O Reilly Automotive Inc 10-Q for FY2020 Q2

O Reilly Automotive Inc (ORLY)

10-Q 2020-08-07 For: 2020-06-30

Added on April 07, 2026

About this 10-Q

O Reilly Automotive Inc filed this 10-Q on August 7, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.09B; up 19.4% from $2.59B a year earlier
Net income: $531.67M; up 50.3% from net income of $353.68M a year earlier
Diluted EPS: $7.10; up 57.4% from $4.51 a year earlier

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Missouri	000-21318	27-4358837
(State or other jurisdiction of	Commission file number	(I.R.S. Employer Identification No.)
incorporation or organization)


Title of Each Class		Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock	$0.01 par value	ORLY	The NASDAQ Stock Market LLC
			(NASDAQ Global Select Market)


Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

		Page
PART I - FINANCIAL INFORMATION		2
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)		2
Condensed Consolidated Balance Sheets		2
Condensed Consolidated Statements of Income		3
Condensed Consolidated Statements of Comprehensive Income		4
Condensed Consolidated Statements of Shareholders’ Equity		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		26
ITEM 4 - CONTROLS AND PROCEDURES		26
PART II - OTHER INFORMATION		28
ITEM 1 - LEGAL PROCEEDINGS		28
ITEM 1A - RISK FACTORS		28
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		28
ITEM 6 - EXHIBITS		29
SIGNATURE PAGES		30


	June 30, 2020		December 31, 2019
	(Unaudited)		(Note)
Assets
Current assets:
Cash and cash equivalents	$	872,423	$	40,406
Accounts receivable, net		243,660		214,915
Amounts receivable from suppliers		86,513		79,492
Inventory		3,528,683		3,454,092
Other current assets		53,206		44,757
Total current assets		4,784,485		3,833,662

Property and equipment, at cost		6,403,936		6,191,427
Less: accumulated depreciation and amortization		2,365,453		2,243,224
Net property and equipment		4,038,483		3,948,203

Operating lease, right-of-use assets		1,926,270		1,928,369
Goodwill		872,997		936,814
Other assets, net		106,300		70,112
Total assets	$	11,728,535	$	10,717,160

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	3,936,400	$	3,604,722
Self-insurance reserves		90,890		79,079
Accrued payroll		107,116		100,816
Accrued benefits and withholdings		140,446		98,539
Income taxes payable		91,797		—
Current portion of operating lease liabilities		318,601		316,061
Other current liabilities		336,886		270,210
Total current liabilities		5,022,136		4,469,427

Long-term debt		4,127,397		3,890,527
Operating lease liabilities, less current portion		1,652,284		1,655,297
Deferred income taxes		155,530		133,280
Other liabilities		182,088		171,289

Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares – 245,000,000
Issued and outstanding shares –
74,097,706 as of June 30, 2020, and
75,618,659 as of December 31, 2019		741		756
Additional paid-in capital		1,289,976		1,280,760
Retained deficit		(679,506)		(889,066)
Accumulated other comprehensive (loss) income		(22,111)		4,890
Total shareholders’ equity		589,100		397,340

Total liabilities and shareholders’ equity	$	11,728,535	$	10,717,160


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Sales	$	3,091,595	$	2,589,874	$	5,568,082	$	5,000,482
Cost of goods sold, including warehouse and distribution expenses		1,454,415		1,221,587		2,634,996		2,352,905
Gross profit		1,637,180		1,368,287		2,933,086		2,647,577

Selling, general and administrative expenses		900,690		870,213		1,773,035		1,704,717
Operating income		736,490		498,074		1,160,051		942,860

Other income (expense):
Interest expense		(41,723)		(34,538)		(81,109)		(68,829)
Interest income		635		603		1,310		1,157
Other, net		5,008		832		(182)		3,935
Total other expense		(36,080)		(33,103)		(79,981)		(63,737)

Income before income taxes		700,410		464,971		1,080,070		879,123
Provision for income taxes		168,743		111,290		247,965		204,290
Net income	$	531,667	$	353,681	$	832,105	$	674,833

Earnings per share-basic:
Earnings per share	$	7.16	$	4.56	$	11.15	$	8.65
Weighted-average common shares outstanding – basic		74,205		77,613		74,611		78,047

