President of Operations and Sales, has been an O’Reilly Team Member for 33 years. Mr. Bragg’s
primary areas of responsibility are Store Operations and Sales for O’Reilly U.S. 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, Divisional Vice President, and Senior Vice President of Central Store Operations and Sales. Mr. Bragg has held the
position of Executive Vice President of Store Operations since 2022.
Jeremy Fletcher, age 46, Executive Vice President and Chief Financial Officer, has been an O’Reilly Team Member for 18 years.
Mr. Fletcher’s primary areas of responsibility are Finance, Accounting, Credit and Collections, Financial Planning, Tax, Treasury,
Investor Relations, Legal, Risk Management, and Loss Prevention. Mr. Fletcher’s O’Reilly career began as the Financial Reporting and
Budgeting Manager and progressed through the roles of Director of Finance, Vice President of Finance and Controller, and Senior Vice
President of Finance and Controller. Prior to joining O’Reilly, Mr. Fletcher worked as a Certified Public Accountant in public practice
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and in a financial reporting and planning role for a Fortune 1000 corporation. Mr. Fletcher has held the position of Executive Vice
President and Chief Financial Officer since 2022.
Scott R. Ross, age 58, Executive Vice President and Chief Information Officer, has been an O’Reilly Team Member since October 2023.
Mr. Ross’s primary area of responsibility is Information Technology. Mr. Ross has more than 30 years of information technology
experience. Mr. Ross’s career includes information technology positions with Mobil Oil and L.L. Bean, Inc. Mr. Ross held positions
of Vice President of Enterprise Architecture and Vice President of International and Business Development before being promoted to
Senior Vice President of IT Omnichannel Technology at Lowe’s Companies, Inc. Prior to joining O’Reilly, Mr. Ross held the title of
President of Saks Cloud Services at Hudson’s Bay Company and subsidiaries. In October of 2023, Mr. Ross joined O’Reilly as
Executive Vice President and Chief Information Officer and has held this position since that time.
Tamara F. Conn, age 53, Senior Vice President of Legal and General Counsel, has been an O’Reilly Team Member for 15 years. Ms.
Conn’s primary areas of responsibility are Legal, Risk Management, and Internal Audit. Ms. Conn’s O’Reilly career began as Legal
Counsel and progressed through the roles of Associate General Counsel, Director of Legal Services and Associate General Counsel, and
Deputy General Counsel and Vice President of Legal Services. Prior to joining O’Reilly, Ms. Conn worked in a private civil defense
trial practice. Ms. Conn has held the position of Senior Vice President of Legal and General Counsel since July of 2023.
Robert Dumas, age 50, Senior Vice President of Eastern Store Operations and Sales, has been an O’Reilly Team Member for 32 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 Gray, age 52, Senior Vice President of Inventory Management, has been an O’Reilly Team Member for 32 years. Mr. Gray’s
primary areas of responsibility are Inventory Control, Purchasing, and Store Design. Mr. Gray’s O’Reilly career began as a Distribution
Center Team Member and progressed through the roles of Distribution Center Supervisor, Operations Manager, Distribution Center
Manager, Director of Distribution Center Operations Support, Regional Distribution Center Director, Vice President of Eastern
Distribution Operations, Senior Director of Inventory Management, and Vice President of Inventory Management. Mr. Gray has held
the position of Senior Vice President of Inventory Management since June of 2023.
Philip M. Hopper, age 42, Senior Vice President of Real Estate and Expansion, has been an O’Reilly Team Member for 12 years.
Mr. Hopper’s primary areas of responsibility are Real Estate, Expansions, Acquisitions, and Property Management. Mr. Hopper’s
O’Reilly career began as Real Estate Counsel and progressed through the roles of Director of Property Management, Vice President of
Real Estate Expansion and Property Management, and Vice President of Real Estate Development. Mr. Hopper has held the position
of Senior Vice President of Real Estate and Expansion since 2022.
Jeffery T. Loafman, age 54, Senior Vice President of Distribution Operations, has been an O’Reilly Team Member since April 2023.
Mr. Loafman’s primary areas of responsibility are Distribution Operations and Logistics. Mr. Loafman began his career of over 20
years with Walmart, Inc. (“Walmart”) working in distribution and held various positions including Operations Manager, Distribution
Center General Manager, Senior Director of Distribution, and Vice President of International Distribution Operations. Prior to joining
O’Reilly, Mr. Loafman served as Divisional Vice President for the U.S. Supply Chain for Walmart. In April of 2023, Mr. Loafman
joined O’Reilly as Senior Vice President of Distribution Operations and has held this position since that time.
Chris Mancini, age 46, Senior Vice President of Central Store Operations and Sales, has been an O’Reilly Team Member for 20 years.
Mr. Mancini’s primary areas of responsibility are Store Operations and Sales for O’Reilly Central Store Operations. Mr. Mancini’s
O’Reilly career began as an Installer Service Specialist and progressed through the roles of Store Manager, District Manager, Regional
Director, Mid-Atlantic Division Vice President, and Western Division Vice President. Mr. Mancini has held the position of Senior Vice
President of Central Store Operations and Sales since 2022.
Mark J. Merz, age 52, Senior Vice President of Finance, has been an O’Reilly Team Member for 16 years. Mr. Merz’s primary areas
of responsibility are Finance, Accounting, Credit and Collections, Financial Planning, Tax, Treasury, and Investor Relations. Mr. Merz’s
O’Reilly career began as a Senior Accountant and progressed through the roles of External Reporting and Investor Relations Manager,
Director of External Reporting and Investor Relations, and Vice President of Investor Relations, Financial Reporting, and Planning.
Prior to joining O’Reilly, Mr. Merz worked for nine years as a Controller for a privately held company. Mr. Merz has held the position
of Senior Vice President of Finance since 2022.
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Shari Reaves, age 53, Senior Vice President of Human Resources and Training, has been an O’Reilly Team Member for 30 years. Ms.
Reaves’s primary areas of responsibility are Human Resources and Training. Ms. Reaves’s O’Reilly career began as an Employment
Coordinator and progressed through the roles of Benefits Coordinator, Benefits Supervisor, Benefits Manager, Director of Benefits,
Senior Director of Benefits and Payroll, and Vice President of Human Resources. Ms. Reaves has held the position of Senior Vice
President of Human Resources and Training since February of 2024.
Chuck Rogers, age 56, Senior Vice President of Professional Sales and Store Operations Support, has been an O’Reilly Team Member
for 33 years. Mr. Rogers’s primary areas of responsibility are Professional Sales, Store Operations and Retail Systems, and Jobber
Sales. Mr. Rogers’s O’Reilly career began as a Delivery Specialist and progressed through the roles of various store positions, Assistant
Computer Sales and Services Coordinator, Installer Systems Manager, National Accounts/Installer Systems Manager, Director of Sales
Administration, and Vice President of Professional Sales. Mr. Rogers has held the position of Senior Vice President of Professional
Sales and Store Operations Support since 2022.
Jason Tarrant, age 43, Senior Vice President of Western Store Operations and Sales, has been an O’Reilly Team Member for 22 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.
David Wilbanks, age 52, Senior Vice President of Merchandise, has been an O’Reilly Team Member for 11 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®; BRAKEBEST SELECT®; BRAKEBEST SELECT PRO®; CARTEK®;
CARTEK PRO®; CERTIFIED AUTO REPAIR®; CHECKER AUTO PARTS®; CUSTOMIZE YOUR RIDE®; DEPENDABILITY
YOU CAN COUNT ON®; DO IT RIGHT DEALS®; EARN POINTS EVERY WAY YOU SHOP®; FIRST CALL®; FLEET &
HEAVY DUTY PROFESSIONAL PARTS PEOPLE®; FORMULATED FOR TODAY’S ENGINES®; FRIENDLIEST PARTS
STORE IN TOWN®; FROM OUR STORE TO YOUR DOOR®; IMPORT DIRECT®; IMPORT DIRECT OE REPLACEMENT
PARTS®; KRAGEN AUTO PARTS®; MASTER PRO®; MASTER PRO REFINISHING®; MASTERPRO SELECT®;
MASTERPRO UNDERCAR®; MICROGARD®; MICROGARD HEPA®; 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 SELECT®;
O’REWARDS®; ORIGINAL BRAND PROXONE EST. 2007®; PARTS CITY®; PARTS CITY AUTO COLOR PROFESSIONAL
PAINT PEOPLE®; PARTS CITY AUTO PARTS®; PARTS FOR YOUR CAR WHEREVER YOU ARE®; PARTS PAYOFF®;
POWER PERFORMANCE RELIABILITY®; POWER TORQUE®; PRECISION®; PRECISION HUB ASSEMBLIES®;
PROFESSIONAL PARTS PEOPLE®; PROFESIONALES EN AUTOPARTES®; PROTECTION YOU CAN TRUST®;
QUIETECH®; REAL WORLD TRAINING®; ¡SIGUE ADELANTE CON O’REILLY!®; SCHUCK’S AUTO SUPPLY®; SUPER
START®; SYNTEC®; TOOLBOX®; ULTIMA®; ULTIMA SELECT®; ULTIMA SELECT MOTOR PRODUCTS®; WORK AT
THE O®; and X® (design mark associated with PRECISION). 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 or trademarks or service marks used and/or registered in other countries. Except for the trademarks and service marks listed
or referred to in this Item 1, we believe that our business is not 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.
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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 Eric Bird, Vice President of Finance and Treasury,
at 233 South Patterson Avenue, Springfield, Missouri, 65802.
Item 1A. Risk Factors
Our future performance is subject to a variety of risks and uncertainties. Although the risks described below are the risks that we believe
are material, there may also be risks of which we are currently unaware, or that we currently regard as immaterial based upon the
information available to us that later may prove to be material. Interested parties should be aware that the occurrence of the events
described in these risk factors, elsewhere in this Form 10-K, and in our other filings with the Securities and Exchange Commission could
have a material adverse effect on our business, operating results, and financial condition. Actual results, therefore, may materially differ
from anticipated results described in our forward-looking statements.
RISKS SPECIFIC TO OUR BUSINESS AND INDUSTRY
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, 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, a prolonged public health crisis or
pandemic, and other matters that influence consumer confidence and spending. Many of these factors are outside of our control. Our
customers’ purchases, including purchases of our products, could decline during periods when income is lower, when prices increase in
response to rising costs, or in periods of actual or perceived unfavorable economic conditions or political uncertainty. 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. Changes in vehicle technology used by the original equipment manufacturers (“OEM”) on future vehicles,
including but not limited to electric, hybrid, and internal combustion engines, may result in less frequent repairs, parts lasting longer, or
elimination of certain repairs. In addition, restrictions on access to telematics, diagnostic tools, and repair information imposed by the
OEMs or by governmental regulations may force vehicle owners to rely on dealers to perform maintenance and repairs. 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 worsen. 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 pandemic, 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 assortment and availability 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
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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 unrecoverable losses resulting from regional weather
conditions and our results of operations, financial condition, and cash flows could be adversely affected.
A change in the relationship with any of our key suppliers, the limited supply or unavailability of key products, supply chain
disruptions, 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 when our suppliers or our supply chain experiences work stoppages; labor strikes; a prolonged
public health crisis or pandemic; shipping and transportation disruptions or increased costs; currency fluctuations or inflation; or other
interruptions to, or difficulties in, the manufacture or supply of the products we purchase. If we are unable to effectively respond to
such disruptions to our supply chain, or manage them more effectively than our competitors, our business and competitive position may
be negatively impacted. In addition, changes in U.S. trade policies, sanctions, practices, tariffs or taxes, import limitations, and other
factors relating to foreign trade and port agreements could affect our ability to source products and our suppliers’ ability to source
materials or provide products at current volumes and/or prices. These and other factors affecting our suppliers and our access to products
could adversely affect our results of operations, financial condition, and cash flows.
Business interruptions in our distribution centers or other facilities may affect our store hours, stability of systems we rely on, and/or
availability and distribution of merchandise, which may affect our business.
Business interruptions, including from a prolonged public health crisis or pandemic, weather-related events, terrorist activities, war,
political or civil unrest, or other disasters, or the threat of them, may result in a disruption of operations or 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, among other things.
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.
In addition, we rely extensively on various systems, some of which are provided by third-party service providers, to manage inventory,
process transactions, and timely provide products to our stores and customers. These systems are subject to failure, damage, or
interruption, including power outages, telecommunications failures, computer viruses, cyber-attacks, security breaches, or other
catastrophic events. If these 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, deliver product, or process customer transactions. Such a disruption of these systems,
and the response to remedy, could result in a negative impact on our business operations and increased costs, which could have an
adverse effect on our results of operations, financial condition, and cash flows.
Failure to protect our brand and reputation could have a material adverse effect on our brand name, business, results of operations,
financial condition, and cash flows.
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. Our reputation is based, in
part, on perceptions of subjective qualities; negative publicity involving the Company, our merchandise or our industry in general that
erode customer trust or confidence could adversely affect our reputation and business. Failure to comply with ethical, social, product,
labor, health and safety, accounting or environmental standards, or existing or future laws or regulations, as well as failure or perceived
failure to achieve or make progress with environmental, social, and governance goals, could also jeopardize our reputation and
19
potentially lead to various adverse actions from consumer or environmental groups, employees or regulatory bodies, which could require
us to incur substantial legal fees and costs. In addition, negative claims or publicity, including the availability of information and
opinions on social media, as its impact is immediate, could adversely affect our reputation. The opportunity for the rapid dissemination
of information, including inaccurate and inflammatory information and opinions, is virtually limitless and easily accessible. Damage to
our reputation or loss of consumer confidence for any of these or other reasons could have an adverse effect on our business, results of
operations, financial condition, or cash flows, as well as require additional resources to rebuild our reputation.
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, various and potentially complex international tax regulations and compliance requirements, 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.
RISKS RELATED TO OUR COMMON STOCK
Risks related to us and unanticipated fluctuations in our quarterly operating results could affect our stock price.
We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful indicators of our future operating
results and should not be relied on as an indication of future performance. If our quarterly operating results fail to meet the expectations
of analysts, the trading price of our common stock could be negatively affected. We cannot be certain that our 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 and potentially being targeted through the selling and buying of our common stock by a group of individuals, whose interests
and reasoning behind such actions may not align with an average market participant. 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.
RISKS RELATED TO OUR INDEBTEDNESS AND FINANCING
Our debt levels could adversely affect our cash flow and prevent us from fulfilling our obligations.
We have an unsecured revolving credit facility, unsecured commercial paper program, and unsecured senior notes, which could have
important consequences for 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, commercial
paper program, 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 our 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
•
•
•
•
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•
expose us to fluctuations in interest rates, including changes that may result from the implementation of new benchmark rates
to SOFR.
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 commercial paper program and a higher facility fee on commitments under our
unsecured revolving credit facility and commercial paper program. 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 the supplier financing programs our suppliers participate in 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.
RISKS RELATED TO INFORMATION TECHNOLOGY AND DATA PRIVACY
Damage, failure, or interruptions of information technology systems could adversely affect our business operations and results.
We rely extensively on information technology systems, some of which are managed or provided by third-party service providers, to
collect, analyze, process, store, manage, transmit, and protect business operations, processes, transactions, and data. Delays in the
maintenance, updates, upgrading, or patching of these systems, applications, or processes could adversely impact their effectiveness or
could expose us to risks. Our systems, and the third-party systems with which we interact, are subject to damage, failure, or interruption
due to various reasons, including, but not limited to, power or other critical infrastructure outages; facility damage; physical theft;
telecommunications failures; malware; security incidents; cyber-attacks, including the use of malicious codes, worms, phishing,
spyware, denial of service attacks, and ransomware; natural disasters and catastrophic events; inadequate or ineffective redundancy
measures; and design or usage errors by Team Members, contractors, or third-party service providers. Although we seek to effectively
maintain and safeguard our systems, and we seek to ensure our third-party service providers effectively maintain and safeguard their
systems, such measures are not guaranteed to be successful. As a result, we or our service providers could experience one or more
errors, interruptions, delays, or cessations of service impacting the integrity or availability of our information technology infrastructure.
A material incident could significantly disrupt our operations and business processes; result in the impairment or loss of critical data; be
costly and resource-intensive to remedy; and/or harm our reputation and relationship with customers, Team Members, suppliers, and
other stakeholders, all of which could have a material adverse impact on our results of operations, financial condition, and cash flows.
In addition, our information technology systems, infrastructure, and personnel require substantial investments, such as replacing systems,
maintaining or enhancing systems, or designing or acquiring new systems. These efforts can result in significant potential risks,
including failure of the systems to operate as designed, potential loss or corruption of data, incurring more costs than expected, or
implementation delays or errors, and may result in operational challenges, security control failures, reputational harm, and increased
costs, all of which could have a material adverse impact on our results of operations, financial condition, and cash flows.
