Company Quick10K Filing
O'Reilly Automotive
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 79 $29,885
10-Q 2019-11-06 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-06 Quarter: 2019-03-31
10-K 2019-02-27 Annual: 2018-12-31
10-Q 2018-11-07 Quarter: 2018-09-30
10-Q 2018-08-08 Quarter: 2018-06-30
10-Q 2018-05-07 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-07 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-02-28 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-09 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-11-06 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-11-07 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-K 2013-02-28 Annual: 2012-12-31
10-Q 2012-11-08 Quarter: 2012-09-30
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-02-28 Annual: 2011-12-31
10-Q 2011-11-08 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-09 Quarter: 2011-03-31
10-K 2011-02-28 Annual: 2010-12-31
10-Q 2010-11-08 Quarter: 2010-09-30
10-Q 2010-08-05 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-02-26 Annual: 2009-12-31
8-K 2020-01-02 Regulation FD, Exhibits
8-K 2019-11-21 Other Events
8-K 2019-10-23
8-K 2019-10-01 Other Events, Exhibits
8-K 2019-08-20 Other Events, Exhibits
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-07-01 Regulation FD, Exhibits
8-K 2019-05-24 Other Events, Exhibits
8-K 2019-05-20 Enter Agreement, Exhibits
8-K 2019-05-09 Enter Agreement, Exhibits
8-K 2019-05-07 Officers, Shareholder Vote
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-04-01 Regulation FD, Exhibits
8-K 2019-02-28 Other Events
8-K 2019-02-06 Earnings, Exhibits
8-K 2019-01-02 Regulation FD, Exhibits
8-K 2018-11-13 Other Events, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-10-01 Regulation FD, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-02 Regulation FD, Exhibits
8-K 2018-05-17 Enter Agreement, Exhibits
8-K 2018-05-10 Enter Agreement, Other Events, Exhibits
8-K 2018-05-08 Officers, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-02 Regulation FD, Exhibits
8-K 2018-03-02 Other Events
8-K 2018-02-26 Other Events
8-K 2018-02-07 Earnings, Officers, Other Events, Exhibits
8-K 2018-01-02 Regulation FD, Exhibits
ORLY 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Fair Value Measurements
Note 3 - Leases
Note 4 - Financing
Note 5 - Warranties
Note 6 - Share Repurchase Program
Note 7 - Revenue
Note 8 - Share-Based Compensation and Benefit Plans
Note 9 - Earnings per Share
Note 10 - Legal Matters
Note 11 - Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-21.1 orly-20190930x10qexh211.htm
EX-31.1 orly-20190930x10qexh311.htm
EX-31.2 orly-20190930x10qexh312.htm
EX-32.1 orly-20190930x10qexh321.htm
EX-32.2 orly-20190930x10qexh322.htm

O'Reilly Automotive Earnings 2019-09-30

ORLY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ORLY 29,885 10,202 10,057 9,798 5,198 1,341 1,966 33,613 53% 17.1 13%
AZO 28,793 9,774 11,363 11,434 6,142 1,452 2,208 33,771 54% 15.3 15%
IAC 19,683 8,299 5,316 4,501 3,474 649 915 20,111 77% 22.0 8%
ULTA 13,238 4,710 2,871 7,094 2,564 699 1,196 13,061 36% 10.9 15%
AAP 10,977 11,268 7,597 9,664 4,250 437 807 11,023 44% 13.7 4%
FCFS 4,313 2,404 1,078 1,825 999 157 245 4,882 55% 19.9 7%
RH 4,103 2,388 2,566 2,612 1,045 158 393 4,620 40% 11.8 7%
DKS 3,584 6,915 5,150 8,529 2,459 0 259 3,467 29% 13.4 0%
SBH 1,541 2,072 2,143 3,876 1,909 258 559 3,110 49% 5.6 12%
SPH 1,487 2,035 1,522 1,424 788 113 235 2,737 55% 11.6 6%

