Unless otherwise indicated, "we," "us," "our" and similar terms, as well as
references to the "Company" or "O'Reilly," refer to
In Management's Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect our future results, including
? recent developments within our Company;
? an overview of the key drivers of the automotive aftermarket industry;
? our results of operations for the three and six months ended
2020;
? our liquidity and capital resources;
? any contractual obligations, to which we are committed;
? our critical accounting estimates;
? the inflation and seasonality of our business; and
? recent accounting pronouncements that may affect our Company.
The review of Management's Discussion and Analysis should be made in conjunction with our condensed consolidated financial statements, related notes and other financial information, forward-looking statements and other risk factors included elsewhere in this quarterly report. FORWARD-LOOKING STATEMENTS We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as "estimate," "may," "could," "will," "believe," "expect," "would," "consider," "should," "anticipate," "project," "plan," "intend" or similar words. In addition, statements contained within this quarterly report that are not historical facts are forward-looking statements, such as statements discussing, among other things, expected growth, store development, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, the COVID-19 pandemic or other public health crises; the economy in general; inflation; consumer debt levels; product demand; the market for auto parts; competition; weather; tariffs; availability of key products; business interruptions, including terrorist activities, war and the threat of war; failure to protect our brand and reputation; challenges in international markets; volatility of the market price of our common stock; our increased debt levels; credit ratings on public debt; historical growth rate sustainability; our ability to hire and retain qualified employees; risks associated with the performance of acquired businesses; information security and cyber-attacks; and governmental regulations. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and subsequentSecurities and Exchange Commission filings, for additional factors that could materially affect our financial performance. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. RECENT DEVELOPMENTS We continue to prioritize the safety and wellness of our Team Members and our customers as we navigate the ongoing challenges resulting from the COVID-19 pandemic in the current environment. Level of vaccinations, vaccine effectiveness and distribution, the gradual reopening processes across many of our markets, government stimulus payments and enhanced unemployment benefits have positively impacted demand for the products we sell. We continue to keep our stores open and operating to meet our customers' critical needs, while also ensuring the safety of our Team Members and customers through strict adherence to safety protocols; however, we cannot predict how long the current crisis will last or the extent of its impact on our customers, our Team Members and overall industry demand.
For additional risks related to the COVID-19 pandemic, please refer to the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 17 OVERVIEW We are a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories inthe United States andMexico . We are one of the largestU.S. automotive aftermarket specialty retailers, selling our products to both DIY customers and professional service providers - our "dual market strategy." Our stores carry an extensive product line consisting of new and remanufactured automotive hard parts, maintenance items, accessories, a complete line of auto body paint and related materials, automotive tools and professional service provider service equipment.
Our extensive product line includes an assortment of products that are differentiated by quality and price for most of the product lines we offer.
For
many of our product offerings, this quality differentiation reflects "good," "better," and "best" alternatives. Our sales and total gross profit dollars are, generally, highest for the "best" quality category of products. Consumers' willingness to select products at a higher point on the value spectrum is a driver of sales and profitability in our industry. We have ongoing initiatives focused on marketing and training to educate customers on the advantages of ongoing vehicle maintenance, as well as "purchasing up" on the value spectrum. Our stores also offer enhanced services and programs to our customers, including used oil, oil filter and battery recycling; battery, wiper and bulb replacement; battery diagnostic testing; electrical and module testing; check engine light code extraction; loaner tool program; drum and rotor resurfacing; custom hydraulic hoses; professional paint shop mixing and related materials; and machine shops. As ofJune 30, 2021 , we operated 5,710 stores in 47 U.S. states and 22 stores inMexico . We are influenced by a number of general macroeconomic factors that impact both our industry and our consumers, including, but not limited to, fuel costs, unemployment trends, interest rates and other economic factors. Due to the nature of these macroeconomic factors, we are unable to determine how long current conditions will persist and the degree of impact future changes may have on our business. Macroeconomic factors, such as totalU.S. unemployment, and demand drivers specific to the automotive aftermarket, such asU.S. miles driven, have been pressured as a result of responses to the COVID-19 pandemic, including stay at home orders, work from home arrangements, and reduced travel.
