O'Reilly Auto Parts 2012 Annual Report Download - page 37

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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. We believe that as the
U.S. economy recovers and the level of unemployment declines, 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 industry. As reported by the Automotive Aftermarket Industry Association (“AAIA”), the
total number of registered vehicles has increased 15% over the past decade, from 209 million light vehicles in 2001 to 241
million light vehicles in 2011. Annual new light vehicle registrations, have declined 24% over the past decade, from 17
million registrations in 2001 to 13 million registrations in 2011; however, the seasonally adjusted annual rate (the “SAAR”)
of sales of light vehicles in the U.S. increased to 15 million as of December 31, 2012, indicating that the trend of declining
new light vehicle registrations has reversed. As reported by the AAIA, vehicle scrappage rates have decreased 23% from
2001 to 2011, while the average age of the U.S. vehicle population has increased 21% over that decade, from 8.9 years in
2001 to 10.8 years in 2011. We believe this decrease in vehicle scrappage rates and 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, 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 industry. As of December 31, 2012, the U.S. unemployment rate
decreased slightly to 7.8% from 8.5% as of December 31, 2011. 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.
We remain confident in our ability to gain market share in our existing markets and grow our business in new markets by focusing on
our dual market strategy and the core O’Reilly values of customer service and expense control.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
• Under the Company’s share repurchase program, as approved by the Board of Directors in January of 2011, the Company
may, from time to time, repurchase shares of its 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. The Company and its Board of Directors may increase or otherwise modify, renew, suspend
or terminate the share repurchase program at any time, without prior notice. The Company’s Board of Directors approved
resolutions to increase the authorization under the share repurchase program by an additional $500 million on each of June 1,
2012, August 10, 2012, and November 12, 2012, raising the cumulative authorization under the share repurchase program to
$3.0 billion. The additional $500 million authorizations are effective for a 3-year period, and the most recent authorization
expires on November 12, 2015. As of February 28, 2013, we had repurchased approximately 34.1 million shares of our
common stock at an aggregate cost of $2.6 billion under this program.
• On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due
2022 (“3.800% Senior Notes due 2022”) at a price to the public of 99.627% of their face value with United Missouri Bank,
N.A. (“UMB”) as trustee. Interest on the 3.800% Senior Notes due 2022 is payable on March 1 and September 1 of each
year, beginning on March 1, 2013, and is computed on the basis of a 360-day year.