O'Reilly Auto Parts 2000 Annual Report Download - page 27

2000 AR
25
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
continued
Stock Option Plans
The Company has elected to follow Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), and related interpretations in accounting for its
employee stock options because, as discussed in Note 11, the
alternative fair value accounting provided for under SFAS No. 123,
“Accounting for Stock-Based Compensation,” requires the use of
option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of
the Company’s stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Concentration of Credit Risk
The Company grants credit to certain customers who meet the
Company’s pre-established credit requirements. Generally, the
Company does not require security when trade credit is granted
to customers. Credit losses are provided for in the Company’s
consolidated financial statements and consistently have been
within management’s expectations.
The Company has provided long-term financing to a company,
through a note receivable, for the construction of an office
building which is leased by the Company (see Note 7). The note
receivable, amounting to $2,066,000 and $2,137,000 at December
31, 2000 and 1999, respectively, bears interest at 6% and is due
in August 2017.
The carrying value of the Company’s financial instruments,
including cash, short-term investments, accounts receivable,
accounts payable and long-term debt, as reported in the
accompanying consolidated balance sheets, approximates
fair value.
Reclassifications
The reclassifications of certain amounts have been made to the
1999 and 1998 consolidated financial statements to conform to
the 2000 presentation.
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued SFAS
No. 133, “Accounting for Derivative Instruments and Hedging
Activities” as deferred by SFAS No. 137, which is required to be
adopted in years beginning after June 15, 2000. The Company
does not anticipate that the adoption of SFAS No. 133 will have
a significant effect on its financial position or results of operations.
NOTE 2 – ACQUISITION
Effective January 31, 1998, the Company acquired 100% of
the outstanding capital stock of Hi-Lo Automotive, Inc. and
its subsidiaries (“Hi/LO”). Hi/LO was a specialty retailer supplying
automotive aftermarket tools, supplies and accessories principally
throughout Texas and Louisiana. The purchase price was
approximately $49.3 million, including acquisition costs. The
purchase price was financed with long-term borrowings under
the Company’s credit facility. The acquisition was accounted for
using the purchase method of accounting and accordingly, the
results of operations of Hi/LO have been included in the Company’s
results of operations since the date of acquisition. The purchase
price was allocated to assets acquired and liabilities assumed based
on their estimated fair values. The excess of net assets acquired
over the purchase price, which totaled approximately $9.7 million,
has been applied as a reduction to the acquired property and
equipment. Additional purchase liabilities recorded included
approximately $5,622,000 for severance and certain costs associated
with the closure and consolidation of certain acquired stores, none
of which remained on the balance sheet at December 31, 1999.
The following unaudited pro forma financial information presents
the combined historical results of the Company and Hi/LO as if the
acquisition had occurred at January 1, 1998, after giving effect to
certain adjustments, including the application of the excess of net
assets acquired over the purchase price to the acquired property
and equipment and resulting effect on depreciation, increased
interest expense on long-term debt related to the acquisition,
and the related income tax effects.
(In thousands, except per share data) 1998
Product sales $ 634,072
Net income $ 29,443
Net income per share-assuming dilution $ 0.68
The pro forma combined results are not necessarily indicative of
the results that would have occurred if the acquisition had been
completed as of January 1, 1998.