However, government stimulus and additional unemployment benefits and the ongoing reopening processes have positively impacted our performance. We are unable to predict the ongoing and future impact of the pandemic on broader economic conditions or our industry.
We believe the key drivers of current and future long-term demand for the products sold within the automotive aftermarket include the number ofU.S. miles driven, number ofU.S. registered vehicles, new light vehicle registrations
and average vehicle age. Number of Miles Driven The number of total miles driven in theU.S. influences the demand for repair and maintenance products sold within the automotive aftermarket. In total, vehicles in theU.S. are driven approximately three trillion miles per year, resulting in ongoing wear and tear and a corresponding continued demand for the repair and maintenance products necessary to keep these vehicles in operation. According to theU.S. Department of Transportation , the number of total miles driven in theU.S. decreased 13.2% in 2020, but through May of 2021, year-to-date miles driven has improved, increasing 12.6%. The reduction in miles driven in 2020 was the result of responses to the COVID-19 pandemic, and remained below pre-pandemic levels through March of 2021. Government measures or consumer and business behavior in response to the COVID-19 pandemic could again have a negative impact on miles driven, but we are unable to predict the duration and severity of the impact to our business.
Size and Age of the Vehicle Fleet
The total number of vehicles on the road and the average age of the vehicle population heavily influence the demand for products sold within the automotive aftermarket industry. As reported by TheAuto Care Association , the total number of registered vehicles increased 12.7% from 2010 to 2020, bringing the number of light vehicles on the road to 281 million by the end of 2020. For the year endedDecember 31, 2020 , the seasonally adjusted annual rate of light vehicle sales in theU.S. ("SAAR") was approximately 16.3 million, and for 2021, the SAAR is estimated to be approximately 15.4 million, contributing to the continued growth in the total number of registered vehicles on the road. In the past decade, vehicle scrappage rates have remained relatively stable, ranging from 4.1% to 5.7% annually. As a result, over the past decade, the average age of theU.S. vehicle population has increased, growing 12.3%, from 10.6 years in 2010 to 11.9 years in 2020. The outlook for SAAR is highly uncertain, as the severity, duration and impacts of the COVID-19 crisis is indeterminable; however, the rate of new vehicle sales in any given year represents a small percentage of the total light vehicle population and has a muted impact on the total number of vehicles on the road and average age of vehicles over the short term.
We believe the increase in average vehicle age can be attributed to better engineered and manufactured vehicles, which can be reliably driven at higher mileages due to better quality power trains, interiors and exteriors, and the consumer's willingness to invest in maintaining these higher-mileage, better built vehicles. As the average age of vehicles on the road increases, a larger percentage of miles are being driven by vehicles that are outside of a manufacturer warranty. These out-of-warranty, older vehicles generate strong demand for automotive aftermarket products as they go through more routine maintenance cycles, have more frequent mechanical 18 failures and generally require more maintenance than newer vehicles. We believe consumers will continue to invest in these reliable, higher-quality, higher-mileage vehicles and these investments, along with an increasing total light vehicle fleet, will support continued demand for automotive aftermarket products. We remain confident in our ability to gain market share in our existing markets and grow our business in new markets by focusing on our dual market strategy and the core O'Reilly values of hard work and excellent customer service. RESULTS OF OPERATIONS Sales: Sales for the three months endedJune 30, 2021 , increased$374 million or 12% to$3.47 billion from$3.09 billion for the same period one year ago. Sales for the six months endedJune 30, 2021 , increased$988 million or 18% to$6.56 billion from$5.57 billion for the same period one year ago. Comparable store sales for stores open at least one year increased 9.9% and 16.2% for the three months endedJune 30, 2021 and 2020, respectively. Comparable store sales for stores open at least one year increased 16.5% and 7.5% for the six months endedJune 30, 2021 and 2020, respectively. Comparable store sales are calculated based on the change in sales forU.S. stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to Team Members, as well as sales from Leap Day in the six months endedJune 30, 2020 . Online sales for ship-to-home orders and pickup in-store orders forU.S. stores open at least one year are included in the comparable store sales calculation.
