O'Reilly Auto Parts 2015 Annual Report Download - page 72

FORM 10-K
64
The following table outlines the reconciliation of the "Provision for income taxes" amounts included in the accompanying Consolidated
Statements of Income to the amounts computed at the federal statutory rate for the years ended December 31, 2015, 2014 and 2013 (in
thousands):
For the Year Ended
December 31,
2015 2014 2013
Federal income taxes at statutory rate $ 511,128 $ 427,764 $ 370,632
State income taxes, net of federal tax benefit 32,137 25,320 26,802
Other items, net (14,115)(9,084) (8,784)
Total provision for income taxes $ 529,150 $ 444,000 $ 388,650
The excess tax benefit associated with the exercise of non-qualified stock options has been included within "Additional paid-in capital"
on the accompanying consolidated financial statements.
As of December 31, 2015, the Company had tax credit carryforwards available for state tax purposes, net of federal impact, in the amount
of $11.7 million. As of December 31, 2015, the Company had net operating loss carryforwards available for state purposes in the amount
of $12.5 million. The Company's state net operating loss carryforwards generally expire in years ranging from 2022 to 2028, and the
Company's tax credits generally expire in 2024.
CSK had net operating losses in various years dating back to the tax year 1993. For CSK, the statute of limitation for a particular tax
year for examination by the IRS is three years subsequent to the last year in which the loss carryover is finally used. The IRS completed
an examination of the CSK consolidated federal tax return for the fiscal years ended January 30, 2005, January 29, 2006, February 4,
2007 and February 2, 2008. The statute of limitation for a particular tax year for examination by various states is generally three to four
years subsequent to the last year in which the loss carryover is finally used.
Unrecognized tax benefits:
The following table summarizes the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the
years ended December 31, 2015, 2014 and 2013 (in thousands):
2015 2014 2013
Unrealized tax benefit, balance at January 1, $ 49,598 $ 50,459 $ 51,004
Additions based on tax positions related to the current year 5,405 4,665 7,046
Additions based on tax positions related to prior years 995 — —
Payments related to items settled with taxing authorities (4,012)(300) (1,056)
Reductions due to the lapse of statute of limitations and settlements (15,058)(5,226) (6,535)
Unrealized tax benefit, balance at December 31, $ 36,928 $ 49,598 $ 50,459
For the years ended December 31, 2015, 2014 and 2013, the Company recorded a reserve for unrecognized tax benefits, including interest
and penalties, in the amounts of $43.6 million, $58.4 million and $58.6 million, respectively. All of the unrecognized tax benefits recorded
as of December 31, 2015, 2014 and 2013, respectively, would affect the Company's effective tax rate if recognized, generally net of the
federal tax effect of approximately $14.9 million. The Company recognizes interest and penalties related to uncertain tax positions in
income tax expense. As of the years ended December 31, 2015, 2014 and 2013, the Company had accrued approximately $6.7 million,
$8.8 million and $8.1 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, 2015, 2014 and 2013, the Company recorded tax expense
related to an increase in its liability for interest and penalties in the amounts of $2.8 million, $2.8 million and $2.1 million, respectively.
Although unrecognized tax benefits for individual tax positions may increase or decrease during 2016, the Company expects a reduction
of $10.2 million of unrecognized tax benefits during the one-year period subsequent to December 31, 2015, resulting from settlement or
expiration of the statute of limitations.
The Company's United States federal income tax returns for tax years 2014 and beyond remain subject to examination by the Internal
Revenue Service ("IRS"). The IRS concluded an examination of the O'Reilly consolidated 2012 and 2013 federal income tax returns in
the second quarter of 2015. The statute of limitations for the Company's federal income tax returns for tax years 2011 and prior expired
on September 15, 2015. The statute of limitations for the Company's U.S. federal income tax return for 2012 will expire on September 15,
2016, unless otherwise extended. The IRS is currently conducting an examination of the Company's consolidated returns. The Company's
state income tax returns remain subject to examination by various state authorities for tax years ranging from 2004 through 2014.