O'Reilly Auto Parts 2015 Annual Report Download - page 36

Download and view the complete annual report

Please find page 36 of the 2015 O'Reilly Auto Parts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 91

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91

FORM 10-K
are the result of our ongoing negotiations with our suppliers to improve our inventory purchase costs. During the third quarter of 2013,
we fully depleted our LIFO reserve due to acquisition cost improvements we realized over time. Our policy is to not write up inventory
in excess of replacement cost, and accordingly, we are effectively valuing our inventory at replacement cost. During the years ended
December 31, 2014 and 2013, our LIFO costs were written down by approximately $41 million and $22 million, respectively, to reflect
replacement cost.
Selling, general and administrative expenses:
SG&A for the year ended December 31, 2014, increased to $2.44 billion (or 33.8% of sales) from $2.27 billion (or 34.1% of sales) for
the same period one year prior, representing an increase of 8%. The increase in total SG&A dollars for the year ended December 31,
2014, was primarily the result of additional Team Members, facilities and vehicles to support our increased store count. The decrease in
SG&A as a percentage of sales for the year ended December 31, 2014, was primarily the result of increased leverage of store occupancy
costs on strong comparable store sales results.
Operating income:
As a result of the impacts discussed above, operating income for the year ended December 31, 2014, increased to $1.27 billion (or 17.6%
of sales) from $1.10 billion (or 16.6% of sales) for the same period one year prior, representing an increase of 15%.
Other income and expense:
Total other expense for the year ended December 31, 2014, increased to $48 million (or 0.7% of sales), from $45 million (or 0.7% of
sales) for the same period one year prior, representing an increase of 8%. The increase in total other expense for the year ended December 31,
2014, was primarily the result of increased interest expense on higher average outstanding borrowings.
Income taxes:
Our provision for income taxes for the year ended December 31, 2014, increased to $444 million (36.3% effective tax rate) from $389
million (36.7% effective tax rate) for the same period one year prior, representing an increase of 14%. The increase in our provision for
income taxes for the year ended December 31, 2014, was the result of higher taxable income in 2014, driven by our strong operating
results. The decrease in our effective tax rate for the year ended December 31, 2014, was primarily due to increased benefits from the
realization of employment tax credits in 2014.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2014, increased to $778 million (or 10.8% of
sales), from $670 million (or 10.1% of sales) for the same period one year prior, representing an increase of 16%.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2014, increased 22% to $7.34 on 106 million shares from $6.03
on 111 million shares for the same period one year prior.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure, operate
and maintain existing stores and may include the opportunistic repurchase of shares of our common stock through our Board-approved
share repurchase program. The primary sources of our liquidity are funds generated from operations and borrowed under our unsecured
revolving credit facility. Decreased demand for our products or changes in customer buying patterns could negatively impact our ability
to generate funds from operations. Additionally, decreased demand or changes in customer buying patterns could impact our ability to
meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our unsecured revolving
credit facility. We believe that cash expected to be provided by operating activities and availability under our unsecured revolving credit
facility will be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. However, there
can be no assurance that we will continue to generate cash flows at or above recent levels.