A breach of customer, supplier, Team Member, or Company information could damage our reputation or result in substantial
additional costs or litigation.
Our business involves the receiving, storage, and transmitting of certain personally identifiable or confidential information about our
customers, suppliers, Team Members, and the Company, some of which is entrusted to third-party service providers and suppliers. We
and our third-party service providers and suppliers have taken significant and appropriate steps to protect this information, including
maintaining compliance with payment card industry and National Clearing House standards and a security program that includes
updating technology and security policies, employee training, and monitoring and routine testing of our systems. However, these
security measures are costly and require constant, ongoing attention and may not prevent a security breach due to cyber-attacks, computer
malware viruses, exploitation of hardware or software vulnerabilities, Team Member error, malfeasance, system compromises, fraud,
hacking, trickery, 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
21
time. There is no guarantee that the security measures that we and our third-party service providers and suppliers have implemented, or
will introduce in the future, to protect against unauthorized access to secured data are adequate to safeguard against all data security
breaches, or provide us with sufficient visibility to determine if data security breaches have occurred. A compromise of our security
measures or those of a third-party we entrust could result in information related to our customers, suppliers, Team Members, or the
Company being obtained or misused by unauthorized persons; damage to our reputation; adverse operational effects or interruptions;
costs to the Company to address the breach, which could require extensive time and financial resources to resolve; or claims, litigation,
or possible regulatory action against us, all of which could have a material adverse impact on our results of operations, financial
condition, and cash flows.
In addition, the regulatory environment related to information security and data collection, processing, use, and privacy is complex and
constantly evolving. The effects of complying with stricter and more complex data collection, processing, use, and privacy and
information security laws, regulations, and standards can be far-reaching and may increase our responsibility and liability, which may
increase our costs by needing to invest significant, additional time and resources and make changes to our existing practice and processes.
Failure to comply with data collection, processing, use, and privacy and information security laws, regulations, and standards by us or
our third-party service providers or suppliers could subject us to fines, sanctions, governmental investigations, lawsuits, or reputational
damage, which could have a material adverse impact on our results of operations, financial condition, and cash flows.
GENERAL RISKS
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 2024 and beyond will be achieved. Failure
to achieve our growth objectives may negatively impact the trading price of our common stock. For a discussion of our growth strategies,
see the “Growth Strategy” section of Item 1 of this annual report on Form 10-K.
In order to be successful, we will need to attract, retain, and motivate qualified employees.
Our success has been largely dependent on the efforts of certain key personnel. In order to be successful, we will need to attract, retain,
and motivate executives and other key employees. Experienced management and technical personnel are in high demand and
competition for their talents is intense. In addition, we compete with other retail businesses to fill many of our hourly positions, which
historically have had high turnover rates, which can lead to increased training and retention costs, particularly in a competitive labor
market. 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 certain that we will be able to continue to attract and retain qualified personnel, which could cause us to be
less efficient, in particular in a significant inflationary wage pressured environment, 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.
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.
22
Litigation, governmental proceedings, environmental, employment, and tax 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, new or more stringent climate change-
related mandates, laws, or regulations, or stricter interpretations of existing mandates, laws, or regulations could potentially be
forthcoming. These matters, if enacted, could adversely impact our costs, by, among other things, increasing fuel prices or requiring
additional expenditures by us or our suppliers to comply, which could have a material adverse effect on our business, results of
operations, financial condition, and cash flows.
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.
New tax laws, statutes, rules, regulations, or ordinances could harm our business operations, results of operations, and financial
condition, and existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely
to us, which could adversely impact our costs directly or indirectly through our suppliers and have a material adverse effect on our
business, results of operations, financial condition, and cash flows.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We execute a comprehensive approach to cybersecurity risk management, helping ensure the data customers and other stakeholders
entrust to us remains safe and secure. Our board of directors (the “Board”), Compliance Committee, and Information Security Program
leaders are actively involved in the oversight of our cybersecurity risk management program. As described in more detail below, we
have established standards, policies, practices, and processes focused on identifying, assessing, managing, mitigating, and responding
to material risks from cybersecurity threats. To date, the Company is not aware of any cybersecurity incidents that have materially
affected, or are reasonably likely to materially affect, our business strategies, results of operations, financial condition, or cash flows.
However, while we have devoted financial and personnel resources to implement and maintain security measures to meet regulatory
requirements and customer expectations, and we intend to continue to make investments to maintain the security of our data and
cybersecurity infrastructure, we cannot provide absolute assurance that any potential future cybersecurity threats or incidents will not
materially affect us or our business strategies, results of operations, financial condition, or cash flows. For further discussion on
cybersecurity related risks, see the “Risk Factors” section of Item 1A of this annual report on Form 10-K.
RISK MANAGEMENT AND STRATEGY
We execute a holistic approach to our standards, policies, practices, and processes for identifying, assessing, managing, mitigating, and
responding to material risks from cybersecurity threats, all of which are integrated into our overall risk management program. Our
cybersecurity program is informed by industry-wide recognized standards, such as The National Institute of Standards and Technology
(NIST) Cybersecurity Framework.
We have implemented best practices and established numerous programs and controls to reduce cybersecurity risk. Our Information
Security Program includes physical, administrative, and technical safeguards. Some key components of the Information Security
Program include:
• Security awareness training for Team Members.
• A dedicated security operations team to monitor, analyze, and respond to security threats.
• Security governance to manage and maintain security processes.
•
• A vulnerability management program to identify and remediate security liabilities.
Intrusion, detection, and prevention systems.
23
Industry-leading email security, endpoint detection, and response platforms.
• A configuration management program to harden systems based on industry standards.
•
• Threat intelligence from multiple resources to identify and anticipate emerging threats.
• Network and web application firewalls.
• Multi-factor authentication.
• Network segmentation to isolate and safeguard critical systems and sensitive data.
On an ongoing basis we conduct cybersecurity risk assessments, including compiling, reviewing, and acting on information garnered
from internal stakeholders, known security vulnerabilities, and data from external sources. The results of these assessments are used to
drive alignment on, and prioritization of, initiatives to enhance our security controls, make recommendations to improve processes, and
inform a broader enterprise-level risk assessment that is presented to our Board, Audit Committee, and members of management.
We routinely assess our systems and processes for modifications in advance of evolving state privacy regulations and other applicable
industry standards and regularly update our privacy and information security policies to remain current with industry-leading practices.
We are continually adapting to the ever-changing cyber risk landscape and have a dedicated team of information security professionals
committed to maintaining the highest levels of systems and data security. The Company conducts and has engaged external information
security firms to conduct assessments, including penetration tests, to continually improve security controls and ensure security controls.
We continue to expand and grow our security team and their skillsets and make regular enhancements to our Information Security
Program.
In addition, we engage with our third-party business partners to enforce our internal cybersecurity practices. We rely on all third-party
business partners to maintain appropriate security programs; however, we cannot ensure in all circumstances that their efforts will be
successful. We assess third-party cybersecurity controls through a detailed cybersecurity assessment and review and include security
and privacy addendums to our contracts, where applicable. We also require that our third parties report material cybersecurity incidents
to us, allowing us the ability to assess the impact of any reported incident on our operations.
Additionally, we developed a business continuity and disaster recovery program to help minimize the impact from certain types of
cybersecurity risks. The Company’s incident response plans include emergency response, systems recovery, and other plans that would
be enacted in the event of certain types of cybersecurity attacks. Our business continuity and disaster recovery plans are updated
regularly and tested each year or as needed.
GOVERNANCE
Board Oversight
Our Board, in coordination with the Audit Committee, oversees our management of cybersecurity risk. The Board receives regular
reports from management about the prevention, detection, assessment, mitigation, and remediation of cybersecurity risks and incidents,
including analysis of material security risks or information security vulnerabilities. Our Audit Committee directly oversees our
Information Security Program. The Audit Committee is composed of Board members with diverse expertise, including risk
management, technology, and finance experience, which provides them with the necessary qualifications to effectively oversee
cybersecurity risks. The Audit Committee receives on a quarterly basis, or as needed, comprehensive updates from management on
cybersecurity risks, including risk assessments, cybersecurity maturity assessments, progress of risk reduction initiatives, enhancements
to cybersecurity programs and initiatives, business continuity planning, PCI compliance, any relevant internal or industry cybersecurity
incidents, and compliance with regulatory requirements and industry standards, as applicable.
Management’s Role
A cross-functional Compliance Committee comprised of O’Reilly executive and senior leadership, including our Chief Information
Officer (“CIO”), have responsibility for assessing and managing material cybersecurity risks and oversees our enterprise security,
privacy, and risk priorities, including ensuring alignment on security decisions across the Company. The Compliance Committee meets
quarterly, or as needed, to review security performance metrics, identify security risks, assess the status of approved security
enhancements, and discuss future changes necessary to execute best practice, among other items. The Compliance Committee also
considers and makes recommendations on security policies and procedures, security service requirements, and risk mitigation strategies
to senior management. We have an established escalation process to help ensure senior management and the Board are timely informed
of any potential cybersecurity issues or incidents. Our comprehensive monitoring, analysis, response, and communication protocols are
designed to ensure the highest level of management is informed of cybersecurity risks and that the Board has comprehensive oversight
and information necessary to provide guidance on critical cybersecurity issues.
24
Our Compliance Committee members have decades of business and leadership experience managing risk, including cybersecurity risks,
that collectively enables them to effectively oversee comprehensive cybersecurity risks. Our CIO has served in various roles in
information technology for more than 30 years, including serving as a chief information officer for a technology company, and has a
degree in information management systems. Information Security Program leaders and Team Members who support our Information
Security Program have relevant educational and technical certifications, such as Certified Information Security Manager (CISM) and
Certified Information Systems Security Professional (CISSP), and applicable industry experience, including cybersecurity threat
assessment and detection, mitigation technologies, cybersecurity training, incident response, cyber forensics, insider threats, and
regulatory compliance. For further details about our CIO’s background, see the “Information About Our Executive Officers” section of
Item 1 of this annual report on Form 10-K.
Item 2. Properties
Stores, distribution centers, and other properties:
Of the 6,157 stores we operated at December 31, 2023, 2,544 stores were owned, 3,543 stores were leased from unaffiliated parties, 50
of which were located in Mexico, and 70 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 option.
We have entered into separate master lease agreements with each of the affiliated entities for the occupancy of the stores covered thereby.
Such master lease agreements with three of the five affiliated entities have been modified to extend the term of the lease agreement for
specific stores. The master lease agreements or modifications thereto expire on dates ranging from April 30, 2024, to December 31,
2029. We believe that the lease agreements with the affiliated entities are on terms comparable to those of third parties. See Note 15
“Related Parties” to the Consolidated Financial Statements for further information on master lease agreements.
The following table provides information regarding our regional DCs in operation as of December 31, 2023:
Principal Use
Distribution center
Distribution center
Total
Nature of Occupancy
Owned
Leased (2)
Number of Locations
22
8
30
(in thousands)
9,727,584
2,853,583
12,581,167
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 October 31, 2024, to June 30, 2035.
In addition, we operate six satellite warehouses in Mexico; these facilities do not serve domestic stores and are immaterial in the
aggregate. Further enhancing our distribution capabilities in 2024, we plan to relocate our Springfield DC and Atlanta DC to larger,
more efficient facilities that will increase store servicing capabilities.
We believe that our present facilities are in good condition, are sufficiently insured, and are adequate for the conduct of our current
operations. The ideal store servicing capability of our existing 29 U.S. DCs is approximately 6,125 stores; including our planned DC
relocation projects discussed above, our total DC network provides a growth capacity of approximately 150 to 300 domestic stores. We
believe the growth capacity in our 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, 2023, the total square footage for our
corporate office operations was 0.6 million square feet, substantially all of which was owned.
Item 3. Legal Proceedings
The Company is currently involved in litigation incidental to the ordinary conduct of the Company’s business. Based on existing facts
and historical patterns, the Company accrues for litigation losses in instances where an adverse outcome is probable and the Company
is able to reasonably estimate the probable loss in accordance with Accounting Standard Codification 450-20. The Company also
accrues for an estimate of legal costs to be incurred for litigation matters. Although the Company cannot ascertain the amount of liability
that it may incur from legal 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.
25
Item 4. Mine Safety Disclosures
Not applicable.
26
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 15, 2023, the Company had approximately 1,024,000 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, 2023.
Issuer purchases of equity securities:
The following table identifies all repurchases during the fourth quarter ended December 31, 2023, 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 price data):
Period
October 1, 2023, to October 31, 2023
November 1, 2023, to November 30, 2023
December 1, 2023, to December 31, 2023
Total as of December 31, 2023
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)
462 $ 910.21
965.09
961.39
607 $ 922.86
68
77
462 $
68
77 $
607
711,908
2,646,346
2,572,201
(1) The authorizations under the share repurchase program that currently have capacity are scheduled to expire on May 23, 2026, and November 16,
2026. No other share repurchase programs existed during the twelve months ended December 31, 2023. See Note 10 “Share Repurchase Program”
to the Consolidated Financial Statements for further information on our share repurchases.
27
Stock performance graph:
The graph below shows the cumulative total shareholder return assuming the investment of $100, on December 31, 2018, 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
Item 6. [Reserved]
2018
$
2019
December 31,
2021
2020
2022
2023
100 $
100
100 $
127 $
126
129 $
131 $
183
150 $
205 $
217
190 $
245 $
141
153 $
276
199
190
$
28
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 and other influences on the automotive aftermarket industry;
our results of operations for the years ended December 31, 2023 and 2022;
our liquidity and capital resources;
our critical accounting estimates; 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.
OVERVIEW
We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, Puerto Rico,
and Mexico. 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 goal is to achieve growth in sales and profitability by capitalizing on
our competitive advantages, such as our dual market strategy, superior customer service provided by well-trained and technically
proficient Team Members, and strategic distribution and hub store network that provides same day and over-night inventory access for
our stores to offer a broad selection of product offerings. The successful execution of our growth strategy includes aggressively opening
new stores, growing sales in existing stores, continually enhancing merchandising and store layouts, and implementing our Omnichannel
initiatives. As of December 31, 2023, we operated 6,095 stores in 48 U.S. states and Puerto Rico and 62 stores in Mexico.
The extensive product line offered in our stores consists 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, generally, 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 enhanced 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.
Our business is influenced by a number of general macroeconomic factors that impact both our industry and consumers, including, but
not limited to, inflation, including rising consumer staples; fuel and energy costs; unemployment trends; interest rates; and other
economic factors. Future changes, such as continued broad-based inflation and rapid fuel cost increases that exceed wage growth, may
negatively impact our consumers’ level of disposable income, and we cannot predict the degree these changes, or other future changes,
may have on our business or industry.
We believe the key drivers of demand over the long-term for the products sold within the automotive aftermarket include the number of
U.S. miles driven, number of U.S. registered vehicles, annual rate of light vehicle sales, 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 U.S. Department of Transportation, the number of total miles driven in the U.S. decreased 13.2% in 2020, as a result of responses
to the coronavirus pandemic, including work from home arrangements and reduced travel. Miles driven improved and increased 11.2%
in 2021, and continued to improve and increased 0.9% in 2022, and in 2023, returned to more typical levels with an increase of 2.1%.
Total miles driven can be impacted by macroeconomic factors, including rapid increases in fuel cost, but we are unable to predict the
degree of impact these factors may have on miles driven in the future.
29
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
13.9% from 2012 to 2022, bringing the number of light vehicles on the road to 283 million by the end of 2022. For the year ended
December 31, 2023, the seasonally adjusted annual rate of light vehicle sales in the U.S. (“SAAR”) was approximately 15.8 million
vehicles, contributing to the continued growth in the total number of registered vehicles on the road. From 2012 to 2022, vehicle
scrappage rates have remained relatively stable, ranging from 4.1% to 5.7% annually. As a result, over the past decade, the average age
of the U.S. vehicle population has increased, growing 9.9%, from 11.1 years in 2012 to 12.2 years in 2022. While the annual changes
to the vehicle population resulting from new vehicle sales and the fluctuation in vehicle scrappage rates in any given year represent a
small percentage of the total light vehicle population and have a muted impact on the total number and average age of vehicles on the
road over the short term, we believe our business benefits from the current environment of elevated new and used vehicle prices, as
consumers are more willing to continue to invest in their current vehicle.
We believe the increase in average vehicle age over the long term 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, coupled with consumers’
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.
Inflationary cost pressures impact our business; however, historically 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 base commodity price increases
or other input cost increases affecting the entire industry, we have typically been able to pass along these cost increases through higher
selling prices for the affected products. As a result, we do not believe inflation has had a material adverse effect on our operations.
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.
