O'Reilly Auto Parts 2006 Annual Report Download - page 25

o’reilly automotive 2006 annual report
page 23
management’s discussion and analysis
of financial condition and results of operations (continued)
(In thousands, except per share data) fiscal 2005
first second third fourth
quarter quarter quarter(a) quarter(b)
Sales $466,239 $521,209 $542,906 $514,964
Gross profit 196,169 228,970 235,916 231,448
Operating income 53,581 68,127 67,585 63,231
Net income 33,213 42,923 48,623 39,507
Basic net income per common share 0.30 0.39 0.43 0.35
Net income per common share-assuming dilution 0.30 0.38 0.42 0.35
(a) During the third quarter of 2005, the Company recorded a non-cash tax adjustment of $6.1 million as the result of the favorable resolution of prior tax uncertainties.
See Note 12 to our consolidated financial statements.
(b) During the fourth quarter of 2005, the Company recorded a non-cash charge related to the acceleration of employee stock options of $2.2 million ($1.4 million, net of tax).
See Note 1 to our consolidated financial statements.
new accounting standards
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, a revision of SFAS No. 123, Accounting for Stock Based
Compensation, that supersedes APB No. 25, Accounting for Stock Issued to Employees. In April 2005, the SEC adopted a rule permitting implementation
of SFAS No. 123R at the beginning of the first fiscal year commencing after June 15, 2005. Among other items, SFAS No. 123R eliminated the use
of APB No. 25 and the intrinsic value method of accounting, and requires companies to recognize in the financial statements the cost of employee
services received in exchange for awards of equity instruments, based on the grant date fair value of those awards. SFAS No. 123R also requires that the
benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating
cash flow as required under APB No. 25. The Company was required to adopt SFAS No. 123R beginning in its quarter ended March 31, 2006.
Under the provisions of SFAS No. 123R, the Company had the choice of adopting the fair-value-based method of expensing of stock options using
(a) the “modified prospective method”, whereby the Company recognizes the expense only for periods beginning after December 31, 2005, or (b)
the “modified retrospective method”, whereby the Company recognizes the expense for all years and interim periods since the effective date of SFAS
No. 123. The Company adopted SFAS No. 123R using the modified prospective method. See Note 9, “Share-Based Employee Compensation Plans”,
for information regarding expensing of stock options in 2006 and for pro forma information regarding the Company’s accounting for stock options
for 2005 and 2004.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”), that prescribes a recognition
threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return.
Additionally, FIN No. 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain
tax positions. This interpretation is effective for us beginning January 1, 2007. The cumulative effect of initially adopting FIN 48 will be recorded as
an adjustment to opening retained earnings in the year of adoption and will be presented separately. Only tax positions that meet the more likely than
not recognition threshold at the effective date may be recognized upon adoption of FIN 48. We are in the process of determining the effect, if any,
the adoption of FIN No. 48 will have on our consolidated financial statements. Based on our current assessment, and subject to any changes that may
result from the completion of our assessment and additional technical guidance issued by the FASB, the adoption of FIN 48 is not expected to have
a material effect on our financial position, results of operations or cash flows.
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.
You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,” “project,”
“will” or similar words. In addition, statements contained within this annual report that are not historical facts are forward-looking statements, such as
statements discussing 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 or implied in these forward-looking statements. Please refer to the Risk Factors sections of the annual report on Form 10-K
for the year ended December 31, 2006, for additional factors that could materially affect our financial performance.