O'Reilly Auto Parts 2002 Annual Report Download - page 41

2002 Annual Report 39
NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. Stock equiv-
alents that could potentially dilute basic EPS in the future that were not included in the fully diluted computation
because they would have been antidilutive were 577,551 and 664,650 for the years ended December 31, 2002, and
2001, respectively.
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 $1,911,000 and
$1,991,000 at December 31, 2002, and 2001, respectively, bears interest at 6% and is due in August 2017. These
amounts are included in other current assets in the accompanying consolidated balance sheet.
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 2001 and 2000 consolidated financial statements in order to conform
to the 2002 presentation.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards
No. 144, Acco unting fo r the Impairme nt or Dis pos al o f Lo ng-Live d Ass et, superseding Statement No. 121, Acc ounting
for the Impairme nt o f Lo ng-Live d Ass e ts and for Lo ng-Live d As s e ts to Be Dispos e d Of. SFAS 144 applies to all long-lived
assets, including discontinued operations. SFAS 144 requires that those long-lived assets classified as held for sale be
measured at the lower of carrying amount (cost less accumulated depreciation) or fair value less costs to sell.
Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that
have not yet occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongo-
ing operations of the entity in a disposal transaction. The Company does not expect the adoption of the new statement
to have a significant financial impact on our consolidated financial position or results of operations.
In June 2002, the Financial Accounting Standards Board issued Statement No. 146, Accounting fo r Cos ts
As s o ciate d with Exit or Dis po s al Activities . Under the new rules, a liability for the costs associated with an exit or dis-
posal activity will be recognized when the liability is incurred, as opposed to the date of an entity’s commitment to an
exit plan. The new rules are effective for exit or disposal activities that are initiated after December 31, 2002. The
Company does not expect the adoption of new rules to have a significant impact on our consolidated financial position
or results of operations.
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 state-
ment 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. The Company has elected to continue using the intrinsic value method of accounting for stock-
based compensation. Therefore, the new statement will not have any effect on the Company’s 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 Acc ounting
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 motified after December 31, 2002. The disclosure require-
ments are effective for financial statements of interim or annual periods ending after December 15, 2002. As of
December 31, 2002, the Company does not have an outstanding guarantees other than subsidiary guarantees of
parent debt as disclosed in Note 6 to the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)