Document
false--12-31Q320190000898173O Reilly Automotive, Inc.0010000000000.010.0124500000024500000079043919757277817904391975727781118000003000000005000000003000000003000000005000000007500000005000000000.046250.048750.038000.038500.035500.036000.043501000001000006000001000001000000000P3Y 0000898173 2019-01-01 2019-09-30 0000898173 us-gaap:StockOptionMember 2019-01-01 2019-09-30 0000898173 us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0000898173 2019-10-28 0000898173 2018-12-31 0000898173 2019-09-30 0000898173 2019-07-01 2019-09-30 0000898173 2018-07-01 2018-09-30 0000898173 2018-01-01 2018-09-30 0000898173 us-gaap:CommonStockMember 2018-09-30 0000898173 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0000898173 us-gaap:CommonStockMember 2019-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0000898173 us-gaap:AccountingStandardsUpdate201602Member us-gaap:RetainedEarningsMember 2018-12-31 0000898173 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-09-30 0000898173 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0000898173 us-gaap:CommonStockMember 2017-12-31 0000898173 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0000898173 us-gaap:RetainedEarningsMember 2018-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0000898173 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0000898173 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0000898173 2019-06-30 0000898173 us-gaap:RetainedEarningsMember 2018-12-31 0000898173 2018-09-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0000898173 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000898173 us-gaap:RetainedEarningsMember 2019-09-30 0000898173 us-gaap:CommonStockMember 2018-12-31 0000898173 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0000898173 2017-12-31 0000898173 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000898173 us-gaap:RetainedEarningsMember 2017-12-31 0000898173 us-gaap:CommonStockMember 2019-06-30 0000898173 2018-06-30 0000898173 us-gaap:RetainedEarningsMember 2018-06-30 0000898173 us-gaap:CommonStockMember 2018-06-30 0000898173 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0000898173 us-gaap:AccountingStandardsUpdate201602Member 2018-12-31 0000898173 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000898173 us-gaap:RetainedEarningsMember 2019-06-30 0000898173 us-gaap:FairValueInputsLevel2Member 2018-12-31 0000898173 us-gaap:FairValueInputsLevel1Member 2018-12-31 0000898173 us-gaap:FairValueInputsLevel3Member 2018-12-31 0000898173 us-gaap:FairValueInputsLevel2Member 2019-09-30 0000898173 us-gaap:FairValueInputsLevel3Member 2019-09-30 0000898173 us-gaap:FairValueInputsLevel1Member 2019-09-30 0000898173 srt:ManagementMember 2019-01-01 2019-09-30 0000898173 srt:ManagementMember 2019-07-01 2019-09-30 0000898173 srt:ManagementMember 2019-09-30 0000898173 orly:NonRelatedPartiesMember 2019-09-30 0000898173 orly:SeniorNotesDue2028At4350Member 2019-09-30 0000898173 orly:SeniorNotesDue2027At3600Member 2019-09-30 0000898173 orly:SeniorNotesDue2023At3850Member 2019-09-30 0000898173 orly:SeniorNotesDue2029At3900Member 2019-09-30 0000898173 orly:SeniorNotesDue2021At4875Member 2019-09-30 0000898173 orly:SeniorNotesDue2021At4625Member 2019-09-30 0000898173 orly:SeniorNotesDue2026At3550Member 2019-09-30 0000898173 orly:SeniorNotesDue2022At3800Member 2019-09-30 0000898173 orly:SeniorNotesDue2022At3800Member 2018-12-31 0000898173 orly:SeniorNotesDue2027At3600Member 2018-12-31 0000898173 us-gaap:LineOfCreditMember 2018-12-31 0000898173 orly:SeniorNotesDue2021At4875Member 2018-12-31 0000898173 orly:SeniorNotesDue2026At3550Member 2018-12-31 0000898173 us-gaap:LineOfCreditMember 2019-09-30 0000898173 orly:SeniorNotesDue2021At4625Member 2018-12-31 0000898173 orly:SeniorNotesDue2023At3850Member 2018-12-31 0000898173 orly:SeniorNotesDue2028At4350Member 2018-12-31 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember orly:ThroughMaturityMember 2019-01-01 2019-09-30 0000898173 us-gaap:LineOfCreditMember us-gaap:LetterOfCreditMember us-gaap:UnsecuredDebtMember 2019-01-01 2019-09-30 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember 2019-01-01 2019-09-30 0000898173 orly:SeniorNotesDue2029At3900Member 2019-05-20 0000898173 srt:MaximumMember us-gaap:SeniorNotesMember 2019-09-30 0000898173 srt:MinimumMember us-gaap:SeniorNotesMember 2019-09-30 0000898173 us-gaap:SeniorNotesMember 2019-09-30 0000898173 us-gaap:LineOfCreditMember orly:SwingLineRevolverMember us-gaap:UnsecuredDebtMember 2019-01-01 2019-09-30 0000898173 us-gaap:SeniorNotesMember 2019-01-01 2019-09-30 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember orly:EuroDollarRateSpreadMember 2019-01-01 2019-09-30 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember 2018-12-31 0000898173 orly:SeniorNotesDue2029At3900Member 2019-05-20 2019-05-20 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember 2019-09-30 0000898173 us-gaap:LineOfCreditMember us-gaap:UnsecuredDebtMember us-gaap:BaseRateMember 2019-01-01 2019-09-30 0000898173 us-gaap:SubsequentEventMember 2019-10-01 2019-11-06 0000898173 us-gaap:SubsequentEventMember 2011-01-11 2019-11-06 0000898173 2018-11-13 2018-11-13 0000898173 2019-05-31 0000898173 2019-05-31 2019-05-31 0000898173 orly:LoyaltyProgramMember 2019-07-01 2019-09-30 0000898173 orly:LoyaltyProgramMember 2018-12-31 0000898173 orly:LoyaltyProgramMember 2019-01-01 2019-09-30 0000898173 orly:LoyaltyProgramMember 2019-09-30 0000898173 orly:LoyaltyProgramMember 2018-07-01 2018-09-30 0000898173 orly:ProfessionalServiceProviderCustomerMember 2019-01-01 2019-09-30 0000898173 orly:ProfessionalServiceProviderCustomerMember 2018-07-01 2018-09-30 0000898173 orly:ProfessionalServiceProviderCustomerMember 2019-07-01 2019-09-30 0000898173 orly:OtherCustomersAndSalesAdjustmentsMember 2018-07-01 2018-09-30 0000898173 orly:DIYCustomerMember 2018-01-01 2018-09-30 0000898173 orly:DIYCustomerMember 2019-07-01 2019-09-30 0000898173 orly:OtherCustomersAndSalesAdjustmentsMember 2019-01-01 2019-09-30 0000898173 orly:OtherCustomersAndSalesAdjustmentsMember 2019-07-01 2019-09-30 0000898173 orly:ProfessionalServiceProviderCustomerMember 2018-01-01 2018-09-30 0000898173 orly:DIYCustomerMember 2018-07-01 2018-09-30 0000898173 orly:OtherCustomersAndSalesAdjustmentsMember 2018-01-01 2018-09-30 0000898173 orly:DIYCustomerMember 2019-01-01 2019-09-30 0000898173 orly:LoyaltyProgramMember 2018-01-01 2018-09-30 0000898173 us-gaap:StockOptionMember 2018-01-01 2018-09-30 0000898173 us-gaap:StockOptionMember 2019-07-01 2019-09-30 0000898173 us-gaap:StockOptionMember 2018-07-01 2018-09-30 0000898173 orly:EmployeeStockPurchasePlanMember 2018-01-01 2018-09-30 0000898173 us-gaap:RestrictedStockMember 2018-01-01 2018-09-30 0000898173 us-gaap:RestrictedStockMember 2019-07-01 2019-09-30 0000898173 orly:EmployeeStockPurchasePlanMember 2019-07-01 2019-09-30 0000898173 us-gaap:RestrictedStockMember 2018-07-01 2018-09-30 0000898173 orly:EmployeeStockPurchasePlanMember 2018-07-01 2018-09-30 0000898173 orly:EmployeeStockPurchasePlanMember 2019-01-01 2019-09-30 0000898173 us-gaap:StockOptionMember 2018-12-31 0000898173 us-gaap:StockOptionMember 2019-09-30 0000898173 srt:DirectorMember us-gaap:StockOptionMember 2019-01-01 2019-09-30 0000898173 orly:ProfitSharingAndSavingsPlanMember 2018-01-01 2018-09-30 0000898173 orly:ProfitSharingAndSavingsPlanEmployeeNextFourPercentOfContributedWagesMember orly:ProfitSharingAndSavingsPlanMember 2019-01-01 2019-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2019-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2018-12-31 0000898173 us-gaap:EmployeeStockOptionMember us-gaap:StockOptionMember 2019-01-01 2019-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2019-01-01 2019-09-30 0000898173 orly:ProfitSharingAndSavingsPlanEmployeeFirstTwoPercentOfContributedWagesMember orly:ProfitSharingAndSavingsPlanMember 2019-01-01 2019-09-30 0000898173 orly:ProfitSharingAndSavingsPlanMember 2019-07-01 2019-09-30 0000898173 orly:EmployeeMember us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0000898173 orly:ProfitSharingAndSavingsPlanMember 2019-01-01 2019-09-30 0000898173 orly:ProfitSharingAndSavingsPlanMember 2018-07-01 2018-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2019-07-01 2019-09-30 0000898173 srt:DirectorMember us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2018-07-01 2018-09-30 0000898173 orly:NonqualifiedDeferredCompensationPlanMember 2018-01-01 2018-09-30 0000898173 us-gaap:AccountingStandardsUpdate201602Member 2019-09-30 orly:stores utreg:D iso4217:USD xbrli:shares iso4217:USD xbrli:shares utreg:Rate

