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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-21318
O'REILLY AUTOMOTIVE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0618012
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
233 South Patterson
Springfield, Missouri 65802
- --------------------------------------------------------------------------------
(Address of principal executive offices, Zip code)
(417) 862-6708
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Common stock, $0.01 par value - 53,295,765 shares outstanding as of September
30, 2002.
This report contains a total of 18 pages of which this page is number 1.
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 2002
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
------
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 7
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 10
ITEM 4 - CONTROLS AND PROCEDURES 10
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 12
CERTIFICATIONS 13
EXHIBIT INDEX 15
Page 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
September 30, December 31,
2002 2001
-------------- --------------
(Unaudited) (Note)
Assets
Current assets:
Cash $ 31,881 $ 15,041
Short-term investments 500 500
Accounts receivable, net 50,133 41,486
Amounts receivable from vendors 40,832 38,440
Inventory 490,402 447,793
Refundable income taxes -- 168
Deferred income taxes 2,588 3,908
Other current assets 3,482 3,327
-------------- --------------
Total current assets 619,818 550,663
Property and equipment, at cost 463,221 392,365
Accumulated depreciation
and amortization 128,847 103,361
-------------- --------------
Net property and equipment 334,374 289,004
Notes receivable 2,016 2,557
Other assets 18,755 14,635
-------------- --------------
Total assets $ 974,963 $ 856,859
============== ==============
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $ -- $ 5,000
Income taxes payable 10,746 --
Accounts payable 92,643 61,875
Accrued payroll 13,015 12,866
Accrued benefits & withholdings 23,639 14,038
Other current liabilities 25,513 15,514
Current portion of long-tem debt 748 11,843
-------------- --------------
Total current liabilities 166,304 121,136
Long-term debt, less current portion 160,619 165,618
Deferred income taxes 12,723 9,141
Other liabilities 5,178 4,673
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares-90,000,000
Issued and outstanding shares-
53,295,765 shares at September 30, 2002,
and 52,850,713 at December 31, 2001 533 528
Additional paid-in capital 267,353 256,795
Retained earnings 362,253 298,968
-------------- --------------
Total shareholders' equity 630,139 556,291
-------------- --------------
Total liabilities and shareholders' equity $ 974,963 $ 856,859
============== ==============
NOTE: The balance sheet at December 31, 2001, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
Page 3
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(In thousands, except per share data)
Product sales $ 359,579 $ 293,996 $ 998,249 $ 813,735
Cost of goods sold, including warehouse and distribution expenses 207,383 168,709 575,839 468,233
---------- ---------- ---------- ----------
Gross profit 152,196 125,287 422,410 345,502
Operating, selling, general and administrative expenses 111,473 91,145 315,280 258,870
---------- ---------- ---------- ----------
Operating income 40,723 34,142 107,130 86,632
Other expense, net (1,972) (1,764) (5,370) (5,362)
---------- ---------- ---------- ----------
Income before income taxes 38,751 32,378 101,760 81,270
Provision for income taxes 14,655 12,238 38,475 30,826
---------- ---------- ---------- ----------
Net income $ 24,096 $ 20,140 $ 63,285 $ 50,444
========== ========== ========== ==========
Net income per common share $ 0.45 $ 0.38 $ 1.19 $ 0.97
========== ========== ========== ==========
Weighted-average common shares outstanding 53,187 52,404 53,044 51,942
========== ========== ========== ==========
Net income per common share - assuming dilution $ 0.45 $ 0.38 $ 1.18 $ 0.96
========== ========== ========== ==========
Adjusted weighted-average common shares outstanding
- assuming dilution 53,715 53,205 53,675 52,563
========== ========== ========== ==========
NOTE: The income statement at September 30, 2001, has been derived from the
quarterly results section of the Form 10-K for the year ended December 31, 2001,
but does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
Page 4
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30, September 30,
2002 2001
-------------- --------------
(In thousands)
Net cash provided by operating activities $ 105,124 $ 72,278
Investing activities:
Purchases of property and equipment (72,610) (46,465)
Proceeds from sale of property and equipment 1,446 6,755
Payments received on notes receivable 585 479
Investments in other assets (1,844) (977)
-------------- --------------
Net cash used in investing activities (72,423) (40,208)
Financing activities:
Payments on notes payable to banks (5,000) (35,000)
Proceeds from issuance of long-term debt 149,640 191,542
Payments on long-term debt (166,546) (177,020)
Proceeds from issuance of common stock 6,045 12,483
-------------- --------------
Net cash used in financing activities (15,861) (7,995)
-------------- --------------
Net increase in cash 16,840 24,075
Cash at beginning of period 15,041 9,204
-------------- --------------
Cash at end of period $ 31,881 $ 33,279
============== ==============
See notes to condensed consolidated financial statements.