Earnings per share-assuming dilution:
Earnings per share	$	7.10	$	4.51	$	11.06	$	8.56
Weighted-average common shares outstanding – assuming dilution		74,833		78,412		75,246		78,854


	For the Three Months Ended June 30, 2020
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income (Loss)		Total
Balance at March 31, 2020	74,199	$	742	$	1,271,250	$	(1,137,392)	$	(25,756)	$	108,844
Net income	—		—		—		531,667		—		531,667
Total other comprehensive income	—		—		—		—		3,645		3,645
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	15		—		4,818		—		—		4,818
Net issuance of common stock upon exercise of stock options	69		1		11,846		—		—		11,847
Share based compensation	—		—		5,254		—		—		5,254
Share repurchases, including fees	(185)		(2)		(3,192)		(73,781)		—		(76,975)
Balance at June 30, 2020	74,098	$	741	$	1,289,976	$	(679,506)	$	(22,111)	$	589,100

	For the Six Months Ended June 30, 2020
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income (Loss)		Total
Balance at December 31, 2019	75,619	$	756	$	1,280,760	$	(889,066)	$	4,890	$	397,340
Net income	—		—		—		832,105		—		832,105
Total other comprehensive loss	—		—		—		—		(27,001)		(27,001)
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	27		—		8,922		—		—		8,922
Net issuance of common stock upon exercise of stock options	121		2		17,981		—		—		17,983
Share-based compensation	—		—		10,778		—		—		10,778
Share repurchases, including fees	(1,669)		(17)		(28,465)		(622,545)		—		(651,027)
Balance at June 30, 2020	74,098	$	741	$	1,289,976	$	(679,506)	$	(22,111)	$	589,100

	For the Three Months Ended June 30, 2019
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income		Total
Balance at March 31, 2019	78,262	$	783	$	1,268,032	$	(896,450)	$	—	$	372,365
Net income	—		—		—		353,681		—		353,681
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	13		—		4,281		—		—		4,281
Net issuance of common stock upon exercise of stock options	48		—		7,973		—		—		7,973
Share based compensation	—		—		5,243		—		—		5,243
Share repurchases, including fees	(1,633)		(16)		(26,599)		(572,246)		—		(598,861)
Balance at June 30, 2019	76,690	$	767	$	1,258,930	$	(1,115,015)	$	—	$	144,682

	For the Six Months Ended June 30, 2019
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income		Total
Balance at December 31, 2018	79,044	$	790	$	1,262,063	$	(909,186)	$	—	$	353,667
Cumulative effective adjustment from adoption of ASU 2016-02	—		—		—		(1,410)		—		(1,410)
Net income	—		—		—		674,833		—		674,833
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	25		—		8,053		—		—		8,053
Net issuance of common stock upon exercise of stock options	181		2		19,926		—		—		19,928
Share-based compensation	—		—		10,328		—		—		10,328
Share repurchases, including fees	(2,560)		(25)		(41,440)		(879,252)		—		(920,717)
Balance at June 30, 2019	76,690	$	767	$	1,258,930	$	(1,115,015)	$	—	$	144,682


	December 31, 2019
	Quoted Prices in Active Markets		Significant Other		Significant
	for Identical Instruments		Observable Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Marketable securities	$	32,201	$	—	$	—	$	32,201


	June 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Senior Notes	$	4,127,397	$	4,605,743	$	3,629,527	$	3,881,925


Allowance for doubtful accounts, balance at December 31, 2019	$	14,417
Reserve accruals		2,889
Uncollectable accounts written-off		(3,703)
Foreign currency translation		(128)
Allowance for doubtful accounts, balance at June 30, 2020	$	13,475


	June 30, 2020		December 31, 2019
Revolving Credit Facility	$	—	$	261,000
4.875% Senior Notes due 2021, effective interest rate of 4.947%		500,000		500,000
4.625% Senior Notes due 2021, effective interest rate of 4.643%		300,000		300,000
3.800% Senior Notes due 2022, effective interest rate of 3.845%		300,000		300,000
3.850% Senior Notes due 2023, effective interest rate of 3.851%		300,000		300,000
3.550% Senior Notes due 2026, effective interest rate of 3.570%		500,000		500,000
3.600% Senior Notes due 2027, effective interest rate of 3.619%		750,000		750,000
4.350% Senior Notes due 2028, effective interest rate of 4.383%		500,000		500,000
3.900% Senior Notes due 2029, effective interest rate of 3.901%		500,000		500,000
4.200% Senior Notes due 2030, effective interest rate of 4.205%		500,000		—
Principal amount of long-term debt		4,150,000		3,911,000
Less: Unamortized discount and debt issuance costs		22,603		20,473
Long-term debt	$	4,127,397	$	3,890,527


