O'Reilly Auto Parts 2008 Annual Report Download - page 24

PG.22 O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT
MAN AGEMENT ’S DISCUS SION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
e following discussion of our nancial condition, results of operations and liquidity and capital resources should be read in conjunction with our
consolidated nancial statements, related notes and other nancial information included elsewhere in this annual report.
FORWARD-LOOKING STATEMENTS
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,”
“project,” “will” or similar words. In addition, statements contained within this annual report that are not historical facts are forward-looking
statements, such as statements discussing among other things, expected growth, store development and expansion strategy, business strategies,
future revenues and future performance. ese forward-looking statements are based on estimates, projections, beliefs and assumptions and
are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited
to, competition, product demand, the market for auto parts, the economy in general, ination, consumer debt levels, governmental approvals,
our ability to hire and retain qualied employees, risks associated with the integration of acquired businesses including CSK Auto Corporation
(“CSK”), weather, terrorist activities, war and the threat of war. Actual results may materially dier from anticipated results described or implied
in these forward-looking statements.
OVERVIEW
We are one of the largest specialty retailers of automotive aermarket 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 consisting
of new and remanufactured automotive hard parts, maintenance items and accessories and a complete line of auto body paint and related
materials, automotive tools and professional installer service equipment. On July 11, 2008, we completed the acquisition of CSK, one of the
largest specialty retailers of auto parts and accessories in the Western United States and one of the largest such retailers in the United States,
based on store count. At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts,
Schuck’s Auto Supply, Kragen Auto Parts and Murray’s Discount Auto Parts.
We view the following factors to be the key drivers of current and future demand for the products we sell:
NUMBER OF MILES DRIVEN AND NUMBER OF REGISTERED VEHICLES – e total number of miles driven in the U.S. heavily inuences the
demand for the repair and maintenance products we sell. e long-term trend in the number of vehicles on the road and the total miles driven
in the U.S. has exhibited steady growth over the past decade. Since 1998, the total number of miles driven in the United States has increased at
an annual rate of approximately 1.6%. e total number of vehicles on the road has increased from 197 million registered light vehicles in 1998
to 241 million in 2007. Total number of miles driven remained relatively unchanged in 2007 and declined by 3.6% in 2008, as many consumers
responded to rising fuel prices and other economic constraints in part by curtailing automobile usage. We believe that the decrease in miles
driven in 2008 and expected decrease in 2009 is a short-term trend and that long-term miles driven will increase in the future because of the
increasing number of vehicles on the road.
AVERAGE VEHICLE AGE – Changes in the average age of vehicles on the road impacts demand for automotive aermarket products. As the average
age of a vehicle increases, the vehicle goes through more routine maintenance cycles requiring replacement parts such as brakes, belts, hoses,
batteries, and lters. e sales of these products are a key component of our business. e average age of the vehicle population has increased over
the past decade from 8.9 years for passenger cars and 8.3 years for light trucks in 1998 to 10.4 and 9.0 years, respectively, in 2007. Based on the
dramatic decrease in the sale of new cars and light trucks in 2008, and the expected decrease in 2009, we expect that consumers will continue to
choose to keep their vehicles longer and drive them at higher mileages and that this increasing trend in average vehicle age will continue.
UNPERFORMED MAINTENANCE – According to estimates compiled by the Automotive Aermarket Industry Association, the annual amount
of unperformed or underperformed maintenance in the United States totaled $60 billion for 2007. is metric represents the degree to which
routine vehicle maintenance recommended by the manufacturer is not being performed. Consumer decisions to avoid or defer maintenance
aect demand for our products and the total amount of unperformed maintenance represents potential future demand. We believe that
challenging macroeconomic conditions in 2007 and 2008 contributed to the amount of unperformed maintenance.