Page 5
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2002
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
O'Reilly Automotive, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months and
nine months ended September 30, 2002, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
2. Reclassifications
Certain reclassifications have been made to the 2001 condensed consolidated
financial statements in order to conform to the 2002 presentation.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Unless otherwise indicated, "we," "us," "our" and similar terms, as well as
references to the "Company" or "O'Reilly" refer to O'Reilly Automotive, Inc. and
its subsidiaries.
The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend the business activities of our
company. To aid in that understanding, management has identified our "critical
accounting policies." These policies have the potential to have a significant
impact on our financial statements, either because of the significance of the
financial statement item to which they relate, or because they require judgments
and/or estimates of management in their application due to the uncertainty
involved in measuring, at a specific point in time, events that are continuous
in nature. A summary of these critical accounting policies can be found in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our 2001 Annual Report on Form 10-K. In
particular, the accounting for, and analysis with respect to, areas such as
costs of goods sold, operating, selling, general and administrative expenses and
credit operations are discussed.
Results of Operations
Product sales for the third quarter of 2002 increased by $65.6 million, or 22.3%
over product sales for the third quarter of 2001, to $359.6 million. Product
sales for the first nine months of 2002 increased by $184.5 million, or 22.7%
over product sales for the first nine months of 2001, to $998.2 million. These
increases were primarily due to the opening of 29 net, new stores during the
third quarter of 2002 and 83 net, new stores during the first nine months of
2002, in addition to a 3.2% and 3.3% increase in comparable store product sales
for the third quarter and first nine months of 2002, respectively. At September
30, 2002, we operated 958 stores compared to 764 stores at September 30, 2001.
Gross profit increased $26.9 million, or 21.5% from $125.3 million (or 42.6% of
product sales) in the third quarter of 2001 to $152.2 million (or 42.3% of
product sales) in the third quarter of 2002. Gross profit for the first nine
months increased $76.9 million, or 22.3% from $345.5 million (or 42.5% of
product sales) in 2001 to $422.4 million (or 42.3% of product sales) in 2002.
The increase in gross profit dollars was primarily a result of the increase in
sales resulting primarily from the increases in the number of stores open during
the third quarter and first nine months of 2002 compared to the same periods in
2001, and increased sales levels at existing stores. The decrease in gross
profit as a percent of sales for both periods being compared is primarily due to
increased independent jobber sales resulting from the Mid-State's acquisition
which are at a lower gross margin.
Operating, selling, general and administrative expenses ("OSG&A expenses")
increased $20.3 million from $91.1 million (or 31.0% of product sales) in the
third quarter of 2001 to $111.5 million (or 31.0% of product sales) in the third
quarter of 2002. OSG&A expenses increased $56.4 million from $258.9 million (or
31.8% of product sales) in the first nine months of 2001 to $315.3 million (or
31.6% of product sales) in the first nine months of 2002. The dollar increase in
OSG&A expenses resulted from the addition of team members and resources in order
to support the increased level of our operations and the continuing conversion
of the 82 net stores acquired from Mid-State Automotive Distributors, Inc.
("Mid-State") during the fourth quarter of 2001.
Other expense, net increased by $208,000 in the third quarter of 2002 compared
to the third quarter of 2001 and increased by $8,000 for the first nine months
of 2002 compared to the first nine months of 2001. The overall increase in other
expense, net in both periods being compared, is primarily due to an increase in
interest expense.
Our estimated provision for income taxes increased $2.4 million and $7.6 million
for the third quarter and first nine months of 2002 compared to 2001, as a
result of our increased taxable income. Our effective tax rate was 37.8% of
income before income taxes for the third quarter and the first nine months of
both 2002 and 2001.
Principally, as a result of the foregoing, net income increased from $20.1
million or 6.9% of product sales in the third quarter of 2001 to $24.1 million
or 6.7% of product sales in the third quarter of 2002. Net income increased from
$50.4 million or 6.2% of product sales in the first nine months of 2001 to $63.3
million or 6.3% of product sales in the first nine months of 2002.
Page 7
Liquidity and Capital Resources
Net cash provided by operating activities increased from $72.3 million for the
first nine months in 2001 to $105.1 million for the first nine months of 2002.
This increase was principally the result of increased net income and an increase
in accounts payable, income taxes payable, accrued expenses, and other current
liabilities, partially offset by increases in accounts receivable and inventory.