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 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
 
000-21318
 
27-4358837
(State or other jurisdiction
 
Commission file
 
(I.R.S. Employer
of incorporation or organization)
 
number
 
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)
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 - 75,658,897 shares outstanding as of October 28, 2019.



O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 


1


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, 2019
 
December 31, 2018
 
(Unaudited)
 
(Note)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42,804

 
$
31,315

Accounts receivable, net
224,033

 
192,026

Amounts receivable from suppliers
76,107

 
78,155

Inventory
3,348,631

 
3,193,344

Other current assets
32,914

 
48,262

Total current assets
3,724,489

 
3,543,102

 
 
 
 
Property and equipment, at cost
6,053,306

 
5,645,552

Less: accumulated depreciation and amortization
2,182,599

 
2,058,550

Net property and equipment
3,870,707

 
3,587,002

 
 
 
 
Operating lease, right-of-use assets
1,908,931

 

Goodwill
808,259

 
807,260

Other assets, net
60,338

 
43,425

Total assets
$
10,372,724

 
$
7,980,789

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3,606,571

 
$
3,376,403

Self-insurance reserves
75,158

 
77,012

Accrued payroll
104,161

 
86,520

Accrued benefits and withholdings
87,386

 
89,082

Income taxes payable
100,472

 
11,013

Current portion of operating lease liabilities
308,726

 

Other current liabilities
298,380

 
253,990

Total current liabilities
4,580,854

 
3,894,020

 
 
 
 
Long-term debt
3,703,628

 
3,417,122

Operating lease liabilities, less current portion
1,642,178

 

Deferred income taxes
117,551

 
105,566

Other liabilities
162,294

 
210,414

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, $0.01 par value:
 
 
 
Authorized shares - 245,000,000
 
 
 
Issued and outstanding shares –
 
 
 
75,727,781 as of September 30, 2019, and
 
 
 
79,043,919 as of December 31, 2018
757

 
790

Additional paid-in capital
1,259,544

 
1,262,063

Retained deficit
(1,094,082
)
 
(909,186
)
Total shareholders’ equity
166,219

 
353,667

 
 
 
 
Total liabilities and shareholders’ equity
$
10,372,724

 
$
7,980,789

Note: The balance sheet at December 31, 2018, 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.

