ORLY O Reilly Automotive Inc

O�Reilly Automotive, Inc. (�O�Reilly� or �the Company�) (Nasdaq: ORLY) today announced revenues and earnings for the third quarter ended September 30, 2008. Sales for the three months ended September 30, 2008, totaled $1.11 billion, up 68% from $0.66 billion for the same period a year ago. Gross profit for the third quarter of 2008 increased to $507 million (or 45.6% of sales) from $294 million (or 44.4% of sales) for the third quarter of 2007, representing an increase of 73%. Selling, General and Administrative expenses increased to $415 million (or 37.3% of sales) for the third quarter of 2008 from $211 million (or 31.9% of sales) for the third quarter of 2007, representing an increase of 97%. Net income for the third quarter ended September 30, 2008, totaled $41.4 million, down 22% from $53.1 million for the same period in 2007. Diluted earnings per common share for the third quarter of 2008 decreased 33% to $0.31 on 133.1 million shares compared to $0.46 for the third quarter of 2007 on 116.3 million shares. Sales for the first nine months of 2008 totaled $2.46 billion, up 28% from $1.92 billion for the same period a year ago. Gross profit for the first nine months of 2008 increased to $1.11 billion (or 45.2% of sales) from $850 million (or 44.3% of sales) for the same period a year ago, representing an increase of 31%. Selling, General and Administrative expenses increased to $858 million (or 34.8% of sales) for the first nine months of 2008 from $609 million (or 31.7% of sales) for the same period a year ago, representing an increase of 41%. Net income for the first nine months of 2008 totaled $144 million, down 6% from $153 million for the same period a year ago. Diluted earnings per common share for the first nine months of 2008 decreased 11% to $1.18 on 122.1 million shares compared to $1.32 a year ago on 116.0 million shares. The Company�s third quarter results include charges related to the July 11, 2008, acquisition of CSK Automotive, Inc. (�CSK�). These charges include one-time costs for the prepayment and extinguishment of existing O�Reilly debt, commitment fees for an unused interim financing facility, a one-time adjustment to tax liabilities resulting from the acquisition of CSK and a non-cash charge to amortize the value assigned to CSK�s trade names and trademarks, which will be amortized over the next two and a half years coinciding with the anticipated conversion of CSK store locations. Adjusted diluted earnings per share, excluding the impact of acquisition related charges, was $0.40 and $1.27 for the third quarter and first nine months of 2008, reflecting decreases of 13% and 4%, respectively, from the same periods a year ago. The impact of the individual acquisition related charges was as follows: � Net Income � Diluted Earnings Per Share Three Months EndedSeptember 30, 2008 � Nine Months EndedSeptember 30, 2008 Three Months EndedSeptember 30, 2008 � Nine Months EndedSeptember 30, 2008 (in thousands, except per share data) Net income excluding acquisition-related charges $53,055 $155,174 $0.40 $1.27 Acquisition related charges, net of tax: Debt prepayment costs 4,412 4,412 0.03 0.04 Interim facility commitment fees 2,558 2,558 0.02 0.02 Adjustments to tax liabilities 3,142 3,142 0.02 0.02 Amortization of trade names and trademarks � 1,544 1,544 0.02 0.01 � � � � Net income and diluted EPS $41,399 $143,518 $0.31 $1.18 Comparable store sales for O�Reilly stores open at least one year increased 1.5% for both the third quarter and first nine months of 2008. Comparable store sales for CSK stores open at least one year decreased 4.3% for the portion of CSK�s sales in the third quarter since the July 11, 2008, acquisition by O�Reilly. Consolidated comparable store sales for stores open at least one year decreased 0.8% for the third quarter of 2008 and increased 0.5% for the first nine months of 2008. �We enter the fourth quarter focused on the continued execution of our CSK store conversion plan,� Ted Wise, COO and Co-President, said. �During the quarter, we will be converting stores located in markets where we have O�Reilly distribution reach and can effectively execute our dual market strategy. We opened 37 new stores and merged 16 CSK with O�Reilly stores during the third quarter. We continue to be very impressed with the new members of our team and the level of enthusiasm they have shown by embracing the O�Reilly culture.� �We continue to be very enthused about the prospects of the integration of CSK Auto. Our management team is clearly focused on both driving performance in existing O�Reilly markets and laying the foundation for the successful integration of CSK. I would like to take this opportunity to thank every member of Team O�Reilly for all the hard work and dedication they have exhibited since we closed the CSK acquisition in July,� CEO and Co-President Greg Henslee stated. �The acquisition of 1,342 CSK stores and the opening of 37 new stores during the quarter brings our total store count to 3,277 stores in 38 states.