O'Reilly Auto Parts 2012 Annual Report Download - page 67

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presentation only and therefore, is not expected to have an impact on the Company’s consolidated financial condition, results of
operations or cash flows.
NOTE 2 – 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.
Non-financial assets and liabilities measured at fair value on a nonrecurring basis:
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain
circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired
in a business combination or property and equipment that are determined to be impaired. As of December 31, 2012 and 2011, the
Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.
Fair value of financial instruments:
The carrying amounts of the Company’s senior notes are included in “Long-term debt, less current portion” on the accompanying
Consolidated Balance Sheets as of December 31, 2012 and 2011.
The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair value as of
December 31, 2012, was determined by reference to quoted market prices of the same or similar instruments (Level 2), and the fair
value as of December 31, 2011, was determined by reference to quoted market prices (Level 1) (in thousands):
December 31, 2012 December 31, 2011
Carrying
Amount
Estimated Fair
Value Carrying Amount
Estimated Fair
Value
4.875% Senior Notes due 2021 (1) $ 497,173 $ 559,870 $ 496,824 $ 533,150
4.625% Senior Notes due 2021 (1) $ 299,545 $ 331,224 $ 299,493 $ 313,830
3.800% Senior Notes due 2022 (1) $ 298,916 $ 313,890 $ - $ -
(1) Transferred from Level 1, as of December 31, 2011, to Level 2, as of December 31, 2012, within the hierarchy due to the absence of unadjusted,
quoted prices in active markets.
The accompanying Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts
receivable, amounts receivable from vendors and accounts payable. Due to the short-term nature of these financial instruments, the
Company believes that the carrying values of these instruments approximate their fair values.
NOTE 3 – GOODWILL AND OTHER INTANGIBLES
Goodwill:
Goodwill is reviewed for impairment annually during the fourth quarter, or more frequently if events or changes in business conditions
indicate that impairment may exist. Goodwill is not amortizable for financial statement purposes. During the year ended December
31, 2012, the Company recorded an increase in goodwill of $14.5 million, resulting primarily from purchase price allocations related
to small acquisitions, partially offset by the excess tax benefit related to exercises of stock options acquired in the acquisition of CSK.
The Company did not record any goodwill impairment during the year ended December 31, 2012 or 2011.
The following table identifies the changes in goodwill for the years ended December 31, 2012 and 2011 (in thousands):
Balance at December 31, 2010 $ 743,975
Other (68)
Balance at December 31, 2011 743,907
Other 14,503
Balance at December 31, 2012 $ 758,410