O REILLY AUTOMOTIVE INC [ORLY] Filings

10-Q 1 orly-20240930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

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

233 South Patterson Avenue

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)

Securities registered pursuant to Section 12(b) of the Act:


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)

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, 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	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting 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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: Common stock, $0.01 par value - 57,730,693 shares outstanding as of November 4, 2024.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2024

TABLE OF CONTENTS

		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 (Deficit)		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		18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		24
ITEM 4 - CONTROLS AND PROCEDURES		25
PART II - OTHER INFORMATION		26
ITEM 1 - LEGAL PROCEEDINGS		26
ITEM 1A - RISK FACTORS		26
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		26
ITEM 5 - OTHER INFORMATION		26
ITEM 6 - EXHIBITS		27
SIGNATURE PAGES		28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30, 2024		December 31, 2023
	(Unaudited)		(Note)
Assets
Current assets:
Cash and cash equivalents	$	115,613	$	279,132
Accounts receivable, net		401,950		375,049
Amounts receivable from suppliers		154,300		140,443
Inventory		4,913,237		4,658,367
Other current assets		113,187		105,311
Total current assets		5,698,287		5,558,302

Property and equipment, at cost		8,969,137		8,312,367
Less: accumulated depreciation and amortization		3,532,755		3,275,387
Net property and equipment		5,436,382		5,036,980

Operating lease, right-of-use assets		2,269,929		2,200,554
Goodwill		997,226		897,696
Other assets, net		175,698		179,463
Total assets	$	14,577,522	$	13,872,995

Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable	$	6,359,619	$	6,091,700
Self-insurance reserves		123,505		128,548
Accrued payroll		141,361		138,122
Accrued benefits and withholdings		201,351		174,650
Income taxes payable		206,776		7,860
Current portion of operating lease liabilities		408,571		389,536
Other current liabilities		743,982		730,937
Total current liabilities		8,185,165		7,661,353

Long-term debt		5,359,810		5,570,125
Operating lease liabilities, less current portion		1,938,162		1,881,344
Deferred income taxes		325,869		295,471
Other liabilities		207,580		203,980

Shareholders’ equity (deficit):
Common stock, $0.01 par value:
Authorized shares – 245,000,000
Issued and outstanding shares –
57,838,920 as of September 30, 2024, and
59,072,792 as of December 31, 2023		578		591
Additional paid-in capital		1,449,447		1,352,275
Retained deficit		(2,875,955)		(3,131,532)
Accumulated other comprehensive (loss) income		(13,134)		39,388
Total shareholders’ deficit		(1,439,064)		(1,739,278)

Total liabilities and shareholders’ deficit	$	14,577,522	$	13,872,995

Note: The balance sheet at December 31, 2023, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

See accompanying Notes to condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Sales	$	4,364,437	$	4,203,380	$	12,612,878	$	11,980,235
Cost of goods sold, including warehouse and distribution expenses		2,113,212		2,042,917		6,159,421		5,842,861
Gross profit		2,251,225		2,160,463		6,453,457		6,137,374

Selling, general and administrative expenses		1,354,497		1,263,241		3,940,950		3,669,734
Operating income		896,728		897,222		2,512,507		2,467,640

Other income (expense):
Interest expense		(55,166)		(51,361)		(167,145)		(145,520)
Interest income		2,055		1,292		5,239		2,920
Other, net		4,304		(486)		9,266		8,179
Total other expense		(48,807)		(50,555)		(152,640)		(134,421)

Income before income taxes		847,921		846,667		2,359,867		2,333,219
Provision for income taxes		182,457		196,840		524,317		539,142
Net income	$	665,464	$	649,827	$	1,835,550	$	1,794,077

Earnings per share-basic:
Earnings per share	$	11.47	$	10.82	$	31.34	$	29.46
Weighted-average common shares outstanding – basic		57,998		60,082		58,563		60,905

Earnings per share-assuming dilution:
Earnings per share	$	11.41	$	10.72	$	31.14	$	29.20
Weighted-average common shares outstanding – assuming dilution		58,335		60,590		58,942		61,445