2


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Sales
$
2,666,528

 
$
2,482,717

 
$
7,667,010

 
$
7,221,471

Cost of goods sold, including warehouse and distribution expenses
1,243,998

 
1,166,962

 
3,596,903

 
3,415,820

Gross profit
1,422,530

 
1,315,755

 
4,070,107

 
3,805,651

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
886,167

 
830,607

 
2,590,884

 
2,418,507

Operating income
536,363

 
485,148

 
1,479,223

 
1,387,144

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(35,858
)
 
(31,582
)
 
(104,687
)
 
(90,661
)
Interest income
656

 
669

 
1,813

 
1,838

Other, net
732

 
1,416

 
4,667

 
2,609

Total other expense
(34,470
)
 
(29,497
)
 
(98,207
)
 
(86,214
)
 
 
 
 
 
 
 
 
Income before income taxes
501,893

 
455,651

 
1,381,016

 
1,300,930

Provision for income taxes
110,600

 
89,500

 
314,890

 
276,800

Net income
$
391,293

 
$
366,151

 
$
1,066,126

 
$
1,024,130

 
 
 
 
 
 
 
 
Earnings per share-basic:
 
 
 
 
 
 
 
Earnings per share
$
5.14

 
$
4.54

 
$
13.77

 
$
12.50

Weighted-average common shares outstanding – basic
76,172

 
80,593

 
77,415

 
81,939

 
 
 
 
 
 
 
 
Earnings per share-assuming dilution:
 
 
 
 
 
 
 
Earnings per share
$
5.08

 
$
4.50

 
$
13.63

 
$
12.36

Weighted-average common shares outstanding – assuming dilution
76,969

 
81,410

 
78,220

 
82,841


See accompanying Notes to condensed consolidated financial statements.



3


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
 
For the Three Months Ended September 30, 2019
 
Common Stock
 
Additional Paid-In Capital 
 
Retained Deficit
 
Total
 
Shares
 
Par Value
 
 
 
Balance at June 30, 2019
76,690

 
$
767

 
$
1,258,930

 
$
(1,115,015
)
 
$
144,682

Net income

 

 

 
391,293

 
391,293

Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes
11

 

 
3,523

 

 
3,523

Net issuance of common stock upon exercise of stock options
52

 
1

 
8,774

 

 
8,775

Share based compensation

 

 
5,212

 

 
5,212

Share repurchases, including fees
(1,025
)
 
(11
)
 
(16,895
)
 
(370,360
)
 
(387,266
)
Balance at September 30, 2019
75,728

 
$
757

 
$
1,259,544

 
$
(1,094,082
)
 
$
166,219

 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2019
 
Common Stock
 
Additional Paid-In Capital 
 
Retained Deficit
 
Total
 
Shares
 
Par Value
 
 
 
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

 

 

 
1,066,126

 
1,066,126

Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes
36

 

 
11,576

 

 
11,576

Net issuance of common stock upon exercise of stock options
233

 
3

 
28,700

 

 
28,703

Share based compensation

 

 
15,540

 

 
15,540

Share repurchases, including fees
(3,585
)
 
(36
)
 
(58,335
)
 
(1,249,612
)
 
(1,307,983
)
Balance at September 30, 2019
75,728

 
$
757

 
$
1,259,544

 
$
(1,094,082
)
 
$
166,219

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30, 2018
 
Common Stock
 
Additional Paid-In Capital 
 
Retained Deficit
 
Total
 
Shares
 
Par Value
 
 
 
Balance at June 30, 2018
80,988

 
$
810

 
$
1,247,837

 
$
(863,657
)
 
$
384,990

Net income

 

 

 
366,151

 
366,151

Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes
13

 

 
3,224

 

 
3,224

Net issuance of common stock upon exercise of stock options
277

 
2

 
24,552

 

 
24,554

Share based compensation

 

 
4,653

 

 
4,653

Share repurchases, including fees
(932
)
 
(9
)
 
(14,439
)
 
(270,745
)
 
(285,193
)
Balance at September 30, 2018
80,346

 
$
803

 
$
1,265,827

 
$
(768,251
)
 
$
498,379

 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2018
 
Common Stock
 
Additional Paid-In Capital 
 
Retained Deficit
 
Total
 
Shares
 
Par Value
 
 
 
Balance at December 31, 2017
84,302

 
$
843

 
$
1,265,043

 
$
(612,840
)
 
$
653,046

Net income

 

 

 
1,024,130

 
1,024,130

Issuance of common stock under employee benefit plans, net of forfeitures and shares withheld to cover taxes
47

 

 
10,799

 

 
10,799

Net issuance of common stock upon exercise of stock options
692

 
7

 
47,344

 

 
47,351

Share based compensation

 

 
14,113

 

 
14,113

Share repurchases, including fees
(4,695
)
 
(47
)
 
(71,472
)
 
(1,179,541
)
 
(1,251,060
)
Balance at September 30, 2018
80,346

 
$
803

 
$
1,265,827

 
$
(768,251
)
 
$
498,379

See accompanying Notes to condensed consolidated financial statements.