� The impact of the acquisition of CSK, excluding the items presented above, is expected to dilute 2008 earnings by approximately $0.15 per diluted share. The Company continues to expect the acquisition to be slightly accretive to earnings per share in 2009 and to realize ongoing synergies of $100 million annually beginning in 2010. The Company estimates diluted earnings per share for the year ending December 31, 2008, to range from $1.45 to $1.49. Excluding the expected impact of acquisition charges related to CSK of $0.11 per diluted share, adjusted earnings per share are expected to range from $1.56 to $1.60. Comparable store sales for the fourth quarter of 2008 are estimated to range from 2% to 4% for existing O�Reilly stores and (1%) to (3%) for CSK stores for a combined Company range of flat to 2%. Full year comparable store sales are estimated to range from 1% to 3% for existing O�Reilly stores and (2%) to (4%) for CSK stores for a combined Company full year range of flat to 1%. This release contains certain financial information not derived in accordance with United States generally accepted accounting principles (�GAAP�). The Company does not, and does not suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of estimates excluding the one-time acquisition-related charges provides meaningful supplemental information to both management and investors that is indicative of the Company�s core operations. The Company excludes these items in judging its performance and believes this non-GAAP information is useful to investors as well. The Company will host a conference call October 30, 2008, at 10:00 a.m. Central Time to discuss its results as well as future expectations. Investors may listen to the conference call live on the Company�s website, www.oreillyauto.com, by clicking on �Investor Relations� and then �News Room.� A replay of the call will also be available on the Company�s website following the conference call. We invite interested analysts to join our call. The dial-in number for the call is 706-643-0114 and the conference call ID number is 67869511. O�Reilly Automotive, Inc. is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, serving both the do-it-yourself and professional installer markets. Founded in 1957 by the O�Reilly family, the Company operated 3,277 stores in 38 states as of September 30, 2008. The Company claims the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by forward-looking words such as �expect,� �believe,� �anticipate,� �should,� �plan,� �intend,� �estimate,� �project,� �will� or similar words. In addition, statements contained within this press release that are not historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our ability to hire and retain qualified employees, risks associated with the integration of acquired businesses, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the Risk Factors sections of the Company�s Form 10-K for the year ended December 31, 2007, for more details. O�REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) � � � September 30, 2008 September 30, 2007 December 31, 2007 (Unaudited) (Unaudited) (Note) Assets Current assets : Cash and cash equivalents $26,410 $109,783 $47,555 Accounts receivable, net 108,661 90,654 84,242 Amounts receivable from vendors 56,935 46,334 48,263 Inventory 1,517,744 856,586 881,761 Deferred income taxes 50,751 - - Other current assets 41,848 22,478 40,483 Total current assets 1,802,349 1,125,835 1,102,304 � Property and equipment, at cost 1,860,550 1,416,573 1,479,779 Accumulated depreciation and amortization 455,813 370,630 389,619 Net property and equipment 1,404,737 1,045,943 1,090,160 � Notes receivable, less current portion 22,877 26,765 25,437 Goodwill 655,886 49,857 50,447 Deferred income taxes 30,733 - - Other assets 108,565 12,150 11,389 Total assets $4,025,147 $2,260,550 $2,279,737 � Liabilities and shareholders� equity Current liabilities: Accounts payable $757,080 $401,308 $380,683 Self-insurance reserve 62,034 31,350 29,967 Accrued payroll 72,933 26,334 23,739 Accrued benefits and withholdings 31,170 12,270 13,496 Deferred income taxes - 9,299 6,235 Other current liabilities 121,729 48,074 49,536 Current portion of long-term debt 8,257 25,317 25,320 Total current liabilities 1,053,203 553,952 528,976 � Long-term debt, less current portion 657,131 75,230 75,149 Deferred income taxes - 25,896 27,241 Other liabilities 124,320 52,301 55,894 � Shareholders� equity: Common stock, $0.01 par value: Authorized shares � 245,000,000 Issued and outstanding shares � 134,470,192 as of September 30, 2008; 115,067,095 as of September 30, 2007; and 115,260,564 as of December 31, 2007 1,345 1,151 1,153 Additional paid-in capital 890,221 436,222 441,731 Retained earnings 1,299,911 1,115,798 1,156,393 Accumulated other comprehensive loss (984) - (6,800) Total shareholders� equity 2,190,493 1,553,171 1,592,477 Total liabilities and shareholders� equity $4,025,147 $2,260,550 $2,279,737 � Note: The balance sheet at December 31, 