The increase in accounts payable was primarily attributable to the timing of
payments and more favorable payment terms from vendors. The increase in
inventory and accounts receivable is primarily due to our continuing store
growth.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
Net cash used in investing activities increased from $40.2 million during the
first nine months in 2001 to $72.4 million for the comparable period in 2002,
primarily due to the increased purchases of property and equipment resulting
from new store growth.
Net cash used in financing activities was $15.9 million in the first nine months
of 2002, compared to $8.0 million in the first nine months of 2001 primarily due
to increased repayment of debt.
We maintain an unsecured, three-year syndicated revolving credit facility in the
amount of $150 million. The credit facility is guaranteed by all of our
subsidiaries and may be increased to a total of $200 million at any time prior
to January 29, 2004, subject to availability of such additional credit from
either existing banks within the syndicate or other banks. At September 30,
2002, $61.0 million of the revolving credit facility was outstanding.
Accordingly, we have aggregate availability of $89.0 million under the credit
facility for additional borrowings. The credit facility, which bears interest at
LIBOR plus 1.00% (2.88% at September 30, 2002), expires in July 2005.
In August 2001, we completed a sale-leaseback with O'Reilly-Wooten 2000 LLC (an
entity owned by certain shareholders of the Company). The transaction closed on
September 1, 2001, with a purchase price of approximately $5.6 million for nine
O'Reilly Auto Parts stores and did not result in a material gain or loss. The
lease, which has been accounted for as an operating lease, calls for an initial
term of 15 years with three five-year renewal options.
On May 16, 2001, we completed a $100 million private placement of two series of
unsecured senior notes ("Senior Notes"). The Series 2001-A Senior Notes were
issued for $75 million, are due May 16, 2006, and bear interest at 7.72% per
year. The Series 2001-B Senior Notes were issued for $25 million, are due May
16, 2008, and bears interest at 7.92% per year. The private placement agreement
allows for a total of $200 million of Senior Notes issuable in series. Proceeds
from the transaction were used to reduce outstanding borrowings under our
revolving credit facility.
Our continuing store expansion program requires significant capital expenditures
and working capital principally for inventory requirements. The costs associated
with the opening of a new store (including the cost of land acquisition,
improvements, fixtures, inventory and computer equipment) are estimated to
average approximately $900,000 to $1.1 million; however, such costs may be
significantly reduced where we lease, rather than purchase, the store site.
Although the cost to acquire the business of an independently owned parts store
varies, depending primarily upon the amount of inventory and the amount, if any,
of real estate being acquired, we estimate that the average cost to acquire such
a business and convert it to one of our stores is approximately $400,000. We
plan to finance our expansion program through cash expected to be provided from
operating activities and available borrowings under our existing credit
facilities.
For the first nine months of 2002, 83 net, new stores were opened. The Company
plans to open 17 additional stores during the remainder of 2002. The funds
required for such planned expansions are expected to be provided by operating
activities and the existing and available bank credit facilities.
We believe that our existing cash, short-term investments, cash expected to be
provided by operating activities, available bank credit facilities and trade
credit will be sufficient to fund both our short-term and long-term capital and
liquidity needs for the foreseeable future.
New Accounting Standards
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This new standard supersedes both
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to Be Disposed Of," and sections of Accounting Principles
Board Opinion 30, providing one accounting model with which to review for asset
impairment.
SFAS 144 retains much of the recognition and measurement provision of SFAS 121,
but removes goodwill from its scope. It also alters the criteria of classifying
long-lived assets to be disposed of by sale and changes the method for
accounting for the disposal of long-lived assets if other than through sale.
Finally, while this statement retains the basic presentation provisions for the
disposal of a segment of a business or discontinued operation, it broadens the
definition of a discontinued operation to include a component of an entity.
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONT.)
The Company does not expect that the adoption of the statement will have a
significant impact on the Company's financial position or results of operations.
Inflation and Seasonality
We have been successful, in many cases, in reducing the effects of merchandise
cost increases principally by taking advantage of vendor incentive programs,
economies of scale resulting from increased volume of purchases and selective
forward buying. As a result, we do not believe our operations have been
materially affected by inflation.
Our business is seasonal to some extent primarily as a result of the impact of
weather conditions on store sales. Store sales and profits have historically
been higher in the second and third quarters (April through September) of each
year than in the first and fourth quarters.