4


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
 
 
 
Operating activities:
 
 
 
Net income
$
1,066,126

 
$
1,024,130

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property, equipment and intangibles
200,382

 
193,318

Amortization of debt discount and issuance costs
2,898

 
2,557

Deferred income taxes
12,383

 
17,234

Share-based compensation programs
16,578

 
15,144

Other
5,830

 
6,304

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(38,892
)
 
(32,799
)
Inventory
(154,986
)
 
(129,214
)
Accounts payable
228,943

 
194,069

Income taxes payable
90,383

 
4,460

Other
60,031

 
46,816

Net cash provided by operating activities
1,489,676

 
1,342,019

 
 
 
 
Investing activities:
 
 
 
Purchases of property and equipment
(481,207
)
 
(350,461
)
Proceeds from sale of property and equipment
5,479

 
3,353

Investment in tax credit equity investments
(17,988
)
 

Other
661

 
(716
)
Net cash used in investing activities
(493,055
)
 
(347,824
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from borrowings on revolving credit facility
2,192,000

 
1,745,000

Payments on revolving credit facility
(2,404,000
)
 
(2,046,000
)
Proceeds from the issuance of long-term debt
499,955

 
498,660

Payment of debt issuance costs
(3,991
)
 
(3,923
)
Repurchases of common stock
(1,307,983
)
 
(1,251,060
)
Net proceeds from issuance of common stock
39,077

 
58,955

Other
(190
)
 
(2,156
)
Net cash used in financing activities
(985,132
)
 
(1,000,524
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
11,489

 
(6,329
)
Cash and cash equivalents at beginning of the period
31,315

 
46,348

Cash and cash equivalents at end of the period
$
42,804

 
$
40,019

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Income taxes paid
$
218,386

 
$
256,949

Interest paid, net of capitalized interest
110,014

 
102,025


See accompanying Notes to condensed consolidated financial statements.

5


O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2019

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, 2019, are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. 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, 2018.

NOTE 2 – 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 obligation under the Company’s nonqualified deferred compensation plan. See Note 8 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, 2019, and December 31, 2018. The Company recorded an increase in fair value related to its marketable securities in the amounts of $0.2 million and $1.0 million for the three months ended September 30, 2019 and 2018, 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 amounts of $3.9 million and $1.6 million for the nine months ended September 30, 2019 and 2018, 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, 2019, and December 31, 2018 (in thousands):
 
September 30, 2019
 
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Marketable securities
$
29,934

 
$

 
$

 
$
29,934


 
December 31, 2018
 
Quoted Prices in Active Markets for Identical Instruments
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Marketable securities
$
25,493

 
$

 
$

 
$
25,493



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

6


in a business combination or property and equipment that are determined to be impaired. As of September 30, 2019, and December 31, 2018, 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 and unsecured revolving credit facility borrowings are included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018. See Note 4 for further information concerning the Company’s senior notes and unsecured revolving credit facility.

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, 2019, and December 31, 2018, was determined by reference to quoted market prices of the same or similar instruments (Level 2) (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Carrying Amount
 
Estimated Fair Value
 
Carrying Amount
 
Estimated Fair Value
Senior Notes
$
3,628,628

 
$
3,882,575

 
$
3,130,122

 
$
3,116,046



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 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 3 – LEASES

Operating lease commitments:
The Company leases certain office space, retail stores, distribution centers and equipment under long-term, non-cancelable operating leases. Lease components are not accounted for separately from nonlease components. Leases generally include renewal options and some include options to purchase, provisions for percentage rent based on sales and/or incremental step increase provisions. The exercise of renewal options is typically at the Company’s sole discretion and all operating lease expense is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company rents or subleases certain surplus real estate to third parties. Right-of-use assets and corresponding operating lease liabilities are recognized for all leases with an initial term greater than 12 months.

See Note 11 for further information concerning the Company’s adoption of Accounting Standard Codification 842 - Leases.

The following table summarizes Total lease cost for the three and nine months ended September 30, 2019, which was primarily included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income (in thousands):
 
For the Three Months Ended September 30, 2019
 
For the Nine Months Ended September 30, 2019
Operating lease cost
$
80,767

 
$
239,672

Short-term operating lease cost
1,103

 
4,707

Variable operating lease cost
19,538

 
56,801

Sublease income
(1,062
)
 
(2,995
)
Total lease cost
$
100,346

 
$
298,185



The following table summarizes other lease related information for the nine months ended September 30, 2019:
 
 
For the Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities:
 
