O'Reilly Auto Parts 2004 Annual Report Download - page 44

42 O’REILLY AUTOMOTIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 – ACCOUNTING CHANGES
The Company’s inventory consists of automotive hard parts, maintenance items, accessories and tools. During the fourth quarter of 2004, the Company
changed its method of applying its LIFO accounting policy for inventory costs. Under the new method, the Company has inventoried certain procure-
ment, warehousing and distribution center costs. The Company’s previous method was to recognize those costs as incurred, reported as a component of
costs of goods sold. The Company believes the change in application of the LIFO accounting method is preferable as it better matches revenues and
expenses and is the prevalent method used by other entities within the Company’s industry. The cumulative effect of this change in application of
accounting method is $21,892,000 as of January 1, 2004, net of the related deferred tax effect of $13,303,000. The change increased 2004 net income
before cumulative effect of accounting change by $2,722,000 or $0.05 per share. Prior 2004 quarterly financial statements have been restated to reflect
this change, effective January 1, 2004, (see Restatement of Quarterly Results in Management’s Discussion and Analysis of Financial Condition and
Results of Operations). Pro forma changes to results of operations as if the new method had been applied for the years ended December 31, 2003 and
2002 are presented below.
Years Ended December 31,
As or iginal ly As original ly
report ed Pro forma report ed Pro forma
(in thousands) 2003 Adjust ment 2003 2002 Adjust ment 2002
Product sales $1,511,816 $ - $1,511,816 $1,312,490 $ - $1,312,490
Cost of goods sold, including
warehouse and distribution
expense 873,481 (823) 872,658 759,090 (4,246) 754,844
Operating, selling, general and
administrative expenses 473,060 - 473,060 415,099 - 415,099
Operating income 165,275 823 166,098 138,301 4,246 142,547
Other expense, net (5,233) - (5,233) (7,319) - (7,319)
Income before income taxes 160,042 823 160,865 130,982 4,246 135,228
Provision for income taxes 59,955 311 60,266 48,990 1,605 50,595
Net income $ 100,087 $ 512 $ 100,599 $ 81,992 $ 2,641 $ 84,633
Basic income per share $ 1.86 $ 0.01 $ 1.87 $ 1.54 $ 0.05 $ 1.59
Net income per share – assuming dilution $ 1.84 $ 0.00 $ 1.84 $ 1.53 $ 0.05 $ 1.58
Weighted-average common
shares outstanding 53,908 53,908 53,908 53,114 53,114 53,114
Weighted-average common shares
outstanding–assuming dilution 54,530 54,530 54,530 53,692 53,692 53,692
NOTE 3—RELATED PARTIES
The Company leases certain land and buildings related to fifty of its O'Reilly Auto Parts stores under six-year operating lease agreements with
O'Reilly Investment Company and O'Reilly Real Estate Company, partnerships in which certain shareholders and directors of the Company are
partners. Generally, these lease agreements provide for renewal options for an additional six years at the option of the Company. Additionally, the
Company leases certain land and buildings related to twenty-one of its O’Reilly Auto Parts stores under 15-year operating lease agreements with
O’Reilly-Wooten 2000 LLC, which is owned by certain shareholders of the Company. Generally, these lease agreements provide for renewal options
for two additional five-year terms at the option of the Company (see Note 5). Rent payments under these operating leases totaled $3,374,000,
$3,238,000 and $3,222,000 in 2004, 2003 and 2002, respectively.
NOTE 4—LONG-TERM DEBT
On July 29, 2002, the Company amended the unsecured, three-year syndicated credit facility (Credit Facility) in the amount of $150 million led by
Wells Fargo Bank as the Administrative Agent, replacing a five-year syndicated credit facility. The Credit Facility is guaranteed by all of the Company’s
subsidiaries and may be increased to a total of $200 million, subject to the availability of such additional credit from either existing banks within the
Credit Facility or other banks. At December 31, 2004 the Company had no outstanding balance with the Credit Facility. The Credit Facility bears
interest at LIBOR plus a spread ranging from 0.875% to 1.375% (2.06% at December 31, 2003) and expires in July 2005. At December 31, 2003,
$20.0 million of the Credit Facility was outstanding. Accordingly, the Company’s aggregate availability for additional borrowings under the Credit
Facility was $128.7 million and $119.0 million at December 31, 2004 and 2003, respectively.