O'Reilly Auto Parts 2007 Annual Report Download

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Making Connections
for 50 Years
The O’Reilly Fundamental Difference 2007 Annual Report

Table of contents

  • Page 1
    Making Connections for 50 Years The O'Reilly Fundamental Difference 2007 Annual Report

  • Page 2
    ... providing the right part at the right price while maintaining industry-leading customer service levels continues to be the fuel for our growth. 2007 marked the 15th consecutive year of record revenue and earnings and positive comparable store sales increases since we became a public company in 1993...

  • Page 3
    ... a single store and 11 team members at 403 Sherman in Springfield, Mo. 1958 After our first full year in business, sales totaled $700,000. 1961 Ozark Automotive Distributors was formed to specialize in wholesale distribution to independent auto parts stores. 1964 O'Reilly Automotive added its...

  • Page 4
    ... the generally difficult economic conditions. In this challenging environment, Team O'Reilly remained dedicated to providing the best service and value to our customers and achieved comparable store sales growth of 3.7%, which led our industry. In 2007, our team extended O'Reilly Auto Part's track...

  • Page 5
    ... with 37 stores in Missouri and the Ozarks. 1993 O'Reilly went public and began offering stock on the NASDAQ market under the symbol ORLY at $17.50 per share. 1993 O'Reilly opened our second distribution center in Kansas City, Mo. 1996 O'Reilly opened our 200th store in St. Joseph, Mo. 3

  • Page 6
    ...sales goals, our customers and shareholders will reap the rewards of our continued success. From the 11 team members who joined our founders to open the first O'Reilly Auto Parts store in 1957 to the 23,576 team members who staff our 1,830 stores, 14 distribution centers and corporate offices today...

  • Page 7
    ... by hiring the right people, training them to provide the highest levels of customer service and creating a culture in which our team members can ...as individuals, as a team and as a company. Making connections with our team members, our customers and our communities will always be a key to our growth...

  • Page 8
    ... opening of O'Reilly Auto Parts to many of the business relationships we enjoy today, friendship and loyalty have always been at the core of our partnerships with our customers. We have been offering our customers the proven hand of friendship, courtesy and consideration, backed by extensive stocks...

  • Page 9
    ...the philosophy has always been to treat team members like family. Our founders understood the importance of investing business trust in our team members and sharing the fruits of the venture as well as the burden. Today, nearly 24,000 dedicated team members work to keep this tradition alive. Making...

  • Page 10
    ... to all stores from our distribution centers and supplement customer needs at many of our stores with multiple deliveries throughout the day. We have extensive marketing programs for our installer customers and a dedicated sales force that delivers a wide array of support and services to our...

  • Page 11
    ... that help us grow sales, control expenses and maximize profits. These technological advances increase efficiencies in our distribution processes, enhance our team members technical knowledge and make a greater assortment of parts available to our customers at competitive prices ...every day! 9

  • Page 12
    ...the "family" connection that is always present for Team O'Reilly, we are eager to be actively involved in our business communities. We make connections with customers as soon as we enter a new market. We let communities know that we are in town, not only to be their first choice for auto parts, but...

  • Page 13
    ... TION CENTERS OPERATING FOOTPRINT ALABAMA ARKANSAS FLORIDA GEORGIA ILLINOIS INDIANA IOWA KANSAS KENTUCKY LOUISIANA 100 90 20 115 61 55 65 63 50 73 stores stores stores stores stores stores stores stores stores stores MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NORTH CAROLINA NORTH DAKOTA...

  • Page 14
    ... our company a success and, in the process, our team members succeed." Team O'Reilly is connected through our culture - the grass roots of our early beginnings. Our culture is the glue that holds us all together. We stick together by offering great customer service, watching our expenses, working...

  • Page 15
    ... for 50 Years The O'Reilly Fundamental Difference "We're focused, connected and committed to keeping our minds on the MAIN THING ...People, Service and Performance! We are ENTHUSIASTIC, HARD-WORKING PROFESSIONALS who are DEDICATED to TEAMWORK, SAFETY and EXCELLENT CUSTOMER SERVICE. We will practice...

  • Page 16
    ... Years ended December 31, I NCOME STAT EMENT DATA: Sales Cost of goods sold, including warehouse and distribution expenses Gross profit Operating, selling, general and administrative expenses Operating income Other income (expense), net Income before income taxes and cumulative effect of accounting...

