O'Reilly Auto Parts 2012 Annual Report Download - page 80

FORM 10-k
70
For the years ended December 31, 2012, 2011 and 2010, the Company recorded a reserve for unrecognized tax benefits (including
interest and penalties) of $59.3 million, $53.0 million and $41.3 million, respectively, of which $59.3 million, $53.0 million and $41.3
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, 2012, 2011 and
2010, the Company had accrued approximately $8.3 million, $7.2 million and $4.6 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, 2012, 2011 and 2010, the Company recorded tax expense related to an increase in its liability for interest and penalties
of $2.6 million, $3.9 million and $1.5 million, respectively. Although unrecognized tax benefits for individual tax positions may
increase or decrease during 2013, the Company expects a reduction of $6.9 million of unrecognized tax benefits during the one-year
period subsequent to December 31, 2012, resulting from settlement or expiration of the statute of limitations.
The Company’s United States federal income tax returns for tax years 2011 and beyond remain subject to examination by the Internal
Revenue Service (“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2008, 2009 and 2010 federal income tax
returns in the first quarter of 2013. The statute of limitations for the Company’s federal income tax returns for tax years 2008 and
prior expired on September 15, 2012. The statute of limitations for the Company’s U.S. federal income tax return for 2009 will expire
on September 15, 2013, unless otherwise extended. The IRS is currently conducting an examination of the Company’s consolidated
returns for the tax year 2011. The Company’s state income tax returns remain subject to examination by various state authorities for
tax years ranging from 2002 through 2011.
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, 2012, 2011 and 2010 (in thousands, except per share data):
For the Year Ended December 31,
2012 2011 2010
Numerator (basic and diluted):
Net income $ 585,746 $ 507,673 $ 419,373
Denominator:
Denominator for basic earnings per share - weighted-average shares 121,182 134,667 138,654
Effect of stock options (1) 2,132 2,316 2,348
Effect of exchangeable notes - - 990
Denominator for diluted earnings per share - weighted-average shares and
assumed conversion 123,314 136,983 141,992
Earnings per share-basic $ 4.83 $ 3.77 $ 3.02
Earnings per share-assuming dilution $ 4.75 $ 3.71 $ 2.95
Antidilutive common stock equivalents not included in the calculation
Stock options (1) 1,816 1,756 1,373
Weighted-average exercise price per share of antidilutive stock options (1) $ 87.88 $ 62.79 $ 48.15
(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 2012 or 2011 results. Incremental
net shares for the exchange feature of the exchangeable notes were included in the diluted earnings per share calculation for the year
ended December 31, 2010.
From January 1, 2013, through and including February 28, 2013, the Company repurchased 2.1 million shares of its common stock at
an average price of $90.09, for a total investment of $185.6 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 Agreement, as well as the
Rights, expired on May 31, 2012.