Forward-Looking Statements
Certain statements contained in the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" section of this report are
forward-looking statements, as such term is defined under the Private Securities
Litigation Reform Act of 1995. These statements discuss, among other things,
expected growth, store development and expansion strategy, business strategies,
future revenues and future performance. These 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, inflation,
consumer debt levels, governmental approvals, our ability to hire and retain
qualified employees, risks associated with the integration of acquired
businesses, weather, terrorist activities, war and the threat of war. Actual
results may materially differ from anticipated results described in these
forward-looking statements. Please refer to the Risk Factors sections of the
company's Form 10-K for the year ended December 31, 2001, for more details and
the risk factors set forth as exhibit 99.1 of this report.
Page 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On March 22, 2002, the Company entered into a receive-fixed, pay-float interest
rate swap agreement ("Reverse Swap") to effectively convert a portion of its
fixed rate long-term debt to a floating rate basis, thereby taking advantage of
historically low floating interest rates. Pursuant to this Reverse Swap
agreement, the Company agreed to exchange, at specified intervals, the
difference between the fixed and the floating interest amounts calculated on the
notional amount of the Reverse Swap agreement, which totaled $37.5 million. The
Company's floating interest rate under the Reverse Swap agreement was 2.06% and
the counterparty's fixed interest rate was 5.07% at June 14, 2002. The Company
determined that the Reverse Swap was a perfectly matched derivative under the
guidelines of the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." On June 14, 2002, the Company terminated the Reverse Swap and
received a settlement payment in the amount of approximately $1 million dollars.
The settlement payment is being amortized against interest expense through May
15, 2006, which is the expiration of the underlying (matched) debt.
We are subject to interest rate risk to the extent we borrow against our credit
facility with variable interest rates. Assuming the current level of borrowings
at variable rates and assuming a two-percentage point change in the average
interest rates under these borrowings, it is estimated that our interest expense
for the quarter ended September 30, 2002, would have increased by approximately
$305,000. In the event of an adverse change in interest rates, management would
likely take actions that would mitigate our exposure to interest rate risk
particularly if our borrowing levels increase to any significant extent;
however, due to the uncertainty of the actions that would be taken and their
possible effects, this analysis assumes no such action. Further, this analysis
does not consider the effects of the change in the level of overall economic
activity that could exist in such an environment.
ITEM 4. CONTROLS AND PROCEDURES
(a) Our chief executive officer and chief financial officer have reviewed and
evaluated the Company's disclosure controls and procedures within 90 days of the
filing date of this Quarterly Report. Based on such review and evaluation, the
officers believe that the disclosure controls and procedures are designed
effectively to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, (1.) is recorded, processed, summarized and reported
within the time period specified in the SEC's rules and forms and that the
information required to be discussed by the Company in the reports that it files
and submits under the Securities Exchange Act of 1934, as amended, and (2.) is
documented and communicated to the Company's management, including the officers,
as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls . There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 29, 2002, we completed an unsecured, three-year syndicated credit
facility in the amount of $150 million lead by Wells Fargo Bank as the
Administrative Agent which replaced our previous revolving credit facility. The
credit facility is guaranteed by all of our subsidiaries. The facility may be
increased to a total of $200 million at any time prior to January 29, 2004,
subject to availability of such additional credit from either existing banks
within the syndicate or new banks. The credit facility currently bears interest
at LIBOR plus 1% and expires in July 2005. The credit agreement was filed as
Exhibit 10.28 to our quarterly report on Form 10-Q for the quarter ended June
30, 2002.
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This new standard supersedes both
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to Be Disposed Of," and sections of Accounting Principles
Board Opinion 30, providing one accounting model with which to review for asset
impairment.
Page 10
ITEM 5. OTHER INFORMATION (CONT.)
SFAS 144 retains much of the recognition and measurement provision of SFAS 121,
but removes goodwill from its scope. It also alters the criteria of classifying
long-lived assets to be disposed of by sale and changes the method for
accounting for the disposal of long-lived assets if other than through sale.
Finally, while this statement retains the basic presentation provisions for the
disposal of a segment of a business or discontinued operation, it broadens the
definition of a discontinued operation to include a component of an entity.
The Company does not expect that the adoption of the statement will have a
significant impact on the Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page 12 hereof.
Page 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
O'REILLY AUTOMOTIVE, INC.
