O'Reilly Auto Parts 2003 Annual Report Download - page 45

notes to consolidated financial statements (continued)
page 43
In November 2002, the FASB issued Financial Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees.
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 such guarantee. Initial recognition and measurement
provisions of the interpretation were applicable on a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002.
As of December 31, 2003 and 2002, the Company did not have any outstanding guarantees other than subsidiary guarantees of
parent debt and a residual value guarantee as disclosed in Notes 5 and 6, respectively, to the consolidated financial statements.
In January 2003, the FASB issued Financial Interpretation 46, Consolidation of Variable Interest Entities. 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 applied
immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to older entities in
the first fiscal year and interim period beginning after December 15, 2003. On June 26, 2003, the Company signed an Amended
and Restated Agreement relating to our properties leased from SunTrust Equity Funding, LLC. As a result, the agreement with
SunTrust Equity Funding, LLC has been properly recorded and disclosed as an operating lease in the consolidated financial statements.
In March 2003, the Emerging Issues Task Force (EITF) 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 and identifiable cost
incurred in selling the vendor’s product, the cost should be characterized as a reduction of that cost incurred. The guidance was
adopted by the Company on January 1, 2003. The Company’s policies and practices for recording such vendor concessions as
co-operative advertising and vendor allowances and discounts were aligned with the EITF’s guidance both prior to and after the
application date, therefore, the release did not have any effect on our consolidated financial position 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 was not material.