O'Reilly Auto Parts 2013 Annual Report Download - page 38

FORM 10-K
32
is useful to investors as well. Material limitations of these non-GAAP measures are that such measures do not reflect actual GAAP
amounts. We compensate for such limitations by presenting, in the table above, the accompanying reconciliation to the most directly
comparable GAAP measures.
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 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.
Liquidity and related ratios:
The following table highlights our liquidity and related ratios as of December 31, 2013 and 2012 (dollars in millions):
December 31, Percentage
Liquidity and Related Ratios 2013 2012 Change
Current assets $ 2,835 $ 2,733 3.7 %
Current liabilities 2,423 2,273 6.6 %
Working capital (1) 412 460 (10.4)%
Total debt 1,396 1,096 27.4 %
Total equity 1,966 2,108 (6.7)%
Debt to equity (2) 0.71:1 0.52:1 36.5 %
(1) Working capital is calculated as current assets less current liabilities.
(2) Debt to equity is calculated as total debt divided by total equity.
Current liabilities increased 7%, total debt increased 27% and total equity decreased 7% from 2012 to 2013. The increase in current
liabilities was primarily due to the increase in accounts payable as a result of the impact of our enhanced vendor financing program and
the additional vendor participation during the year, which allowed us to obtain more favorable payment terms. Our accounts payable to
inventory ratio was 86.6% as of December 31, 2013, as compared to 84.7% one year prior. The increase in total debt was attributable to
the issuance of $300 million of 3.850% Senior Notes due 2023. The decrease in total equity resulted from the impact of share repurchase
activity under our share repurchase program on additional paid-in-capital and retained earnings, partially offset by an increase in retained
earnings from strong net income for the year.
The following table identifies cash provided by/(used in) our operating, investing and financing activities for the years ended December
31, 2013, 2012 and 2011 (in thousands):
For the Year Ended December 31,
Liquidity 2013 2012 2011
Total cash provided by (used in):
Operating activities $ 908,026 $ 1,251,555 $ 1,118,991
Investing activities (388,754)(317,407) (319,653)
Financing activities (536,082)(1,047,572) (467,507)
Increase (decrease) in cash and cash equivalents $(16,810)$(113,424) $ 331,831
Capital expenditures $ 395,881 $ 300,719 $ 328,319
Free cash flow (a) 512,145 950,836 790,672
(a) Calculated as net cash provided by operating activities, less capital expenditures for the period.
Operating activities:
The decrease in net cash provided by operating activities in 2013 compared to 2012 was primarily due to a smaller decrease in net
inventory investment and a smaller increase in income taxes payable, offset in part by an increase in net income for the year. Net inventory