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OFFON

O'REILLY AUTOMOTIVE, INC

(ORLY)
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O'Reilly Automotive : O REILLY AUTOMOTIVE INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/06/2021 | 04:34pm EDT

Unless otherwise indicated, "we," "us," "our" and similar terms, as well as references to the "Company" or "O'Reilly," refer to O'Reilly Automotive, Inc. and its subsidiaries.




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 June 30, 2021 and

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
ended December 31, 2020, and subsequent Securities and Exchange Commission
filings, for additional factors that could materially affect our financial
performance.  Forward-looking statements speak only as of the date they were
made, and we undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by applicable law.



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 ended December
31, 2020.



                                       17

OVERVIEW



We are a specialty retailer of automotive aftermarket parts, tools, supplies,
equipment and accessories in the United States and Mexico.  We are one of the
largest U.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 of June 30, 2021, we operated 5,710 stores in 47 U.S.
states and 22 stores in Mexico.



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 total U.S. unemployment, and
demand drivers specific to the automotive aftermarket, such as U.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 of U.S. miles
driven, number of U.S. registered vehicles, new light vehicle registrations
and
average vehicle age.



Number of Miles Driven

The number of total miles driven in the U.S. influences the demand for repair
and maintenance products sold within the automotive aftermarket.  In total,
vehicles in the U.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 the U.S. Department of Transportation, the number of total miles
driven in the U.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 The Auto 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 ended December 31, 2020, the seasonally adjusted annual rate of light
vehicle sales in the U.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 the U.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 ended June 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 ended June 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 ended June 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
ended June 30, 2021 and 2020, respectively.  Comparable store sales are
calculated based on the change in sales for U.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 ended
June 30, 2020. Online sales for ship-to-home orders and pickup in-store orders
for U.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 June 30, 2021 (in millions):


                                              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 ended
June 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, new U.S. stores during the three and six months ended
June 30, 2021, compared to opening 50 and 123 net, new U.S. stores during the
three and six months ended June 30, 2020.  As of June 30, 2021, we operated
5,710 stores in 47 U.S. states and 22 stores in Mexico compared to 5,562 stores
in 47 U.S. states and 21 stores in Mexico at June 30, 2020.



Gross profit:


Gross profit for the three months ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended
June 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 ended June 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 ended June 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 ended
June 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
ended June 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 ended June 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 June 30, 2021, increased 8% to $796 million (or 23.0% of sales) from $736 million (or 23.8% of sales) for the same period one year ago.

 As a result of the impacts discussed above, operating income for the six months
ended June 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 ended June 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 ended
June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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
ended June 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 ended June 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
ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 $ 165,978 $ 832,017


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
ended June 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
ended June 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
ended June 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:


On June 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
by JPMorgan Chase Bank, N.A., which is scheduled to mature in June of 2026.

The

Credit Agreement includes a $200 million sub-limit for the issuance of letters
of credit and a $75 million sub-limit for swing line borrowings.  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 on April 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 of June 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 of June 30, 2021, we
did not have any outstanding borrowings under our Revolving Credit Facility.



Senior Notes:

On June 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 of June 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, with UMB Bank, N.A. and U.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 of June 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 of June 30, 2021 and 2020, respectively, and a consolidated leverage ratio of
1.66 times and 2.12 times as of June 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 June 30, 2021 and 2020 (dollars in thousands):


                                                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 ended June 30, 2021 and 2020 (in thousands):


Total lease cost, per ASC 842, for the twelve months ended June 30, 2021

   $      432,619
Less:           Variable non-contract operating lease components, related
                to property taxes and insurance, for the twelve months
                ended June 30, 2021                                                    68,853
Rent expense for the twelve months ended June 30, 2021                     

$ 363,766

Total lease cost, per ASC 842, for the twelve months ended June 30, 2020

   $      408,583
Less:           Variable non-contract operating lease components, related
                to property taxes and insurance, for the twelve months
                ended June 30, 2020                                                    63,053
Rent expense for the twelve months ended June 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 ended June 30, 2021 and
2020 (in thousands):


                                                            For the Six Months Ended
                                                                    June 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 with United 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 on
February 10, 2021, and May 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 ended June 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 of June 30, 2021, we had $1.9 billion remaining under our share repurchase
authorizations.  Subsequent to the end of the second quarter and through August
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 through August 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 December 31, 2020.



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 ended December 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 the Securities 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 the SEC.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 12 679 M - -
Net income 2021 1 957 M - -
Net Debt 2021 4 030 M - -
P/E ratio 2021 22,7x
Yield 2021 -
Capitalization 44 014 M 44 014 M -
EV / Sales 2021 3,79x
EV / Sales 2022 3,69x
Nbr of Employees 76 257
Free-Float 98,7%
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Gregory D. Johnson Co-President & Chief Executive Officer
Jeff M. Shaw Co-President & Chief Operating Officer
Thomas G. McFall Executive VP, Chief Financial & Accounting Officer
Gregory L. Henslee Chairman
Jeffrey Alan Lauro Senior Vice President-Information Technology
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