See accompanying Notes to condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net income	$	665,464	$	649,827	$	1,835,550	$	1,794,077
Other comprehensive income (loss):
Foreign currency translation adjustments		(22,026)		(5,782)		(52,522)		27,293
Total other comprehensive (loss) income		(22,026)		(5,782)		(52,522)		27,293

Comprehensive income	$	643,438	$	644,045	$	1,783,028	$	1,821,370

See accompanying Notes to condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)


	For the Three Months Ended September 30, 2024
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income (Loss)		Total
Balance at June 30, 2024	58,239	$	582	$	1,415,799	$	(3,008,665)	$	8,892	$	(1,583,392)
Net income	—		—		—		665,464		—		665,464
Total other comprehensive loss	—		—		—		—		(22,026)		(22,026)
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	6		—		5,809		—		—		5,809
Net issuance of common stock upon exercise of stock options	92		1		33,225		—		—		33,226
Share based compensation	—		—		6,865		—		—		6,865
Share repurchases, including fees	(498)		(5)		(12,251)		(528,462)		—		(540,718)
Excise tax on share repurchases	—		—		—		(4,292)		—		(4,292)
Balance at September 30, 2024	57,839	$	578	$	1,449,447	$	(2,875,955)	$	(13,134)	$	(1,439,064)

	For the Nine Months Ended September 30, 2024
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income (Loss)		Total
Balance at December 31, 2023	59,073	$	591	$	1,352,275	$	(3,131,532)	$	39,388	$	(1,739,278)
Net income	—		—		—		1,835,550		—		1,835,550
Total other comprehensive loss	—		—		—		—		(52,522)		(52,522)
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	20		—		18,213		—		—		18,213
Net issuance of common stock upon exercise of stock options	291		3		96,043		—		—		96,046
Share-based compensation	—		—		20,138		—		—		20,138
Share repurchases, including fees	(1,545)		(16)		(37,222)		(1,567,271)		—		(1,604,509)
Excise tax on share repurchases	—		—		—		(12,702)		—		(12,702)
Balance at September 30, 2024	57,839	$	578	$	1,449,447	$	(2,875,955)	$	(13,134)	$	(1,439,064)

	For the Three Months Ended September 30, 2023
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income		Total
Balance at June 30, 2023	60,402	$	604	$	1,330,270	$	(2,994,418)	$	36,071	$	(1,627,473)
Net income	—		—		—		649,827		—		649,827
Total other comprehensive loss	—		—		—		—		(5,782)		(5,782)
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	7		—		5,239		—		—		5,239
Net issuance of common stock upon exercise of stock options	64		1		17,685		—		—		17,686
Share based compensation	—		—		6,900		—		—		6,900
Share repurchases, including fees	(852)		(9)		(18,931)		(780,589)		—		(799,529)
Excise tax on share repurchases	—		—		—		(7,337)		—		(7,337)
Balance at September 30, 2023	59,621	$	596	$	1,341,163	$	(3,132,517)	$	30,289	$	(1,760,469)

	For the Nine Months Ended September 30, 2023
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive
	Shares	Par Value		Capital		Deficit		Income		Total
Balance at December 31, 2022	62,353	$	624	$	1,311,488	$	(2,375,860)	$	2,996	$	(1,060,752)
Net income	—		—		—		1,794,077		—		1,794,077
Total other comprehensive income	—		—		—		—		27,293		27,293
Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes	22		—		16,649		—		—		16,649
Net issuance of common stock upon exercise of stock options	207		2		56,483		—		—		56,485
Share-based compensation	—		—		20,555		—		—		20,555
Share repurchases, including fees	(2,961)		(30)		(64,012)		(2,526,938)		—		(2,590,980)
Excise tax on share repurchases	—		—		—		(23,796)		—		(23,796)
Balance at September 30, 2023	59,621	$	596	$	1,341,163	$	(3,132,517)	$	30,289	$	(1,760,469)