Warranty liabilities, balance at December 31, 2019	$	61,069
Warranty claims		(50,598)
Warranty accruals		60,522
Warranty liabilities, balance at June 30, 2020	$	70,993


	Foreign		Total Accumulated Other
	Currency ⁽¹⁾		Comprehensive Loss
Accumulated other comprehensive loss, balance at March 31, 2020	$	(25,756)	$	(25,756)
Change in accumulated other comprehensive loss		3,645		3,645
Accumulated other comprehensive loss, balance at June 30, 2020	$	(22,111)	$	(22,111)


	Shares	Weighted- Average
	(in thousands)	Exercise Price
Outstanding at December 31, 2019	1,635	$	218.10
Granted	149		384.75
Exercised	(121)		148.80
Forfeited or expired	(13)		293.46
Outstanding at June 30, 2020	1,650	$	237.64
Exercisable at June 30, 2020	1,107	$	193.01


	Increase in Sales for the		Increase in Sales for the
	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
	Compared to the Same		Compared to the Same
	Period in 2019		Period in 2019
Store sales:
Comparable store sales	$	412	$	367
Non-comparable store sales:
Sales for stores opened throughout 2019, excluding stores open at least one year that are included in comparable store sales and sales from the acquired Mayasa stores		42		86
Sales for stores opened throughout 2020		28		37
Sales from Leap Day		—		34
Decline in sales for stores that have closed		(1)		(3)
Non-store sales:
Includes sales of machinery and sales to independent parts stores and Team Members		21		47
Total increase in sales	$	502	$	568


	For the Six Months Ended
	June 30,
	2020		2019
			(Note)
Operating activities:
Net income	$	832,105	$	674,833
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and intangibles		151,873		132,275
Amortization of debt discount and issuance costs		2,152		1,887
Deferred income taxes		14,987		8,364
Share-based compensation programs		11,480		11,015
Other		1,906		4,277
Changes in operating assets and liabilities:
Accounts receivable		(34,966)		(74,978)
Inventory		(78,086)		(69,103)
Accounts payable		334,503		138,522
Income taxes payable		210,855		(833)
Other		112,269		20,745
Net cash provided by operating activities		1,559,078		847,004

Investing activities:
Purchases of property and equipment		(244,471)		(295,608)
Proceeds from sale of property and equipment		4,846		3,138
Investment in tax credit equity investments		(95,292)		(1,717)
Other		(311)		839
Net cash used in investing activities		(335,228)		(293,348)

Financing activities:
Proceeds from borrowings on revolving credit facility		1,162,000		1,629,000
Payments on revolving credit facility		(1,423,000)		(1,760,000)
Proceeds from the issuance of long-term debt		499,795		499,955
Payment of debt issuance costs		(3,840)		(3,988)
Repurchases of common stock		(651,027)		(920,717)
Net proceeds from issuance of common stock		25,593		26,778
Other		(253)		(190)
Net cash used in financing activities		(390,732)		(529,162)

Effect of exchange rate changes on cash		(1,101)		—
Net increase in cash and cash equivalents		832,017		24,494


	June 30,
	2020		2019
Risk free interest rate	0.96	%	2.44	%
Expected life	6.2	Years	6.0	Years
Expected volatility	25.8	%	25.0	%
Expected dividend yield	—	%	—	%


	For the Six Months Ended
	June 30,
Liquidity:	2020		2019
Total cash provided by/(used in):
Operating activities	$	1,559,078	$	847,004
Investing activities		(335,228)		(293,348)
Financing activities		(390,732)		(529,162)
Effect of exchange rate changes on cash		(1,101)		—
Net increase in cash and cash equivalents	$	832,017	$	24,494