 
Operating cash flows from operating leases (in thousands)
$
237,055

Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)
$
153,046

Weighted-average remaining lease term - operating leases
10.4 years

Weighted-average discount rate - operating leases
4.2
%



7


The following table identifies the future minimum lease payments under all of the Company’s operating leases for each of the next five years, and in the aggregate thereafter, and reconciles to the present value of the “Operating lease liabilities, less current portion” included in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2019 (in thousands):
 
September 30, 2019
 
Related Parties
 
Non-Related Parties
 
Total
October 1, 2019 to December 31, 2019
$
1,188

 
$
70,629

 
$
71,817

2020
3,988

 
312,634

 
316,622

2021
3,521

 
286,047

 
289,568

2022
2,763

 
261,998

 
264,761

2023
2,540

 
231,473

 
234,013

Thereafter
3,543

 
1,246,605

 
1,250,148

Total operating lease payments
17,543

 
2,409,386

 
2,426,929

Less: present value discount
1,896

 
474,129

 
476,025

Total operating lease liabilities
15,647

 
1,935,257

 
1,950,904

Less: current portion of operating lease liabilities
4,215

 
304,511

 
308,726

Operating lease liabilities, less current portion
$
11,432

 
$
1,630,746

 
$
1,642,178



The Company leases certain land and buildings related to 74 of its O’Reilly Auto Parts stores under fifteen- or twenty-year operating lease agreements with entities that include one or more of the Company’s affiliated directors or members of an affiliated director’s immediate family. Generally, these lease agreements provide for renewal options for an additional five years at the option of the Company, and the lease agreements are periodically modified to further extend the lease term for specific stores under the agreements. Lease payments under these operating leases totaled $1.2 million and $3.6 million for the three and nine months ended September 30, 2019, respectively. The Company believes that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third parties.

The future minimum lease payments under the Company’s operating leases, in the table above, do not include potential amounts for percentage rent and other variable operating lease related costs and have not been reduced by expected future minimum sublease income under non-cancelable subleases, which was approximately $19.1 million as of September 30, 2019. The present value discount component of the future minimum lease payments under the Company’s operating leases, in the table above, was primarily calculated using the Company’s incremental borrowing rate based on information available at the lease commencement or modification date; for leases that commenced prior to January 1, 2019, the incremental borrowing rate used was as of January 1, 2019. When the implicit rate of a lease is available, the implicit rate is used in the calculation and not the Company’s incremental borrowing rate.


8


NOTE 4 – FINANCING

The following table identifies the amounts included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018 (in thousands):
 
September 30, 2019
 
December 31, 2018
Revolving Credit Facility, weighted-average variable interest rate of
2.942%
 
$
75,000

 
$
287,000

$
500
 million,
4.875
%
Senior Notes due 2021,
effective interest rate of 4.950%
(1) 
498,977

 
498,371

$
300
 million,
4.625
%
Senior Notes due 2021,
effective interest rate of 4.644%
(2) 
299,456

 
299,244

$
300
 million,
3.800
%
Senior Notes due 2022,
effective interest rate of 3.845%
(3) 
298,852

 
298,574

$
300
 million,
3.850
%
Senior Notes due 2023,
effective interest rate of 3.851%
(4) 
299,005

 
298,821

$
500
 million,
3.550
%
Senior Notes due 2026,
effective interest rate of 3.570%
(5) 
496,587

 
496,240

$
750
 million,
3.600
%
Senior Notes due 2027,
effective interest rate of 3.619%
(6) 
744,327

 
743,868

$
500
 million,
4.350
%
Senior Notes due 2028,
effective interest rate of 4.383%
(7) 
495,332

 
495,004

$
500
 million,
3.900
%
Senior Notes due 2029,
effective interest rate of 3.901%
(8) 
496,092

 

Long-term debt
$
3,703,628

 
$
3,417,122

(1) 
Net of unamortized discount of $0.5 million as of September 30, 2019, and $0.7 million as of December 31, 2018, and debt issuance costs of $0.6 million as of September 30, 2019, and $0.9 million as of December 31, 2018.
(2) 
Net of unamortized discount of $0.1 million as of September 30, 2019, and December 31, 2018, and debt issuance costs of $0.4 million as of September 30, 2019, and $0.6 million as of December 31, 2018.
(3) 
Net of unamortized discount of $0.4 million as of September 30, 2019, and $0.5 million as of December 31, 2018, and debt issuance costs of $0.8 million as of September 30, 2019, and $1.0 million as of December 31, 2018.
(4) 
Net of unamortized discount of less than $0.1 million as of September 30, 2019, and December 31, 2018, and debt issuance costs of $1.0 million as of September 30, 2019, and $1.2 million as of December 31, 2018.
(5) 
Net of unamortized discount of $0.6 million as of September 30, 2019, and December 31, 2018, and debt issuance costs of $2.8 million as of September 30, 2019, and $3.1 million as of December 31, 2018.
(6) 
Net of unamortized discount of $1.0 million as of September 30, 2019, and $1.1 million as of December 31, 2018, and debt issuance costs of $4.7 million as of September 30, 2019 and $5.1 million as of December 31, 2018.
(7) 
Net of unamortized discount of $1.2 million as of September 30, 2019, and $1.3 million as of December 31, 2018, and debt issuance costs of $3.5 million as of September 30, 2019, and $3.7 million as of December 31, 2018.
(8) 
Net of unamortized discount of less than $0.1 million as of September 30, 2019, and debt issuance costs of $3.9 million as of September 30, 2019.

