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Chapter 17 team discussion problem: interactive financial analysis of O’Reilly Automotive – Team 1From ACCT&202 – 1200No unread replies.No replies.Please review the complete instructions for this forum, posted in the Chapter 17 module.This discussion assignment has two parts.First, calculate two ratios (calculate each ratio for both of O’Reilly’s two most recent fiscal years), and provide thoughtful analysis of what these ratios, and their trends, tell us about O’Reilly. For full credit, be sure to show your calculations. Your analysis should be approximately 2 to 4 sentences in length.Announcement area to discuss and agree upon which student will calculate which ratios.]Second, post comment replies that add analytical insights to the ratio calculations and analysis posted by your teammates.–> Deadline to post your ratio calculations and analysis: 11:59pm, Tuesday, March 10th–> Deadline to post comments on your teammates’ ratios: 11:59pm, Wednesday, March 11thUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
O’REILLY AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction
of incorporation or organization)
000-21318
Commission file
number
27-4358837
(I.R.S. Employer
Identification No.)
233 South Patterson Avenue
Springfield, Missouri 65802
(Address of principal executive offices, Zip code)
(417) 862-6708
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock $0.01 par value
Trading Symbol(s)
ORLY
Name of Each Exchange on which Registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At June 30, 2019, the aggregate market value of the voting stock held by non-affiliates of the Company was $23,433,046,431 based on
the last price of the common stock reported by The NASDAQ Global Select Market.
At February 24, 2020, an aggregate of 74,897,080 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2020 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2019, are incorporated by reference into Part III.
O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
3
14
18
18
19
19
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 5.
Selected Financial Data
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
20
22
24
39
40
72
72
73
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
74
74
74
75
75
Item 15.
Item 16
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
76
79
1
Forward-Looking Statements
We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. You can identify these statements by forward-looking words such as “estimate,” “may,” “could,” “will,” “believe,”
“expect,” “would,” “consider,” “should,” “anticipate,” “project,” “plan,” “intend” or similar words. In addition, statements contained
within this annual report that are not historical facts are forward-looking statements, such as statements discussing, among other things,
expected growth, store development, integration 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, the economy in general,
inflation, tariffs, product demand, the market for auto parts, competition, weather, risks associated with the performance of acquired
businesses, our ability to hire and retain qualified employees, consumer debt levels, our increased debt levels, credit ratings on public
debt, governmental regulations, information security and cyber-attacks, terrorist activities, war and the threat of war. Actual results may
materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors”
section in this annual report on Form 10-K for the year ended December 31, 2019, and subsequent Securities and Exchange Commission
filings, for additional factors that could materially affect our financial performance. Forward-looking statements speak only as of the
date they were made, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law.
2
PART I
Item 1. Business
GENERAL INFORMATION
Unless otherwise indicated, “we,” “us,” “our” and similar terms, as well as references to the “Company,” refer to O’Reilly
Automotive, Inc. and its Subsidiaries. O’Reilly is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies,
equipment and accessories in the United States (“U.S.”), selling our products to both do-it-yourself (“DIY”) and professional service
provider customers, our “dual market strategy.” The business was founded in 1957 by Charles F. O’Reilly and his son, Charles H.
“Chub’’ O’Reilly, Sr., and initially operated from a single store in Springfield, Missouri. Our common stock has traded on The NASDAQ
Global Select Market under the symbol “ORLY” since April 22, 1993.
After the close of business on November 29, 2019, we completed the acquisition of Mayoreo de Autopartes y Aceites, S.A. de C.V.
(“Mayasa”), a specialty retailer of automotive aftermarket parts headquartered in Guadalajara, Jalisco, Mexico pursuant to a stock
purchase agreement. At the time of the acquisition, Mayasa operated six distribution centers, 21 Orma Autopartes stores and served
over 2,000 independent jobber locations in 28 Mexican states.
At December 31, 2019, we operated 5,439 stores in 47 states in the United States and 21 stores in Mexico. Our stores carry an extensive
product line, including