The following table presents the components of the increase in sales for the
three and six months ended
Increase in Sales for the Increase in Sales for the Three Months Ended Six Months Ended June 30, 2021 June 30, 2021 Compared to the Same Compared to the Same Period in 2020 Period in 2020 Store sales: Comparable store sales $ 298 $ 887 Non-comparable store sales: Sales for stores opened throughout 2020, excluding stores open at least one year that are included in comparable store sales, and Mayasa store sales 27 68 Sales for stores opened throughout 2021 30 42 Sales from Leap Day in 2020 - (34) Decline in sales for stores that have closed - (3) Non-store sales: Includes sales of machinery and sales to independent parts stores and Team Members 19 28 Total increase in sales $ 374
$ 988 We believe the increased sales are the result of store growth, the high levels of customer service provided by our well-trained and technically proficient Team Members, superior inventory availability, including same day and over-night access to inventory in our regional distribution centers, enhanced services and programs offered in our stores, a broader selection of product offerings in most stores with a dynamic catalog system to identify and source parts, a targeted promotional and advertising effort through a variety of media and localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional service provider customers. The government stimulus payments, enhanced unemployment benefits, lifting of stay at home orders and associated market reopenings and recovery plans when combined with positive industry dynamics, such as consumers investing in existing vehicles and favorable weather, contributed to strong demand in the second quarter. Our comparable store sales increases for the three and six months endedJune 30, 2021 , were driven by increases in average ticket values and transaction counts for both professional service provider and DIY customers. Average ticket values continue to be positively impacted by the increasing complexity and cost of replacement parts necessary to maintain the current population of better-engineered and more technically advanced vehicles. These better-engineered, more technically advanced vehicles require less frequent repairs, as the component parts are more durable and last for longer periods of time. The resulting decrease in repair frequency creates pressure on customer transaction counts; however, when repairs are needed, the cost of replacement parts is, on average, greater, which is a benefit to average ticket values. Average ticket values also continue to benefit from consumers spending additional time and money repairing and maintaining their vehicles in response to the COVID-19 and economic environment and increased selling prices on a same-SKU basis, as compared to the same period in 2020, driven by increases in acquisition costs of inventory, which were passed on in market 19 prices. Improvements in transaction counts were primarily due to prior year headwinds to traffic from COVID-19 stay at home orders and the more intensive business restrictions that primarily occurred in March and April of 2020, which resulted in immediate pressure to transaction counts for both DIY and professional service provider customers. Continued market reopening and recovery plans, ongoing government stimulus and favorable winter and spring weather conditions all benefited transaction counts in the current periods. We opened 50 and 116 net, newU.S. stores during the three and six months endedJune 30, 2021 , compared to opening 50 and 123 net, newU.S. stores during the three and six months endedJune 30, 2020 . As ofJune 30, 2021 , we operated 5,710 stores in 47 U.S. states and 22 stores inMexico compared to 5,562 stores in 47 U.S. states and 21 stores inMexico atJune 30, 2020 .
Gross profit:
Gross profit for the three months endedJune 30, 2021 , increased 12% to$1.83 billion (or 52.7% of sales) from$1.64 billion (or 53.0% of sales) for the same period one year ago. Gross profit for the six months endedJune 30, 2021 , increased 18% to$3.47 billion (or 52.9% of sales) from$2.93 billion (or 52.7% of sales) for the same period one year ago. The increase in gross profit dollars for the three months endedJune 30, 2021 , was primarily the result of new store sales and the increase in comparable store sales at existing stores. The increase in gross profit dollars for the six months endedJune 30, 2021 , was primarily the result of new store sales and the increase in comparable store sales at existing stores, partially offset by prior year gross profit dollars generated from one additional day due to Leap Day. The decrease in gross profit as a percentage of sales for the three months endedJune 30, 2021 , was due to a greater percentage of total sales mix generated from professional service provider customers, which carry a lower gross margin than DIY sales, and increased distribution system costs, driven by the significant increase in volumes over the past year, challenging labor markets and ongoing global logistical supply chain pressures. The increase in gross profit as a percentage of sales for the six months endedJune 30, 2021 , was due to a greater percentage of total sales mix generated from DIY customers, which carry a higher gross margin than professional service provider sales.