See accompanying Notes to condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	For the Nine Months Ended
	September 30,
	2024		2023
Operating activities:
Net income	$	1,835,550	$	1,794,077
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and intangibles		339,324		296,583
Amortization of debt discount and issuance costs		4,870		3,597
Deferred income taxes		8,536		35,982
Share-based compensation programs		21,600		21,948
Other		5,928		3,574
Changes in operating assets and liabilities:
Accounts receivable		(9,175)		(58,658)
Inventory		(212,491)		(263,896)
Accounts payable		252,454		315,910
Income taxes payable		198,780		353,366
Other		(20,287)		15,172
Net cash provided by operating activities		2,425,089		2,517,655

Investing activities:
Purchases of property and equipment		(732,916)		(753,958)
Proceeds from sale of property and equipment		10,268		10,461
Investment in tax credit equity investments		—		(4,150)
Other, including acquisitions, net of cash acquired		(160,960)		(2,126)
Net cash used in investing activities		(883,608)		(749,773)

Financing activities:
Proceeds from borrowings on revolving credit facility		30,000		3,227,000
Payments on revolving credit facility		(30,000)		(3,227,000)
Net (payments) proceeds of commercial paper		(706,850)		1,025,075
Proceeds from the issuance of long-term debt		498,910		—
Principal payments on long-term debt		—		(300,000)
Payment of debt issuance costs		(3,900)		(39)
Repurchases of common stock		(1,604,509)		(2,590,980)
Net proceeds from issuance of common stock		112,825		71,604
Other		(569)		(354)
Net cash used in financing activities		(1,704,093)		(1,794,694)

Effect of exchange rate changes on cash		(907)		893
Net decrease in cash and cash equivalents		(163,519)		(25,919)
Cash and cash equivalents at beginning of the period		279,132		108,583
Cash and cash equivalents at end of the period	$	115,613	$	82,664

Supplemental disclosures of cash flow information:
Income taxes paid	$	419,331	$	147,128
Interest paid, net of capitalized interest		139,228		127,085

See accompanying Notes to condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2024

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of O’Reilly Automotive, Inc. and its subsidiaries (the “Company” or “O’Reilly”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) 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 U.S. GAAP 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 and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ended December 31, 2024. 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, 2023.

Principles of consolidation:

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

NOTE 2 – BUSINESS COMBINATION

On January 22, 2024, the Company completed the previously announced strategic acquisition of Groupe Del Vasto (“Vast Auto”), an auto parts supplier headquartered in Montreal, Quebec, Canada, pursuant to a stock purchase agreement whereby 100% of all outstanding shares of Vast Auto were acquired, with all consideration paid in cash at closing. The acquisition of Vast Auto represents O’Reilly’s entrance into the Canadian automotive aftermarket. At the time of the acquisition, Vast Auto operated two distribution centers and six satellite warehouses that support a network of 23 company-owned stores and thousands of independent jobber and professional customers across Eastern Canada. The results of Vast Auto’s operations have been included in the Company’s condensed consolidated financial statements beginning from the date of acquisition. Pro forma results of operations related to the acquisition of Vast Auto are not presented as Vast Auto’s results are not material to the Company’s results of operations.

The purchase price allocation process, which is still ongoing, consists of collecting data and information to enable the Company to value the assets acquired and liabilities assumed as a result of the business combination. The Company has substantially completed purchase price allocations related to working capital, including inventory, accounts receivable, accounts payable, and property, plant, and equipment. Potential identifiable intangible assets that continue to be evaluated include, but are not limited to, trade names and trademarks, non-compete agreements, and customer relationships. In addition, other assets, including internal use software, and other assumed liabilities may be identified, valued, and recorded. The Company has engaged a third-party valuation specialist to assist with the valuation of the intangible assets. This process is ongoing and the Company remains in the initial measurement period.

The preliminary purchase price allocation remains provisional and will change as additional information is obtained and valuation work is completed during the initial measurement period. The Company’s preliminary assessment resulted in the initial recognition of $109.8 million of goodwill and intangible assets, which has been increased by $0.4 million during the initial measurement period, including impacts from the recognition of applicable deferred taxes related to the acquisition, which is included in “Goodwill” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2024. Goodwill generated from this acquisition is not amortizable for tax purposes.