  • Page 17
    Selected Consolidated Financial Data (continued) 2004 2003 2002 2001 2000 1999 1998 $ 1,721,241 978,076 743,165 552,707 190,458 (2,721) 187,737 70,063 117,674 21,892 $ 139,566 $ 1,511,816 873,481 638,335 473,060 165,275 (5,233) 160,042 59,955 100,087 -$ 100,087 $ 1,312,490 759,090 553,400 ...

  • Page 18
    ... Enterprises and Davie Automotive, Inc. in December 2002. (b) Total square footage includes normal selling, office, stockroom and receiving space. Sales per weighted-average store and square foot are weighted to consider the approximate dates of store openings or expansions. (c) Same-store sales...

  • Page 19
    Selected Consolidated Financial Data (continued) 2004 2003 2002 2001 2000 1999 1998 1,249 8,318 $ $ 1,443 217 6.8% $ $ 1,109 7,348 1,413 215 7.8% $ $ 981 6,408 1,372 211 3.7% $ $ 875 5,882 1,426 219 8.8% $ $ 672 4,491 1,412 218 5.0% $ $ 571 3,777 1,422 223 9.6% $ $ 491 3,172 1,368 238 ...

  • Page 20
    ... in this annual report. We are one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, selling our products to both do-it-yourself (DIY) customers and professional installers. Our stores carry an extensive product line...

  • Page 21
    ...items, accessories and tools is stated at the lower of cost or market. The extended nature of the life cycle of our products is such that the risk of obsolescence of our inventory is minimal. The products that we sell generally have application in our markets for a relatively long period of time in...

  • Page 22
    ..., Sales Cost of goods sold, including warehouse and distribution expenses Gross profit Operating, selling, general and administrative expenses Operating income Other income/(expense), net Income before income taxes and cumulative effect of accounting change Provision for income taxes Net income 2007...

  • Page 23
    ... in cash used in investing activities during 2006 were the result of changes in capital expenditures and the $63 million acquisition in 2005 of Midwest Auto Parts Distributors, Inc. ("Midwest"), which included 72 stores and distribution centers in St. Paul, Minnesota and Billings, Montana. Capital...

  • Page 24
    ... new point of sale system as well as hardware upgrades, new in-store starter and alternator testers and the installation of energy management systems. We acquired a location and began construction in 2007 on a new distribution center that will be located in Lubbock, TX. The new distribution center...

  • Page 25
    ... with our consolidated financial statements and related notes included elsewhere in this annual report, and the other financial information included therein. (In thousands, except per share data) First Quarter Sales Gross profit Operating income Net income Basic net income per common share Net...

  • Page 26
    ... unrecognized tax benefits during the one-year period subsequent to December 31, 2007 resulting from settlement or expiration of the statute of limitations. The Company's U.S. federal income tax returns for tax years 2005 and beyond remain subject to examination by the Internal Revenue Service ("IRS...

  • Page 27
    ... on this assessment, management believes that as of December 31, 2007, 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...

  • Page 28
    ...their operations and their cash flows for each of the three years in the period ended December 31, 2007, 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), O'Reilly...

  • Page 29
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December...

  • Page 30
    ...property and equipment Notes receivable, less current portion Goodwill Other assets Total assets LIABI LI T I ES AND SHAREHOLDERS' EQ UI T Y: Current liabilities: Accounts payable Self insurance reserve Accrued payroll Accrued benefits and withholdings Deferred income taxes Other current liabilities...

  • Page 31
    ... Statements Of Income (In thousands, except per share data) December 31, Sales Cost of goods sold, including warehouse and distribution expenses Gross profit Operating, selling, general and administrative expenses Operating income Other income (expense), net: Interest expense Interest income...

  • Page 32
    ... at December 31, 2004 Net income Other comprehensive income Comprehensive income 2-for-1 stock split Issuance of common stock under employee benefit plans Issuance of common stock under stock option plans Tax benefit of stock options exercised Share based compensation Balance at December 31, 2005...

  • Page 33
    ... based compensation programs Tax benefit of stock options exercised Other Changes in operating assets and liabilities: Accounts receivable Inventory Accounts payable Other Net cash provided by operating activities I NVEST I NG ACT IVI T I ES Purchases of property and equipment Proceeds from sale of...

  • Page 34
    ... the professional installer throughout Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin and...

  • Page 35
    ... health care benefit liabilities, which are limited by the design of these plans, the Company obtains third-party insurance coverage to limit its exposure. The Company estimates its self-insurance liabilities by considering a number of factors, including historical claims experience and trend-lines...

  • Page 36
    ... 2007, 2006 and 2005, respectively. Pre-opening Costs Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to operations as incurred. Share-Based Compensation Plans The Company currently sponsors share-based employee benefit plans and...

