O'Reilly Auto Parts 2014 Annual Report Download - page 31

FORM 10-K
24
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. influences the demand for repair and maintenance
products sold within the automotive aftermarket. According to the Department of Transportation, prior to 2007, the annual
number of total miles driven in the U.S. had steadily increased; however, between 2008 and 2013, as the U.S. experienced
difficult macroeconomic conditions and historically high levels of unemployment, the number of total miles driven in the U.S.
remained relatively flat. As the U.S. economy began to recover in 2014, miles driven also improved and through November of
2014, year-to-date total miles driven in the U.S. increased 1.4%. We believe that as the U.S. economy continues to recover and
the level of unemployment continues to decline, total miles driven in the U.S. will continue to increase and return to the historical
trend of long-term annual growth. In addition, vehicles in the U.S. continue to be driven approximately three trillion miles per
year, resulting in ongoing wear and tear and continued demand for the repair and maintenance products sold within the automotive
aftermarket.
• 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 vehicle population heavily influence the demand for products sold within the
automotive aftermarket industry. As reported by The Auto Care Association, the total number of registered vehicles increased
6% from 2003 to 2013, bringing the number of light vehicles on the road to 249 million by the end of 2013. As of December
31, 2014, the seasonally adjusted annual rate of light vehicle sales in the U.S. was approximately 17 million, contributing to the
continued growth in the total number of registered vehicles on the road. During the past decade, vehicle scrappage rates have
remained relatively stable, ranging from just 5.2% to 5.7% annually. The stable scrappage rates over the past decade have
contributed to an increase in the average age of the U.S. vehicle population over that period, growing 16%, from 9.7 years in
2003 to 11.3 years in 2013. We believe this increase in average age can be attributed to better engineered and manufactured
vehicles, which can be reliably driven at higher mileages due to better quality power trains and interiors and exteriors, and the
consumer's willingness to invest in maintaining these 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.
We believe consumers will continue to invest in these reliable, higher-quality, higher-mileage vehicles and these investments,
along with an increasing total light vehicle fleet, will support continued demand for automotive aftermarket products.
• Unemployment - Unemployment, underemployment, the threat of future joblessness and the uncertainty surrounding the overall
economic health of the U.S. have a negative impact on consumer confidence and the level of consumer discretionary spending.
Long-term trends of high unemployment could 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.
However, as of December 31, 2014, the U.S. unemployment rate decreased to 5.6%, its lowest rate in over six years. We believe
that as the economy continues to recover, total employment should increase and we would expect to see a corresponding increase
in commuter traffic as unemployed individuals return to work. Aided by the anticipated increase in commuter miles, we believe
overall annual U.S. miles driven should return to a period of annual growth, 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 hard work and excellent customer service.
KEY EVENTS AND RECENT DEVELOPMENTS
Several key events have had or may have a significant impact on our operations and are identified below:
• On January 26, 2015, Standard and Poor's Ratings Services raised all of its ratings on the Company, which moved the Company's
unsecured revolving credit facility applicable rate to the tier one pricing level, thus reducing the facility fee and interest rate
margins on borrowings of Eurodollar Rate loans.
• 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. As announced on February 5, 2014, August 13, 2014, and February 4,
2015, our Board of Directors each time approved a resolution to increase the authorization amount under our share repurchase
program by an additional $500 million, resulting in a cumulative authorization amount of $5.0 billion. Each additional $500
million authorization is each effective for a three-year period beginning on their respective announcement date. The authorizations
under the share repurchase program that currently have capacity are scheduled to expire on August 13, 2017, and February 4,