O'Reilly Auto Parts 2011 Annual Report Download - page 40

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Operating income:
Operating income for the year ended December 31, 2011, increased to $867 million (or 15.0% of sales) from $713 million (or 13.2%
of sales) for the same period one year ago, representing an increase of 22%. The increase in operating income during the year was
primarily due to the impacts discussed above, as well as $3 million of nonrecurring income in the current year related to a settlement
between the Securities and Exchange Commission (―SEC‖) and a former CSK officer that resulted in the reimbursement to CSK of
incentive-based compensation and stock sale profits previously received by the officer (discussed in detail below – see Note 12 Legal
Matters to the Consolidated Financial Statements) versus a $21 million charge to operating income in the prior year, related to the
previously announced legacy CSK DOJ investigation (discussed in detail below – see Note 12 Legal Matters to the Consolidated
Financial Statements). The increase in operating income as a percentage of sales is the result of our improvements in gross margin
and significant leverage on fixed SG&A from strong comparable store sales.
Other income and expense:
Total other expense for the year ended December 31, 2011, increased to $51 million (or 0.9% of sales), from $23 million (or 0.4% of
sales) for the same period one year ago, representing an increase of 118%. The increase in total other expense for the year was
primarily due to one-time charges related to our new financing transactions that were completed in January of 2011 (discussed in
detail below), offset by decreased interest expense on a lower average interest rate on outstanding borrowings, a lower facility fee on
our revolving credit facility and less amortization of debt issuance costs in the current period as compared to the borrowing rates,
facility fee and amortization of debt issuance costs in the prior period. In addition, during 2010, we recognized a nonrecurring, non-
operating gain of $12 million related to the favorable settlement of a note receivable acquired in the acquisition of CSK (discussed in
detail below).
Income taxes:
Our provision for income taxes for the year ended December 31, 2011, increased to $308 million (37.8% effective tax rate) from $270
million (39.2% effective tax rate) for the same period one year ago, representing an increase of 14%. The increase in our provision for
income taxes was due to the increase in our taxable income. The decrease in the effective rate was primarily the result of the $21
million charge recorded in 2010 related to the legacy United States Department of Justice (―DOJ‖) investigation of CSK, discussed in
detail below, which was not deductible for tax purposes.
Net income:
As a result of the impacts discussed above, net income for the year ended December 31, 2011, increased to $508 million (or 8.8% of
sales), from $419 million (or 7.8% of sales) for the same period one year ago, representing an increase of 21%.
Earnings per share:
Our diluted earnings per common share for the year ended December 31, 2011, increased 26% to $3.71 on 137 million shares from
$2.95 on 142 million shares for the same period one year ago. The impact of share repurchases during 2011 on diluted earnings per
share was an increase of approximately $0.19.
Adjustments for nonrecurring and non-operating events:
Our results for the year ended December 31, 2011, included nonrecurring income related to a settlement between the SEC and a
former CSK officer that resulted in the reimbursement to O’Reilly, as successor issuer to CSK, of $3 million ($2 million, net of tax) of
incentive-based compensation and stock sale profits previously received by the officer. This ―clawback‖ amount was included in
―Operating income‖ on our Consolidated Statements of Income for the year ended December 31, 2011. Our results for the year ended
December 31, 2011, also included one-time charges associated with the new financing transactions we completed on January 14,
2011. The one-time charges included a non-cash charge to write off the balance of debt issuance costs related to our previous ABL
Credit Facility in the amount of $22 million ($13 million, net of tax) and a charge related to the termination of our interest rate swap
agreements in the amount of $4 ($3 million, net of tax). The charges related to our new financing transactions were included in
―Other income (expense)‖ on our Consolidated Statements of Income for the year ended December 31, 2011. Our results for the year
ended December 31, 2010, included a nonrecurring, non-operating gain in ―Other income (expense)‖ of $12 million ($7 million, net of
tax) related to the favorable settlement of a note receivable acquired in the CSK acquisition, as well as a charge related to the legacy
DOJ investigation into CSK’s pre-acquisition historical accounting practices. We accrued $21 million during 2010 in anticipation of
executing a Non-Prosecution Agreement (―NPA‖) among the DOJ, CSK and O’Reilly and paying a one-time monetary penalty of $21
million. During the third quarter of 2011, the NPA was executed and the previously recorded, one-time $21 million penalty was paid
to the DOJ on behalf of CSK. The charge related to the legacy CSK DOJ investigation was included in ―Operating income‖ on our
Consolidated Statements of Income for the year ended December 31, 2010. The results discussed in the paragraph below are adjusted
for these nonrecurring items and are reconciled to the most directly comparable GAAP measure in the subsequent table.
Adjusted operating income for the year ended December 31, 2011, increased 18% to $864 million (or 14.9% of sales) from $734
million (or 13.6% of sales) for the same period one year ago. Adjusted net income for the year ended December 31, 2011, increased
21% to $522 million (or 9.0% of sales) from $433 million (or 8.0% of sales) for the same period one year ago. Adjusted diluted
earnings per common share for the years ended December 31, 2011, increased 25% to $3.81 from $3.05 for the same period one year
ago.
FORM 10-K