30
RESULTS OF OPERATIONS
The table below compares the Company’s selected financial data over a ten-year period:
Year ended December 31,
(In thousands, except per
share, Team Members, stores
and ratio data)
SELECT INCOME
STATEMENT RELATED
DATA:
Percentage increase in
comparable store sales (a)(b)
Sales ($)
Gross profit
Operating income
Net income ($) (c)(d)
Earnings per share – basic ($)
Earnings per share –
assuming dilution ($) (c)(d)
SELECT BALANCE
SHEET AND CASH
FLOW RELATED DATA:
Total assets ($) (e)
Total debt ($) (e)
Shareholders’ (deficit) equity
($) (c)
Inventory turnover (f)
Accounts payable to
inventory (g)
Cash provided by operating
activities ($) (h)
Capital expenditures ($)
Free cash flow ($) (h)(i)
SELECT OPERATING
DATA:
Number of Team Members
at year end
Total number of stores
at year end (j)(k)
Number of domestic stores
at year end (j)
Number of Mexico stores
at year end (k)
Store square footage at year
end (a)(l)
Sales per weighted-average
store ($) (a)(m)
Sales per weighted-average
square foot ($) (a)(l)(n)
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
7.9 %
15,812,250
8,104,803
3,186,376
2,346,581
38.80
6.4 %
13.3 %
10.9 %
4.0 %
14,409,860 13,327,563 11,604,493 10,149,985
5,394,691
1,920,726
1,391,042
18.07
7,381,706
2,954,491
2,172,650
33.75
6,085,692
2,419,336
1,752,302
23.74
7,019,949
2,917,168
2,164,685
31.39
3.8 %
9,536,428
5,039,966
1,815,184
1,324,487
16.27
1.4 %
8,977,726
4,720,683
1,725,400
1,133,804
12.82
4.8 %
8,593,096
4,509,011
1,699,206
1,037,691
10.87
7.5 %
7,966,674
4,162,643
1,514,021
931,216
9.32
6.0 %
7,216,081
3,708,901
1,270,374
778,182
7.46
38.47
33.44
31.10
23.53
17.88
16.10
12.67
10.73
9.17
7.34
13,872,995
5,570,125
12,627,979 11,718,707 11,596,642 10,717,160
3,890,527
4,371,653
4,123,217
3,826,978
7,980,789
3,417,122
7,571,885
2,978,390
7,204,189
1,887,019
6,676,684
1,390,018
6,532,083
1,388,422
(1,739,278) (1,060,752)
(66,423)
140,258
397,340
353,667
653,046
1,627,136
1,961,314
2,018,418
1.7
1.7
1.7
1.5
1.4
1.4
1.4
1.5
1.5
1.4
130.8 %
134.9 %
127.4 %
114.5 %
104.4 %
105.7 %
106.0 %
105.7 %
99.1 %
94.6 %
3,034,084
1,006,264
1,987,720
3,148,250
563,342
2,371,123
3,207,310
442,853
2,548,922
2,836,603
465,579
2,189,995
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
90,189
87,377
82,852
77,654
82,484
78,882
75,552
74,580
71,621
67,569
6,157
6,095
62
5,971
5,784
5,616
5,460
5,219
5,019
4,829
4,571
4,366
5,929
5,759
5,594
5,439
5,219
5,019
4,829
4,571
4,366
42
25
22
21
—
—
—
—
—
46,681
44,604
43,185
41,668
40,227
38,455
36,685
35,123
33,148
31,591
2,578
2,415
2,298
2,057
1,881
1,842
1,807
1,826
1,769
1,678
340
322
307
277
255
251
248
251
244
232
(a)
Represents O’Reilly’s U.S. operations only.
(b) 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, and sales from Leap Day during the years ended December 31, 2020 and 2016. 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.
(c) 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.
(d)
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 years 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.
(e) 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.
(f)
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.
31
(g) Accounts payable to inventory is calculated as accounts payable divided by inventory.
(h) 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.
(i)
(j)
(k)
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.
In 2016 and 2018, the Company acquired materially all assets of Bond Auto Parts (“Bond”) and Bennett Auto Supply, Inc. (“Bennett”), respectively. 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.
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.
(l)
(m) Sales per weighted-average store are weighted to consider the approximate dates of store openings, acquisitions, or closures.
(n)
Sales per weighted-average square foot are weighted to consider the approximate dates of domestic store openings, acquisitions, expansions, or closures.
The following table includes income statement data as a percentage of sales, which is calculated independently and may not compute to
presented totals due to rounding differences, for the years ended December 31, 2023 and 2022:
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
Provision for income taxes
Net income (1)
For the Year Ended
December 31,
2023
100.0 %
48.7
51.3
31.1
20.2
(1.3)
0.1
19.0
4.2
14.8 %
2022
100.0 %
48.8
51.2
30.7
20.5
(1.1)
—
19.4
4.3
15.1 %
(1) Each percentage of sales amount is calculated independently and may not compute to presented totals.
2023 Compared to 2022
Sales:
Sales for the year ended December 31, 2023, increased $1.40 billion, or 10%, to $15.81 billion from $14.41 billion for the same period
in 2022. Comparable store sales for stores open at least one year increased 7.9% and 6.4% for the year ended December 31, 2023 and
2022, respectively. Comparable store sales are calculated based on changes in sales for U.S. 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 U.S. stores open at least one year are included in the comparable store sales calculation. We opened
186 and 187 net, new stores during the year ended December 31, 2023 and 2022, respectively. We anticipate new store growth will be
190 to 200 net, new store openings in 2024.
The increase in sales for the year ended December 31, 2023, was primarily the result of the 7.9% increase in domestic comparable store
sales and a $293 million increase in sales from new stores opened in 2022 and 2023 that are not considered comparable stores. Our
comparable store sales increase for the year ended December 31, 2023, was driven by an increase in average ticket value for both
professional service provider and DIY customers and positive transaction counts from professional service provider customers, partially
offset by negative transaction counts from DIY customers. Average ticket values benefited from inflationary increases in average selling
prices, as compared to the same period in 2022. Average ticket values also continue to be positively impacted by the increasing
complexity and cost of replacement parts necessary to maintain the current population of better-engineered and more technically
advanced vehicles. 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. The resulting 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. The increase in professional service provider customer transaction counts was driven by consistently exceptional execution of
32
our strategies surrounding superior service, inventory availability, and competitive pricing. The decrease in DIY customer transaction
counts was driven by the broader industry dynamics of better engineered parts, which last longer but result in reduced repair frequency.
See Note 12 “Revenue” to the Consolidated Financial Statements for further information concerning the Company’s sales.
Gross profit:
Gross profit for the year ended December 31, 2023, increased 10% to $8.10 billion (or 51.3% of sales) from $7.38 billion (or 51.2% of
sales) for the same period in 2022. The increase in gross profit dollars for the year ended December 31, 2023, was primarily the result
of new store sales 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, 2023, was due to improved acquisition costs, partially offset by the impact from the rollout of our
professional pricing initiative in the first quarter of 2022, which was a strategic investment aimed at ensuring we are more competitively
priced on the professional side of our business; a greater percentage of our total sales mix generated from professional service provider
customers, which carry a lower gross margin than DIY sales; and a greater benefit in the prior year from selling through inventory
purchased prior to recent acquisition cost increases and corresponding selling price increases.
Selling, general and administrative expenses:
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2023, increased 11% to $4.92 billion (or 31.1%
of sales) from $4.43 billion (or 30.7% of sales) for the same period in 2022. The increase in total SG&A dollars for the year ended
December 31, 2023, was the result of additional 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, 2023, was primarily the result of increased store
staffing, wage rates, and enhanced benefits to support superior service levels, depreciation costs on accelerated refreshment of store
delivery vehicle fleet, investment initiatives aimed at refreshing the image and appearance of our stores, increased expense for the market
value performance of the Company’s Deferred Compensation Plan, increased cost for self-insured auto liability exposure, which was
driven by inflation in claim costs, and the costs associated with the resumption of our annual in-person leadership conference. See Note
13 “Share-Based Compensation and Benefit Plans” to the Consolidated Financial Statements for further information concerning the
Company’s Deferred Compensation Plan.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2023, increased 8% to $3.19 billion (or
20.2% of sales) from $2.95 billion (or 20.5% of sales) for the same period in 2022.
Other income and expense:
Total other expense for the year ended December 31, 2023, increased 17% to $182 million (or 1.1% of sales), from $156 million (or
1.1% of sales) for the same period in 2022. The increase in total other expense for the year ended December 31, 2023, was the result of
increased interest expense on higher average outstanding borrowings, partially offset by an increase in the value of our trading securities,
as compared to a decrease in the same period in 2022. See Note 8 “Financing” to the Consolidated Financial Statements for further
information concerning the Company’s borrowings. See Note 2 “Fair Value Measurements” to the Consolidated Financial Statements
for further information concerning the Company’s trading securities.
Income taxes:
Our provision for income taxes for the year ended December 31, 2023, increased 5% to $658 million (21.9% effective tax rate) from
$626 million (22.4% effective tax rate) for the same period in 2022. The increase in our provision for income taxes for the year ended
December 31, 2023, was the result of higher taxable income, partially offset by higher excess tax benefits from share-based
compensation. The decrease in our effective tax rate for the year ended December 31, 2023, primarily was the result of higher excess
tax benefits from share-based compensation. See Note 16 “Income Taxes” to the Consolidated Financial Statements for further
information concerning the Company’s income taxes.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2023, increased to $2.35 billion (or 14.8% of
sales), from $2.17 billion (or 15.1% of sales) for the same period in 2022.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2023, increased 15% to $38.47 on 61 million shares from
$33.44 on 65 million shares for the same period in 2022.
33
2022 Compared to 2021
A discussion of the changes in our results of operations for the year ended December 31, 2022, as compared to the year ended
December 31, 2021, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended December 31, 2022, filed with
the Securities and Exchange Commission (the “SEC”) on February 28, 2023, which is available free of charge on the SEC’s website at
www.sec.gov by searching with our ticker symbol “ORLY” or at our internet address, www.OReillyAuto.com, by clicking “Investor
Relations” located at the bottom of the page.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to maintain and enhance our existing stores, invest to open new stores, fund strategic
acquisitions, expand distribution infrastructure, develop enhanced information technology systems and tools, and may include the
opportunistic repurchase of shares of our common stock through our Board-approved share repurchase program. Our material cash
requirements necessary to maintain the current operations of our long-term business strategy include, but are not limited to, inventory
purchases; human capital obligations, including payroll and benefits; contractual obligations, including debt and interest obligations;
capital expenditures; payment of income taxes; and other operational priorities. We expect to fund our short- and long-term cash and
capital requirements with our primary sources of liquidity, which include funds generated from the normal course of our business
operations, borrowings under our unsecured revolving credit facility and our commercial paper program, and senior note offerings.
However, there can be no assurance that we will continue to generate cash flows or maintain liquidity at or above recent levels, as we
are unable to predict decreased demand for our products or changes in customer buying patterns. Additionally, these factors could also
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.
Our material contractual cash obligations as of December 31, 2023, included commitments for short and long-term debt arrangements
and interest payments related to long-term debt, future minimum payments under non-cancelable lease arrangements, self-insurance
reserves, projected obligations related to future payments under the Company’s nonqualified deferred compensation plan, purchase
obligations for construction contract commitments, uncertain tax positions and associated estimated interest and penalties, payments for
certain deferred income taxes, the obligation to purchase renewable energy tax credits, and commitments for the purchase of inventory.
We expect to fund these various commitments and obligations primarily with operating cash flows expected to be generated in the
normal course of business or through borrowings under our unsecured revolving credit facility and commercial paper program. See
Note 5 “Leases,” Note 13 “Share-Based Compensation and Benefit Plans,” Note 14 “Commitments,” and Note 16 “Income Taxes” to
the Consolidated Financial Statements for further information on our leasing arrangements, share-based compensation payments,
construction commitments, and uncertain tax positions, respectively, which are not reflected in the table below.
The following table identifies the estimated payments for each of the next five years, and in the aggregate thereafter, of the Company’s
debt instruments and related interest payments and self-insurance reserves as of December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Contractual cash obligations
$
$
December 31, 2023
Long-Term Debt Principal
and Interest Payments (1)
Self-Insurance
Reserves (2)
951,525
200,625
1,440,775
887,950
600,075
2,552,950
6,633,900
$
$
128,548
37,046
24,901
13,880
8,071
13,294
225,740
(1) See Note 8 “Financing” to the Consolidated Financial Statements for further information on our debt instruments and related interest payments.
(2) See Note 14 “Commitments” and Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for further
information on our self-insurance reserves.
Due to the absence of scheduled maturities, the nature of the account or the commitment’s cancellation terms, the timing of payments
for certain deferred income taxes, uncertain tax positions, and commitments related to future payments under the Company’s
nonqualified compensation plan cannot be determined and are therefore excluded from the above table, except for amounts estimated to
be payable in 2024, which are included in “Current liabilities” on our Consolidated Balance Sheets.
34
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. See Note 1 “Summary of Significant
Accounting Policies” for more information on our variable interest entities. We issue stand-by letters of credit, for more information
see Note 8 “Financing” to the Consolidated Financial Statements for further information on our stand-by letters of credit.
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.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended
December 31, 2023, 2022, and 2021 (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,
2022
2021
2023
$
$
$
3,034,084
(995,936)
(1,868,738)
1,139
170,549
1,006,264
1,987,720
$
$
$
3,148,250
(739,985)
(2,662,536)
741
(253,530)
563,342
2,371,123
$
$
$
3,207,310
(615,620)
(2,694,858)
(359)
(103,527)
442,853
2,548,922
(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. See page 37 for the reconciliation of the calculation of free cash flow.
Cash and cash equivalents balances held outside of the U.S. were $3.3 million and $11.1 million as of December 31, 2023 and 2022,
respectively, which was generally utilized to support the liquidity needs of foreign operations in Mexico.
Operating activities:
The decrease in net cash provided by operating activities in 2023 compared to 2022 was primarily due to an increase in net inventory
investment, compared to a decrease in 2022, partially offset by an increase in operating income and the timing of payment for
transferrable federal renewable energy tax credits.
Investing activities:
The increase in net cash used in investing activities in 2023 compared to 2022 was primarily the result of an increase in capital
expenditures, partially offset by a decrease in equity tax credit investments. The increase in capital expenditures was primarily due to
an increase in store and distribution enhancement and expansion projects, as well as an increase in vehicle fleet upgrade investments, in
2023 versus 2022.
We opened 186 and 187 net, new stores in 2023 and 2022, respectively. We plan to open 190 to 200 net, new stores in 2024. The costs
associated with the expected openings of owned store locations in 2024, including the cost of land acquisition, building construction,
fixtures, vehicles, net inventory investment, and computer equipment, are estimated to average approximately $3.0 million to $3.3
million per store; however, such costs may be significantly lower where we lease, rather than purchase, the store site and higher where
we build a Hub, as they require a larger inventory investment and are generally larger in size.
Financing activities:
The decrease in net cash used in financing activities in 2023 compared to 2022 was primarily attributable to larger net borrowings in
2023 and a lower level of repurchases of our common stock in 2023.
2022 Compared to 2021:
A discussion of the changes in our operating activities, liquidity activities, and financing activities for the year ended December 31, 2022,
as compared to the year ended December 31, 2021, has been omitted from this Form 10-K but may be found in Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended
December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023, which is available free of
charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “ORLY” or at our internet address,
www.OReillyAuto.com, by clicking “Investor Relations” located at the bottom of the page.
35
Debt instruments:
See Note 8 “Financing” to the Consolidated Financial Statements for information concerning the Company’s credit agreement,
unsecured revolving credit facility, outstanding letters of credit, commercial paper program, and unsecured 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, 2023, 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, and 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.
We had a consolidated fixed charge coverage ratio of 6.42 times and 6.71 times as of December 31, 2023 and 2022, respectively, and a
consolidated leverage ratio of 1.93 times and 1.73 times as of December 31, 2023 and 2022, respectively, remaining in compliance with
all covenants related to the borrowing arrangements.