Selling, general and administrative expenses:
Selling, general and administrative expenses ("SG&A") for the three months endedJune 30, 2021 , increased 14% to$1.03 billion (or 29.7% of sales) from$901 million (or 29.1% of sales) for the same period one year ago. SG&A for the six months endedJune 30, 2021 , increased 12% to$1.98 billion (or 30.2% of sales) from$1.77 billion (or 31.8% of sales) for the same period one year ago. The increase in total SG&A dollars for the three months endedJune 30, 2021 , was the result of additional Team Members, facilities and vehicles to support our increased sales and store count, combined with the unsustainably low level of prior year operating expenses resulting from our cautionary approach and stringent expense control measures taken in response to the onset of the COVID-19 pandemic. The increase in total SG&A dollars for the six months endedJune 30, 2021 , was the result of additional Team Members, facilities and vehicles to support our increased sales and store count and the unsustainably low level of prior year second quarter operating expenses, partially offset by prior year incremental SG&A expenses incurred from one additional day due to Leap Day. The increase in SG&A as a percentage of sales for the three months endedJune 30, 2021 , was due to deleverage of store operating costs, resulting from the unsustainably low level of prior year operating expenses. The decrease in SG&A as a percentage of sales for the six months endedJune 30, 2021 , was due to leverage of first quarter store operating costs on strong comparable store sales growth. Operating income:
As a result of the impacts discussed above, operating income for the
three months ended
As a result of the impacts discussed above, operating income for the six months endedJune 30, 2021 , increased 28% to$1.49 billion (or 22.7% of sales) from$1.16 billion (or 20.8% of sales) for the same period one year ago.
Other income and expense:
Total other expense for the three months endedJune 30, 2021 , decreased 5% to$34 million (or 1.0% of sales) from$36 million (or 1.2% of sales) for the same period one year ago. Total other expense for the six months endedJune 30, 2021 , decreased 13% to$70 million (or 1.1% of sales) from$80 million (or 1.4% of sales) for the same period one year ago. The decrease in total other expense for the three months endedJune 30, 2021 , was the result of decreased interest expense on lower average outstanding borrowings and lower average cost of borrowings, partially offset by a smaller increase in the value of our trading securities. The decrease in total other expense for the six months endedJune 30, 2021 , was the result of decreased interest expense on lower average outstanding borrowings and lower average cost of borrowings and an increase in the value of our trading securities, as compared to a decrease in the value of our trading securities in the same period one year ago.
Income taxes:
Our provision for income taxes for the three months endedJune 30, 2021 , increased 4% to$176 million (23.1% effective tax rate) from$169 million (24.1% effective tax rate) for the same period one year ago. Our provision for income taxes for the six months endedJune 30, 2021 , increased 33% to$330 million (23.3% effective tax rate) from$248 million (23.0% effective tax rate) for the same period one year ago. The increase in our provision for income taxes for the three months endedJune 30, 2021 , was the result of higher taxable 20 income, partially offset by higher excess tax benefits from share-based compensation. The increase in our provision for income taxes from the six months endedJune 30, 2021 , was the result of higher taxable income and a benefit in the prior year from renewable energy investment tax credits, partially offset by higher excess tax benefits from share-based compensation in the current period. The decrease in our effective tax rate for the three months endedJune 30, 2021 , was the result of higher excess tax benefits from share-based compensation. The increase in our effective tax rate for the six months endedJune 30, 2021 , was the result of the prior year benefit from renewable energy investment tax credits, partially offset by higher excess tax benefits from share-based compensation in the current period.
Net income:
As a result of the impacts discussed above, net income for the three months endedJune 30, 2021 , increased 10% to$585 million (or 16.9% of sales) from$532 million (or 17.2% of sales) for the same period one year ago. As a result of the impacts discussed above, net income for the six months endedJune 30, 2021 , increased 31% to$1.09 billion (or 16.6% of sales) from$832 million (or 14.9% of sales) for the same period one year ago.