2007, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consideration paid by the Company to complete the acquisition of CSK Automotive, Inc. has been preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The allocation of the purchase price is based upon certain external valuations and other analyses that have not been completed as of the date of this earnings release, accordingly the purchase price allocations are preliminary and are subject to future adjustments. O�REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) � � Three Months Ended Nine Months Ended September 30, September 30, 2008 � 2007 2008 � 2007 � Sales $1,111,272 $661,778 $2,461,922 $1,918,031 Cost of goods sold, including warehouse and distribution expenses 604,066 368,077 1,349,125 1,067,864 � Gross profit 507,206 293,701 1,112,797 850,167 Selling, general and administrative expenses 414,735 210,985 857,782 608,701 � Operating income 92,471 82,716 255,015 241,466 Other income (expense), net: Debt prepayment costs (7,157) - (7,157) - Interim facility commitment fee (4,150) (4,150) Interest expense (10,860) (1,081) (13,070) (2,569) Other, net 845 1,837 3,280 4,096 � Income before income taxes 71,149 83,472 233,918 242,993 Provision for income taxes 29,750 30,385 90,400 89,600 � Net income $41,399 $53,087 $143,518 $153,393 � Net income per common share $0.31 $0.46 $1.18 $1.34 Net income per common share � assuming dilution $0.31 $0.46 $1.18 $1.32 � Weighted-average common shares outstanding 132,196 114,946 121,133 114,508 Adjusted weighted-average common shares outstanding � assuming dilution 133,081 116,306 122,073 115,989 O�REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES SELECTED FINANCIAL INFORMATION (Unaudited) � September 30, 2008 � 2007 � Inventory turnover (1) 1.6 1.6 Inventory turnover, net of payables (2) 3.1 3.0 � AP to inventory (3) 49.9% 46.8% Debt-to-capital (4) 23.3% 6.1% Return on equity (5) 11.2% 13.3% Return on assets (6) 7.2% 9.2% � Three Months Ended September 30, 2008 2007 Other Information (in thousands): Capital Expenditures $134,470 $79,008 Depreciation and Amortization $31,221 $20,787 Interest Expense $22,170 $1,081 Lease and Rental Expense $51,316 $14,370 � Sales per weighted-average square foot � O�Reilly Brands (7) $52.98 $54.98 Sales per weighted-average square foot � CSK Brands (7) $45.92 � Square footage (in thousands) � O�Reilly Brands 13,347 12,005 Square footage (in thousands) � CSK Brands 9,765 � Sales per weighted-average store (in thousands) � O�Reilly Brands (8) $362 $371 Sales per weighted-average store (in thousands) � CSK Brands (8) $329 � Total employment 40,512 24,075 � Store Count by Brand O'Reilly � Checker � Schuck's � Kragen � Murray's � Total June 30, 2008 1,918 � 489 � 217 � 495 � 141 � 3,260 New 36 - 1 - - 37 Merged - (16) - - - (16) Rebranded - - - - - - Closed (1) � (2) � (1) � - � - � (4) September 30, 2008 1,953 � 471 � 217 � 495 � 141 � 3,277 (1) � Calculated as cost of sales for the last 12 months divided by average inventory. Average inventory is calculated as the average of inventory for the trailing four quarters used in determining the numerator. (2) Calculated as cost of sales for the last 12 months divided by average net inventory. Average net inventory is calculated as the average of inventory less accounts payable for the trailing four quarters used in determining the numerator. (3) Accounts payable divided by inventory. (4) The sum of long-term debt and current portion of long-term debt, divided by the sum of long-term debt, current portion of long-term debt and total shareholders� equity. (5) Last 12 months net income divided by average shareholders� equity. Average shareholders� equity is calculated as the average of shareholders� equity for the trailing four quarters used in determining the numerator. (6) Last 12 months net income divided by average total assets. Average total assets is calculated as the average total assets for the trailing four quarters used in determining the numerator. (7) Total sales less jobber sales, divided by weighted-average square feet. Weighted-average sales per square foot is weighted to consider the approximate dates of store openings or expansions. (8) Total sales less jobber sales, divided by weighted-average stores. Weighted-average sales per store is weighted to consider the approximate dates of store openings or expansions. O�REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION (Unaudited) (In thousands, except per share data) � � Three MonthsEnded Nine MonthsEnded September 30, 2008 � Adjusted net income $53,055 $155,174 Debt prepayment costs, net of tax 4,412 4,412 Commitment fee for interim financing facility, net of tax 2,558 2,558 Adjustments to tax liabilities 3,142 3,142 Trade name and trademark amortization, net of tax 1,544 1,544 � � Net income (GAAP) $41,399 $143,518 � Adjusted weighted-average common shares outstanding � assuming dilution 133,081 122,073 � Net income per share - diluted (Non-GAAP) $0.40 $1.27 Net income per share - diluted (GAAP) $0.31 $1.18