36
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, 2023 and 2022 (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
Unamortized discount and debt issuance costs
Five-times rent expense
Non-GAAP adjusted debt
Consolidated leverage ratio
For the Year Ended
December 31,
2023
2,346,581
201,668
424,815
658,169
405,603
3,458
27,511
4,067,805
201,668
7,155
424,815
633,638
6.42
5,570,125
112,163
30,775
2,124,075
7,837,138
$
$
$
$
$
$
2022
2,172,650
157,720
393,032
626,005
352,224
5,709
26,458
3,733,798
157,720
5,488
393,032
556,240
6.71
4,371,653
101,741
28,347
1,965,160
6,466,901
1.93
1.73
$
$
$
$
$
$
(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”), the most directly comparable GAAP financial measure, for the years ended December 31, 2023 and 2022 (in thousands):
Total lease cost, per ASC 842
Less: Variable non-contract operating lease components, related to property taxes and
insurance
Rent expense
For the Year Ended
December 31,
2023
2022
$
503,151
$
78,336
424,815
$
$
467,758
74,726
393,032
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, 2023, 2022, and 2021 (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
For the Year Ended
December 31,
2022
3,148,250 $
563,342
25,503
188,282
2,371,123 $
2023
3,034,084 $
1,006,264
35,950
4,150
1,987,720 $
$
$
2021
3,207,310
442,853
35,202
180,333
2,548,922
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
37
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:
See Note 10 “Share Repurchase Program” to the Consolidated Financial Statements for information on our share repurchase program.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by
management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends, and other factors
believed to be relevant at the time the consolidated financial statements are prepared. Management believes that the following policies
are critical due to the inherent uncertainty of these matters and the complex and subjective judgments required in establishing these
estimates. Management continues to review these critical accounting estimates and assumptions 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.
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. Certain
of the self-insurance liabilities are determined at an estimate of their net present value, using the U.S. treasury risk-free rate. Our
calculation of self-insurance liabilities requires management to apply a significant amount of subjective judgment to estimate the
ultimate cost to resolve reported claims and claims incurred but not yet reported as of the balance sheet date. The application of
alternative assumptions could result in a different estimate of these liabilities. Management believes the assumptions developed and
used to determine the estimate for our self-insurance reserve are reasonable. 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. 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 that could result in materially different estimates of the net present value of the liabilities.
Our self-insurance reserve estimate included on our Consolidated Balance Sheets decreased $19 million from 2022 to 2023, which is
primarily due to having resolved and paid out older, higher-than-expected self-insured auto liability claims, partially offset by our
growing operations, inflation, increases in healthcare costs, the number of vehicles, and the number of hours worked, as well as our
historical claims experience. If the underlying assumptions in management’s estimate changed self-insurance reserves by 10% from
our estimated reserves at December 31, 2023, the financial impact would have been approximately $21 million or 0.7% of pretax income
for the year ended December 31, 2023. See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial
Statements for further information on our self-insurance reserves.
Valuation of Long-Lived Assets:
We evaluate the carrying value of finite and indefinite 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 a component of the finite long-lived assets
evaluation, we review performance at the store level to identify any stores with indicators of impairment 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 group are less than the carrying value of the asset group. The estimate of cash flows includes management’s assumptions of
cash inflows and outflows directly resulting from the use of that asset group in operations. If the carrying amount of an asset group
exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset
group exceeds the fair value of the asset groups.
38
As a component of the indefinite long-lived assets evaluation, we perform a qualitative assessment to determine if events or
circumstances that could affect the inputs used to determine the fair value of the intangible asset have occurred, as well as if they continue
to support an indefinite useful life. Areas evaluated include changes in cost factors such as raw materials or labor, financial performance
including declining revenues or cash flows, the legal, regulatory, and political environment, and other industry and market
considerations, including the competitive environment and changes in product demand. If events or market conditions exist that would
more likely than not indicate that impairment may be necessary, a detailed quantitative assessment would be performed.
Based on our qualitative assessment, we do not believe there has been a change of events or circumstances that would indicate that a
calculation of fair value of indefinite long-lived assets is required as of December 31, 2023. 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. See
Note 6 “Goodwill and Other Intangibles” to the Consolidated Financial Statements for further information on our finite and indefinite
long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 “Summary of Significant Accounting Policies” to the Consolidated Financial Statements for information about recent
accounting pronouncements.
39
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 Term SOFR Rate, as defined in the credit
agreement governing the Revolving Credit Facility. As of December 31, 2023, we had no outstanding borrowings under our Revolving
Credit Facility.
We are subject to interest rate risk to the extent we issue short-term, unsecured commercial paper notes under our commercial paper
program (the “Program”) with variable interest rates. As of December 31, 2023, we had outstanding borrowings under the Program in
the amount of $750.9 million, at the weighted-average variable interest rate of 5.640%. At this borrowing level, a 10% increase in
interest rates would have had an unfavorable annual impact on our pre-tax earnings and cash flows in the amount of $4.3 million.
We had outstanding fixed rate debt of $4.9 billion and $4.4 billion as of December 31, 2023 and 2022, respectively. The fair value of
our fixed rate debt was estimated at $4.7 billion and $4.1 billion as of December 31, 2023 and 2022, 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, 2023, our cash and cash equivalents totaled $279.1 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, and beginning in 2024, we will have exposure from Canadian dollar-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 $343.3 million at December 31, 2023. The year ended December 31, 2023, exchange
rates of the Mexican peso, relative to the U.S. dollar, strengthened by approximately 14.8% from December 31, 2022. 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, 2023, would be approximately $31.2 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.
40
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 (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm: Financial Statements (PCAOB ID: 42)
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
42
43
44
46
47
48
49
50
51
41
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, 2023. 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, 2023, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, as stated in their
report, which is included herein.
/s/ Brad Beckham
Brad Beckham
Chief Executive Officer
February 28, 2024
/s/ Jeremy A. Fletcher
Jeremy A. Fletcher
Executive Vice President and
Chief Financial Officer
February 28, 2024
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of O’Reilly Automotive, Inc.
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, 2023, 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, 2023, based on the
COSO criteria.
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, 2023 and 2022, 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, 2023, and the
related notes and our report dated February 28, 2024 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, 2024
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of O’Reilly Automotive, Inc.
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, 2023 and 2022, 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, 2023, and the related notes (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, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023, 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, 2023, 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, 2024 expressed an unqualified opinion thereon.
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the
critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures
to which it relates.
Valuation of Self-insurance Reserves
Description of the
Matter
At December 31, 2023, the Company’s self-insurance reserve was $214 million. As discussed in Note 1 of the
financial statements, self-insurance liabilities are estimated based upon historical claim experience and trend-
lines.
Auditing management’s self-insurance reserves was complex and judgmental and required us to use our
actuarial specialists for certain reserves due to the estimation required in determining the ultimate claim value.
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.
44
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 certain of the reserve balances 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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1992.
Kansas City, Missouri
February 28, 2024
45
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 $15,834 in 2023 and
$14,695 in 2022
Amounts receivable from suppliers
Inventory
Other current assets
Total current assets
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’ deficit
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 (deficit):
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 –
59,072,792 as of December 31, 2023, and
62,353,221 as of December 31, 2022
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income
Total shareholders’ deficit
Total liabilities and shareholders’ deficit
December 31,
2023
2022
$
279,132
$
108,583
$
$
375,049
140,443
4,658,367
105,311
5,558,302
8,312,367
3,275,387
5,036,980
2,200,554
897,696
179,463
13,872,995
6,091,700
128,548
138,122
174,650
7,860
389,536
730,937
7,661,353
5,570,125
1,881,344
295,471
203,980
$
$
343,155
127,019
4,359,126
110,376
5,048,259
7,438,065
3,014,024
4,424,041
2,112,267
884,445
158,967
12,627,979
5,881,157
138,926
126,888
166,433
—
366,721
383,692
7,063,817
4,371,653
1,806,656
245,347
201,258
—
—
591
1,352,275
(3,131,532)
39,388
(1,739,278)
624
1,311,488
(2,375,860)
2,996
(1,060,752)
$
13,872,995
$
12,627,979
See accompanying Notes to consolidated financial statements.
46
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Sales
Cost of goods sold, including warehouse and distribution expenses
Gross profit
$
15,812,250 $
7,707,447
8,104,803
14,409,860 $
7,028,154
7,381,706
13,327,563
6,307,614
7,019,949
Selling, general and administrative expenses
Operating income
4,918,427
3,186,376
4,427,215
2,954,491
4,102,781
2,917,168
For the Year Ended
December 31,
2022
2021
2023
Other income (expense):
Interest expense
Interest income
Other, net
Total other expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share-basic:
Earnings per share
Weighted-average common shares outstanding – basic
Earnings per share-assuming dilution:
Earnings per share
Weighted-average common shares outstanding – assuming dilution
(201,668)
4,900
15,142
(181,626)
(157,720)
4,763
(2,879)
(155,836)
(144,768)
1,971
7,543
(135,254)
3,004,750
658,169
2,346,581 $
2,798,655
626,005
2,172,650 $
2,781,914
617,229
2,164,685
38.80 $
60,475
33.75 $
64,372
31.39
68,967
38.47 $
60,998
33.44 $
64,962
31.10
69,611
$
$
$
See accompanying Notes to consolidated financial statements.
47
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Total other comprehensive income (loss)
2023
2,346,581
$
For the Year Ended
December 31,
2022
2,172,650
$
$
36,392
36,392
9,795
9,795
2021
2,164,685
(4,644)
(4,644)
Comprehensive income
$
2,382,973
$
2,182,445
$
2,160,041
See accompanying Notes to consolidated financial statements.
48
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Balance at December 31, 2020
Net income
Other comprehensive loss
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, 2021
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, 2022
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
Excise tax on share repurchases
Balance at December 31, 2023
Additional
Paid-In
Shares Par Value Capital
Common Stock
Retained
Deficit
71,123 $
—
—
711 $ 1,280,841 $ (1,139,139) $
—
—
—
—
2,164,685
—
Accumulated
Other
Comprehensive
Income (Loss) Total
(2,155) $
—
(4,644)
140,258
2,164,685
(4,644)
39
—
18,511
—
—
18,511
404
—
(4,537)
67,029 $
—
—
4
—
(45)
(2,391,348)
670 $ 1,305,508 $ (1,365,802) $
67,757
23,054
(84,655)
—
—
—
—
—
—
2,172,650
—
—
—
—
(6,799) $
—
9,795
67,761
23,054
(2,476,048)
(66,423)
2,172,650
9,795
34
—
19,864
—
—
19,864
251
—
(4,961)
62,353 $
—
—
3
—
(49)
(3,182,708)
624 $ 1,311,488 $ (2,375,860) $
60,974
24,650
(99,508)
—
—
—
—
—
—
2,346,581
—
—
—
—
60,977
24,650
(3,282,265)
2,996 $ (1,060,752)
2,346,581
36,392
—
36,392
28
—
21,691
260
—
(3,568)
—
59,073 $
3
—
(36)
—
71,150
25,642
(77,696)
—
—
—
—
(3,073,423)
(28,830)
591 $ 1,352,275 $ (3,131,532) $
—
21,691
—
—
—
—
71,153
25,642
(3,151,155)
(28,830)
39,388 $ (1,739,278)
See accompanying Notes to consolidated financial statements.
49
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
Net cash used in investing activities
Financing activities:
Proceeds from borrowings on revolving credit facility
Payments on revolving credit facility
Net proceeds from commercial paper
Proceeds from the issuance of long-term debt
Principal payments on 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 period
Cash and cash equivalents at end of the period
Supplemental disclosures of cash flow information:
Income taxes paid
Interest paid, net of capitalized interest
For the Year Ended
December 31,
2022
2021
2023
$ 2,346,581 $ 2,172,650 $ 2,164,685
409,061
4,954
48,232
27,511
2,116
(35,539)
(288,323)
207,061
33,889
11,234
(12,763)
280,070
3,034,084
357,933
4,704
69,575
26,458
885
(75,859)
(669,046)
1,184,858
151,063
19,300
(60,072)
(34,199)
3,148,250
328,217
4,388
20,383
24,656
2,128
(47,427)
(32,634)
510,911
152,339
18,714
9,214
51,736
3,207,310
(1,006,264)
17,689
(4,150)
(3,211)
(995,936)
(563,342)
14,803
(188,282)
(3,164)
(739,985)
(442,853)
9,494
(180,333)
(1,928)
(615,620)
3,227,000
(3,227,000)
746,789
749,655
(300,000)
(4,989)
(3,151,155)
91,316
(354)
(1,868,738)
785,800
(785,800)
—
847,314
(300,000)
(6,591)
(3,282,265)
79,356
(350)
(2,662,536)
—
—
—
—
(300,000)
(3,412)
(2,476,048)
84,915
(313)
(2,694,858)
1,139
170,549
108,583
279,132 $
741
(253,530)
362,113
108,583 $
(359)
(103,527)
465,640
362,113
$
$
315,060 $
189,611
415,165 $
155,853
450,935
144,293
See accompanying Notes to consolidated financial statements.
50
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
O’Reilly Automotive, Inc. and 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, 2023, the Company owned and operated 6,095 stores in
48 U.S. states and Puerto Rico and 62 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. Product sales
are the only material source of revenue for the Company and the products sold by the Company have similar economic characteristics,
are sourced from the Company’s suppliers in a similar manner, and are available for sale to all of the Company’s customers through the
Company’s stores. The Company’s 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 regularly prepare for review by the chief operating decision maker discrete financial
information with respect to product categories or types of customers 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 or loss on currency translation is
included as a component of “Accumulated other comprehensive income” on the accompanying Consolidated Balance Sheets. See Note
11 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 expectations of future economic and industry trends,
changes in customer payment terms, and management’s expectations. Allowances for doubtful accounts are determined based on
historical experience and an evaluation of the current composition of accounts receivable.
The Company grants credit to certain professional service provider and jobber 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 relatively small customers, spreading the credit risk across a broad base regarded as a single class of
financing receivable by the Company. 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 is granted to customers on a short-term basis, consisting primarily of daily, weekly, or monthly accounts. Credit losses are
provided for in the Company’s consolidated financial statements and have consistently been within management’s expectations.
51
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 $0.8 million as of December 31, 2023 and 2022, respectively.
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 aggregate 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, 2023 or 2022.
Inventory:
Inventory, which consists of automotive hard parts, maintenance items, accessories, and tools, is stated at the lower of cost or market.
Inventory also includes capitalized costs related to procurement, warehousing, and distribution centers (“DCs”). Cost has been
determined using the last-in, first-out (“LIFO”) method, which more accurately matches costs with related revenues. The replacement
cost of inventory was $4.94 billion and $4.70 billion as of December 31, 2023 and 2022, 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 2 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, 2023 and 2022, include goodwill and other intangible assets recorded
as the result of acquisitions. The Company operates a single reporting unit and evaluates goodwill and indefinite-lived intangibles 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. The goodwill impairment test includes an optional qualitative assessment. 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, 2023 and 2022. As such, no goodwill impairment adjustment was required as of December 31, 2023 and
2022. Finite-lived intangibles are carried at amortized cost and amortization is calculated using the straight-line method, generally over
52
the estimated useful lives of the intangibles. See Note 6 for further information concerning the Company’s goodwill and other
intangibles.
Leases:
The Company leases certain office space, retail stores, distribution centers, and equipment under long-term, non-cancelable operating
leases. The Company does not separate non-lease components from lease components for any current lease contracts. 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.
Impairment of long-lived assets:
The Company reviews its long-lived assets, including its right-of-use 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. See Note 4 for further information concerning the Company’s
impairment of long-lived assets activities.
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, 2023 and 2022. See Note 2 for further information concerning the fair value measurements of the Company’s
marketable securities. See Note 13 for further information concerning the Company’s benefit plans.
Variable Interest Entities:
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 the tax attributes of its renewable energy
investments using the deferral method. Under this method, realized investment tax credits and other tax benefits are recognized as a
reduction of the renewable energy investments.
The Company has determined its investment in these tax credit funds were investments in variable interest entities (“VIEs”). The
Company analyzes any investments in VIEs at inception and again if certain triggering events are identified to determine if it is the
primary beneficiary. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that
most significantly impact the VIEs’ economic performance including, but not limited to, the ability to direct financing, leasing,
construction, and other operating decisions and activities. As of December 31, 2023, the Company had invested in six unconsolidated
tax credit fund entities that were considered to be VIEs and concluded it was not the primary beneficiary of any of the entities, as it did
not have the power to control the activities that most significantly impact the entities, and has therefore accounted for these investments
using the equity method. The Company’s maximum exposure to losses associated with these VIEs is generally limited to its net
investment, which was $34.7 million as of December 31, 2023, and was included in “Other assets, net” on the accompanying
Consolidated Balance Sheets. During the year ended December 31, 2023, 2022, and 2021, the Company recognized investment tax
credits from association with these VIEs in the amounts of $0.5 million, $167.6 million and $177.1 million, respectively, all of which
were realized through reductions in cash income taxes paid and were reflected as a component of the change in Income taxes payable
on the accompanying Consolidated Statements of Cash Flows for the respective years.
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
53
by considering a number of factors, including historical claims experience and trend-lines, projected cost inflation, growth patterns, and
exposure forecasts. Certain of these liabilities were recorded at an estimate of their net present value.