Earnings per share:
Our diluted earnings per common share for the three months endedJune 30, 2021 , increased 17% to$8.33 on 70 million shares from$7.10 on 75 million shares for the same period one year ago. Our diluted earnings per common share for the six months endedJune 30, 2021 , increased 39% to$15.39 on 71 million shares from$11.06 on 75 million shares for the same period one year ago.
LIQUIDITY AND CAPITAL RESOURCES
Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure, operate and maintain existing stores and may include the opportunistic repurchase of shares of our common stock through our Board-approved share repurchase program. The primary sources of our liquidity are funds generated from operations and borrowed under our unsecured revolving credit facility. Decreased demand for our products or changes in customer buying patterns could negatively impact our ability to generate funds from operations. Additionally, decreased demand or changes in buying patterns could impact our ability to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our unsecured revolving credit facility. We believe that cash expected to be provided by operating activities and availability under our unsecured revolving credit facility will be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. However, there can be no assurance that we will continue to generate cash flows at or above recent levels, and we are unable to predict the impact of the uncertainty and disruption caused by the COVID-19 pandemic on our ability to generate funds
or maintain liquidity. The following table identifies cash provided by/(used in) our operating, investing and financing activities for the six months endedJune 30, 2021 and 2020 (in thousands): For the Six Months Ended June 30, Liquidity: 2021 2020 Total cash provided by/(used in): Operating activities$ 1,712,832 $ 1,559,078 Investing activities (220,892) (335,228) Financing activities (1,325,880) (390,732) Effect of exchange rate changes on cash (82) (1,101)
Net increase in cash and cash equivalents
Capital expenditures$ 222,607 $ 244,471 Free cash flow (1) 1,471,642 1,212,855
(1) Calculated as net cash provided by operating activities, less capital
expenditures and excess tax benefit from share-based compensation payments,
and investment in tax credit equity investments for the period. Operating activities: The increase in net cash provided by operating activities during the six months endedJune 30, 2021 , compared to the same period in 2020, was primarily due to a larger increase in net income and a larger decrease in net inventory investment, partially offset by decreases in income taxes payable and accrued benefits and withholdings. The larger decrease in net inventory investment in the current period, as compared to the same period in the prior year, was primarily attributable to the strong store sales growth and the resulting benefit to inventory turns. The decreases in income taxes payable and accrued benefits and withholdings in the current period, as compared to increases in same period in the prior year, were due to the ability to defer certain income and payroll tax payments in the prior year under the provisions of the Coronavirus Aid, Relief, and Economic Security Act. 21 Investing activities:
The decrease in net cash used in investing activities during the six months endedJune 30, 2021 , compared to the same period in 2020, was the result of a decrease in investments in renewable energy tax credit investment funds and a decrease in capital expenditures. The decrease in investments in renewable energy tax credit funds was the result of the timing of tax credit equity investments in the current period, as compared to the same period in the prior year. The Company has entered into an agreement to make additional tax credit equity investments in the current year; however, the timing of such investments is variable and outside of the Company's control. The decrease in capital expenditures was primarily due to a lower level of distribution expansion projects in the current period, as compared to the same period in the prior
year. Financing activities:
The increase in net cash used in financing activities during the six months endedJune 30, 2021 , compared to the same period in 2020, was attributable to the prior year benefit provided by the issuance of$500 million aggregate principle amount of senior notes, an increase in repurchases of our common stock during the current period, as compared to the same period in the prior year, and the current period redemption of$300 million aggregate principal amount of senior notes, partially offset by net repayments on our revolving credit facility in the prior year.
