O'Reilly Auto Parts 2011 Annual Report Download - page 37

•
•
•
•
•
•
•
•
•
•
27
We believe the key drivers of current and future demand of the products sold within the automotive aftermarket include the number of
U.S. miles driven, number of U.S. registered vehicles, new light vehicle registrations, average vehicle age and unemployment.
Number of Miles Driven - The number of total miles driven in the U.S. heavily influences the demand for the repair and
maintenance products sold within the automotive aftermarket. Historically, the long-term trend in the total miles driven in
the U.S. has steadily increased; however, according to the Department of Transportation, total miles driven in the U.S. have
remained relatively flat since 2007 as the U.S. has experienced difficult macroeconomic conditions. Historically, rapid
increases in gasoline prices have negatively impacted U.S. total miles driven as consumers react to the increased expense by
reducing travel. Average gasoline prices increased 7% in 2011, compared to an increase of 18% in 2010. We believe that as
the U.S. economy recovers and gasoline prices stabilize, annual miles driven will return to historical growth rates and
continue to drive demand for the industry.
Number of U.S. Registered Vehicles, New Light Vehicle Registrations and Average Vehicle Age - The total number of
vehicles on the road and the average age of the U.S. vehicle population also heavily influence the demand for products sold
within the automotive aftermarket. As reported by the Automotive Aftermarket Industry Association (―AAIA‖), the total
number of registered vehicles has increased 17% over the past decade, from 205 million light vehicles in 2000 to 240 million
light vehicles in 2010. New light vehicle registrations, however, have declined 34% over the past decade, from 17 million
registrations in 2000 to 11 million registrations in 2010. As of December 31, 2011, the seasonally adjusted annual rate of
sales of total light vehicles in the U.S. was 13 million, indicating that the trend of declining new light vehicle registrations has
reversed, however total sales of light vehicles has remained below historical rates for the past three years, contributing to an
aging U.S. vehicle population. As reported by the AAIA, the average age of the U.S. vehicle population has increased 19%
over the past decade, from 8.9 years in 2000 to 10.6 years in 2010. We believe this increase in average age can be attributed
to better engineered and manufactured vehicles, which can be reliably driven at higher miles due to better quality power
trains and interiors and exteriors; depressed new car sales over the past three years at below historical levels; and the
consumer’s willingness to invest in maintaining their higher-mileage, better built vehicles. As the average age of the vehicle
on the road increases, a larger percentage of miles are being driven by vehicles which are outside of a manufacturer warranty.
These out-of-warranty, older vehicles generate strong demand for automotive aftermarket products as they go through more
routine maintenance cycles, have more frequent mechanical failures and generally require more maintenance than newer
vehicles. Based on this change in consumer sentiment surrounding the length of time older vehicles can be reliably driven at
higher mileages, we believe consumers will continue to keep their vehicles even longer as the economy recovers maintaining
the trend of an aging vehicle population.
Unemployment - Unemployment rates and continued uncertainty surrounding the overall economic health of the U.S. have
had a negative impact on consumer confidence and the level of consumer discretionary spending. The annual U.S.
unemployment rate over the past two years has remained at 30-year highs. We believe macroeconomic uncertainties and the
potential for future joblessness can motivate consumers to find ways to save money, which can be an important factor in the
consumer’s decision to defer the purchase of a new vehicle and maintain their existing vehicle. While the deferral of vehicle
purchases has led to an increase in vehicle maintenance, long-term trends of high unemployment could continue to impede
the growth of annual miles driven, as well as decrease consumer discretionary spending, both of which negatively impact
demand for products sold in the automotive aftermarket. We believe that as the economy recovers, unemployment will return
to more historic levels and we will see a corresponding increase in commuter traffic as unemployed individuals return to
work. Aided by these increased commuter miles, overall annual U.S. miles driven should begin to grow resulting in
continued demand for automotive aftermarket products.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
On January 11, 2011, we announced a new Board-approved share repurchase program that authorized us to repurchase up to
$500 million of shares of our common stock over a three-year period. Under the program, we may, from time to time,
repurchase shares of our common stock, solely through open market purchases effected through a broker dealer at prevailing
market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
conditions. Our Board of Directors approved resolutions to increase the authorization under the share repurchase program by
an additional $500 million on August 5, 2011, and an additional $500 million on November 16, 2011, raising the cumulative
authorization under the share repurchase program to $1.5 billion. The additional $500 million authorizations are effective for
three-year periods, expiring on August 5, 2014, and November 16, 2014. Our Board of Directors may increase or otherwise
modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As of February 28,
2012, we had repurchased approximately 16.5 million shares of our common stock at an aggregate cost of $1 billion under
this program.
On January 14, 2011, we issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021
(―4.875% Senior Notes due 2021‖) in the public market with United Missouri Bank, N.A. (―UMB‖) as trustee, which were
guaranteed by certain of our subsidiaries (the ―Subsidiary Guarantors‖). The 4.875% Senior Notes due 2021 were issued at
99.297% of their face value and will mature on January 14, 2021. The proceeds from the 4.875% Senior Notes due 2021
issuance were used to repay all of our outstanding borrowings under our existing secured asset-based revolving credit facility
•
•
•
•
•
FORM 10-K