O'Reilly Auto Parts 2001 Annual Report Download - page 26

O’REILLY AUTOMOTIVE 2001 ANNUAL REPORT
A MODEL YEAR
Page 24
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
O’Reilly Automotive, Inc. (‘’the Company’’) is a specialty retailer
and supplier of automotive aftermarket parts, tools, supplies and
accessories to both the ‘’DIY’’ customer and the professional installer
throughout Alabama, Arkansas, Florida, Georgia, Illinois, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska,
Oklahoma, Tennessee and Texas.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes sales upon shipment of products.
Use of Estimates
The preparation of the consolidated financial statements, in conformity
with accounting principles generally accepted in the United States
(“GAAP”), requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial state-
ments and accompanying notes. Actual results could differ from
those estimates.
Inventory
Inventory, which consists of automotive hard parts, maintenance
items, accessories and tools, is stated at the lower of cost or market.
Cost has been determined using the last-in, first-out (‘’LIFO’’) method.
If the first-in, first-out (‘’FIFO’’) method of costing inventory had been
used by the Company, inventory would have been $442,529,000 and
$369,869,000 as of December 31, 2001 and 2000, respectively.
Amounts Receivable from Vendors
Amounts receivable from vendors consist primarily of amounts due the
Company for changeover merchandise, rebates and other allowances.
Reserves for uncollectable amounts receivable from vendors are
provided for in the Company’s consolidated financial statements and
consistently have been within management’s expectations.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided
on straight-line and accelerated methods over the estimated useful
lives of the assets. Service lives for property and equipment generally
range from three to forty years. Leasehold improvements are amortized
over the expected terms of the underlying leases. Maintenance and
repairs are charged to expense as incurred. Upon retirement or sale,
the cost and accumulated depreciation are eliminated and the gain
or loss, if any, is included in the determination of net income as
a component of other income (expense). The Company reviews
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be fully recoverable.
The Company capitalizes interest costs as a component of
construction in progress, based on the weighted-average rates
paid for long-term borrowings. Total interest costs capitalized for
the years ended December 31, 2001, 2000 and 1999, were $324,000,
$1,354,000 and $1,134,000, respectively.
Income Taxes
The Company accounts for income taxes using the liability method
in accordance with Statement of Financial Accounting Standards
(‘’SFAS’’) No. 109. The liability method provides that deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising
expense charged to operations amounted to $12,796,000, $12,150,000
and $9,428,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS