O'Reilly Auto Parts 2003 Annual Report Download - page 43

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notes to consolidated financial statements (continued)
page 41
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, 2003, 2002 and 2001, were $1,808,000,
$369,000 and $1,358,000, 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 the
financial reporting and tax bases 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 $19,533,000,
$14,442,000 and $12,796,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
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 10, 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. SFAS No. 148, Accounting for Stock-Based Compensation –
Transition and Disclosure, further established accounting and disclosure requirements using a fair-value-based method of accounting
for stock-based employee compensation plans. Under the intrinsic value method in accordance with 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.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.
The Company’s pro forma information for the year ended December 31, is as follows:
(In thousands, except per share data) 2003 2002 2001
Net income as reported $100,087 $ 81,992 $ 66,352
Stock-based compensation expense as reported –––
Stock-based compensation expense under fair value method 9,204 7,217 5,406
Pro forma net income $ 90,883 $ 74,775 $ 60,946
Pro forma basic net income per share $ 1.69 $ 1.41 $ 1.17
Pro forma net income per share-assuming dilution $ 1.67 $ 1.39 $ 1.15