O'Reilly Auto Parts 2011 Annual Report Download - page 66

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accompanying Consolidated Statements of Income amounted to $73.8 million, $70.0 million and $72.9 million for the years ended
December 31, 2011, 2010 and 2009, respectively.
Share-based compensation and benefit plans:
The Company sponsors employee share-based benefit plans and employee and director share-based compensation plans. The
Company recognizes compensation expense for its share-based plans based on the fair value of the awards on the date of the grant,
award or issuance. Share-based plans include stock option awards issued under the Company’s employee incentive plans, director
stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees and directors through
other compensation plans. See Note 10 for further information concerning these plans.
Pre-opening expenses:
Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to SG&A as
incurred. Costs associated with the opening of new distribution centers, which consist primarily of payroll and occupancy costs, are
included as a component of ―Cost of goods sold, including warehouse and distribution expenses‖ on the accompanying Consolidated
Statements of Income as incurred.
Debt issuance costs:
In conjunction with the issuance or amendment of long-term debt instruments, the Company incurs various costs including debt
registration fees, accounting and legal fees and underwriter and book runner fees. These debt issuance costs have been deferred and
are being amortized over the term of the corresponding debt issue and the amortization expense is included as a component of
―Interest expense‖ in the Company’s Consolidated Statements of Income. Deferred debt issuance costs totaled $9.0 million and $21.6
million, net of amortization, at December 31, 2011 and 2010, respectively, of which $1.3 million and $8.6 million were included
within ―Other current assets‖ on the accompanying Consolidated Balance Sheets at December 31, 2011 and 2010, with the remainder
included within ―Other assets‖ on the accompanying Consolidated Balance Sheets at December 31, 2011 and 2010. All unamortized
debt issuance costs related to the Company’s asset-based revolving credit facility (―ABL Credit Facility‖) were expensed on January
14, 2011, in conjunction with the issuance of the Company’s $500 million of unsecured 4.875% Senior Notes due 2021 (the ―4.875%
Senior Notes due 2021‖) and subsequent repayment and retirement of the ABL Credit Facility. See Note 5 for further information
concerning the issuance of the 4.875% Senior Notes due 2021 and the retirement of the ABL Credit Facility.
Income taxes:
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on differences between the GAAP basis and tax basis of assets and liabilities using
enacted tax rules and rates currently scheduled to be in effect for the year in which the differences are expected to reverse. Tax carry
forwards are also recognized in deferred tax assets and liabilities under this method. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period of the enactment date. The Company would record a valuation allowance
against deferred tax assets to the extent it is more likely than not the amount will not be realized, based upon evidence available at the
time of the determination and any change in the valuation allowance is recorded in the period of a change in such determination. The
Company did not establish a valuation allowance for deferred tax assets at December 31, 2011 and 2010, as it was considered more
likely than not that deferred tax assets were realizable through a combination of future taxable income, the realization of deferred tax
liabilities and tax planning strategies.
Earnings per share:
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during
the fiscal period. Diluted earnings per share is calculated by dividing the weighted-average number of common shares outstanding
plus, where applicable, the common stock equivalents associated with the potential impact of dilutive stock options or conversion of
convertible debt. Certain common stock equivalents that could potentially dilute basic earnings per share in the future, were not
included in the fully diluted computation because they would have been antidilutive. Generally, stock options are antidilutive and
excluded from the earnings per share calculation when the exercise price exceeds the market price of the common shares. See Note 15
for further information concerning these common stock equivalents.
New accounting pronouncements:
In May of 2011, the Financial Accounting Standards Board (―FASB‖) issued Accounting Standards Update (―ASU‖) No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards (―2011-04‖). ASU 2011-04 was issued to bring the definition of fair value, the guidance for fair value
measurement and the disclosure requirements under U.S. GAAP and International Financial Reporting Standards (―IFRS‖) in line with
one another. ASU 2011-04 also enhances the disclosure requirements for changes and transfers within the valuation hierarchy levels,
particularly valuations in Level 3 fair value measurements, and is effective for periods beginning after December 15, 2011. The
application of this guidance affects disclosures only and therefore, will not have an impact on the Company’s consolidated financial
condition, results of operations or cash flows.
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FORM 10-K