O'Reilly Auto Parts 2004 Annual Report Download - page 29

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■Stock-based compensation – We have elected to use the intrinsic value method of accounting for stock options issued under our stock option
plans and accordingly do not record an expense for such stock options. For purposes of pro forma disclosures under the fair value method, the
estimated fair value of the options is amortized to expense over the options' vesting period. During the fourth quarter of 2004, the Company
changed its method of applying its LIFO accounting policy for inventory costs (see Note 2 - Accounting Changes). Our stock compensation pro
forma information for the years ended December 31, is as follows, both excluding and including the effects of the inventory accounting change:
(In thousands, except per share data) 2004 2003 2002
Excluding inventory accounting change
Net income, as reported $139,566 $100,087 $81,992
Stock-based compensation expense, net of tax, as reported ---
Stock-based compensation expense, net of tax, under fair value method 7,468 9,204 7,217
Pro forma net income $132,098 $ 90,883 $74,775
Pro forma basic net income per share $2.40 $ 1.69 $ 1.41
Pro forma net income per share-assuming dilution $2.37 $ 1.67 $ 1.39
Net income per share, as reported
Basic $2.54 $ 1.86 $ 1.54
Assuming dilution $2.51 $ 1.84 $ 1.53
Including inventory accounting change
Net income N/A $100,599 $84,633
Stock based compensation expense, net of tax, as reported N/A --
Stock based compensation expense, net of tax, under fair value method N/A 9,204 7,217
Pro forma net income N/A $ 91,395 $77,416
Pro forma basic net income per share N/A $ 1.70 $ 1.46
Pro forma net income per share-assuming dilution N/A $ 1.68 $ 1.44
RESULTS OF OPERATIONS
The following table sets forth, certain income statement data as a percentage of product sales for the years indicated:
Years ended December 31, 2004 2003 2002
Product sales 100.0% 100.0% 100.0%
Cost of goods sold, including warehouse and
distribution expenses 56.8 57.8 57.8
Gross profit 43.2 42.2 42.2
Operating, selling, general and administrative expenses 32.1 31.3 31.6
Operating income 11.1 10.9 10.6
Other expense, net (0.2) (0.3) (0.6)
Income before income taxes and cumulative
effect of accounting change 10.9 10.6 10.0
Provision for income taxes 4.1 4.0 3.7
Income before cumulative effect of accounting change 6.8 6.6 6.3
Cumulative effect of accounting change, net of tax 1.3 --
Net income 8.1% 6.6% 6.3%
See Management’s Discussion and Analysis of Financial Condition and Results of Operations, 2004 Compared to 2003, for detailed information on
cumulative effect of accounting change.
2004 ANNUAL REPORT 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)