O'Reilly Auto Parts 2011 Annual Report Download - page 67

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In June of 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (―2011-05‖). ASU 2011-05 was issued
to improve the comparability of financial reporting between U.S. GAAP and IFRS, and eliminates previous U.S. GAAP guidance that
allowed an entity to present components of other comprehensive income (―OCI‖) as part of its statement of changes in shareholders’
equity. With the issuance of ASU 2011-05, companies are now required to report all components of OCI either in a single continuous
statement of total comprehensive income, which includes components of both OCI and net income, or in a separate statement
appearing consecutively with the statement of income. ASU 2011-05 does not affect current guidance for the accounting of the
components of OCI, or which items are included within total comprehensive income. In December of 2011, the FASB issued ASU
No. 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05 (―2011-12‖). ASU 2011-12 defers changes in ASU
2011-05 that relate to the presentation of reclassification adjustments shown on the face of the financial statements. No other
requirements of ASU 2011-05 were affected by the issuance of ASU 2011-12, including the requirement to report income either in a
single continuous financial statement or in a separate statement of total comprehensive income, which is effective for periods
beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance with its 2011 financial
statements; the application of this guidance affects presentation only and therefore, did not have an impact on the Company’s
consolidated financial condition, results of operations or cash flows.
In September of 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (―2011-08‖). ASU 2011-08 was issued
to simplify the impairment test of goodwill, by allowing entities to use a qualitative approach to determine whether goodwill
impairment might exist, before completing the entire impairment test. Under ASU 2011-08, an entity has the option to first assess any
qualitative factors that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. The changes under ASU 2011-08 are effective for public companies for annual and interim testing performed for
periods beginning after December 15, 2011, with early adoption permitted. The application of this guidance is not expected to have a
material impact on the Company’s consolidated financial condition, results of operations or cash flows.
NOTE 2— BUSINESS COMBINATION
Effective July 11, 2008, the Company acquired CSK, which was one of the largest specialty retailers of auto parts and accessories in
the Western United States and one of the largest such retailers in the United States, based on store count at the date of acquisition.
The acquisition was accounted for under the purchase method of accounting with O’Reilly Automotive, Inc. as the acquiring entity in
accordance with the Statement of Financial Accounting Standard No. 141, Business Combinations. The purchase price to acquire
CSK was $542.2 million and was finalized on June 30, 2009. The consideration paid by the Company to complete the acquisition was
allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The
results of CSK’s operations have been included in the Company’s consolidated financial statements since July 11, 2008, the
acquisition date.
NOTE 3—FAIR VALUE MEASUREMENTS
The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial
instruments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company uses the income and
market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth
below:
Level 1 – Observable inputs that reflect quoted prices in active markets.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring the Company to develop its own
assumptions.
The Company did not have transfers between levels within the hierarchy during the years ended December 31, 2011 or 2010.
Financial assets and liabilities measured at fair value on a recurring basis:
The fair value of the Company’s outstanding interest rate swap contracts, as discussed in Note 5 and Note 7, was included in ―Other
current liabilities‖ on the accompanying Consolidated Balance Sheets as of December 31, 2010. The fair value of the interest rate
swap contracts was based on the discounted net present value of the swaps using third party quotes (Level 2). Changes in fair market
value were recorded in ―Accumulated other comprehensive loss‖ on the accompanying Consolidated Balance Sheets, and changes
resulting from the termination of the interest rate swap contracts were recorded in ―Other income (expense)‖ on the accompanying
Consolidated Statements of Income. All of the interest rate swap contracts that existed as of December 31, 2010, were terminated at
the Company’s request on January 14, 2011, concurrent with the retirement of the ABL Credit Facility and the issuance of the
4.875% Senior Notes due 2021, as discussed in Note 5 and Note 7.
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FORM 10-K