O'Reilly Auto Parts 2005 Annual Report Download - page 33

O’REILLY AUTOMOTIVE 2005 ANNUAL REPORT
31
management’s discussion and analysis
of financial condition and results of operations (continued)
(In thousands, except per share data) fiscal 2004
first quarter second quarter third quarter
previously previously previously fourth
reported restated reported restated reported restated quarter (a)
Product sales $403,294 $403,294 $435,167 435,167 $455,162 $455,162 $427,618
Gross profit 169,338 169,593 187,758 189,435 195,848 198,169 185,968
Operating income 43,772 44,027 52,565 54,242 53,809 56,130 36,059
Income before cumulative effect
of accounting change 27,126 27,285 32,652 33,695 33,243 34,687 22,007
Cumulative effect of accounting
change, net of tax -21,892-----
Net income 27,126 49,177 32,652 33,695 33,243 34,687 22,007
Basic net income per common
share before cumulative effect
of accounting change 0.25 0.25 0.30 0.31 0.30 0.31 0.20
Cumulative effect of accounting
change, net of tax -0.20-----
Basic net income per
common share 0.25 0.45 0.30 0.31 0.30 0.31 0.20
Diluted net income per common
share before cumulative effect
of accounting change 0.24 0.24 0.29 0.30 0.30 0.31 0.20
Cumulative effect of accounting
change, net of tax -0.20-----
Net income per common
share-assuming dilution 0.24 0.44 0.29 0.30 0.30 0.31 0.20
(a) During the fourth quarter 2004, the Company recorded a correction of an error of $10.4 million ($3.5 million related to 2004) $6.5 million, net of tax. See Note 1 to our
consolidated financial statements.
new accounting standards
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The standard requires that abnormal
amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. The provision is effective for
fiscal periods beginning after June 15, 2005. We do not expect the adoption of this standard to have a material effect on our financial position, results
of operations or cash flows.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions.
SFAS 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received
nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect the adoption of this standard to
have a material effect on our financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock Based
Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees. Among other items, SFAS No. 123R eliminates the use of APB
No. 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for
awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. SFAS No. 123R also requires that the
benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods
after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock
options. However, the amount of operating cash flows recognized in prior periods for such tax deductions, as shown in our Consolidated Statements
of Cash Flows were $7.1 million, $4.5 million, and $5.5 million, for the years ended December 31, 2005, 2004, and 2003, respectively. The effective
date of SFAS No. 123R is the first reporting period of the first fiscal year beginning on or after June 15, 2005, which is first quarter 2006 for calendar
year companies, such as ourselves, although early adoption is allowed.
We intend to adopt SFAS No. 123R beginning with the first quarter of 2006 using the “modified prospective” method under which compensation
cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based