Unsecured revolving credit facility:
OnJune 15, 2021 , the Company entered into a new credit agreement (the "Credit Agreement"). The Credit Agreement provides for a five-year$1.8 billion unsecured revolving credit facility (the "Revolving Credit Facility") arranged byJPMorgan 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. 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. In conjunction with the closing of the Credit Agreement, the Company's previous credit agreement, which was originally entered into onApril 5, 2017 , was terminated (the "Terminated Credit Agreement"), and all outstanding loans and commitments under the Terminated Credit Agreement were terminated and replaced by the loans and commitments under the Credit Agreement. As ofJune 30, 2021 , we had outstanding letters of credit, primarily to support obligations related to workers' compensation, general liability and other insurance policies, in the amount of$84.0 million , reducing the aggregate availability under the Credit Agreement by that amount. As ofJune 30, 2021 , we did not have any outstanding borrowings under our Revolving Credit Facility. Senior Notes: OnJune 15, 2021 , we redeemed our$300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021 at a redemption price of$300 million , plus accrued and unpaid interest up to, but not including, the date of redemption. As ofJune 30, 2021 , we have issued and outstanding a cumulative$3.9 billion aggregate principal amount of unsecured senior notes, which are due between 2022 and 2031, withUMB Bank, N.A . andU.S. Bank as trustees. Interest on the senior notes, ranging from 1.750% to 4.350%, is payable semi-annually and is computed on the basis of a 360-day year. None of our subsidiaries is a guarantor under our senior notes. Debt covenants:
The indentures governing our senior notes contain covenants that limit our ability and the ability of certain of our subsidiaries to, among other things, create certain liens on assets to secure certain debt and enter into certain sale and leaseback transactions, and limit our ability to merge or consolidate with another company or transfer all or substantially all of our property, in each case as set forth in the indentures. These covenants are, however, subject to a number of important limitations and exceptions. As ofJune 30, 2021 , we were in compliance with the covenants applicable to our senior notes. The Credit Agreement contains certain covenants, including limitations on 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 we should default on any covenant contained within the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination 22 of commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the Credit Agreement and litigation from our lenders. We had a consolidated fixed charge coverage ratio of 6.58 times and 5.49 times as ofJune 30, 2021 and 2020, respectively, and a consolidated leverage ratio of 1.66 times and 2.12 times as ofJune 30, 2021 and 2020, respectively, remaining in compliance with all covenants related to the borrowing arrangements.
The table below outlines the calculations of the consolidated fixed charge
coverage ratio and consolidated leverage ratio covenants, as defined in the
Credit Agreement governing the Revolving Credit Facility, for the twelve months
ended
For the Twelve Months Ended June 30, 2021 2020 GAAP net income$ 2,007,257 $ 1,548,314 Add: Interest expense 155,180 152,255 Rent expense (1) 363,766 345,530
Provision for income taxes 596,239
442,962 Depreciation expense 313,190 286,593 Amortization expense 8,489 3,880
Non-cash share-based compensation 23,842
22,386 Non-GAAP EBITDAR$ 3,467,963 $ 2,801,920 Interest expense$ 155,180 $ 152,255 Capitalized interest 8,479 12,376 Rent expense (1) 363,766 345,530 Total fixed charges$ 527,425 $ 510,161 Consolidated fixed charge coverage ratio 6.58
5.49
GAAP debt$ 3,825,177 $
4,127,397
Add: Stand-by letters of credit 84,045
51,551
Discount on senior notes 4,700
3,295
Debt issuance costs 20,123
19,308
Five-times rent expense 1,818,830
1,727,650
Non-GAAP adjusted debt$ 5,752,875 $
5,929,201
Consolidated leverage ratio 1.66
2.12
(1) The table below outlines the calculation of Rent expense and reconciles Rent
expense to Total lease cost, per Accounting Standard Codification 842 ("ASC
842") the most directly comparable GAAP financial measure, for the twelve months endedJune 30, 2021 and 2020 (in thousands):
Total lease cost, per ASC 842, for the twelve months ended
$ 432,619 Less: Variable non-contract operating lease components, related to property taxes and insurance, for the twelve months endedJune 30, 2021 68,853
Rent expense for the twelve months endedJune 30, 2021
Total lease cost, per ASC 842, for the twelve months ended
$ 408,583 Less: Variable non-contract operating lease components, related to property taxes and insurance, for the twelve months endedJune 30, 2020 63,053
Rent expense for the twelve months endedJune 30, 2020
$ 345,530 23 The table below outlines the calculation of Free cash flow and reconciles Free cash flow to Net cash provided by operating activities, the most directly comparable GAAP financial measure, for the six months endedJune 30, 2021 and 2020 (in thousands): For the Six Months EndedJune 30, 2021 2020
Cash provided by operating activities$ 1,712,832 $ 1,559,078 Less: Capital expenditures 222,607
244,471 Excess tax benefit from share-based compensation payments 16,815 6,460 Investment in tax credit equity investments 1,768 95,292 Free cash flow$ 1,471,642 $ 1,212,855 Free cash flow, the consolidated fixed charge coverage ratio and the consolidated leverage ratio discussed and presented in the tables above are not derived in accordance withUnited States generally accepted accounting principles ("GAAP"). We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of our free cash flow, consolidated fixed charge coverage ratio and consolidated leverage ratio provides meaningful supplemental information to both management and investors and reflects the required covenants under the Credit Agreement. We include these items in judging our performance and believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the tables above, a reconciliation to the most directly comparable GAAP measures.
Share repurchase program:
In January of 2011, our Board of Directors approved a share repurchase program.
Under the program, we may, from time to time, repurchase shares of our 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. Our Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As announced onFebruary 10, 2021 , andMay 27, 2021 , our Board of Directors each time approved a resolution to increase the authorization amount under our share repurchase program by an additional$1.0 billion and$1.5 billion , respectively, resulting in a cumulative authorization amount of$17.3 billion . The additional authorizations are effective for a three-year period, beginning on their respective announcement date. The following table identifies shares of our common stock that have been repurchased as part of our publicly announced share repurchase program for the three and six months endedJune 30, 2021 and 2020 (in thousands, except per share data): For the Three Months Ended For the Six Months Ended June 30, June 30, 2021 2020 2021 2020 Shares repurchased 743 185 2,218 1,669 Average price per share$ 537.25 $ 417.79
$ 479.69 $ 390.14 Total investment$ 399,634 $ 76,974 $ 1,064,167 $ 651,011 As ofJune 30, 2021 , we had$1.9 billion remaining under our share repurchase authorizations. Subsequent to the end of the second quarter and throughAugust 6, 2021 , we repurchased 0.3 million additional shares of our common stock under our share repurchase program, at an average price of$596.11 , for a total investment of$169.0 million . We have repurchased a total of 83.5 million shares of our common stock under our share repurchase program since the inception of the program in January of 2011 and throughAugust 6, 2021 , at an average price of$185.60 , for a total aggregate investment of$15.5 billion . CONTRACTUAL OBLIGATIONS
There have been no material changes to the contractual obligations, to which we
are committed, since those discussed in our Annual Report on Form 10-K for
the year ended
CRITICAL ACCOUNTING ESTIMATES The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends and other factors believed to be relevant at the time the condensed consolidated financial statements are prepared. There have been no material changes in the critical accounting estimates since those discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 24 INFLATION AND SEASONALITY We have been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of supplier incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the extent our acquisition costs increased due to base commodity price increases industry-wide, we have typically been able to pass along these increased costs through higher retail prices for the affected products. As a result, we do not believe inflation has had a material adverse effect on our operations. To some extent, our business is seasonal, primarily as a result of the impact of weather conditions on customer buying patterns. While we have historically realized operating profits in each quarter of the year, our store sales and profits have historically been higher in the second and third quarters (April through September) than in the first and fourth quarters (October through March) of the year.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 14 "Recent Accounting Pronouncements" to the Condensed Consolidated Financial Statements for information about recent accounting pronouncements.
INTERNET ADDRESS AND ACCESS TO SEC FILINGS
Our Internet address is www.OReillyAuto.com. Interested readers can access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through theSecurities and Exchange Commission's ("SEC") website at www.sec.gov and searching with our ticker symbol "ORLY." Such reports are generally available the day they are filed. Upon request, we will furnish interested readers a paper copy of such reports free of charge. The information on our website is not part of this report and is not incorporated by reference into this report or any of the Company's other filings with theSEC .
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