November 12, 2002 /s/ David E. O'Reilly
- ----------------- -----------------------------------------------------
Date David E. O'Reilly, Co-Chairman of the Board and
Chief Executive Officer (Principal Executive Officer)
November 12, 2002 /s/ James R. Batten
- ----------------- -----------------------------------------------------
Date James R. Batten, Vice-President of Finance and
Chief Financial Officer (Principal Financial and
Accounting Officer)
Page 12
CERTIFICATIONS
I, David E. O'Reilly, Co-Chairman of the Board, President and Chief Executive
Officer of O'Reilly Automotive, Inc. (O'Reilly), certify that:
1. I have reviewed this quarterly report on Form 10-Q of O'Reilly;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of O'Reilly as of, and for, the periods presented in this quarterly
report;
4. O'Reilly's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for O'Reilly and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to O'Reilly, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of O'Reilly's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. O'Reilly's other certifying officer and I have disclosed, based on our most
recent evaluation, to O'Reilly's auditors and the audit committee of
O'Reilly's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect O'Reilly's ability to record,
process, summarize and report financial data and have identified for
O'Reilly's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in O'Reilly's internal controls; and
6. O'Reilly's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 /s/ David E. O'Reilly
----------------------------------------
David E. O'Reilly, Co-Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
Page 13
CERTIFICATIONS
I, James R. Batten, Vice President of Finance and Chief Financial Officer of
O'Reilly Automotive, Inc. (O'Reilly), certify that:
1. I have reviewed this quarterly report on Form 10-Q of O'Reilly;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of O'Reilly as of, and for, the periods presented in this quarterly
report;
4. O'Reilly's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for O'Reilly and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to O'Reilly, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of O'Reilly's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. O'Reilly's other certifying officer and I have disclosed, based on our most
recent evaluation, to O'Reilly's auditors and the audit committee of
O'Reilly's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect O'Reilly's ability to record,
process, summarize and report financial data and have identified for
O'Reilly's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in O'Reilly's internal controls; and
6. O'Reilly's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 /s/ James R. Batten
----------------------------------------
James R. Batten, Vice President of
Finance and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 14
EXHIBIT INDEX
Number Description Page
- ------ ----------- ----
99.1 Certain Risk Factors, filed herewith 16
99.2 Certificate of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith. 17
99.3 Certificate of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith. 18
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.1 - Certain Risk Factors
The following factors could affect our actual results, including revenues,
expenses and net income, and could cause them to differ from any forward-looking
statements made by or on behalf of us.
Competition
We compete with a large number of retail and wholesale automotive aftermarket
product suppliers. The distribution of automotive aftermarket products is a
highly competitive industry, particularly in the more densely populated market
areas served by us. Competitors include national and regional automotive parts
chains, independently owned parts stores (some of which are associated with
national auto parts distributors or associations), automobile dealerships, mass
or general merchandise, discount and convenience chains that carry automotive
products, independent warehouse distributors and parts stores and national
warehouse distributors and associations. Some of our competitors are larger and
have greater financial resources than us.
No Assurance of Future Growth
We believe that our ability to open additional stores at an accelerated rate
will be a significant factor in achieving our growth objectives for the future.
Our ability to accomplish this growth is dependent, in part, on matters beyond
our control, such as weather conditions, zoning and other issues related to new
store site development, the availability of qualified management personnel and
general business and economic conditions. No assurance can be given that our
current growth rate can be maintained.
Dependence Upon Key and Other Personnel
The success of our company has been largely dependent on the efforts of certain
key personnel, including David E. O'Reilly, Lawrence P. O'Reilly, Ted F. Wise,
and Greg Henslee. The loss of the services of one or more of these individuals
could have a material adverse effect on the business and results of operations.
Additionally, in order to successfully implement and manage our growth strategy,
we will be dependent upon our ability to continue to attract and retain
qualified personnel. There can be no assurance that we will be able to continue
to attract such personnel.
Concentration of Ownership by Management
Our executive officers and directors as a group beneficially own a substantial
percentage of the outstanding shares of our common stock. These officers and
directors have the ability to exercise effective voting control of the company,
including the election of all of our directors, and to effectively determine the
vote on any matter being voted on by our shareholders, including any merger,
sale of assets or other change in control of the company.
Page 16
O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.2 - CEO Certification
O'REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of O'Reilly Automotive, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
David E. O'Reilly, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ David E. O'Reilly
- -------------------------------------
David E. O'Reilly
Chief Executive Officer
November 12, 2002
This certification is made solely for purposes of 18 U.S.C. Section 1350, and
not for any other purpose.
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O'REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
Exhibit 99.3 - CFO Certification
O'REILLY AUTOMOTIVE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of O'Reilly Automotive, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James R. Batten, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ James R. Batten
- -------------------------------------
James R. Batten
Chief Financial Officer
November 12, 2002
This certification is made solely for purposes of 18 U.S.C. Section 1350, and
not for any other purpose.
Page 18