NOTE 3 – VARIABLE INTEREST ENTITIES

The Company has invested in certain tax credit funds that promote renewable energy. These investments generate a return primarily through the realization of federal tax credits and other tax benefits. The Company accounts for the tax attributes of its renewable energy investments using the deferral method. Under this method, realized investment tax credits and other tax benefits are recognized as a reduction of the renewable energy tax credits.

The Company has determined its investment in these tax credit funds were investments in variable interest entities (“VIEs”). The Company analyzes any investments in VIEs at inception and again if certain triggering events are identified to determine if it is the primary beneficiary. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIEs’ economic performance including, but not limited to, the ability to direct financing, leasing, construction, and other operating decisions and activities. As of September 30, 2024, the Company had invested in six unconsolidated tax credit fund entities that were considered to be VIEs and concluded it was not the primary beneficiary of any of the entities, as it did

not have the power to control the activities that most significantly impact the entities, and has therefore accounted for these investments using the equity method.

The Company’s maximum exposure to losses associated with these VIEs is generally limited to its net investment, which was $28.4 million as of September 30, 2024, and was included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets.

NOTE 4 – FAIR VALUE MEASUREMENTS

The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth below:

●

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

●

Level 2 – Inputs other than quoted prices in active markets included within Level 1 that are observable for the asset or liability, either directly or indirectly.

●

Level 3 – Unobservable inputs for the asset or liability.

Financial assets and liabilities measured at fair value on a recurring basis:

The Company invests in various marketable securities with the intention of selling these securities to fulfill its future unsecured obligations under the Company’s nonqualified deferred compensation plan. See Note 12 for further information concerning the Company’s benefit plans.

The Company’s marketable securities were accounted for as trading securities and the carrying amount of its marketable securities were included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023. The Company recorded an increase in fair value related to its marketable securities in the amount of $3.3 million and a decrease in fair value related to its marketable securities in the amount of $1.4 million for the three months ended September 30, 2024 and 2023, respectively, which were included in “Other income (expense)” on the accompanying Condensed Consolidated Statements of Income. The Company recorded an increase in fair value related to its marketable securities in the amount of $7.4 million and $3.6 million for the nine months ended September 30, 2024 and 2023, respectively, which were included in “Other income (expense)” on the accompanying Condensed Consolidated Statements of Income.

The tables below identify the estimated fair value of the Company’s marketable securities, determined by reference to quoted market prices (Level 1), as of September 30, 2024, and December 31, 2023 (in thousands):

September 30, 2024

Quoted Priced in Active Markets

Significant Other

Significant

for Identical Instruments

Observable Inputs

Unobservable Inputs

(Level 1)

(Level 2)

(Level 3)

Total

Marketable securities

65,677

—

65,677


	December 31, 2023
	Quoted Prices in Active Markets		Significant Other		Significant
	for Identical Instruments		Observable Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Marketable securities	$	59,508	$	—	$	—	$	59,508

Non-financial assets and liabilities measured at fair value on a nonrecurring basis:

Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or property and equipment that are determined to be impaired. As of September 30, 2024, and December 31, 2023, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.

Fair value of financial instruments:

The carrying amounts of the Company’s senior notes, unsecured revolving credit facility borrowings, and commercial paper program borrowings are included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023.

The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair value as of September 30, 2024, and December 31, 2023, was determined by reference to quoted market prices of the same or similar instruments (Level 2) (in thousands):


	September 30, 2024				December 31, 2023
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Senior Notes	$	5,319,844	$	5,268,906	$	4,820,543	$	4,687,065

The carrying amount of the Company’s unsecured revolving credit facility approximates fair value (Level 2), as borrowings under the facility bear variable interest at current market rates. The carrying amount of the Company’s commercial paper program approximates fair value (Level 2), as borrowings under the program bear interest at market rates prevailing at the time of issuance. See Note 7 for further information concerning the Company’s senior notes, unsecured revolving credit facility, and commercial paper program.

The accompanying Condensed Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts receivable, amounts receivable from suppliers, and accounts payable. Due to the short-term nature of these financial instruments, the Company believes that the carrying values of these instruments approximate their fair values.