Unsecured revolving credit facility:
On April 5, 2017, the Company entered into a credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by JPMorgan Chase Bank, N.A., which is scheduled to mature in April 2022. 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 $600 million, provided that the aggregate amount of the commitments does not exceed $1.8 billion at any time.

As of September 30, 2019, and December 31, 2018, the Company had outstanding letters of credit, primarily to support obligations related to workers’ compensation, general liability and other insurance policies, in the amounts of $39.1 million and $35.1 million, respectively, reducing the aggregate availability under the Credit Agreement by those amounts.

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 LIBO 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, 2019, based upon the Company’s current credit ratings, its margin for Alternate Base Rate loans was 0.000%, its margin for Eurodollar 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

9


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, 2019, the Company remained in compliance with all covenants under the Credit Agreement.

Senior notes:
On May 20, 2019, the Company issued $500 million aggregate principal amount of unsecured 3.900% Senior Notes due 2029 (“3.900% Senior Notes due 2029”) at a price to the public of 99.991% of their face value with U.S. Bank National Association (“U.S. Bank”) as trustee. Interest on the 3.900% Senior Notes due 2029 is payable on June 1 and December 1 of each year, beginning on December 1, 2019, and is computed on the basis of a 360-day year.

The Company has issued a cumulative $3.7 billion aggregate principal amount of unsecured senior notes, which are due between 2021 and 2029, with UMB Bank, N.A. and U.S. Bank as trustees. Interest on the senior notes, ranging from 3.550% to 4.875%, 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, 2019.

NOTE 5 – 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, 2019, and December 31, 2018. The following table identifies the changes in the Company’s aggregate product warranty liabilities for the nine months ended September 30, 2019 (in thousands):
Warranty liabilities, balance at December 31, 2018
$
52,220

Warranty claims
(74,467
)
Warranty accruals
76,731

Warranty liabilities, balance at September 30, 2019
$
54,484




NOTE 6 – SHARE REPURCHASE PROGRAM

In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market conditions. The Company’s Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As announced on November 13, 2018, and May 31, 2019, the Company’s Board of Directors each time approved a resolution to increase the authorization amount under the share repurchase program by an additional $1.0 billion, resulting in a cumulative authorization amount of $12.8 billion. Each additional authorization is effective for three years, beginning on its respective announcement date.


10


The following table identifies shares of the Company’s common stock that have been repurchased as part of the Company’s publicly announced share repurchase program for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data):
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Shares repurchased
1,025

 
932

 
3,585

 
4,695

Average price per share
$
377.85

 
$
306.22

 
$
364.84

 
$
266.48

Total investment
$
387,255

 
$
285,183

 
$
1,307,947

 
$
1,251,013



As of September 30, 2019, the Company had $693.5 million remaining under its share repurchase program. Subsequent to the end of the third quarter and through November 6, 2019, the Company repurchased an additional 0.1 million shares of its common stock under its share repurchase program, at an average price of $393.84, for a total investment of $34.8 million. The Company has repurchased a total of 76.0 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through November 6, 2019, at an average price of $159.13, for a total aggregate investment of $12.1 billion.

NOTE 7 – REVENUE

The table below identifies the Company’s revenues disaggregated by major customer type for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Sales to do-it-yourself customers
$
1,473,514

 
$
1,408,140

 
$
4,244,689

 
$
4,053,137

Sales to professional service provider customers
1,151,721

 
1,040,728

 
3,303,987

 
3,058,127

Other sales and sales adjustments
41,293

 
33,849

 
118,334

 
110,207

Total sales
$
2,666,528

 
$
2,482,717

 
$
7,667,010

 
$
7,221,471



As of September 30, 2019, and December 31, 2018, the Company had recorded a deferred revenue liability of $4.8 million and $4.3 million, respectively, related to its loyalty program, which were included in “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets. The Company recognized deferred revenue related to its loyalty program in the amounts of $4.0 million and $4.3 million for the three months ended September 30, 2019 and 2018, respectively, which were included in “Sales” on the accompanying Condensed Consolidated Statements of Income. The Company recognized deferred revenue related to its loyalty program in the amount of $11.8 million for each of the nine months ended September 30, 2019 and 2018, which were included in “Sales” on the accompanying Condensed Consolidated Statements of Income.

See Note 5 for information concerning the expected costs associated with the Company’s assurance warranty obligations.

NOTE 8 – SHARE-BASED COMPENSATION AND BENEFIT PLANS

The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the grant, award or issuance. Share-based compensation includes stock option awards issued under the Company’s employee incentive plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans and director stock plan and stock issued through the Company’s employee stock purchase plan.

Stock options:
The Company’s stock-based incentive plans provide for the granting of stock options for the purchase of common stock of the Company to directors and certain key employees of the Company. Options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant. Director options granted under the plans expire after seven years and are fully vested after six months. Employee options granted under the plans expire after ten years and typically vest 25% per year, over four years. The Company records compensation expense for the grant-date fair value of the option awards evenly over the vesting period or the minimum required service period.