The following table identifies the components of the Company’s self-insurance reserves as of December 31, 2023 and 2022 (in
thousands):
Self-insurance reserves (undiscounted)
Self-insurance reserves (discounted)
December 31,
2023
$
225,740
214,116
$
2022
245,562
233,017
The current portion of the Company’s discounted self-insurance reserves totaled $128.5 million and $138.9 million as of
December 31, 2023 and 2022, respectively, which was included in “Self-insurance reserves” on the accompanying Consolidated Balance
Sheets as of December 31, 2023 and 2022. The remainder was included in “Other liabilities” on the accompanying Consolidated
Balance Sheets as of December 31, 2023 and 2022.
Warranties:
The Company provides 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 9 for further information concerning the Company’s aggregate product warranty liabilities.
Litigation accruals:
The Company is currently involved in litigation incidental to the ordinary conduct of the Company’s business. Based on existing facts
and historical patterns, the Company accrues for litigation losses in instances where an adverse outcome is probable and the Company
is able to reasonably estimate the probable loss in accordance with Accounting Standard Codification 450-20. The Company also
accrues for an estimate of legal costs to be incurred for litigation matters. Although the Company cannot ascertain the amount of liability
that it may incur from legal 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 10 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
54
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 12 for further information concerning the Company’s revenue.
Cost of goods sold and selling, general and administrative expenses:
Below follows the primary costs classified in each major expense category.
Cost of goods sold, including warehouse and distribution expenses:
• Total cost of merchandise sold, including freight expenses associated with acquiring merchandise and with moving
merchandise inventories from the Company’s distribution centers to the stores and defective merchandise and warranty costs.
• Supplier allowances and incentives, including allowances that are not reimbursements for specific, incremental, and identifiable
costs and 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, and inventory shrinkage.
Selling general and administrative expenses:
• Payroll benefit costs for store and corporate Team Members;
• Occupancy costs of store and corporate facilities;
• All expenses associated with Hub stores;
• Depreciation and amortization related to store and corporate assets;
• Vehicle expenses for store and Hub delivery services;
• Self-insurance costs;
• Closed store expenses; and
• Other administrative costs, including accounting, legal, and other professional services; bad debt, banking, and credit card fees;
supplies; travel; and 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, were $85.7 million,
$81.5 million and $72.5 million for the year ended December 31, 2023, 2022, and 2021, 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 and
accounts for forfeitures as they occur. 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
13 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
55
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 year ended December 31, 2023, 2022, and 2021, were $7.2 million,
$5.5 million and $7.0 million, respectively.
In conjunction with the issuance or amendment of long-term debt instruments, the Company incurs various costs, including debt
registration fees, accounting and legal fees, and underwriter and book runner fees. 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 $25.5 million and
$24.7 million net of accumulated amortization, as of December 31, 2023 and 2022, respectively, of which $1.9 million and $2.6 million
were included in “Other assets, net” as of December 31, 2023 and 2022, respectively, with the remainder included in “Long-term debt”
on the accompanying Consolidated Balance Sheets.
The Company issued its long-term unsecured senior notes and commercial paper program 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, and the original issuance discounts on the commercial paper program are recorded as a reduction of the
face amount of the borrowings, with the accretion expenses included in “Interest expense” on the accompanying Consolidated
Statements of Income. Original issuance discounts, net of accretion, totaled $7.1 million and $6.3 million as of December 31, 2023 and
2022, respectively.
See Note 8 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, 2023 and 2022, as it was considered more
likely than not that deferred tax assets were realizable through a combination of future taxable income, the realization of deferred tax
liabilities and tax planning strategies.
The Company regularly reviews its potential tax liabilities for tax years subject to audit. The amount of such liabilities is based on
various factors, such as differing interpretations of tax regulations by the responsible tax authority, experience with previous tax audits,
and applicable tax law rulings. 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 16 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 17 for further information concerning the Company’s common stock
equivalents.
56
New accounting pronouncements:
In September of 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2022-
04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (“ASU 2022-
04”). ASU 2022-04 enhances the transparency of supplier finance programs. Under ASU 2022-04, a buyer in a supplier finance program
would be required to disclose sufficient information about the program to allow a user of financial statements to understand the
program’s nature, activity during the period, changes from period to period, and potential magnitude. ASU 2022-04 is effective for
annual reporting periods beginning after December 15, 2022, including interim periods within that reporting period, except for the
amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. ASU 2022-04 allows
for early adoption and requires retrospective adoption, except on rollforward information, which should be applied prospectively. The
Company adopted this guidance, using the retrospective adoption method, beginning with its first quarter ending March 31, 2023, with
the exception, as stated in the guidance, of the rollforward information, which will be adopted prospectively, disclosure for which will
be effective with the Company’s fiscal year beginning after December 15, 2023. 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, as the guidance requires
disclosure only. See Note 7 for further information concerning the Company's supplier finance programs.
In November of 2023, FASB issued Accounting Standard Update ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements
to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 improves the disclosures about a public entity’s reportable
segments. Under ASU 2023-07, a public entity would be required to disclose significant segment expenses that are regularly provided
to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, annual disclosures about
a reportable segment’s profit or loss and assets required by Topic 280 in interim periods, any additional measures of a segment’s profit
or loss used by the CODM to allocate resources, and the title and position of the CODM. ASU 2023-07 is effective for annual reporting
periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. ASU 2023-07
allows for early adoption and requires retrospective adoption. The Company will adopt this guidance beginning with its fourth quarter
ending December 31, 2024. 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, as the guidance pertains to disclosure only.
In December of 2023, FASB issued Accounting Standard Update ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to
Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures.
Under ASU 2023-09, a public entity would be required to disclose specific categories in the rate reconciliation and provide additional
information for reconciling items that meet a quantitative threshold, such as if the effect of the reconciling items is equal to or greater
than five percent of the amount computed by multiplying pretax income/loss by the applicable statutory income tax rate. Entities would
also have to disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes
paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes
paid, along with income/loss from continuing operations before income tax expense disaggregated between domestic and foreign and
income tax expense from continuing operations disaggregated by federal, state, and foreign. ASU 2023-09 is effective for annual
reporting periods beginning after December 15, 2024. ASU 2023-09 allows for early adoption for annual financial statements that have
not yet been issued and allows retrospective and prospective adoption. The Company will adopt this guidance beginning with its fourth
quarter ending December 31, 2025. 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, as the guidance pertains to disclosure only.
NOTE 2 – FAIR VALUE MEASUREMENTS
Financial assets and liabilities measured at fair value on a recurring basis:
The Company invests in various marketable securities with the intention of selling these securities to fulfill its future unsecured
obligations under the Company’s nonqualified deferred compensation plan. See Note 12 for further information concerning the
Company’s benefit plans.
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, 2023 and 2022. The Company
recorded an increase in fair value related to its marketable securities in the amount of $8.4 million and a decrease in fair value to its
related to its marketable securities in the amount of $8.3 million for the year ended December 31, 2023 and 2022, respectively, which
were included in “Other income (expense)” on the accompanying Consolidated Statements of Income.
57
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, 2023 and 2022 (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, 2023
Marketable securities
$
59,508 $
— $
— $
59,508
Quoted Prices in Active Markets
Significant Other
Significant
for Identical Instruments
(Level 1)
Observable Inputs Unobservable Inputs
(Level 2)
(Level 3)
Total
December 31, 2022
Marketable securities
$
49,371 $
— $
— $
49,371
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, 2023 and 2022, the
Company did not have any material 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, unsecured revolving credit facility borrowings, and commercial paper program
borrowings are included in “Long-term debt” on the accompanying Consolidated Balance Sheets as of December 31, 2023 and 2022.
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, 2023 and 2022, were determined by reference to quoted market prices of the same or similar instruments (Level 2) (in
thousands):
December 31, 2023
December 31, 2022
Senior Notes
$
4,820,543
Carrying Amount
Estimated Fair Value
4,687,065
$
Carrying Amount
$
4,371,653
Estimated Fair Value
4,119,777
$
The carrying amount of the Company’s unsecured revolving credit facility approximates fair value (Level 2), as borrowings under the
facility bear variable interest at current market rates. The carrying amount of the Company’s commercial paper program approximates
fair value (Level 2), as borrowings under the program bear interest at market rates prevailing at the time of issuance. See Note 8 for
further information concerning the Company’s senior notes, unsecured revolving credit facility, and commercial paper program.
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.
NOTE 3 – ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table identifies the changes in the Company’s allowance for doubtful accounts included in “Accounts receivable” on the
accompanying Consolidated Balance Sheets as of December 31, 2023 and 2022 (in thousands):
Allowance for doubtful accounts, balance at January 1
Reserve accruals
Uncollectable accounts written-off
Foreign currency translation
Allowance for doubtful accounts, balance at December 31
2023
2022
$
$
14,695
7,261
(6,226)
104
15,834
$
$
11,870
6,718
(3,928)
35
14,695
58
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, 2023 and 2022, 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
$
989,575 $
December 31, 2023 December 31, 2022
931,993
2,896,071
951,652
1,847,248
571,328
239,773
7,438,065
3,014,024
4,424,041
3,121,562
1,113,374
2,029,668
709,220
348,968
8,312,367
3,275,387
5,036,980
$
$
The Company recorded depreciation and amortization expense related to property and equipment in the amounts of $404.9 million,
$343.6 million and $320.4 million for the year ended December 31, 2023, 2022, and 2021, respectively, which were included in “Selling,
general and administrative expenses” and “Cost of goods sold, including warehouse and distribution expenses” on the accompanying
Consolidated Statements of Income.
The Company recorded charges of $2.2 million related to property and equipment for the year ended December 31, 2023, primarily due
to the write-down of equipment that exceeded market value and certain hardware and software projects that were disposed or were no
longer expected to provide a long-term benefit, $7.6 million related to property and equipment for the year ended December 31, 2022,
primarily due to the write-down on surplus land and buildings that exceeded market value and certain hardware and software projects
that were disposed or were no longer expected to provide a long-term benefit, and $12.6 million related to property and equipment for
the year ended December 31, 2021, primarily due to certain hardware and software projects that were disposed or were no longer
expected to provide a long-term benefit, which were included in “Selling, general and administrative expenses” on the accompanying
Consolidated Statements of Income.
NOTE 5 – LEASES
Operating lease commitments:
The following table summarizes Total lease cost for the years ended December 31, 2023, 2022, and 2021, 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
$
$
2023
398,537
9,508
99,911
(4,805)
503,151
$
$
For the Year Ended
December 31,
2022
367,724
11,314
93,940
(5,220)
467,758
$
$
2021
351,296
7,694
89,065
(4,571)
443,484
The following table summarizes other lease related information for the years ended December 31, 2023 and 2022 (in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
$
390,907 $
387,810
366,866
416,615
For the Year Ended
December 31,
2023
2022
59
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, 2023 (in thousands):
December 31, 2023
2024
2025
2026
2027
2028
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
385,437 $
$
365,942
330,350
282,689
230,380
1,115,755
2,710,553
446,974
2,263,579
384,806
1,878,773 $
4,730 $
3,875
3,260
2,283
2,046
47
16,241
8,940
7,301
4,730
2,571 $
$
Total
390,167
369,817
333,610
284,972
232,426
1,115,802
2,726,794
455,914
2,270,880
389,536
1,881,344
See Note 15 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 $9.6 million as of December 31, 2023. The weighted-average remaining
lease term and weighted-average discount rate for the Company’s operating leases was 9.4 years and 4.3%, respectively, as of
December 31, 2023.
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. 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, 2023, 2022, or 2021.
The following table identifies the changes in goodwill and certain acquisition intangibles, which were included in “Goodwill” on the
accompanying Consolidated Balance Sheets for the years ended December 31, 2023 and 2022 (in thousands):
Goodwill, balance at January 1,
Change in goodwill related to small acquisitions
Foreign currency translation
Goodwill, balance at December 31,
2023
2022
$
$
884,445
1,989
11,262
897,696
$
$
879,340
1,452
3,653
884,445
60
Intangibles other than goodwill:
The following table identifies the components of the Company’s intangible assets, inclusive of foreign currency translation adjustments,
which were included in “Other assets, net” on the accompanying Consolidated Balance Sheets for the years ended December 31, 2023
and 2022 (in thousands):
Cost of
December 31, 2023
Accumulated
Intangibles Amortization
Net
Cost of
Intangibles Intangibles Amortization
Net
Intangibles
December 31, 2022
Accumulated
Finite-lived intangible assets:
Trade names (1)
Non-compete agreements (2)
Other intangible assets (3)
$
Total finite-lived intangible assets
Indefinite-lived intangible assets:
Trade names
9,797 $
2,240
10,027
22,064
(8,273) $
(1,419)
(4,095)
(13,787)
$
1,524
821
5,932
8,277
8,532 $
7,010
12,446
27,988
(5,532) $
(5,965)
(6,406)
(17,903)
3,000
1,045
6,040
10,085
41,493
—
41,493
36,134
—
36,134
Total intangible assets
$
63,557 $
(13,787) $
49,770
$
64,122 $
(17,903) $
46,219
(1) Weighted-average remaining useful life of approximately 3.9 years as of December 31, 2023.
(2) Weighted-average remaining useful life of approximately 4.0 years as of December 31, 2023.
(3)
Includes internally-developed software and customer relationships and has an estimated weighted-average remaining useful life of approximately
5.9 years as of December 31, 2023.
During the years ended December 31, 2023 and 2022, the Company recorded non-compete agreement assets in conjunction with small
acquisitions in the amount of less than $0.1 million for each year. Other than the non-compete agreement assets, the Company did not
record additional finite-lived or indefinite-lived intangible assets during the years ended December 31, 2023 and 2022. For the year
ended December 31, 2023, 2022, and 2021, the Company recorded aggregate amortization expense related to its intangible assets in the
amounts of $3.0 million, $4.8 million and $4.9 million, respectively.
Indefinite-lived intangible assets, such as trade names, are reviewed for impairment annually during the fourth quarter, or more
frequently if events or changes in circumstances indicate that impairment may exist. The Company did not record any indefinite-lived
intangible asset impairment during the years ended December 31, 2023, 2022, or 2021.
The following table identifies the estimated amortization expense of the Company’s intangibles for each of the next five years, and the
aggregate thereafter, and reconciles to net, finite-lived intangible assets included in “Other assets, net” on the accompanying
Consolidated Balance Sheets as of December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total net, finite-lived intangible assets
December 31, 2023
Amortization Expense
$
$
1,620
1,613
1,588
1,448
1,088
920
8,277
61
NOTE 7 – SUPPLIER FINANCE PROGRAMS
The Company has established and maintains supplier finance programs with certain third-party financial institutions, which allow
participating merchandise suppliers to voluntarily elect to assign the Company’s payment obligations due to these merchandise suppliers
to one of the designated third-party institutions. Under these supplier finance programs, the Company has agreed to pay the third-party
financial institutions the stated amount of confirmed merchandise supplier invoices on the original maturity dates of the invoices, which
are generally for a term of one year. The Company does not have any assets pledged as security or other forms of guarantees for the
committed payment to the third-party institutions. As of December 31, 2023, and 2022, the Company had obligations outstanding under
these programs for invoices that were confirmed as valid to the third-party financial institutions in the amounts of $4.4 billion and $4.2
billion, respectively, which were included as a component of “Accounts payable” on the accompanying Consolidated Balance Sheets.
NOTE 8 – FINANCING
The following table identifies the amounts included in “Long-term debt” on the accompanying Consolidated Balance Sheets as of
December 31, 2023 and 2022 (in thousands):
Commercial paper program, weighted-average variable interest rate of 5.640%
3.850% Senior Notes due 2023, effective interest rate of 3.851%
3.550% Senior Notes due 2026, effective interest rate of 3.570%
5.750% Senior Notes due 2026, effective interest rate of 5.767%
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%
4.200% Senior Notes due 2030, effective interest rate of 4.205%
1.750% Senior Notes due 2031, effective interest rate of 1.798%
4.700% Senior Notes due 2032, effective interest rate of 4.740%
Total principal amount of debt
Less: Unamortized discount and debt issuance costs
Total long-term debt
December 31,
2023
750,900
—
500,000
750,000
750,000
500,000
500,000
500,000
500,000
850,000
5,600,900
30,775
5,570,125 $
2022
—
300,000
500,000
—
750,000
500,000
500,000
500,000
500,000
850,000
4,400,000
28,347
4,371,653
$
The following table identifies the principal maturity payments of the Company’s financing facilities for each of the next five years, and
in the aggregate thereafter, as of December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total principal amount of debt
December 31, 2023
Scheduled Maturities
$
$
750,900
—
1,250,000
750,000
500,000
2,350,000
5,600,900
Unsecured revolving credit facility:
The Company is party to a credit agreement dated June 15, 2021, as amended as of March 6, 2023 (the “Credit Agreement”). The Credit
Agreement provides for a five-year $1.8 billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by
JPMorgan Chase Bank, N.A., which is scheduled to mature in June of 2026. 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 $900 million, provided that the aggregate
amount of the commitments does not exceed $2.7 billion at any time.
