O'Reilly Auto Parts 2011 Annual Report Download - page 25

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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 these forward-looking statements.
Deteriorating economic conditions may adversely impact demand for our products, reduce access to credit and cause our
customers and others with which we do business to suffer financial hardship, all of which could adversely impact our business,
results of operations, financial condition and cash flows.
In recent years, worldwide economic conditions have deteriorated significantly in many countries and regions, including the United
States, and such conditions may worsen in the foreseeable future. Although demand for many of our products is primarily non-
discretionary in nature and tend to be purchased by consumers out of necessity, rather than on an impulse basis, our sales are impacted
by constraints on the economic health of our customers. The economic health of our customers is affected by many factors, including,
among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency
exchange rates, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending. Many
of these factors are outside of our control. Our customers’ purchases, including purchases of our products, could decline during
periods when income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable
economic conditions. If any of these events occur, or if unfavorable economic conditions challenge the consumer environment, our
business, results of operations, financial condition and cash flows could be adversely affected.
Overall demand for products sold in the automotive aftermarket is dependent upon many factors including the total number of vehicle
miles driven in the U.S., the total number of registered vehicles the U.S., the age and quality of these registered vehicles and the level
of unemployment in the U.S. Adverse changes in these factors could lead to a decreased level of demand for our products, which
could negatively impact our business, results of operations, financial condition and cash flows.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings,
bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial
institutions which are counterparties to our credit facilities and interest rate swap transactions. Also, the ability of these third parties to
overcome these difficulties may increase. If third parties, on whom we rely for merchandise, are unable to overcome difficulties
resulting from the deterioration in economic conditions and provide us with the merchandise we need, or if counterparties to our credit
facilities do not perform their obligations, our business, results of operations, financial condition and cash flows could be adversely
affected.
We cannot assure that the recently integrated CSK Auto Corporation (“CSK”) stores will perform at the same desired level of
profitability as historic O’Reilly stores.
We expect acquired CSK stores to approximate the profitability levels of our core O’Reilly stores, and believe this to be a significant
factor in achieving our financial goals. The failure of these stores to attain these profitability levels could seriously impact our
forecasted results of operations. Our ability to operate these stores at our expected level will depend, in part, on the successful
preservation of the existing DIY customers already established in these markets, growing the commercial customer base, the adoption
of the O’Reilly culture, along with maintaining employee morale and the retention of key personnel.
We may not be able to obtain these profitability levels in our acquired CSK stores as soon as we expect, or at all. If we fail to address
the challenges of our new markets effectively, our growth strategy and future profitability could be negatively affected, and we may
fail to achieve the intended benefits of the merger.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our unsecured senior
notes as well as limit our access to attractive vendor financing programs.
Credit ratings are an important part of our cost of capital. The evaluations are based upon, among other factors, our financial strength.
Our current credit ratings provide us with the ability to borrow funds at a specific rate. A downgrade in our current credit rating from
both agencies would adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our credit
facility. A downgrade could also adversely affect the market price and/or liquidity of our notes, preventing a holder from selling the
notes at a favorable price, as well as adversely affect our ability to issue new notes in the future. In addition, a downgrade could limit
the financial institutions willing to commit funds to our vendor financing programs at attractive rates. Decreased participation in our
vendor financing programs would lead to an increase in working capital needed to operate the business adversely affecting our cash
flow.
FORM 10-K