NOTE 5 – LEASES

The Company leases certain office space, retail stores, distribution centers, and equipment under long-term, non-cancelable operating leases. The following table summarizes Total lease cost for the three and nine months ended September 30, 2024 and 2023, which were primarily included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income (in thousands):


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Operating lease cost	$	107,146	$	100,559	$	315,741	$	296,624
Short-term operating lease cost		1,965		1,708		6,375		7,213
Variable operating lease cost		29,386		25,696		84,565		75,257
Sublease income		(1,315)		(1,143)		(3,681)		(3,632)
Total lease cost	$	137,182	$	126,820	$	403,000	$	375,462

The following table summarizes other lease-related information for the nine months ended September 30, 2024 and 2023:


		For the Nine Months Ended
		September 30,
		2024		2023
Cash paid for amounts included in the measurement of operating lease liabilities:
	Operating cash flows from operating leases	$	309,572	$	291,033
Right-of-use assets obtained in exchange for new operating lease liabilities			291,486		324,893

NOTE 6 – SUPPLIER FINANCE PROGRAM

The Company has established and maintains supplier finance programs with certain third-party financial institutions, which allow participating merchandise suppliers to voluntarily elect to assign the Company’s payment obligations due to these merchandise suppliers to one of the designated third-party institutions. Under these supplier finance programs, the Company has agreed to pay the third-party financial institutions the stated amount of confirmed merchandise supplier invoices on the original maturity dates of the invoices, which are generally for a term of one year. The Company does not have any assets pledged as security or other forms of guarantees for the committed payment to the third-party financial institutions. As of September 30, 2024, and December 31, 2023, the Company had obligations outstanding under these programs for invoices that were confirmed as valid to the third-party financial institutions in the amounts of $4.5 billion and $4.4 billion, respectively, which were included as a component of “Accounts payable” on the accompanying Condensed Consolidated Balance Sheets.

NOTE 7 – FINANCING

The following table identifies the amounts included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Commercial paper program, weighted-average variable interest rate of 4.980% as of September 30, 2024 and 5.640% as of December 31, 2023		40,000		750,900
3.550% Senior Notes due 2026, effective interest rate of 3.570%		500,000		500,000
5.750% Senior Notes due 2026, effective interest rate of 5.767%		750,000		750,000
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		500,000
1.750% Senior Notes due 2031, effective interest rate of 1.798%		500,000		500,000
4.700% Senior Notes due 2032, effective interest rate of 4.740%		850,000		850,000
5.000% Senior Notes due 2034, effective interest rate of 5.028%		500,000		—
Total principal amount of debt		5,390,000		5,600,900
Less: Unamortized discount and debt issuance costs		30,190		30,775
Total long-term debt	$	5,359,810	$	5,570,125

Unsecured revolving credit facility:

The Company is party to a credit agreement dated June 15, 2021, as amended as of March 6, 2023 (the “Credit Agreement”). The Credit Agreement provides for a five-year $1.8 billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by JPMorgan Chase Bank, N.A., which is scheduled to mature in June of 2026. The Credit Agreement includes a $200 million sub-limit for the issuance of letters of credit and a $75 million sub-limit for swing line borrowings under the Revolving Credit Facility. As described in the Credit Agreement governing the Revolving Credit Facility, the Company may, from time to time, subject to certain conditions, increase the aggregate commitments under the Revolving Credit Facility by up to $900 million, provided that the aggregate amount of the commitments does not exceed $2.7 billion at any time.

As of September 30, 2024, and December 31, 2023, the Company had outstanding letters of credit, primarily to support obligations related to workers’ compensation, general liability, and other insurance policies, under the Credit Agreement each in the amount of $5.4 million, reducing the aggregate availability under the Credit Agreement by those amounts. Substantially all of these outstanding letters of credit have a one-year term from the date of issuance. As of September 30, 2024, and December 31, 2023, the Company had no outstanding borrowings under its Revolving Credit Facility.

Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at either an Alternate Base Rate or an Adjusted Term SOFR Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans made under the Revolving Credit Facility bear interest at an Alternate Base Rate plus the applicable margin for Alternate Base Rate loans. In addition, the Company pays a facility fee on the aggregate amount of the commitments under the Credit Agreement in an amount equal to a percentage of such commitments. The interest rate margins and facility fee are based upon the better of the ratings assigned to the Company’s debt by Moody’s Investor Service, Inc. and Standard & Poor’s Ratings Services, subject to limited exceptions. As of September 30, 2024, based upon the Company’s current credit ratings, its margin for Alternate Base Rate loans was 0.000%, its margin for Term Benchmark Revolving Loans was 0.900%, and its facility fee was 0.100%.

The Credit Agreement contains certain covenants, including limitations on subsidiary indebtedness, a minimum consolidated fixed charge coverage ratio of 2.50:1.00 and a maximum consolidated leverage ratio of 3.50:1.00. The consolidated fixed charge coverage ratio includes a calculation of earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense to fixed charges. Fixed charges include interest expense, capitalized interest, and rent expense. The consolidated leverage ratio includes a calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent, and non-cash share-based compensation expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit, and similar instruments, five-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company should default on any covenant (subject to customary grace periods, cure rights, and materiality thresholds) contained in the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the Credit Agreement, and litigation from lenders. As of September 30, 2024, the Company remained in compliance with all covenants under the Credit Agreement.

In addition to the letters of credit issued under the Credit Agreement described above, as of September 30, 2024, and December 31, 2023, the Company had additional outstanding letters of credit, primarily to support obligations under workers’ compensation, general liability,

and other insurance policies, in the amount of $121.9 million and $106.8 million, respectively. Substantially all of these letters of credit have a one-year term from the date of issuance and were not issued under the Company’s Credit Agreement or another committed facility.

Commercial paper program:

On August 9, 2023, the Company established a commercial paper program (the “Program”) pursuant to which it may issue short-term, unsecured commercial paper notes (the “Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the Notes outstanding under the Program at any time not to exceed $1.8 billion. The Notes will have maturities of up to 397 days from the date of issue. The Notes rank at least pari passu with all of the Company’s other unsecured and unsubordinated indebtedness. The Company plans to use its Revolving Credit Facility as a liquidity backstop for the repayment of Notes outstanding under the Program. The Notes issued under the Program were included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheet as of September 30, 2024, as the Company has the ability and intent to refinance these Notes on a long-term basis.

Senior notes:

On August 19, 2024, the Company issued $500 million aggregate principal amount of unsecured 5.000% Senior Notes due 2034 (“5.000% Senior Notes due 2034”) at a price to the public of 99.782% of their face value with U.S. Bank Trust Company, National Association (“U.S. Bank”) as trustee. Interest on the 5.000% Senior Notes due 2034 is payable on August 19 and February 19 of each year, beginning on February 19, 2025, and is computed on the basis of a 360-day year.

As of September 30, 2024, the Company has issued and outstanding a cumulative $5.4 billion aggregate principal amount of unsecured senior notes, which are due between 2026 and 2034, with UMB Bank, N.A. and U.S. Bank Trust Company, National Association as trustees. Interest on the senior notes, ranging from 1.750% to 5.750%, is payable semi-annually and is computed on the basis of a 360-day year. None of the Company’s subsidiaries is a guarantor under the senior notes. Each of the senior notes is subject to certain customary covenants, with which the Company complied as of September 30, 2024.

NOTE 8 – WARRANTIES

The Company provides warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime warranties. The risk of loss arising from warranty claims is typically the obligation of the Company’s suppliers. Certain suppliers provide upfront allowances to the Company in lieu of accepting the obligation for warranty claims. For this merchandise, when sold, the Company bears the risk of loss associated with the cost of warranty claims. Differences between supplier allowances received by the Company, in lieu of warranty obligations and estimated warranty expense, are recorded as an adjustment to cost of sales. Estimated warranty costs, which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product line. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims.

The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023; the following table identifies the changes in the Company’s aggregate product warranty liabilities for the nine months ended September 30, 2024 (in thousands):


Warranty liabilities, balance at December 31, 2023	$	117,895
Warranty claims		(151,873)
Warranty accruals		166,195
Foreign currency translation		(79)
Warranty liabilities, balance at September 30, 2024	$	132,138

NOTE 9 – SHARE REPURCHASE PROGRAM