O'Reilly Auto Parts 2002 Annual Report Download - page 35

2002 Annual Report 33
In December 2002, the Financial Accounting Standards Board issued Statement No. 148, Accounting fo r Stock-
Bas e d Co mpe ns ation – Trans ition and Disclos ure, amending SFAS 123, Acco unting for Sto ck-Bas e d Compe ns ation.
SFAS 148 gives companies electing to expense employee stock options three methods to do so. In addition, the statement
amends the disclosure requirements to require more prominent disclosure about the method of accounting for stock-
based employee compensation and the effect of the method used on reported results in both annual and interim
financial statements. We have elected to continue using the intrinsic value method of accounting for stock-based compensation.
Therefore, the new statement will not have any effect on our consolidated financial position or results of operations.
See Note 10 to the Consolidated Financial Statements for additional information regarding stock-based compensation.
In November 2002, the Financial Accounting Standards Board issued Interpretation 45, Guarantor’s Accounting
and Disclos ure Re quire me nts for Guarante e s . The interpretation elaborates on the disclosures to be made in interim
and annual financial statements of a guarantor about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing a guarantee. Initial recognition and measurement provisions of the Interpretation
are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual periods ending after December 15, 2002.
As of December 31, 2002, we did not have any outstanding guarantees other than subsidiary guarantees of parent
debt as disclosed in Note 6 to the Consolidated Financial Statements.
In January 2003, the Financial Accounting Standards Board issued Interpretation 46, Co ns o lidation of Variable
Inte re s t Entitie s . The interpretation expands upon and strengthens existing accounting guidance that addresses when a
company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest
entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the
entity to support its activities. The interpretation requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to
receive a majority of the entity’s residual returns or both. The consolidation requirements of the interpretation apply
immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after June 15, 2003. We have determined that our Lessor under
the Synthetic Lease Facility is a variable interest entity under Interpretation No. 46 and that we are the primary beneficiary.
We are evaluating the various options and their related impact on our consolidated financial position and results of operations.
During 2002, the Emerging Issues Task Force reached a consensus on Issue No. 02-16, Accounting by a Customer
(including a Reseller) for Certain Consideration Received from a Vendor.” Under the new guidance, cash consideration
received from a vendor should be classified as a reduction of cost of sales. If the consideration received represents a
payment for assets delivered to the vendor, it should be classified as revenue. If the consideration is a reimbursement of
a specific, incremental, identifiable cost incurred in selling the vendor’s product, the cost should be characterized as a
reduction of that cost incurred. The guidance is effective for fiscal periods beginning after December 15, 2002. We do not
expect the adoption of this guidance to have a significant impact on our consolidated financial position or results of operations.
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. Certain statements contained within this document discuss, 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 in these forward-looking statements. Please refer to the Risk Factors sections of the
Company’s Form 10-K for the year ended December 31, 2002, for more details.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)