Capital expenditures	$	244,471	$	295,608
Free cash flow ⁽¹⁾		1,212,855		538,957


		For the Twelve Months Ended
		June 30,
		2020		2019
GAAP net income		$	1,548,314	$	1,341,341
Add:	Interest expense		152,255		131,879
	Rent expense ⁽¹⁾		345,530		328,529
	Provision for income taxes		442,962		386,590
	Depreciation expense		286,593		257,579
	Amortization expense		3,880		2,841
	Non-cash share-based compensation		22,386		21,039
Non-GAAP EBITDAR		$	2,801,920	$	2,469,798

	Interest expense	$	152,255	$	131,879
	Capitalized interest		12,376		10,891
	Rent expense ⁽¹⁾		345,530		328,529
Total fixed charges		$	510,161	$	471,299

Consolidated fixed charge coverage ratio			5.49		5.24

GAAP debt		$	4,127,397	$	3,783,738
Add:	Stand-by letters of credit		51,551		39,109
	Discount on senior notes		3,295		3,930
	Debt issuance costs		19,308		18,332
	Five-times rent expense		1,727,650		1,642,645
Non-GAAP adjusted debt		$	5,929,201	$	5,487,754

Consolidated leverage ratio			2.12		2.22


Total lease cost, per ASC 842, for the twelve months ended June 30, 2020		$	408,583
Less:	Variable non-contract operating lease components, related to property taxes and insurance, for the twelve months ended June 30, 2020		63,053
Rent expense for the twelve months ended June 30, 2020		$	345,530

Total lease cost, per ASC 842, for the six months ended June 30, 2019		$	197,839
Less:	Variable non-contract operating lease components, related to property taxes and insurance, for the six months ended June 30, 2019		29,433
Rent expense for the six months ended June 30, 2019			168,406
Add:	Rent expense for the six months ended December 31, 2018, as previously reported prior to the adoption of ASC 842		160,123
Rent expense for the twelve months ended June 30, 2019		$	328,529


				Total Number of	Maximum Dollar Value
	Total	Average		Shares Purchased as	of Shares that May Yet
	Number of	Price Paid		Part of Publicly	Be Purchased Under the
Period	Shares Purchased	per Share		Announced Programs	Programs ⁽¹⁾
April 1, 2020, to April 30, 2020	—	$	—	—	$	994,646
May 1, 2020, to May 31, 2020	8		408.09	8		991,647
June 1, 2020, to June 30, 2020	177		418.20	177	$	917,673
Total as of June 30, 2020	185	$	417.79	185

Exhibit No.		Description
3.1		Second Amended and Restated Articles of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 19, 2020, is incorporated herein by this reference.
3.2		Fourth Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.3 to the Registrant’s Current Report on Form 8-K dated May 19, 2020, is incorporated herein by this reference.
4.1		Second Supplemental Indenture, dated as of March 27, 2020, by and between O’Reilly Automotive, Inc. and U.S. Bank National Association, as Trustee, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 27, 2020, is incorporated herein by this reference.
4.2		Form of Note for 4.200% Senior Notes due 2030, included in Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 27, 2020, is incorporated herein by this reference.
10.1		Second Form of O’Reilly Automotive, Inc. Director Indemnification Agreement, filed herewith.
10.2		Second Form of O’Reilly Automotive, Inc. Executive Officer Indemnification Agreement, filed herewith.
10.3		O’Reilly Automotive, Inc. 2017 Incentive Award Plan, Second Form of Stock Option Agreement, dated as of August 6, 2020, filed herewith.
31.1		Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2		Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 *		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, furnished herewith.
32.2 *		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, furnished herewith.
101.INS		iXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		iXBRL Taxonomy Extension Schema.
101.CAL		iXBRL Taxonomy Extension Calculation Linkbase.
101.DEF		iXBRL Taxonomy Extension Definition Linkbase.
101.LAB		iXBRL Taxonomy Extension Label Linkbase.
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104		Cover Page Interactive Data File, formatted as Inline XBRL, contained in Exhibit 101 attachments.

*		Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.


	O’REILLY AUTOMOTIVE, INC.

August 7, 2020	/s/	Gregory D. Johnson
Date	Gregory D. Johnson
	Chief Executive Officer and Co-President
	(Principal Executive Officer)

August 7, 2020	/s/	Thomas McFall
Date	Thomas McFall
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)


Date:	August 7, 2020	/s/	Gregory D. Johnson
		Gregory D. Johnson
		Chief Executive Officer and
		Co-President
		(Principal Executive Officer)


/s/	Gregory D. Johnson
Gregory D. Johnson
Chief Executive Officer