11


The table below identifies stock option activity under these plans during the nine months ended September 30, 2019 (in thousands, except per share data):
 
Shares
 
Weighted-Average
Exercise Price
Outstanding at December 31, 2018
1,860

 
$
178.57

Granted
191

 
363.43

Exercised
(233
)
 
123.26

Forfeited
(21
)
 
261.28

Outstanding at September 30, 2019
1,797

 
$
204.41

Exercisable at September 30, 2019
1,185

 
$
159.01


The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected dividend yield.
Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’ expected life.

Expected life – Represents the period of time that options granted are expected to be outstanding. The Company uses historical experience to estimate the expected life of options granted.
Expected volatility – Measure of the amount, by which the Company’s stock price is expected to fluctuate, based on a historical trend.
Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.

The table below identifies the weighted-average assumptions used for grants awarded during the nine months ended September 30, 2019 and 2018:
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
Risk free interest rate
2.34
%
 
2.61
%
Expected life
5.9 Years

 
6.0 Years

Expected volatility
25.0
%
 
23.9
%
Expected dividend yield
%
 
%

The following table summarizes activity related to stock options awarded by the Company for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data):
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Compensation expense for stock options awarded
$
4,590

 
$
4,084

 
$
13,709

 
$
12,424

Income tax benefit from compensation expense related to stock options
1,143

 
1,010

 
3,415

 
3,074


The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2019, was $105.47 compared to $75.45 for the nine months ended September 30, 2018. The remaining unrecognized compensation expense related to unvested stock option awards at September 30, 2019, was $36.5 million, and the weighted-average period of time over which this cost will be recognized is 2.7 years.

Other share-based compensation plans:
The Company sponsors other share-based compensation plans: an employee stock purchase plan (the “ESPP”), which permits all eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value, an employee incentive plan, which provides for the award of shares of restricted stock to certain of the Company’s affiliated directors, that vest evenly over three years and are held in escrow until such vesting has occurred, and a director stock plan, which provides for the award of shares of restricted stock to the Company’s independent directors, that vest evenly over three years and are held in escrow until such vesting has occurred. The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the Company’s common stock

12


during the offering periods, and compensation expense is recognized based on the discount between the fair value and the employee purchase price for the shares sold to employees. The fair value of shares awarded under the employee incentive plan and director stock plan is based on the closing market price of the Company’s common stock on the date of the award, and compensation expense is recorded evenly over the vesting period or the minimum required service period.

The table below summarizes activity related to the Company’s other share-based compensation plans for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Compensation expense for shares issued under the ESPP
$
622

 
$
569

 
$
1,831

 
$
1,689

Income tax benefit from compensation expense related to shares issued under the ESPP
155

 
141

 
456

 
418

Compensation expense for restricted shares awarded
351

 
339

 
1,038

 
1,031

Income tax benefit from compensation expense related to restricted awards
$
87

 
$
84

 
$
258

 
$
255


Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan (the “401(k) Plan”) that covers substantially all employees who are at least 21 years of age and have completed one year of service. The Company makes matching contributions equal to 100% of the first 2% of each employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. The Company may also make additional discretionary profit sharing contributions to the plan on an annual basis as determined by the Board of Directors. The Company did not make any discretionary contributions to the 401(k) Plan during the three or nine months ended September 30, 2019 or 2018. The Company expensed matching contributions under the 401(k) Plan in the amounts of $7.5 million and $6.3 million for the three months ended September 30, 2019 and 2018, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income. The Company expensed matching contributions under the 401(k) Plan in the amounts of $20.1 million and $18.2 million for the nine months ended September 30, 2019 and 2018, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income.

Nonqualified deferred compensation plan:
The Company sponsors a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for highly compensated employees whose contributions to the 401(k) Plan are limited due to the application of the annual limitations under the Internal Revenue Code. The Deferred Compensation Plan provides these employees with the opportunity to defer the full 6% of matched compensation, including salary and incentive based compensation that was precluded under the Company’s 401(k) Plan, which is then matched by the Company using the same formula as the 401(k) Plan. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The Company has an unsecured obligation to pay, in the future, the value of the deferred compensation and Company match, adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. The liability for compensation deferred under the Deferred Compensation Plan was $29.9 million and $25.5 million as of September 30, 2019, and December 31, 2018, respectively, which was included in “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of less than $0.1 million for each of the three months ended September 30, 2019 and 2018, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of $0.1 million for each of the nine months ended September 30, 2019 and 2018, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income.


13


NOTE 9 – EARNINGS PER SHARE

The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data):
 
For the Three Months Ended 
 September 30,
 
For the Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Numerator (basic and diluted):
 
 
 
 
 
 
 
Net income
$
391,293

 
$
366,151

 
$
1,066,126

 
$
1,024,130

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
76,172

 
80,593

 
77,415

 
81,939

Effect of stock options (1)
797

 
817

 
805

 
902

Weighted-average common shares outstanding – assuming dilution
76,969

 
81,410

 
78,220

 
82,841

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Earnings per share-basic
$
5.14

 
$
4.54

 
$
13.77

 
$
12.50

Earnings per share-assuming dilution
$
5.08

 
$
4.50