On March 6, 2023, the Company entered into the First Amendment (the “Amendment”) to the credit agreement to convert the LIBOR
based pricing to Secured Overnight Financing Rate (“SOFR”) based pricing. The Amendment replaces an Adjusted LIBO Rate with an
62
Adjusted Term SOFR Rate, comprised of the Term SOFR Rate plus 0.100%. The Amendment made no other material changes to the
terms of the credit agreement.
As of December 31, 2023 and 2022, the Company had outstanding letters of credit, primarily to support obligations related to workers’
compensation, general liability and other insurance policies, under the Credit Agreement in the amounts of $5.4 million and $5.1 million,
respectively, reducing the aggregate availability under the Credit Agreement by those amounts. Substantially all of the outstanding
letters of credit have a one-year term from the date of issuance. As of December 31, 2023 and 2022, the Company had no outstanding
borrowings under its Revolving Credit Facility.
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 Term SOFR Rate (both as defined in the Credit Agreement) plus an applicable margin, which 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 Term SOFR 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 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, varying from 0.070% to 0.250% per annum. 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, 2023, based upon the Company’s current credit ratings, its margin for Alternate Base Rate loans was
0.000%, its margin for Term Benchmark 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
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, and
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, 2023, the Company remained in compliance with all covenants under the Credit Agreement.
In addition to the letters of credit issued under the Credit Agreement described above, as of December 31, 2023 and 2022, the Company
had other outstanding letters of credit, primarily to support obligations under workers’ compensation, general liability, and other
insurance policies, in the amount of $106.8 million and $96.6 million, respectively. Substantially all of these letters of credit have a
one-year term from the date of issuance and were not issued under the Company’s Credit Agreement or another committed facility.
Commercial paper program:
On August 9, 2023, the Company established a commercial paper program (the “Program”) pursuant to which it may issue short-term,
unsecured commercial paper notes (the “Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities
Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the
aggregate face or principal amount of the Notes outstanding under the Program at any time not to exceed $1.8 billion. The Notes will
have maturities of up to 397 days from the date of issue. The Notes rank at least pari passu with all of the Company’s other unsecured
and unsubordinated indebtedness. The Company plans to use its Revolving Credit Facility as a liquidity backstop for the repayment of
Notes outstanding under the Program. The Notes issued under the Program were included in “Long-term debt” on the accompanying
Consolidated Balance Sheet as of December 31, 2023, as the Company has the ability and intent to refinance these Notes on a long-term
basis.
Senior notes:
On June 15, 2023, the Company’s $300 million aggregate principal amount of unsecured 3.850% Senior Notes due 2023 matured, and
the Company repaid these notes using borrowings under its Revolving Credit Facility.
On November 20, 2023, the Company issued $750 million aggregate principal amount of unsecured 5.750% Senior Notes due 2026
(“5.750% Senior Notes due 2026”) at a price to the public of 99.954% of their face value with U.S. Bank Trust Company, National
Association (“U.S. Bank”) as trustee. Interest on the 5.750% Senior Notes due 2026 is payable on May 20 and November 20 of each
year, beginning on May 20, 2024, and is computed on the basis of a 360-day year.
63
As of December 31, 2023, the Company has issued and outstanding a cumulative $4.9 billion aggregate principal amount of unsecured
senior notes, which are due between 2026 and 2032, with UMB Bank, N.A. and U.S. Bank Trust Company as trustees. Interest on the
senior notes, ranging from 1.750% to 5.750%, 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, 2023.
NOTE 9 – WARRANTIES
The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Consolidated Balance Sheets
as of December 31, 2023 and 2022. The following table identifies the changes in the Company’s aggregate product warranty liabilities
for the years ended December 31, 2023 and 2022 (in thousands):
Warranty liabilities, balance at January 1,
Warranty claims
Warranty accruals
Foreign currency translation
Warranty liabilities, balance at December 31,
NOTE 10 – SHARE REPURCHASE PROGRAM
2023
2022
$
$
98,564
(180,971)
200,228
74
117,895
$
$
77,199
(152,777)
174,118
24
98,564
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 November 15, 2022, May 23, 2023, and November 16, 2023, the Company’s Board
of Directors approved a resolution to increase the authorization amount under the share repurchase program by an additional $1.5 billion,
$2.0 billion, and $2.0 billion, respectively, resulting in a cumulative authorization amount of $25.8 billion. The additional authorizations
are effective for three years, 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 years ended December 31, 2023 and 2022 (in thousands, except per share data):
Shares repurchased
Average price per share
Total investment
For the Year Ended
December 31,
2023
3,568
883.13
3,151,120
$
$
2022
4,961
661.66
3,282,215
$
$
As of December 31, 2023, the Company had $2.6 billion remaining under its share repurchase program. Excise tax on shares
repurchased, assessed at one percent of the fair market value of net shares repurchased, was $28.8 million for the year ended
December 31, 2023.
Subsequent to the end of the year and through February 28, 2024, the Company repurchased an additional 0.2 million shares of its
common stock under its share repurchase program, at an average price of $1,001.04, for a total investment of $184.4 million. The
Company has repurchased a total of 94.3 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, 2024, at an average price of $247.83, for a total aggregate investment of $23.4
billion. As of February 28, 2024, we had approximately $2.4 billion remaining under our share repurchase program.
64
NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes adjustments for foreign currency translations. The table below summarizes
activity for changes in accumulated other comprehensive loss included in “Accumulated other comprehensive income (loss)” on the
accompanying Consolidated Balance Sheets as of December 31, 2023 and 2022 (in thousands):
Accumulated other comprehensive loss, balance at December 31, 2021
Change in accumulated other comprehensive income
Accumulated other comprehensive income, balance at December 31, 2022
Change in accumulated other comprehensive income
Accumulated other comprehensive income, balance at December 31, 2023
$
$
$
Foreign
Currency (1)
Total Accumulated Other
$
Comprehensive Income (Loss)
(6,799)
9,795
2,996
36,392
39,388
$
$
(6,799)
9,795
2,996
36,392
39,388
(1) Foreign currency translation is not shown net of additional U.S. tax, as other basis differences of non-U.S. subsidiaries are intended to be
permanently reinvested.
NOTE 12 – REVENUE
The table below identifies the Company’s revenues disaggregated by major customer type for the years ended December 31, 2023, 2022,
and 2021 (in thousands):
Sales to do-it-yourself customers
Sales to professional service provider customers
Other sales and sales adjustments
Total sales
2023
8,248,213
7,245,747
318,290
15,812,250
$
$
For the Year Ended
December 31,
2022
7,903,359
6,170,239
336,262
14,409,860
$
$
2021
7,643,832
5,368,657
315,074
13,327,563
$
$
As of December 31, 2023 and 2022, the Company had recorded a deferred revenue liability of $5.1 million and $5.0 million,
respectively, related to its loyalty program, which were included in “Other liabilities” on the accompanying Consolidated Balance
Sheets. During the year ended December 31, 2023, 2022, and 2021, the Company recognized $13.9 million, $12.2 million and $13.6
million, respectively, of revenue related to its loyalty program, which were included in “Sales” on the accompanying Consolidated
Statements of Income.
See Note 9 for information concerning the expected costs associated with the Company’s assurance warranty obligations.
NOTE 13 – 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, 2023 (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, 2023
35,650
4,250
4,200
5,492
412
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
65
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 stock option activity under these plans during the year ended December 31, 2023:
Shares
(in thousands)
Weighted- Average
Exercise Price
Contractual Terms
Average
Remaining
Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2022
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2023
Vested or expected to vest at December 31, 2023
Exercisable at December 31, 2023
1,069 $
94
(260)
(19)
884 $
853 $
627 $
356.76
861.57
273.94
652.81
428.50
414.37
330.25
5.3 Years $
5.2 Years $
4.2 Years $
461,145
456,945
388,517
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 grants awarded during the years ended December 31, 2023, 2022,
and 2021:
Risk free interest rate
Expected life
Expected volatility
Expected dividend yield
2023
3.96 %
6.3 Years
29.0 %
— %
December 31,
2022
2.09 %
6.3 Years
28.9 %
— %
2021
0.82 %
5.9 Years
30.0 %
— %
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2023,
2022, and 2021:
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,
2022
2021
2023
$
22,090 $
21,412 $
20,035
5,477
170,521
71,153
323.16 $
5.3
5,332
123,911
60,976
221.19 $
4.5
4,989
163,722
67,761
146.57
4.7
$
At December 31, 2023, the remaining unrecognized compensation expense related to unvested stock option awards was $39.4 million,
and the weighted-average period of time, over which this cost will be recognized, is 2.7 years.
Restricted stock:
The Company’s incentive plans provide for the awarding of shares of restricted stock to certain key employees or the non-employee
directors of the Company that vest after one-year or evenly over a three-year period and are held in escrow until such vesting has
66
occurred. Generally, unvested shares are forfeited when an employee or a director ceases employment or 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 over the vesting period or
minimum required service period.
The table below identifies restricted stock activity under these plans during the year ended December 31, 2023 (in thousands, except per
share data):
Non-vested at December 31, 2022
Granted during the period
Vested during the period (1)
Forfeited during the period
Non-vested at December 31, 2023
Shares
Weighted-Average Grant-Date
Fair Value
4 $
2
(3)
—
3 $
572.54
888.60
571.45
—
772.45
(1)
Includes less than one thousand shares withheld to cover employees’ taxes upon vesting.
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2023,
2022, and 2021 (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,
2022
2023
$
$
$
$
1,869 $
463 $
2,693 $
2
888.60 $
1,808 $
450 $
2,595 $
3
645.31 $
2021
1,602
399
2,815
3
509.24
At December 31, 2023, the remaining unrecognized compensation expense related to unvested restricted share awards was $0.5 million,
and the weighted-average period of time, over which this cost will be recognized, is 0.3 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, and compensation expense is recognized based on the discount between the grant-date fair
value and the employee purchase price for the shares sold to employees.
The table below summarizes activity related to the Company’s ESPP for the years ended December 31, 2023, 2022, and 2021 (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
$
3,552 $
881 $
26
766.11 $
3,238 $
806 $
31
592.22 $
For the Year Ended
December 31,
2022
2023
2021
3,019
752
36
473.22
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. The Company makes matching contributions equal to 100% of the first 2% of each employee’s wages that
are contributed and 25% of the next 4% of each employee’s wages that are contributed. The Company may also make additional
discretionary profit sharing contributions to the 401(k) 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, 2023, 2022, or 2021. The
Company expensed matching contributions under the 401(k) Plan in the amounts of $48.6 million, $36.7 million and $32.5 million for
67
the year ended December 31, 2023, 2022, and 2021, 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 Company may make discretionary contributions to the Deferred Compensation Plan on an annual basis as determined by the
Board of Directors. 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, if applicable,
adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant
during the deferral period. See Note 2 for further information concerning the Company’s marketable securities held to fulfill our future
unsecured obligations under this plan.
The liability for compensation deferred under the Deferred Compensation Plan was $59.5 million and $49.4 million as of
December 31, 2023 and 2022, respectively, which were included in “Other liabilities” on the accompanying Consolidated Balance
Sheets. The Company did not make discretionary contributions to the Deferred Compensation Plan during the years ended
December 31, 2023 or 2022. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of
less than $0.1 million, $0.2 million, and $0.2 million for the for the year ended December 31, 2023, 2022, and 2021, respectively, which
were included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.
Stock appreciation rights:
The Company’s incentive plans provide for the granting of stock appreciation rights, which expire after 10 years and vest 25% per year,
over four years, and are settled in cash. There were 13,079 and 13,159 stock appreciation rights outstanding as of December 31, 2023
and 2022, respectively. During the year ended December 31, 2023, there were 1,714 stock appreciation rights granted, 1,187 stock
appreciation rights exercised, and 607 stock appreciation rights forfeited. The liability for compensation to be paid for redeemed stock
appreciation rights was $4.5 million and $2.9 million as of December 31, 2023 and 2022, respectively, which were included in “Other
liabilities” on the Consolidated Balance Sheets. The Company recorded compensation expense for stock appreciation rights in the
amounts of $1.1 million, $1.7 million and $1.0 million for the year ended December 31, 2023, 2022, and 2021, respectively, which were
included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.
NOTE 14 – COMMITMENTS
Construction commitments:
As of December 31, 2023, the Company had purchase obligations for construction contract commitments in the amount of $170.9
million.
Letters of credit commitments:
As of December 31, 2023, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability,
and other insurance policies, in the amount of $112.2 million. See Note 8 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 8 for further information concerning the Company’s debt
financing commitments.
68
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. See Note 1 for further information
concerning the Company’s self-insurance reserves.
NOTE 15 – RELATED PARTIES
The Company leases certain land and buildings related to 70 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 for each of the years ended December 31, 2023, 2022, and 2021. 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 16 – 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, 2023, 2022, and 2021 (in
thousands):
Domestic
International
Income before income taxes
For the Year Ended
December 31,
2022
2,786,866 $
11,789
2,798,655 $
2023
2,994,856 $
9,894
3,004,750 $
$
$
2021
2,770,485
11,429
2,781,914
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, 2023, 2022, and 2021 (in thousands):
Current:
Federal income tax expense
State income tax expense
International income tax expense
Total current
Deferred:
Federal income tax expense
State income tax expense
International income tax expense (benefit)
Total deferred
For the Year Ended
December 31,
2022
2021
2023
$
$
497,492
109,924
2,521
609,937
$
455,779
95,388
5,263
556,430
41,782
6,003
447
48,232
62,719
8,583
(1,727)
69,575
485,988
104,837
6,021
596,846
20,543
2,432
(2,592)
20,383
Net income tax expense
$
658,169
$
626,005
$
617,229
69
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, 2023, 2022, and 2021 (in
thousands):
Federal income taxes at statutory rate
State income taxes, net of federal tax benefit
Excess tax benefit from share-based compensation
Benefit from renewable energy tax credits
Other items, net
Total provision for income taxes
$
$
$
For the Year Ended
December 31,
2022
587,716
87,352
(25,503)
(17,593)
(5,967)
626,005
$
$
$
2023
630,998
98,254
(35,950)
(19,627)
(15,506)
658,169
2021
584,202
90,360
(35,202)
(18,592)
(3,539)
617,229
The Company has invested in tax credit equity investments for the purposes of receiving renewable energy tax credits and purchased
transferrable federal renewable energy tax credits. During the year ended December 31, 2023, 2022, and 2021, the Company recognized
investment tax credits in the amount of $336.5 million, $167.6 million and $177.1 million, respectively, all of which were realized
through reductions in cash income taxes paid and were reflected as a component of the change in Income taxes payable on the
accompanying Consolidated Statements of Cash Flows for the respective years. As of December 31, 2023, the Company had recorded
a liability for the purchase of transferrable federal renewable energy tax credits of $266.0 million, which was included in “Other current
liabilities” on the accompanying Consolidated Balance Sheets. See Note 1 for further information concerning the Company’s investment
in tax credit funds.
Income taxes have not been accrued by the Company for the unremitted earnings of its foreign subsidiaries because such earnings are
intended to be reinvested in the subsidiaries indefinitely.
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, 2023 and 2022 (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
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,
2023
2022
$
$
2,430
150,483
559,830
18,102
730,845
142,578
280,791
540,359
62,588
1,026,316
2,196
137,474
538,890
17,115
695,675
104,572
233,288
521,541
81,621
941,022
$
(295,471)
$
(245,347)
70
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, 2023, 2022, and 2021 (in thousands):
Unrealized tax benefit, balance at January 1,
Additions based on tax positions related to the current year
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,
2023
24,798 $
3,932
—
(4,787)
23,943 $
2022
26,847 $
4,146
(1,000)
(5,195)
24,798 $
2021
30,967
5,446
(2,570)
(6,996)
26,847
$
$
For the year ended December 31, 2023, 2022, and 2021, the Company recorded a reserve in the amount of $21.9 million, $22.4 million
and $24.2 million, respectively, for unrecognized tax benefits, including interest and penalties, net of federal benefits, which if
recognized would affect the Company’s effective tax rate. The timing related to the ultimate resolution or settlement of these uncertain
tax positions cannot be determined. The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. As of December 31, 2023, 2022, and 2021, the Company had accrued approximately $3.9 million, $3.5 million and $3.8
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 year ended December 31, 2023, 2022, and 2021, the Company recorded tax expense related to an
increase in its liability for interest and penalties in the amounts of $2.1 million, $1.5 million and $1.6 million, respectively. Although
unrecognized tax benefits for individual tax positions may increase or decrease during 2024, the Company expects a reduction of $7.3
million of unrecognized tax benefits during the one-year period subsequent to December 31, 2023, resulting from settlement or
expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2020 and beyond remain subject to examination by the Internal
Revenue Service. The Company’s state income tax returns remain subject to examination by various state authorities for tax years
ranging from 2012 through 2022.
