O'Reilly Auto Parts 2003 Annual Report Download

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2003
O’Reilly Automotive
Annual Report
Seeing Green.
The color of results.
An in-depth look at the performance of our company and
the culture that brands it – O’Reilly Automotive.

Table of contents

  • Page 1
    2003 O ' R e i l ly A u to m ot i v e Annual Report S e e i n g G re e n . Th e co lo r o f re s u lts . An in-depth look at the performance of our company and the culture that brands it - O'Reilly Automotive.

  • Page 2
    ... to m ot i ve . L to R: Red Hale, Wayne Schuler, Paul Ankrom, Jewel Sechler, C.F. O'Reilly, Chub O'Reilly, Ann Drennan, Bob Bach, Hubert Cox, Tony O'Reilly and Paul Branson. Not pictured are Vic Semmelbeck and Chris Bridwell.

  • Page 3
    ... Automotive, a family owned auto parts store that would become one of the nation's largest auto parts retailers. C.F. and C.H. "Chub" O'Reilly, along with 11 other team members, approached their job with commitment and dedication to a common cause, a full day's work for a day's pay, honesty and...

  • Page 4
    ... year is 2003 and the mission of our business remains the same ...be the dominant supplier of auto parts in our market areas. The standards set by the original team members in 1957 created the culture that our team members take pride in today. It's about doing whatever it takes to get the job done...

  • Page 5
    pag e 3

  • Page 6
    ... work, we have had many successes in 2003. In January, we opened our 1,000th store in Chattanooga, Tennessee. We opened 128 new stores, expanding our footprint to 18 contiguous states including North Carolina and Virginia. We opened our 10th distribution center (DC) just outside of Mobile, Alabama...

  • Page 7
    ... Income Net Income Working Capital Total Assets Long-Term Debt Shareholders' Equity Net Income Per Common Share (assuming dilution) Weight-Average Common Share (assuming dilution) Stores At Year-End Same-Store Sales Gain Team O'Reilly is committed to capitalizing on the demand for auto parts...

  • Page 8
    ... annual growth rate: 21.0% Earnings per share (EPS) refers to net after-tax income of our company applicable to each share of common stock. Our goal is to increase EPS by 18-20% each year, reï¬,ecting our goals of growth in sales and expense control. Our team accepts the challenge of driving...

  • Page 9
    ... 5-year compound annual growth rate: 26.6% Net income represents more than sales less all expenses and adjustments. It's a critical metric of performance that is near and dear to all O'Reilly Team Members and the reward for a job well-done. Our team knows that taking care of our customers each day...

  • Page 10
    pag e 8

  • Page 11
    ...enjoyed many successes in the auto parts business. We have completed various acquisitions from single stores to large chains that nearly doubled our company's size. We have grown from operating one store in Springfield, Missouri to over 1,100 stores in 18 contiguous states. Through it all one thing...

  • Page 12
    We s e e s at i s f i e d c u s to m e r s f u e l i n g o u r b ot to m l i n e ev e ry d ay. pag e 1 0

  • Page 13
    ... s 1,109 981 875 672 571 number 5 of the top 100 auto parts chains Source: January 2004 Aftermarket Business Magazine 1999 2000 2001 2002 2003 5-year compound annual growth rate: 17.7% Our growth plans for 2004 include the addition of approximately 140 new stores, an increase of 12.6%. pag...

  • Page 14
    ... 2001 2002 2003 The addition of team members is to support the expanded level of our operations. They are truly our best "part." c ...2003 total shareholders' equity total debt Our capital structure consists of debt and shareholders' equity. Our strong balance sheet supports our expansion plans...

  • Page 15
    pag e 1 3

  • Page 16
    ...nd the right part for the job are just a few of the reasons our customers keep coming back. Our professional installer customers rely on the frequent clinics we host, to educate them on the latest in automotive technology. We also have a dedicated sales force that caters to their special needs. This...

  • Page 17
    pag e 1 5

  • Page 18
    ... completed expansions of our distribution centers in Little Rock, Arkansas and Houston, Texas. We completed the remodel of our distribution centers in Knoxville, Tennessee and Springfield, Missouri and expect to complete the remodel of our distribution center in Nashville, Tennessee in spring of...

