O'Reilly Auto Parts 2005 Annual Report Download - page 34

payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS
No. 123R. In the fourth quarter of 2005, the Board of Directors approved the accelerated vesting of all unvested stock options previously awarded to
employees and executive officers. As a result, the pro forma impact to net income and net income per share under SFAS No. 123’s fair value method
of accounting as reflected in Note 1 to the consolidated financial statements is not indicative of future annual expense to be recognized under SFAS
No. 123R. To the extent that we grant stock options in the future, the associated expense for these awards under the provisions of SFAS No. 123R
may have a material impact on our consolidated financial statements. Based upon anticipated levels of share-based awards, we estimate this impact
to be approximately $2 million or $0.02 per diluted share for 2006. See Notes 1 and 10 to the consolidated financial statements for further information
on our stock-based compensation plans.
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 “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,”
“project,” “will” or similar words. In addition, statements contained within this annual report that are not historical facts are forward-looking statements,
such as statements discussing among other things, expected growth, store development 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, competition, product demand,
the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our ability to hire and retain qualified
employees, risks associated with the integration of acquired businesses, weather, terrorist activities, war and the threat of war. Actual results may materially
differ from anticipated results described or implied in these forward-looking statements. Please refer to the Risk Factors sections of the annual report on
Form 10-K for the year ended December 31, 2005, for additional factors that could materially affect our financial performance.
management’s report on internal control over financial reporting
The management of O’Reilly Automotive, Inc. and Subsidiaries (the Company), under the supervision and with the participation of our principal executive
officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting
includes all policies and procedures that:
■pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
■provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
■provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness
to future periods are subject to risk. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with policies or procedures.
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer,
we assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
Based on our assessment, we believe that as of December 31, 2005, the Company’s internal control over financial reporting is effective based on
those criteria.
Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements has issued an
attestation report on management’s assessment of the Company’s internal control over financial reporting, as stated in their report which is included herein.
Greg Henslee Jim Batten
Chief Executive Officer & Executive Vice President of Finance &
Co-President Chief Financial Officer
O’REILLY AUTOMOTIVE 2005 ANNUAL REPORT
32
management’s discussion and analysis
of financial condition and results of operations (continued)