NOTE 17 – EARNINGS PER SHARE
The following table illustrates the computation of basic and diluted earnings per share for the years ended December 31, 2023, 2022,
and 2021 (in thousands, except per share data):
Numerator (basic and diluted):
Net income
Denominator:
For the Year Ended
December 31,
2022
2023
2021
$
2,346,581
$
2,172,650
$
2,164,685
Weighted-average common shares outstanding – basic
Effect of stock options (1)
Weighted-average common shares outstanding – assuming dilution
60,475
523
60,998
64,372
590
64,962
68,967
644
69,611
Earnings per share:
Earnings per share-basic
Earnings per share-assuming dilution
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)
$
$
$
38.80
38.47
$
$
33.75
33.44
$
$
31.39
31.10
95
836.12
$
144
663.36
$
111
479.90
(1) See Note 13 for further information concerning the terms of the Company’s share-based compensation plans.
See Note 10 for information concerning the Company’s subsequent share repurchases.
71
NOTE 18 – QUARTERLY RESULTS (Unaudited)
The following tables set forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2023 and 2022. 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 2023
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)
Sales
Gross profit
Operating income
Net income
Earnings per share – basic (1)
Earnings per share – assuming dilution (1)
1,890,329
716,645
516,885
$ 3,707,864 $ 4,068,991 $ 4,203,380 $ 3,832,015
1,967,429
718,736
552,504
9.33
9.26
2,160,463
897,222
649,827
2,086,582
853,773
627,365
10.82 $
10.72 $
10.32 $
10.22 $
8.36 $
8.28 $
$
$
Fiscal 2022
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
1,708,072
669,530
481,880
$ 3,296,011 $ 3,670,737 $ 3,798,619 $ 3,644,493
1,853,954
682,217
528,572
8.45
8.37
1,934,962
804,194
585,438
1,884,718
798,550
576,760
9.25 $
9.17 $
7.24 $
7.17 $
8.86 $
8.78 $
$
$
(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.
NOTE 19 – SUBSEQUENT EVENT
On December 18, 2023, the Company announced that it had entered into a definitive stock purchase agreement with the shareholders of
Groupe Del Vasto, an auto parts supplier headquartered in Montreal, Quebec, Canada, under which O’Reilly would acquire all of the
outstanding shares of Groupe Del Vasto and its affiliated entities. In January of 2024, the Company completed the acquisition of Groupe
Del Vasto. At the time of the acquisition, Groupe Del Vasto operated two distribution centers and six satellite warehouses that support
a network of 23 company-owned stores and thousands of independent jobber and professional customers across Eastern Canada. The
results of Groupe Del Vasto’s operations will be included in the Company’s consolidated financial statements and results of operations
beginning on the date of acquisition. Pro forma results of operations related to the acquisition of Groupe Del Vasto have not been
presented as Groupe Del Vasto’s results are not material to the Company’s results of operations.
72
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
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, 2023,
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, 2023. 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, 2023, the Company’s internal control over financial reporting was effective based on those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements
and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, which is included in
Item 8 of this annual report on Form 10-K.
73
Item 9B. Other Information
(c) Rule 10b5-1 Trading Plan Elections:
On December 1, 2023, Greg Johnson, the then Chief Executive Officer of the Company, established a plan intended to satisfy the
affirmative defense of Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended, for the trading of the Company’s
common stock. The plan provides for the sale of up to 32,291 shares at specific market prices, subject to specified limitations over
a period beginning on March 4, 2024 and ending on December 31, 2024. The plan was established for the purposes of facilitating
the exercise and subsequent sale of stock options with a ten-year contractual life that are due to expire February of 2028. The plan
was established during the Company’s unrestricted trading window and at a time when Mr. Johnson was not in possession of
material, non-public information about the Company. Mr. Johnson has informed the Company that he will publicly disclose, as
required by federal securities laws, any option exercises and stock sales made under this plan.
None of the Company’s other Directors or Officers adopted, modified, or terminated a Rule 10b5-1 trading agreement or a non-
Rule 10b5-1 trading agreement, as defined in Item 408(c) of Regulation S-K, during the Company’s fiscal quarter ended December
31, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
74
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
2024 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.
Section 16(a) of the Securities Exchange Act of 1934, as amended:
The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
required by Item 405 of Regulation S-K, will be included in the Company’s Proxy Statement under the caption “Delinquent Section
16(a) Reports,” if applicable, and is incorporated herein by reference.
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 “Company
Overview” and then “Corporate Governance” captions. 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, Maria A. Sastre, Andrea M. Weiss,
and Fred Whitfield, 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.
Human Capital and 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 “Human Capital and Compensation Committee Interlocks and Insider Participation” and “Human Capital and Compensation
Committee Report” and is incorporated herein by reference.
75
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.
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.
76
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, 2023, 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, 2023 and 2022
• Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021
• Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021
• Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021
• Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
• Notes to Consolidated Financial Statements for the years ended December 31, 2023, 2022, and 2021
2. Financial Statement Schedules - O’Reilly Automotive, Inc. and Subsidiaries
Any 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
Second 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 19, 2020, is incorporated herein by this reference.
3.2
Fourth Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.3 to the Registrant’s Current Report on
Form 8-K dated May 19, 2020, 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
4.6
4.7
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.
77
Exhibit No.
Description
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)
10.5 (a)
10.6 (a)
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 Trust Company
National Association (formerly known as 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
Trust Company National Association (formerly known as 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 as
Exhibit 4.20 to the Registrant’s Annual Shareholders’ Report on Form 10-K dated February 28, 2020, is
incorporated herein by this reference.
Second Supplemental Indenture, dated as of March 27, 2020, by and between O’Reilly Automotive, Inc. and U.S.
Bank Trust Company National Association (formerly known as U.S. Bank National Association), as Trustee, filed
as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 27, 2020, is incorporated herein by this
reference.
Form of Note for 4.200% Senior Notes due 2030, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated March 27, 2020, is incorporated herein by this reference.
Third Supplemental Indenture, dated as of September 23, 2020, by and between O’Reilly Automotive, Inc. and
U.S. Bank Trust Company National Association (formerly known as U.S. Bank National Association), as Trustee,
filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated September 23, 2020, is incorporated
herein by this reference.
Form of Note for 1.750% Senior Notes due 2031, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated September 23, 2020, is incorporated herein by this reference.
Fourth Supplemental Indenture, dated as of June 15, 2022, by and between O’Reilly Automotive, Inc. and U.S.
Bank Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated June 15, 2022, is incorporated herein by this reference.
Form of Note for 4.700% Senior Notes due 2032, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated June 15, 2022, is incorporated herein by this reference.
Fifth Supplemental Indenture, dated November 20, 2023, by and between O’Reilly Automotive, Inc. and U.S. Bank
Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form
8-K dated November 20, 2023, is incorporated herein by this reference.
Form of Note for 5.750% Senior Notes due 2026, included in Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated November 20, 2023, is incorporated herein by this reference.
Form of Employment Agreement between the Registrant and David E. O’Reilly, filed as Exhibit 10.1 to the
Registration Statement of the Registrant on Form S-1, File No. 33-58948, is incorporated herein by this reference.
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.
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.
78
Exhibit No.
Description
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 (a)
10.18 (a)
10.19 (a)
10.20 (a)
10.21 (a)
10.22
10.23 *
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.
Second Form of O’Reilly Automotive, Inc. Director Indemnification Agreement, filed as Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q dated August 7, 2020, 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.
Second Form of O’Reilly Automotive, Inc. Executive Officer Indemnification Agreement, filed as Exhibit 10.2 to
the Registrant’s Quarterly Report on Form 10-Q dated August 7, 2020, 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.
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.
O’Reilly Automotive, Inc. 2017 Incentive Award Plan, Second Form of Stock Option Agreement, dated as of
August 6, 2020, filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q dated August 7, 2020, is
incorporated herein by this reference.
O’Reilly Automotive, Inc. 2017 Incentive Award Plan, Form of Director Restricted Stock Agreement, filed as
Exhibit 10.19 to the Registrant’s Annual Shareholders’ Report on Form 10-K dated February 28, 2020, is
incorporated herein by this reference.
O’Reilly Automotive, Inc. Deferred Compensation Plan, as amended and restated effective as of January 1, 2021,
filed as Exhibit 10.23 to the Registrant’s Annual Shareholders’ Report on Form 10-K dated February 26, 2021, is
incorporated herein by this reference.
Credit Agreement, dated as of June 15, 2021, among O’Reilly Automotive, Inc., JPMorgan Chase Bank, N.A., as
Administrative Agent, and the lenders party thereto, filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K dated June 16, 2021, is incorporated herein by this reference.
First Amendment to the Credit Agreement, dated as of March 6, 2023, among O’Reilly Automotive, Inc., JPMorgan
Chase Bank, N.A., as Administrative Agent, and the lenders party thereto, filed as Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q dated May 9, 2023, is incorporated herein by this reference.
10.24 (a)
O’Reilly Automotive, Inc. 2009 Stock Purchase Plan, as Amended and Restated May 4, 2016, and further Amended
and Restated May 18, 2023, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q dated August
8, 2023, is incorporated herein by this reference.
79
Exhibit No.
Description
10.25
10.26
21.1
23.1
31.1
31.2
32.1 **
32.2 **
Form of Commercial Paper Dealer Agreement between O’Reilly Automotive, Inc., an issuer, and the applicable
Dealer party, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 9, 2023, is
incorporated herein by this reference.
Underwriting Agreement, dated as of November 13, 2023, by and among the Company and BofA Securities, Inc.,
J.P. Morgan Securities LLC and Truist Securities, Inc., as the representatives of the underwriters named on
Schedule 1 thereto, filed as Exhibit 1.1 to the Registrant’s Current Report on Form 8-K dated November 13, 2023,
is incorporated herein by this reference.
Subsidiaries of the Registrant, filed herewith.
Consent of Ernst & Young LLP, independent registered public accounting firm, filed herewith.
Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.
Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certificate of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished herewith.
Certificate of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished herewith.
97.1
O’Reilly Automotive, Inc. 2014 Executive Incentive Compensation Clawback Policy, as Amended and Restated
November 10, 2023, filed herewith.
97.2 (a)
101.INS
Form of O’Reilly Automotive, Inc. Executive Incentive Compensation Clawback Policy Acknowledgement,
between O’Reilly Automotive, Inc. and O’Reilly Automotive, Inc. Executive Officers, filed herewith.
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.
Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
Furnished (and not filed) herewith pursuant to Item 601 (b)(32)(ii) of Regulation S-K.
Item 16. Form 10-K Summary
Not applicable.
80
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, 2024
By:
/s/ Brad Beckham
Brad Beckham
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated.
Date: February 28, 2024
/s/ Greg Henslee
Greg Henslee
Director and Executive Chairman of the Board
/s/ David O’Reilly
David O’Reilly
Director and Executive Vice Chairman of the Board
/s/ Larry O’Reilly
Larry O’Reilly
Director and Vice Chairman of the Board
/s/ Thomas T. Hendrickson
Thomas T. Hendrickson
Director
/s/ Dana M. Perlman
Dana M. Perlman
Director
/s/ Andrea M. Weiss
Andrea M. Weiss
Director
/s/ Brad Beckham
Brad Beckham
Chief Executive Officer
(Principal Executive Officer)
/s/ Jay D. Burchfield
Jay D. Burchfield
Director
/s/ John R. Murphy
John R. Murphy
Director
/s/ Maria A. Sastre
Maria A. Sastre
Director
/s/ Fred Whitfield
Fred Whitfield
Director
/s/ Jeremy A. Fletcher
Jeremy A. Fletcher
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
81
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
OAP Transportation, LLC
O’Reilly Auto Enterprises, LLC
State of Incorporation
Missouri
Missouri
Missouri
Missouri
Missouri
Delaware
In addition, 19 subsidiaries operating in the United States, Mexico, and Canada 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.
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. 333-263144) pertaining to the offer from time to time of debt securities;
of our reports dated February 28, 2024, 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, 2023.
/s/ Ernst & Young LLP
Kansas City, Missouri
February 28, 2024
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Brad Beckham, 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, 2024
/s/ Brad Beckham
Brad Beckham
Chief Executive Officer
(Principal Executive Officer)
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Jeremy A. Fletcher, 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, 2024
/s/ Jeremy A. Fletcher
Jeremy A. Fletcher
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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, 2023,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brad Beckham, 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/ Brad Beckham
Brad Beckham
Chief Executive Officer
February 28, 2024
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification accompanies
the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2 - CFO Certification
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
O’REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of O’Reilly Automotive, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2023,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeremy A. Fletcher, 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/ Jeremy A. Fletcher
Jeremy A. Fletcher
Chief Financial Officer
February 28, 2024
This certification is made solely for purposes of 18 U.S.C. Section 1350, and not for any other purpose. This certification accompanies
the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 97.1 – Clawback Policy
O’Reilly Automotive, Inc.
Amended and Restated Incentive Compensation Clawback Policy
The Board of Directors (“Board”) of O’Reilly Automotive, Inc. (the “Company”) adopted the Incentive
Compensation Clawback Policy in 2014. The Board believes that it is appropriate to amend and restate the
Incentive Compensation Clawback Policy effective as of November 10, 2023 (the “Effective Date”). The
Incentive Compensation Clawback Policy, as amended and restated November 10, 2023 and as may be further
amended or restated from time to time, is referred to herein as the “Policy”.
1. Definitions
For purposes of this Policy, the following definitions shall apply:
a) “Additional Compensation” means performance bonuses and incentive awards (including any
stock options, stock appreciation rights, restricted shares, restricted stock units, performance
shares or other stock-based awards) paid, granted, vested or accrued under any Company plan or
agreement in the form of cash or Company common stock, in each case, to the extent it is not
Erroneously Awarded Compensation.
b) “Committee” means the Human Capital and Compensation Committee of the Board.
c) “Company Group” means the Company and each of its Subsidiaries, as applicable.
d) “Covered Compensation” means any Incentive-Based Compensation granted, vested or paid to a
person who served as an Executive Officer at any time during the performance period for the
Incentive-Based Compensation and that was Received (i) on or after the effective date of the
applicable Nasdaq listing standards, (ii) after the person became an Executive Officer and
(iii) at a time that the Company had a class of securities listed on a national securities exchange or a national
securities association.
e) “Covered Person” means any current and former named executive officers of the Company, as
determined pursuant to Item 402 under Regulation S-K.
f) “Erroneously Awarded Compensation” means the amount of Covered Compensation granted,
vested or paid to a person during the fiscal period when the applicable Financial Reporting
Measure relating to such Covered Compensation was attained that exceeds the amount of Covered
Compensation that otherwise would have been granted, vested or paid to the person
1
had such amount been determined based on the applicable Restatement, computed without regard to any taxes
paid (i.e., on a pre-tax basis). For Covered Compensation based on stock price or total shareholder return,
where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly
from the information in a Restatement, the Committee will determine the amount of such Covered
Compensation that constitutes Erroneously Awarded Compensation, if any, based on a reasonable estimate of
the effect of the Restatement on the stock price or total shareholder return upon which the Covered
Compensation was granted, vested or paid and the Committee shall maintain documentation of such
determination and provide such documentation to the Nasdaq.
g) “Exchange Act” means the Securities Exchange Act of 1934.
h) “Executive Officer” means each “officer” of the Company as defined under Rule 16a-1(f) under
Section 16 of the Exchange Act, which shall be deemed to include any individuals identified by
the Company as executive officers pursuant to Item 401(b) of Regulation S-K under the Exchange
Act. Both current and former Executive Officers are subject to the Policy in accordance with its
terms.
i) “Financial Reporting Measure” means (i) any measure that is determined and presented in
accordance with the accounting principles used in preparing the Company’s financial statements,
and any measures derived wholly or in part from such measures and may consist of GAAP or
non-GAAP financial measures (as defined under Regulation G of the Exchange Act and Item 10
of Regulation S-K under the Exchange Act), (ii) stock price or (iii) total shareholder return.
Financial Reporting Measures may or may not be filed with the SEC and may be presented
outside the Company’s financial statements, such as in Management’s Discussion and Analysis
of Financial Conditions and Result of Operations or in the performance graph required under
Item 201(e) of Regulation S-K under the Exchange Act.
j) “Home Country” means the Company’s jurisdiction of incorporation.
k) “Incentive-Based Compensation” means any compensation that is granted, earned or vested
based wholly or in part upon the attainment of a Financial Reporting Measure.
l) “Lookback Period” means the three completed fiscal years (plus any transition period of less than
nine months that is within or immediately following the three completed fiscal years and that
results from a change in the Company’s fiscal year) immediately preceding the date on which the
Company is required to prepare a Restatement for a given reporting period, with such date being
the earlier of: (i) the date the Board, a committee of the Board, or the officer or officers of the
Company authorized to take such action if Board action is not required, concludes, or reasonably
should have concluded, that the Company is required to prepare an Restatement, or (ii) the date a
court, regulator or other legally authorized body directs the Company to prepare a Restatement.