  • Page 19
    pag e 1 7

  • Page 20
    ... texas Stores virginia Stores total number of stores: 1,109 50 32 132 24 15 99 78 381 1 Stores Stores Stores Stores Stores Stores Stores Stores Store dallas, texas des moines, iowa houston, texas kansas city, missouri knoxville, tennessee little rock, arkansas mobile, alabama nashville, tennessee...

  • Page 21
    pag e 1 9

  • Page 22
    ... aisles and products. Our competitive prices and low-price guarantee compels our customers to continue rewarding us with their business. They rely on our professional parts people to ensure they have the right part and the right tool for the job. Many programs and services are made available to...

  • Page 23
    pag e 2 1

  • Page 24
    pag e 2 2

  • Page 25
    ...60 billion. We continue to promote routine maintenance through our advertising efforts raising awareness to customers and driving additional sales. The "Be Car Care Aware™" campaign educates drivers in our markets about automotive underperformed maintenance and the benefits performing maintenance...

  • Page 26
    We s e e a s t ro n g c u lt u re co u p l e d w i t h u n m atc h e d pe r f o r m a n c e t h at l e a d s to a b ri g h t f u t u re . pag e 2 4

  • Page 27
    2 0 0 3 F i n a n c i a l R e s u lts pag e 2 5

  • Page 28
    ...27 52,121 Net income per share Weighted-average common shares outstanding - adjusted s e l e c t e d o pe r at i n g d ata : $ 1.84 54,530 $ 1.53 53,692 $ 1.26 52,786 Number of stores at year-end (a) Total store square footage at year-end (in 000's) Weighted-average product sales per square...

  • Page 29
    2000 $ 890,421 507,720 382,701 292,672 90,029 (6,870) 31,451 $ 51,708 $ 1999 $ 754,122 428,832 325,290 248,370 76,920 (3,896) 27,385 45,639 $ 1998 $ 616,302 358,439 257,863 200,962 56,901 (6,958) 19,171 30,772 $ 1997 $ 316,399 181,789 134,610 97,526 37,084 472 14,413 23,143 $ 1996 $ 259,243 150,...

  • Page 30
    ... of salaries and benefits for store and corporate team members, occupancy, advertising expenses, general and administrative expenses, data processing, professional expenses and other related expenses. critical accounting policies and estimates The fundamental objective of financial reporting is...

  • Page 31
    ... income statement data as a percentage of product sales for the years indicated: years ended december 31, Product sales Cost of goods sold, including warehouse and distribution expenses Gross profit Operating, selling, general and administrative expenses Operating income Other expense, net Income...

  • Page 32
    ... product sales and through management's expense control initiatives. Other expense, net, decreased by $2.1 million from $7.3 million in 2002 to $5.2 million in 2003. The decrease was primarily due to a reduction in interest expense as a result of lower average borrowings under the Company's credit...

  • Page 33
    ... activities in 2003 compared to 2002 was primarily due to increases in net income, accounts payable, accrued payroll, accrued benefits and withholdings, partially offset by increases in receivables and inventory. The increase in accounts payable was primarily due to management's efforts with...

  • Page 34
    ... in 2001. Three new distribution centers were acquired; one in 2003, located near Mobile, Alabama and two in October 2001, located in Nashville, Tennessee and Knoxville, Tennessee. Our continuing store expansion program requires significant capital expenditures and working capital principally for...

  • Page 35
    ... all adjustments which management considers necessary for a fair presentation of the information shown. The unaudited operating data presented below should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report, and the other...

  • Page 36
    ... of $160 for common stock of the Company having a market value of twice the exercise price of the right. A copy of the Stockholder Rights Plan was filed on May 28, 2002, with the Securities and Exchange Commission, as Exhibit 99.1 to our report on Form 8-K. new accounting standards In June 2002...

  • Page 37
    ... within this annual report discuss, among other things, expected growth, store development 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...

  • Page 38
    ... (In thousands, except per share data) december 31, a s s e ts 2003 2002 Current assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $986 in 2003 and $865 in 2002 Amounts receivable from vendors, net Inventory Deferred income taxes Other current assets...

  • Page 39
    co n s o l i d at e d s tat e m e n ts o f i n co m e (In thousands, except per share data) december 31, Product sales Cost of goods sold, including warehouse and distribution expenses Operating, selling, general and administrative expenses 2003 $1,511,816 873,481 473,060 1,346,541 2002 $1,312,...

