O'Reilly Auto Parts 2014 Annual Report Download - page 57

FORM 10-K
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amortized over the term of the corresponding debt issue and the amortization expense is included as a component of "Interest expense"
in the accompanying Consolidated Statements of Income. Deferred debt issuance costs totaled $9.9 million and $11.5 million, net of
accumulated amortization, as of December 31, 2014 and 2013, respectively, of which $1.6 million and $1.6 million were included within
"Other current assets" on the accompanying Consolidated Balance Sheets as of December 31, 2014 and 2013, with the remainder included
within "Other assets, net" on the accompanying Consolidated Balance Sheets as of December 31, 2014 and 2013.
The Company issued its long-term senior notes at a discount. The original issuance discount on the senior notes is recorded as a reduction
of the principal amount due for the corresponding senior notes and is accreted over the term of the applicable senior note, with the accretion
expense included as a component of “Interest expense” in the accompanying Consolidated Statements of Income. Original issuance
discounts, net of accretion, totaled $3.4 million and $3.9 million as of December 31, 2014 and 2013, respectively.
See Note 5 for further information concerning debt issuance costs and original issuance discounts associated with the issuances of or
amendments to long-term debt instruments.
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 as of December 31, 2014 and 2013, 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. The Company regularly reviews its potential tax liabilities for tax years subject to audit. The amount of such liabilities
is based on various factors, such as differing interpretations of tax regulations by the responsible tax authority, experience with previous
tax audits and applicable tax law rulings. Changes in the Company's tax liability may occur in the future as its assessments change based
on the progress of tax examinations in various jurisdictions and/or changes in tax regulations. In management's opinion, adequate
provisions for income taxes have been made for all years presented. The estimates of the Company's potential tax liabilities contain
uncertainties because management must use judgment to estimate the exposures associated with the Company's various tax positions and
actual results could differ from estimates.
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, the
common stock equivalents associated with the potential impact of dilutive stock options. 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 14 for further information concerning these common stock equivalents.
New accounting pronouncements:
In May of 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2014-09, "Revenue from
Contracts with Customers (Topic 606)" ("ASU 2014-09"). Under ASU 2014-09, an entity is required to follow a five-step process to
determine the amount of revenue to recognize when promised goods or services are transferred to customers. ASU 2014-09 offers specific
accounting guidance for costs to obtain or fulfill a contract with a customer. In addition, an entity is required to disclose sufficient
information to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including periods within that reporting period,
and can be adopted either retrospectively or as a cumulative effect adjustment at the date of adoption, with early adoption not permitted.
The Company will adopt this guidance beginning with its first quarter ending March 31, 2017; the Company is in the process of evaluating
the potential future impact, if any, of ASU 2014-09 on its consolidated financial position, results of operations and cash flows.
In August of 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)" ("ASU
2014-15"). ASU 2014-15 will require management to assess an entity's ability to continue as a going concern for each annual and interim
reporting period and to provide related footnote disclosure in circumstances in which substantial doubt exists. ASU 2014-15 is effective
for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter, with early application permitted.
The Company will apply this guidance beginning with its annual period ending December 31, 2016; the application of this guidance
affects disclosure only and, therefore, it is not expected to have a material impact on the Company's consolidated financial condition,
results of operations or cash flows.