Recovery of any Erroneously Awarded Compensation under the Policy is not dependent on if or
when the Restatement is actually filed.
2
m) “Misconduct” means that a Covered Person engaged in fraud or willful misconduct that
contributed to an obligation to restate the Company’s financial statements. The determination of whether any
Misconduct occurred shall be made by the Committee in its discretion.
n) “Nasdaq” means the Nasdaq Stock Market.
o) “Received”: Incentive-Based Compensation is deemed “Received” in the Company’s fiscal period
during which the Financial Reporting Measure specified in or otherwise relating to the Incentive-
Based Compensation award is attained, even if the grant, vesting or payment of the Incentive-
Based Compensation occurs after the end of that period.
p) “Restatement” means a required accounting restatement of any Company financial statement due
to the material noncompliance of the Company with any financial reporting requirement under the
securities laws, including (i) to correct an error in previously issued financial statements that is
material to the previously issued financial statements (commonly referred to as a “Big R”
restatement) or (ii) to correct an error in previously issued financial statements that is not material
to the previously issued financial statements but that would result in a material misstatement if the
error was corrected in the current period or left uncorrected in the current period (commonly
referred to as a “little r” restatement). Changes to the Company’s financial statements that do not
represent error corrections under the then- current relevant accounting standards will not
constitute Restatements. Recovery of any Erroneously Awarded Compensation under the Policy
is not dependent on fraud or misconduct by any person in connection with the Restatement.
q) “SEC” means the United States Securities and Exchange Commission.
r) “Subsidiary” means any domestic or foreign corporation, partnership, association, joint stock
company, joint venture, trust or unincorporated organization “affiliated” with the Company, that
is, directly or indirectly, through one or more intermediaries, “controlling”, “controlled by” or
“under common control with”, the Company. “Control” for this purpose means the possession,
direct or indirect, of the power to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities, contract or otherwise.
2. Recoupment and Forfeiture of Erroneously Awarded Compensation
In the event of a Restatement, any Erroneously Awarded Compensation Received during the Lookback Period
prior to the Restatement (a) that is then-outstanding but has not yet been paid shall be automatically and
immediately forfeited and (b) that has been paid to any person shall be subject to reasonably prompt
repayment to the applicable member of the Company Group in accordance with Section 4 of this Policy. The
Committee must pursue (and shall not have the discretion to waive) the forfeiture and/or repayment of such
Erroneously Awarded Compensation in accordance with Section 4 of this Policy, except as provided below.
Notwithstanding the foregoing, the Committee (or, if at any time the Committee is not a committee of the
Board responsible for the Company’s executive compensation decisions and composed entirely of
3
independent directors, a majority of the independent directors serving on the Board) may determine not to
pursue the forfeiture and/or recovery of Erroneously Awarded Compensation from any person if the
Committee determines that such forfeiture and/or recovery would be impracticable due to any of the following
circumstances: (i) the direct expense paid to a third party (for example, reasonable legal expenses and
consulting fees) to assist in enforcing the Policy would exceed the amount to be recovered (following
reasonable attempts by one or more members of the Company Group to recover such Erroneously Awarded
Compensation, the documentation of such attempts, and the provision of such documentation to the Nasdaq),
(ii) pursuing such recovery would violate the Company’s Home Country laws adopted prior to November 28,
2022 (provided that the Company obtains an opinion of Home Country counsel acceptable to the Nasdaq that
recovery would result in such a violation and provides such opinion to the Nasdaq), or (iii) recovery would
likely cause any otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and
regulations thereunder.
3. Additional Recoupment and Forfeiture in connection with Misconduct
If the Committee determines that any Covered Person committed Misconduct, the Committee may seek
recovery of all or a portion of any Additional Compensation awarded to the Covered Person in, for, or in
respect of the fiscal year or performance period in which the violation occurred for up to three years following
vesting or, if later, payment or settlement of the Additional Compensation. In addition, the Committee may
provide that any unpaid or unvested Additional Compensation is forfeited in connection with any Misconduct.
The Committee may seek recovery of Additional Compensation for Misconduct even if a Covered Person’s
Misconduct did not result in an award or payment greater than would have been awarded absent the violation.
4. Means of Repayment
In the event that the Committee determines that any person shall repay any Erroneously Awarded
Compensation or Additional Compensation, the Committee shall provide written notice to such person by
email or certified mail to the physical address on file with the Company Group for such person, and the person
shall satisfy such repayment in a manner and on such terms as required by the Committee, and any member of
the Company Group shall be entitled to set off the repayment amount against any amount owed to the person
by the applicable member of the Company Group, to require the forfeiture of any award granted by any
member of the Company Group to the person, or to take any and all necessary actions to reasonably promptly
recoup the repayment amount from the person, in each case, to the fullest extent permitted under applicable
law, including without limitation, Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and
the regulations and guidance thereunder. If the Committee does not specify a repayment timing in the written
notice described above, the applicable person shall be required to repay the Erroneously Awarded
Compensation and any other Additional Compensation, as applicable, to the Company by wire, cash or
cashier’s check no later than sixty (60) days after receipt of such notice.
5. No Indemnification
No person shall be indemnified, insured or reimbursed by any member of the Company Group in respect of
any loss of compensation by such person in accordance with this Policy, nor shall any person
4
receive any advancement of expenses for disputes related to any loss of compensation by such person in
accordance with this Policy, and no person shall be paid or reimbursed by any member of the Company Group
for any premiums paid by such person for any third-party insurance policy covering potential recovery
obligations under this Policy. For this purpose, “indemnification” includes any modification to current
compensation arrangements or other means that would amount to de facto indemnification (for example,
providing the person a new cash award which would be cancelled to effect the recovery of any Erroneously
Awarded Compensation). In no event shall any member of the Company Group be required to award any
person an additional payment if any Restatement or accurate financial results would result in a higher
incentive compensation payment.
6. Miscellaneous
This Policy generally will be administered and interpreted by the Committee, provided that the Board may, in
its discretion, at any time and from time to time, administer and interpret the Policy, and all references to the
“Committee” hereunder shall be deemed to include the Board at any time that the Board so administers or
interprets the Policy.
Any determination by the Committee (or by any officer of the Company to whom enforcement authority has
been delegated) with respect to this Policy shall be final, conclusive and binding on all interested parties. Any
discretionary determinations of the Committee under this Policy, if any, need not be uniform with respect to all
persons, and may be made selectively amongst persons, whether or not such persons are similarly situated.
This Policy is intended to satisfy the requirements of Section 954 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, as it may be amended from time to time, and any related rules or regulations
promulgated by the SEC or the Nasdaq, including any additional or new requirements that become effective
after the Effective Date which upon effectiveness shall be deemed to automatically amend this Policy to the
extent necessary to comply with such additional or new requirements.
The provisions in this Policy are intended to be applied to the fullest extent of the law. To the extent that any
provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision will
be applied to the maximum extent permitted and shall automatically be deemed amended in a manner
consistent with its objectives to the extent necessary to conform to applicable law. The invalidity or
unenforceability of any provision of this Policy shall not affect the validity or enforceability of any other
provision of this Policy. Recoupment of Erroneously Awarded Compensation under this Policy is not
dependent upon the Company Group satisfying any conditions in this Policy, including any requirements to
provide applicable documentation to the Nasdaq.
The rights of the members of the Company Group under this Policy to seek forfeiture or reimbursement are in
addition to, and not in lieu of, any rights of recoupment, or remedies or rights other than recoupment, that may
be available to any member of the Company Group pursuant to the terms of any law, government regulation or
stock exchange listing requirement or any other policy, code of conduct, employee handbook, employment
agreement, offer letter, equity award agreement, or other plan or agreement of any member of the Company
Group.
5
Application of the Policy does not preclude the Company from taking any other action to enforce an Executive
Officer’s or other Covered Person’s obligations to the Company, including termination of employment or
institution of civil or criminal proceedings.
7. Amendment and Termination
To the extent permitted by, and in a manner consistent with applicable law, including SEC and Nasdaq rules,
the Committee may terminate, suspend or amend this Policy at any time in its discretion.
8. Successors
This Policy shall be binding and enforceable against all persons and their respective beneficiaries, heirs,
executors, administrators or other legal representatives with respect to any Covered Compensation and
Additional Compensation granted, vested or paid to or administered by such persons or entities.
6
Exhibit 97.2 – Clawback Policy Acknowledgement
O’Reilly Automotive, Inc.
Amended and Restated Incentive Compensation Clawback Policy
Acknowledgment, Consent and Agreement
I acknowledge that I have received and reviewed a copy of the O’Reilly Automotive, Inc. Amended and
Restated Incentive Compensation Clawback Policy (as may be amended from time to time, the “Policy”) and I
have been given an opportunity to ask questions about the Policy and review it with my counsel. I knowingly,
voluntarily and irrevocably consent to and agree to be bound by and subject to the Policy’s terms and
conditions, including that I will return any Erroneously Awarded Compensation and Additional Compensation
that is required to be repaid in accordance with the Policy. I further acknowledge, understand and agree that (i)
the compensation that I receive, have received or may become entitled to receive from the Company Group is
subject to the Policy, and the Policy may affect such compensation and (ii) I have no right to indemnification,
insurance payments or other reimbursement by or from any member of the Company Group for any
compensation that is subject to recoupment and/or forfeiture under the Policy. Capitalized terms not defined
herein have the meanings set forth in the Policy.
Signed:
Print Name:
Date:
Shareholder Information
CORPORATE ADDRESS
233 South Patterson Avenue
Springfield, Missouri 65802
417-862-3333
www.OReillyAuto.com
The Nasdaq Stock Market: Ticker Symbol “ORLY”
SUSTAINABILITY, SOCIAL, AND GOVERNANCE REPORT
Available at www.OReillyAuto.com by clicking on “Sustainability."
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
1828 Walnut Street, Suite 04-100
Kansas City, Missouri 64108
REGISTRAR AND TRANSFER AGENT
Computershare Investor Services
P.O. Box 43006
Providence, Rhode Island 02940-3078
800-884-4225
www.computershare.com
Inquiries regarding stock transfers, lost certificates or address changes should be
directed to Computershare Investor Services at the above address.
Analyst Coverage
The following analysts provide research coverage of O’Reilly Automotive, Inc.:
BARCLAYS
Seth Sigman
BNP PARIBAS EXANE
Christopher Bottiglieri
BOFA GLOBAL RESEARCH
Jason Haas
CITI
Steven Zaccone
CLEVELAND RESEARCH
Tom Mahoney
D.A. DAVIDSON & COMPANY
Michael Baker
EDGEWATER RESEARCH
Daryl Boehringer
EVERCORE ISI
Gregory Melich
GOLDMAN SACHS
Kate McShane
GUGGENHEIM SECURITIES LLC
Steven Forbes
JEFFERIES
Bret Jordan
J.P.MORGAN
Christopher Horvers
MORGAN STANLEY
Simeon Gutman
MORNINGSTAR, INC.
Noah Rohr
NORTHCOAST RESEARCH
Aaron Reed
OPPENHEIMER & CO., INC.
Brian Nagel
RAYMOND JAMES
Bobby Griffin
RBC CAPITAL MARKETS
Steven Shemesh
REDBURN ATLANTIC
Samuel Hudson
TD COWEN
Maksim Rakhlenko
TRUIST SECURITIES
Scot Ciccarelli
UBS EQUITIES
Michael Lasser
WEDBUSH SECURITIES INC.
Seth Basham
WELLS FARGO SECURITIES, LLC
Zachary Fadem
WILLIAM BLAIR & COMPANY
Phillip Blee
WOLFE RESEARCH
Gregory Badishkanian
Board of Directors O'Reilly Leadership Team
OFFICERS AND EXECUTIVE VICE PRESIDENTS
BRAD BECKHAM
Chief Executive Officer
BRENT KIRBY
President
JEREMY FLETCHER
Executive Vice President and Chief Financial Officer
GREG HENSLEE
Director Since 2017 and
Executive Chairman of the Board
SCOTT ROSS
Executive Vice President and Chief Information Officer
JASON TARRANT
Executive Vice President of Store Operations and Sales
DAVID O’REILLY
Director Since 1972 and
Executive Vice Chairman of the Board
LARRY O’REILLY
Director Since 1969 and
Vice Chairman of the Board
JAY D. BURCHFIELD
Director Since 1997
Audit Committee
Human Capital and Compensation Committee
THOMAS T. HENDRICKSON
Director Since 2010
Lead Director Since 2024
Audit Committee - Chair
Corporate Governance/Nominating Committee
JOHN R. MURPHY
Director Since 2003
Audit Committee
Human Capital and Compensation
Committee - Chair
DANA M. PERLMAN
Director Since 2017
Audit Committee
Corporate Governance/Nominating
Committee - Chair
MARIA A. SASTRE
Director Since 2020
Audit Committee
Corporate Governance/Nominating Committee
ANDREA M. WEISS
Director Since 2019
Audit Committee
Human Capital and Compensation Committee
FRED WHITFIELD
Director Since 2021
Audit Committee
Corporate Governance/Nominating Committee
SENIOR VICE PRESIDENTS
TAMARA CONN
Senior Vice President of Legal and General Counsel
ROBERT DUMAS
Senior Vice President of Eastern Store Operations and Sales
LARRY GRAY
Senior Vice President of Inventory Management
PHIL HOPPER
Senior Vice President of Real Estate and Expansion
JEFF LOAFMAN
Senior Vice President of Distribution Operations
CHRIS MANCINI
Senior Vice President of Central Store Operations and Sales
VICE PRESIDENTS
STEVE ABARR
Vice President of Northwest Division
DOUG ADAMS
Vice President of Southeast Division
AARON BIGGS
Vice President of Southern Division
CHAD BINNS
Vice President of Talent and Total Rewards
ERIC BIRD
Vice President of Finance and Treasury
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
JOE COCKELL
Vice President of Distribution Operations and Administration
BRYAN DELONG
Vice President of Distribution Operations Western Division
JIM DICKENS
Vice President of Gulf States Division
JOE EDWARDS
Vice President of Store Installations
JAY ENLOE
Vice President of Risk Management
CHRIS FARROW
Vice President of Northern Division
RICARDO FREYRE
Vice President of Southern California Division
DANIEL GARCIA BARRON
Vice President of Northern California Division
JULIE GRAY
Vice President of Corporate Services and Corporate Secretary to the Board
RON GREENWAY
Vice President of Property and Facilities
DAN GRIFFIN
Vice President of East-Central Division
TOM HARRINGTON
Vice President of New England Division
CRYSTAL HEDRICK
Vice President of Omnichannel
MARK MERZ
Senior Vice President of Finance
JOSE MONTELLANO
Senior Vice President of Western Operations and Sales
SHARI REAVES
Senior Vice President of Human Resources and Training
CHUCK ROGERS
Senior Vice President of Professional Sales and Store Operations Support
DAVID WILBANKS
Senior Vice President of Merchandise
BECKY HETHERINGTON
Vice President of Program Management
GARTH HILL
Vice President of Transportation
JUSTIN KALE
Vice President of Central Division
CHAD KEEL
Vice President of Real Estate Expansion
SCOTT KRAUS
Vice President of Training
GREG LAIR
Vice President of Store Operations in Training
DAVID LEONHART
Vice President of Distribution Operations Eastern Division
STEVE LUELLEN
Vice President of Mid-Atlantic Division
RAM MARUPUDI
Vice President of Architecture
JOHN MAYO
Vice President of Florida Division
RYAN MOORE
Vice President of Pricing & Customer Satisfaction
RAMON ODEMS
Vice President of Great Lakes Division
ENRIQUE ORENDAIN MADRIGAL
Vice President of Sales and Operations - Mexico
DAVID P. ORTEGA
Vice President of Electronic Catalog Systems
SENTHIL RAMAN
Vice President of Data Strategy
TIM RATHBUN
Vice President of Inventory Management
HUGO SANCHEZ
Vice President of Marketing and Advertising
DIEGO SANTILLANA
Vice President of Southwestern Division
KESHA SCHADER
Vice President of Inventory Management - DC
COREY THOMPSON
Vice President of Solution Delivery
KARLA WELLS
Vice President of Solution Delivery, Communications, and Corporate Systems
ALEX WILLIAMS
Vice President of Loss Prevention
WES WISE
Vice President of Professional Sales
®
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