  • Page 40
    ... stock under employee benefit plans Issuance of common stock under stock option plans Tax benefit of stock options exercised Net income b a l a n c e at d e c e m b e r 3 1 , 2 0 0 1 Issuance of common stock under employee benefit plans Issuance of common stock under stock option plans Tax benefit...

  • Page 41
    ... sale of property and equipment Deferred income taxes Common stock contributed to employee benefit plans Tax benefit of stock options exercised Changes in operating assets and liabilities, net of the effects of the acquisition: Accounts receivable Amounts receivable from vendors Inventory Refundable...

  • Page 42
    ..., tools, supplies and accessories to both the do-it-yourself (DIY) customer and the professional installer throughout Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Tennessee, Texas and Virginia...

  • Page 43
    ...the years ended December 31, 2003, 2002 and 2001, 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. Stock Option Plans The Company has elected to follow Accounting Principles...

  • Page 44
    ... 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 payable and...

  • Page 45
    ...and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that...

  • Page 46
    ... related to nine 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 in which certain shareholders and directors of the Company are partners. Generally, these lease agreements provide for renewal...

  • Page 47
    ...the sale and leaseback of nine O'Reilly Auto Parts stores and resulted in approximately $5.6 million of additional cash to the Company. The transaction did not result in a material gain or loss. The lease, which has been accounted for as an operating lease, calls for an initial term of 15 years with...

  • Page 48
    ... all employees who are 21 years of age with at least six months of service. A total of 1,600,000 shares of common stock were reserved for issuance under the plan. Employees may contribute up to 100% of their annual compensation subject to Internal Revenue Code maximum limitations. The Company has...

  • Page 49
    ... all employees and non-employee directors have the right to purchase shares of the Company's common stock monthly at a price equal to 85% of the fair market value of the stock, not to exceed 5% of the participants annual salary. Purchases of common stock under the plan during the years ended...

  • Page 50
    ... to officers and key employees. An aggregate of 12,000,000 shares of common stock were reserved for issuance under this plan. The exercise price of options granted shall not be less than the fair market value of the stock on the date of grant and the options will expire no later than 10 years from...

  • Page 51
    ... as if the Company had accounted for its employee and non-employee director stock options under the fair value method. The fair values for these options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2003, 2002, and...

  • Page 52
    ... for basic income per common shareweighted-average shares Effect of stock options (Note 9) Denominator for diluted income per common shareadjusted weighted-average shares and assumed conversion Basic net income per common share Net income per common share-assuming dilution $ $ 2003 $100,087...

  • Page 53
    ...(In thousands) 2003 $ 56,015 3,935 5 59,955 $ 2002 45,844 3,140 6 48,990 $ 2001 37,354 2,775 246 40,375 Federal income taxes at statutory rate State income taxes, net of federal tax benefit Other items, net $ $ $ The tax benefit associated with the exercise of non-qualified stock options has...

  • Page 54
    ... at December 31, 2003, and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Kansas City, Missouri February 19, 2004...

  • Page 55
    ... Director of West Texas Region Keith Childers Director of Little Rock Region Tom Connor Regional DC Director Ken Cope Director of Nashville Region Joe Edwards Director of Store Installations Phyllis Evans Director of Store Administration John Grassham Director of Dallas Region Joe Hankins Director...

  • Page 56
    ... Johnson Distribution Center Manager Dave Jordan Distribution Center Manager Al Kasishke Product Manager Les Keeth Supplier Credit Manager Jennifer Kent Store Design Manager Dave Leonhart Distribution Center Manager Steve Lines Sales Training Manager Jim Litchford Jobber Regional Field Sales Manager...

  • Page 57
    ...Houston Office Manager Bill Seiber Distribution Center Manager Darren Shaw Product Manager Tim Smith Credit Manager Tom Smith Training Manager Dwayne Snow Regional Field Sales Manager Paul Stinson Regional Field Sales Manager Mary Stratton Human Resources Records Manager Bert Tamez Regional Manager...

  • Page 58
    ..., Meagher & Flom 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 market prices and dividend information The prices in the table below represent the high and low sales price for O'Reilly Automotive, Inc. common stock as reported by The Nasdaq Stock Market. The common stock began trading on...

  • Page 59
    ...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 and benefits, and working conditions which promote high achievement and ensure fair...

  • Page 60
    233 South Patterson Springfield, Missouri 65802 417-862-3333 www.oreillyauto.com