O'Reilly Auto Parts 2001 Annual Report Download - page 27

Page 25
Pre-opening Costs
Costs associated with the opening of new stores, which consist
primarily of payroll and occupancy costs, are charged to operations
as incurred.
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.
Earnings per Share
Basic earnings per share is based on the weighted-average
outstanding common shares. Diluted earnings per share is based
on the weighted-average outstanding shares adjusted for the effect
of common stock equivalents.
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 $1,991,000 and $2,066,000 at December 31, 2001 and
2000, 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
Certain reclassifications have been made to the 2000 and 1999
consolidated financial statements in order to conform to the
2001 presentation.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under SFAS 142, goodwill will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statement. Other identifiable intangible assets
will continue to be amortized over their useful lives or, if they have
indefinite lives, such identifiable assets will not be amortized but will
be subject to annual impairment tests. The Company will apply the
new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of fiscal year 2002. Application of the
provisions of the Statement are not expected to have a material
impact on the Company’s financial condition or results of operations.
NOTE 2—ACQUISITION
On October 1, 2001, the Company purchased all of the outstanding
stock of Mid-State Automotive Distributors, Inc. (“Mid-State”) for
approximately $20.5 million including acquisition costs. Mid-State
was a specialty retailer which supplied automotive aftermarket parts
throughout certain states in the southeastern part of the United
States. The acquisition was accounted for using the purchase
method of accounting, and accordingly, the results of operations of
Mid-State are included in the consolidated statements of income
from the date of acquisition. The purchase price was allocated to
assets acquired and liabilities assumed based on their estimated
fair values on the date of acquisition. The pro forma effect on
earnings of the acquisition of Mid-State are not material.