new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components,
belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze,
appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and

accessories, such as floor mats, seat covers and truck accessories.
Our stores offer many enhanced services and programs to our customers, such as

battery diagnostic testing;

battery, wiper and bulb replacement;

check engine light code extraction, where allowed by law;

custom hydraulic hoses;

drum and rotor resurfacing;

electrical and module testing;

loaner tool program;

machine shops;

professional paint shop mixing and related materials; and

used oil, oil filter and battery recycling.
See the “Risk Factors” section of this annual report on Form 10-K for a description of certain risks relevant to our business. These risk
factors include, among others, deteriorating economic conditions, competition in the automotive aftermarket business, our sensitivity to
regional economic and weather conditions, future growth assurance, our dependence upon key and other personnel, our relationships
with key suppliers and availability of key products, our acquisition strategies, complications in our distribution centers (“DCs”), failure
to achieve high levels of service and product quality, unanticipated fluctuations in our quarterly results, the volatility of the market price
of our common stock, our increased debt levels, a downgrade in our credit ratings, data security, environmental legislation and other
regulations and risks associated with international operations.
OUR BUSINESS
Our goal is to continue to achieve growth in sales and profitability by capitalizing on our competitive advantages and executing our
growth strategy. We remain confident in our ability to continue 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, including superior customer service and expense
control. Our intent is to be the dominant auto parts provider in all the markets we serve, by providing a higher level of customer service
and a better value position than our competitors to both DIY and professional service provider customers.
3
Competitive Advantages
We believe our effective dual market strategy, superior customer service, technically proficient store personnel, strategic distribution
network and experienced management team make up our key competitive advantages, which cannot be easily duplicated.
Proven Ability to Execute Our Dual Market Strategy:
For more than 40 years, we have established a track record of effectively serving, at a high level, both DIY and professional service
provider customers. We believe our proven ability to effectively execute a dual market strategy is a unique competitive advantage. The
execution of this strategy enables us to better compete by targeting a larger base of automotive aftermarket parts consumers, capitalizing
on our existing retail and distribution infrastructure, operating profitably in both large markets and less densely populated geographic
areas that typically attract fewer competitors, and enhancing service levels offered to DIY customers through the offering of a broad
inventory and the extensive product knowledge required by professional service provider customers.
In 2019, we derived approximately 56% of our sales from our DIY customers and approximately 44% of our sales from our professional
service provider customers. Historically, we have increased our sales to professional service provider customers at a faster pace than
the increase in our sales to DIY customers due to the more fragmented nature of the professional service provider business, which offers
a greater opportunity for consolidation. We believe we will continue to have a competitive advantage on the professional service
provider portion of our business, due to our systems, knowledge and experience serving the professional service provider side of the
automotive aftermarket, supported by our approximately 825 full-time sales staff dedicated solely to calling upon and servicing the
professional service provider customer. We will also continue to expand and enhance the level of offerings focused on growing our
DIY business and will continue to execute our proven dual market strategy in both existing and new markets.
Superior Customer Service:
We seek to provide our customers with an efficient and pleasant in-store experience by maintaining attractive stores in convenient
locations with a wide selection of automotive products. We believe the satisfaction of DIY and professional service provider customers
is substantially dependent upon our ability to provide, in a timely fashion, the specific automotive products needed to complete their
repairs. Accordingly, each O’Reilly store carries, or has same or next day availability to, a broad selection of automotive products
designed to cover a wide range of vehicle applications. We continuously refine the inventory levels and assortments carried in each of
our stores and within our network, based in large part on the sales movement tracked by our inventory control system, market vehicle
registration data, failure rates and management’s assessment of the changes and trends in the marketplace. We have no material
backorders for the products we sell.
We seek to attract new DIY and professional service provider customers and retain existing customers by offering superior customer
service, the key elements of which are identified below:

superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”);

an extensive selection and availability of products;

many enhanced service programs, including battery and electrical testing, battery, wiper and bulb replacement and check engine
light code extractions;

attractive stores in convenient locations;

competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and
value preferences; and

a robust point-of-sale system integrated with our proprietary electronic catalog, which contains a wide variety of product
images, schematics and technical specifications and equips our Team Members with highly effective tools to source products
in our extensive supply network.
Technically Proficient Professional Parts People:
Our highly-motivated, technically-proficient Professional Parts People provide us with a significant competitive advantage, particularly
over less specialized retail operators. We require our Professional Parts People to undergo extensive and ongoing training and to be
knowledgeable, particularly with respect to hard part repairs, in order to better serve the technically-oriented professional service
provider customers with whom they interact on a daily basis. Such technical proficiency also enhances the customer service we provide
to our DIY customers who value the expert assistance provided by our Professional Parts People.
Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution network provides superior replenishment and access to hard-tofind parts and enables us to optimize product availability and inventory levels throughout our store network. Our strategic, regional,
4
tiered distribution network includes DCs and Hub stores. Our inventory management and distribution systems electronically link each
of our stores to one or more DCs, which provides for efficient inventory control and management. We currently operate 28 regional
DCs, which provide our stores with same-day or overnight access to an average of 159,000 stock keeping units (“SKUs”), many of
which are hard-to-find items not typically stocked by other auto parts retailers. To augment our robust distribution network, we operate
a total of 356 Hub stores that also provide delivery service and same-day access to an average of 68,000 SKUs from a Super Hub or
42,000 SKUs from a Hub to other stores within the surrounding area. We believe this timely access to a broad range of products is a
key competitive advantage in satisfying customer demand and generating repeat business.
Experienced Management Team:
Our Company philosophy is to “promote from within” and the vast majority of our senior management, district managers and store
managers have been promoted from within the Company. We augment this promote from within philosophy by pursuing strategic hires
with a strong emphasis on automotive aftermarket experience. We have a strong management team comprised of 216 senior managers
who average 21 years of service; 270 corporate managers who average 16 years of service; and 540 district managers who average 14
years of service. Our management team has demonstrated the consistent ability to successfully execute our business plan and growth
strategy by generating 27 consecutive years of record revenues and earnings and positive comparable store sales results since becoming
a public company in April of 1993.
Growth Strategy
Aggressively Open New Stores:
We intend to continue to consolidate the fragmented automotive aftermarket. During 2019, we opened 200 net, new domestic stores, as
well as 20 net, additional stores from the Bennett Auto Supply (“Bennett”), Inc. acquisition and 21 additional stores from the Mayasa
acquisition. In 2020, we plan to open approximately 180 net, new stores, which will increase our penetration in existing markets and
allow for expansion into new, contiguous markets. The sites for these new stores have been identified, and to date, we have not
experienced significant difficulties in locating suitable sites for construction of new stores or identifying suitable acquisition targets for
conversion to O’Reilly stores. We typically open new stores by
(i) constructing a new facility or renovating an existing one on property we purchase or lease and stocking the new store with
fixtures and inventory;
(ii) acquiring an independently owned auto parts store (“jobber store”), typically by the purchase of substantially all of the inventory
and other assets (other than realty) of such store; or
(iii) purchasing multi-store chains.
New store sites are strategically located in clusters within geographic areas that complement our distribution network in order to achieve
economies of scale in management, advertising and distribution. Other key factors we consider in the site selection process include
population density and growth patterns, demographic lifestyle segmentation, age and per capita income, vehicle traffic counts, vehicles
in operation, number and type of existing automotive repair facilities and competing auto parts stores within a predetermined radius.
We target both small and large markets for expansion of our store network. While we have, and continue to face, aggressive competition
in the more densely populated markets, we believe we have competed effectively, and are well positioned to continue to compete
effectively, in such markets and to achieve our goal of continued profitable sales growth within these markets. We also believe that
with our dual market strategy, we are better able to operate stores in less densely populated areas, whi…
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