  • Page 37
    ...credit is granted to customers. Credit losses are provided for in the Company's consolidated financial statements and consistently have been within management's expectations. The carrying value of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts...

  • Page 38
    ... that are publicly traded in active markets and are valued based on quoted closing prices as of December 31, 2007. N O T E 3 - ACQ U I S I T I O N On May 31, 2005, the Company purchased all of the outstanding stock of W.E. Lahr Company and its subsidiary, Midwest Auto Parts Distributors, Inc...

  • Page 39
    ... of the stock split for all periods presented. N O T E 5 - R E L AT E D PA R T I E S The Company leases certain land and buildings related to 48 of its O'Reilly Auto Parts stores under six-year operating lease agreements with O'Reilly Investment Company and O'Reilly Real Estate Company, partnerships...

  • Page 40
    ... are granted at an exercise price that is equal to the market value of the Company's common stock on the date of the grant. Options granted under the plan expire after ten years and typically vest 25% a year, over four years. Since the adoption of SFAS No. 123R, the Company records compensation 38

  • Page 41
    ...the year ended December 31, 2006, the Company recognized stock option compensation expense related to these plans of $2,762,000 and a corresponding income tax benefit of $1,019,000. The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option pricing...

  • Page 42
    ... based on the market price of the Company's common stock on the date of grant and compensation cost is recorded over the vesting period. The Company recorded $459,000 of compensation cost for this plan for the year ended December 31, 2007 and recognized a corresponding income tax benefit of $169,000...

  • Page 43
    ..."Rights") as of the close of business on May 31, 2002. The Rights initially entitle stockholders to buy a unit representing one one-hundredth of a share of a new series of preferred stock of the Company for $160 and expire on May 30, 2012. The Rights generally will be exercisable only if a person or...

  • Page 44
    ...: (In thousands) 2007 $ 107,620 5,880 -$ 113,500 2006 $ 98,793 5,387 -$ 104,180 2005 $ 87,874 4,986 (6,057) $ 86,803 Federal income taxes at statutory rate State income taxes, net of federal tax benefit Other items, net The Company's provision for income taxes for 2005 included a non-cash tax...

  • Page 45
    ... I V E L O S S The adjustment to unrealized holding loss on available-for-sale securities included in accumulated other comprehensive loss for the period ended December 31, 2007 totaled $10,933,000 with a corresponding tax benefit of $4,133,000 resulting in a net of tax effect of $6,800,000. Changes...

  • Page 46
    ...Nashville Region Billy Harris Director of Iowa and Nebraska Region Doy Hensley Director of Store Support Services Doug Hopkins Director of Distribution Systems Jack House Director of Customer Services Chad Keel Director of St. Louis Region Michelle Kimrey Director of Accounting Brad Knight Director...

  • Page 47
    ... CORPORATE MANAGEMENT Dale Agee Computer Help Support Manager Jeff Alexander Creative Services Manager Curt Allen Real Estate Site Acquisition Manager Dan Altis Distribution Center Manager Keith Asby Sales Manager of Special Markets Gary Baker Technical Assistance Manager Carl Barina Regional...

  • Page 48
    ... Thompson Real Estate Site Acquisition Manager Arnulfo Vega Regional Field Sales Manager Darin Venosdel Application Development Manager Rob Verch Product Manager II Patton Walden Training Manager Eastern Division Lane Wallace Pricing Manager Susan Weaver Human Resources Records/Benefits Manager...

  • Page 49
    ... Hubbart Allen Hughes Clint Hunter Johnny Jarvis Jeff Jennings Wayne Johnson Natalie Johnson Chuck Kaiser Justin Kale Butch Kelton Todd Kemper Jimi Kent Troy King Rick Koehn Greg Lair Chris Lewis Oliverio Lopez Steve Luellen Billy Lynn Shelton Maben Mark Mach Chris Mancini Albert Martinez Tommy...

  • Page 50
    ... Investor Services at the above address. I NDEP ENDENT REGIST ERED PUBLIC ACCO U N T I N G F I R M Ernst & Young LLP One Kansas City Place 1200 Main Street, Suite 2000 Kansas City, Missouri 64105-2143 A N N UA L M E E T I N G The annual meeting of shareholders of O'Reilly Automotive, Inc. will...

  • Page 51
    ... Mission Statement "O'Reilly Automotive will be the dominant supplier of auto parts in our market areas by offering our retail customers, professional installers and jobbers the best combination of inventory, price, quality and service; providing our team members with competitive wages, benefits...

  • Page 52
    233 South Paterson Springfield, Missouri 65802 417.862.3333 www.oreillyauto.com