O'Reilly Auto Parts 2002 Annual Report Download - page 31

2002 Annual Report 29
Our pro forma information for the years ended December 31, is as follows:
(in thous ands , e xce pt pe r s hare data) 2002 2001 2000
Net income as reported $81,992 $66,352 $51,708
Stock-based compensation expense as reported —— —
Stock-based compensation expense under fair value method 7,217 5,406 3,531
Pro forma net income $74,775 $60,946 $48,177
Pro forma basic net income per share $1.41 $1.17 $ 0.94
Pro forma net income per share – assuming dilution $1.39 $1.15 $ 0.93
RESULTS OF OPERATIONS
The following table sets forth certain income statement data as a percentage of product sales for the years indicated:
YEARS ENDED DECEMBER 31, 2002 2001 2000
Product sales 100.0% 100.0% 100.0%
Cost of goods sold, including warehouse and distribution expenses 57.8 57.2 57.0
Gross profit 42.2 42.8 43.0
Operating, selling, general and administrative expenses 31.6 32.4 32.9
Operating income 10.6 10.4 10.1
Other expense, net (0.6) (0.6) (0.8)
Income before income taxes 10.0 9.8 9.3
Provision for income taxes 3.7 3.7 3.5
Net income 6.3% 6.1% 5.8%
2002 COMPARED TO 2001
Product sales increased $220.4 million, or 20.2% from $1.09 billion in 2001 to $1.31 billion in 2002, due to 106 net
additional stores opened during 2002 and a 3.7% increase in same-store product sales for stores open at least one
year. We believe that the increased product sales achieved by the existing stores are the result of our offering of a
broader selection of products in most stores, an increased promotional and advertising effort through a variety of
media and localized promotional events, and continued improvement in the merchandising and store layouts of most
stores. Also, our continued focus on serving professional installers contributed to increased sales.
Gross profit increased 18.3% from $467.8 million (or 42.8% of product sales) in 2001 to $553.4 million (or 42.2%
of product sales) in 2002. The increase in gross profit dollars is primarily due to increases in sales. The decrease in gross
profit as a percent of product sales is primarily due to increased sales to independent jobbers, which are at a lower gross
margin, and increased distribution costs at the distribution centers acquired from Mid-State Automotive Distributors, Inc.
Operating, selling, general and administrative expenses increased $61.1 million from $354.0 million (or 32.4% of
product sales) in 2001 to $415.1 million (or 31.6% of product sales) in 2002. The increase in these expenses in dollar
amount was primarily attributable to increased salaries and benefits, rent and other costs associated with the addition
of employees and facilities to support the increased level of our operations. The decrease in OSG&A expenses as a
percent of product sales was primarily due to reductions in payroll, benefits and other OSG&A expenses through man-
agement’s expense control initiatives.
Other expense, net, increased by $215,000 from $7.1 million in 2001 to $7.3 million in 2002. The increase was
primarily due to interest expense on increased borrowings under our credit facility and a decrease in interest income.
Provision for income taxes increased from $40.4 million in 2001 (37.8% effective tax rate) to $49.0 million in
2002 (37.4% effective tax rate). The increase in the dollar amount was primarily due to the increase of income before
income taxes. The decrease in the effective rate was primarily due to changes in the mix of business between the
states in which we operate.
Principally as a result of the foregoing, net income in 2002 was $82.0 million (or 6.3% of product sales), an
increase of $15.6 million (or 23.6% of product sales) from net income in 2001 of $66.4 million (or 6.1% of product sales).
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)