O'Reilly Auto Parts 2010 Annual Report Download - page 45

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LIQUIDITY AND CAPITAL RESOURCES
The following table highlights our liquidity and related ratios for the years ended December 31, 2010 and 2009, as well as our cash
flows from operating, investing and financing activities for the fiscal years ended December 31, 2010, 2009 and 2008 (amounts in
millions):
Year Ended
Liquidity and Related Ratios
December 31,
2010
December 31,
2009
Percentage
Change
Current assets $ 2,301 $ 2,227 3.3%
Quick assets
(1)
213 198 7.6%
Current liabilities 1,229 1,219 0.8%
Working capital
(2)
1,072 1,008 6.3%
Total debt 359 791 (54.6)%
Total equity $ 3,210 $ 2,686 19.5%
Current ratio
(3)
1.87:1 1.83:1 2.2%
Quick ratio
(4)
0.23:1 0.26:1 (11.5)%
Debt to equity
(5)
0.11 0.29 (62.1)%
Adjusted debt to adjusted EBITDAR ratio
(6)
1.6:1 2.4:1 (33.3)%
Year Ended
Liquidity
December 31,
2010
December 31,
2009
December 31,
2008
Total cash provided by (used in):
Operating activities $ 703,687 $ 285,200 $ 298,542
Investing activities (351,277) (410,661) (367,597)
Financing activities (349,624) 121,095 52,801
Increase (decrease) in cash and cash equivalents $ 2,786 $ (4,366) $ (16,254)
(1)
Quick assets include cash, cash equivalents and receivables.
(2)
Working capital is calculated as current assets less current liabilities.
(3)
Current ratio is calculated as current assets divided by current liabilities.
(4)
Quick ratio is calculated as current assets, less inventories, divided by current liabilities.
(5)
Debt to equity is calculated as total debt divided by total shareholders’ equity.
(6)
Adjusted debt is calculated as the sum of debt, letters of credit and six-times rent, less the premium on exchangeable notes.
Adjusted EBITDAR is calculated as the sum of net income, interest expense, taxes, depreciation and amortization, rent
expense and stock option compensation expense, less the charge related to the CSK DOJ investigation and the nonrecurring,
non-operating gain related to the settlement of the CSK note receivable, net of tax, for the year ended December 31, 2010.
Liquidity and related ratios:
Our working capital increased 6% from 2009 to 2010, primarily driven by an increased investment in hard parts inventories in the
acquired CSK stores as we continue to grow and expand the professional service provider business in those markets as well as the
additional net inventory investment required by our new store growth. Total debt decreased 55% and total equity increased 20% from
2009 to 2010. The decrease in total debt was driven by strong cash flow from operations which allowed us to substantially pay down
the outstanding borrowings under our Credit Facility. The increase in total equity was due to increased retained earnings resulting
from strong net income in 2010 and an increase in additional paid-in capital, primarily from the issuance of common stock upon the
exercise of stock options and the related tax benefits as well as the impact of share based compensation.
Operating activities:
Net cash provided by operating activities was $704 million in 2010, $285 million in 2009 and $299 million in 2008. The increase in
cash provided by operating activities in 2010 compared to 2009 is primarily due to an increase in net income (adjusted for the effect of
non-cash depreciation and amortization charges, gain/loss on property and equipment, deferred income taxes and stock based
compensation charges), a significant decrease in net inventory investment and an increase in other liabilities as compared to the same
period in 2009. Net inventory investment reflects our investment in inventory, net of the amount of accounts payable to vendors. The
decrease in net inventory investment in 2010 as compared to 2009 is the result of the significant investments in 2009 to improve the
inventory availability in the acquired CSK stores. Although our investment in net inventory decreased year over year in 2010,
duplicative and excess inventory levels throughout our distribution network have lead to an increase in per store average inventory.
The average per-store inventory for our stores increased to $0.57 million as of December 31, 2010, from $0.56 million as of December
31, 2009. The increase in other liabilities is principally due to the accrual of the CSK DOJ investigation charge during 2010 which is
expected to be paid in 2011. The decrease in net cash provided by operating activities in 2009 compared to 2008 was principally due
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to an increase in net inventory investment in 2009 as discussed above, which was slightly offset by an increase in operating income
adjusted for non-cash depreciation and amortization expenses. The average per-store inventory for our stores increased to $0.56
million as of December 31, 2009, from $0.48 million as of December 31, 2008 as we made significant investments in the acquired
CSK stores in 2009 to improve the inventory availability. During 2011, we will continue to refine the inventory levels in the acquired
CSK stores and will focus on returning excess quantities to vendors where appropriate and selling through the remainder of the excess
quantities on hand in the stores.
Investing activities:
Net cash used in investing activities was $351 million in 2010, $411 million in 2009 and $368 million in 2008. The decrease in cash
used in investing activities in 2010 compared to 2009 is principally due to a decrease in capital expenditures associated with the
integration of CSK and an increase in payments received on notes receivable. Capital expenditures were $365 million in 2010, $415
million in 2009, and $342 million in 2008. Capital expenditures related to the acquisition of CSK include the purchase of properties
for DCs and costs associated with the conversion of CSK stores to the O’Reilly Brand. Although we opened four new DCs in 2010, a
significant portion of the capital expenditures for these DCs occurred in 2009 as we acquired property and began construction of the
facilities. The increase in payments received on notes receivable was due to the one-time nonrecurring payment received to settle the
note receivable acquired from CSK. Increases in cash used in investing activities in both 2009 and 2008 were primarily due to an
increase in capital expenditures related to the conversions of acquired CSK stores to the O’Reilly Brand and the properties and
facilities for the additional DCs. We opened 149 net new stores in 2010 and 150 net new stores in both 2009 and 2008. We plan to
open 170 net new stores in 2011. The costs associated with the opening of a new store (including the cost of land acquisition,
improvements, fixtures, net inventory investment and computer equipment) are estimated to average approximately $1.4 million to
$1.6 million; however, such costs may be significantly reduced where we lease, rather than purchase, the store site.
Financing activities:
Net cash used in financing activities was $350 million in 2010, compared to net cash provided by financing activities of $121 million
in 2009 and $53 million in 2008. Net cash used in financing activities in 2010 compared to net cash provided by financing activities
in 2009 is driven by the increase in net repayments of outstanding borrowings on our long-term debt. The repayments in 2010 were
funded by increased cash provided by operating activities as well as decreased capital expenditures compared to the same period in
2009. The increase in cash provided by financing activities in 2009 compared to 2008 was primarily the result of an increase in the
net proceeds from the issuance of common stock related to our stock option plans and the associated tax benefit from the exercises.
Sources of liquidity:
Our long-term business strategy requires capital to open new stores, to complete the conversions of the acquired CSK stores, expand
distribution infrastructure and operate existing stores. The primary sources of our liquidity are funds generated from operations and
borrowed under our Revolver. 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 buying patterns could impact our ability
to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our Revolver. We
believe that cash expected to be provided by operating activities and availability under our Revolver 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.
Credit facilities:
On July 11, 2008, in connection with the acquisition of CSK, we entered into a credit agreement for a five-year $1.2 billion secured
credit facility arranged by BA (the “Credit Facility”), which we used to refinance debt, fund the cash portion of the acquisition, pay
for other transaction-related expenses and provide liquidity for the combined Company going forward. This Credit Facility replaced a
previous unsecured, five-year syndicated revolving credit facility in the amount of $100 million.
The Credit Facility was comprised of a $1.075 billion tranche A revolving credit facility and a $125.0 million first-in-last-out
revolving credit facility (“FILO tranche”). On the date of the transaction, the amount of the borrowing base available, as described in
the credit agreement, under the Credit Facility was $1.05 billion of which we borrowed $588 million. We used borrowings under the
Credit Facility to repay certain existing debt of CSK, repay our $75 million 2006-A Senior Notes and purchase all of the properties
that had been leased under our synthetic lease facility. The terms of the Credit Facility granted us the right to terminate the FILO
tranche upon meeting certain requirements, including no events of default and aggregate projected availability under the Credit
Facility. During the year ended December 31, 2010, we elected to exercise our right to terminate the FILO tranche. As of December
31, 2010 and 2009, the amount of the borrowing base available under the Credit Facility was $1.071 billion and $1.196 billion,
respectively, of which we had outstanding borrowings of $356 million and $679 million, respectively. The available borrowings
under the Credit Facility were also reduced by stand-by letters of credit issued by us primarily to satisfy the requirements of workers
compensation, general liability and other insurance policies. As of December 31, 2010 and 2009, we had stand-by letters of credit
outstanding in the amount of $71 million and $72 million, respectively, and the aggregate availability for additional borrowings under
the Credit Facility was $644 million and $445 million, respectively. As part of the Credit Facility, we had pledged substantially all of
our assets as collateral and we were subject to an ongoing consolidated leverage ratio covenant, with which we complied as of
December 31, 2010 and 2009.
FORM 10-K