O'Reilly Auto Parts 2011 Annual Report Download - page 82

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For the years ended December 31, 2011, 2010 and 2009, the Company recorded a reserve for unrecognized tax benefits (including
interest and penalties) of $53.0 million, $41.3 million and $37.6 million, respectively, of which $53.0 million, $41.3 million and $37.6
million would affect the Company’s effective tax rate if recognized, generally net of federal tax affect. The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense. As of the years ended December 31, 2011, 2010 and
2009, the Company had accrued approximately $7.2 million, $4.6 million and $4.0 million, respectively, of interest and penalties
related to uncertain tax positions before the benefit of the deduction for interest on state and federal returns. During the years ended
December 31, 2011, 2010 and 2009, the Company recorded tax expense related to an increase in its liability for interest and penalties
of $3.9 million, $1.5 million and $1.5 million, respectively. Although unrecognized tax benefits for individual tax positions may
increase or decrease during 2012, the Company expects a reduction of $4.0 million of unrecognized tax benefits during the one-year
period subsequent to December 31, 2011, resulting from settlement or expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2008 and beyond remain subject to examination by the Internal
Revenue Service (―IRS‖). The IRS concluded an examination of the O’Reilly consolidated 2006 and 2007 federal income tax returns
in the fourth quarter of 2009. The statute of limitations for the Company’s federal income tax returns for tax years 2007 and prior
expired on September 15, 2011. The statute of limitations for the Company’s U.S. federal income tax return for 2008 will expire on
September 15, 2012, unless otherwise extended. The IRS is currently conducting an examination of the Company’s consolidated
returns for the tax years 2008, 2009 and 2010. The Company’s state income tax returns remain subject to examination by various state
authorities for tax years ranging from 2001 through 2010.
NOTE 15—EARNINGS PER SHARE
The following table reconciles the numerator and denominator used in the basic and diluted earnings per share calculations for the
years ended December 31, 2011, 2010 and 2009 (in thousands, except per share data):
Numerator (basic and diluted):
Net income $ 507,673 $419,373 $ 307,498
Denominator:
Denominator for basic earnings per share–
weighted-average shares 134,667 138,654 136,230
Effect of stock options (1) 2,316 2,348 1,651
Effect of exchangeable notes - 990 1
Denominator for diluted earnings per share--
weighted-average shares and assumed conversion
136,983 141,992 137,882
Earnings per share-basic $3.77 $3.02 $2.26
Earnings per share-assuming dilution $3.71 $2.95 $2.23
Antidilutive common stock equivalents not included in the calculation of diluted
earnings per share:
Stock options (1) 1,756 1,373 1,587
Weighted-average exercise price per share of antidilutive stock options (1) $62.79 $48.15 $ 35.61
2009
2011
2010
(1) See Note 10 for further discussion on the terms of the Company's share-based compensation plans.
The exchangeable notes were retired in December of 2010, and therefore had no dilutive effect on 2011 results. Incremental net
shares for the exchange feature of the exchangeable notes were included in the diluted earnings per share calculation for the years
ended December 31, 2010 and 2009.
From January 1, 2012, through and including February 28, 2012, the Company repurchased 0.6 million shares of its common stock at
an average price of $83.39, for a total investment of $48.4 million.
NOTE 16—SHAREHOLDER RIGHTS PLAN
On May 7, 2002, and as amended on December 29, 2010, and May 20, 2011, the Board of Directors adopted a shareholder rights plan
(―Rights Agreement‖) whereby one right was distributed for each share of common stock, par value $0.01 per share, of the Company
held by shareholders of record (the ―Rights‖) as of the close of business on May 31, 2002. The Rights initially entitle shareholders to
buy a unit representing one one-hundredth of a share of a new series of preferred stock of the Company for $160 and expire on May
30, 2012. The Rights generally will be exercisable only if a person or group acquires beneficial ownership above the threshold
established in the Rights Agreement of the Company's common stock or commences a tender or exchange offer upon consummation
of which such person or group would beneficially own more than the threshold established in the Rights Agreement of the Company's
FORM 10-K