NOTE 1
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
O'Reilly Automotive, Inc. (“O’Reilly” or the “Company”) is a specialty retailer and supplier of automotive aftermarket parts. The Company’s stores carry an extensive product line, including new and remanufactured automotive hard parts, maintenance items and various automotive accessories. As of December 31, 2012, the Company owned and operated 3,976 stores in 42 states, servicing both the do-it-yourself (“DIY”) customer and the professional service provider. The Company’s robust distribution system provides stores with same-day or overnight access to an extensive inventory of hard-to-find items not typically stocked in the stores of other auto parts retailers.
Segment reporting:
The Company is managed and operated by a single management team reporting to the chief operating decision maker. O'Reilly stores have similar characteristics including the nature of the products and services, the type and class of customers and the methods used to distribute products and provide service to its customers and, as a whole, make up a single operating segment. The Company does not prepare discrete financial information with respect to product lines or geographic locations and as such has one reportable segment.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States (“GAAP”), requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Cash equivalents:
Cash equivalents include investments with maturities of 90 days or less on the date of purchase.
Accounts receivable:
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company considers the following factors when determining if collection is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. Amounts due to the Company from its Team Members are included as a component of accounts receivable. These amounts consist primarily of purchases of merchandise on Team Member accounts. Accounts receivable due from Team Members was approximately $2.1 million and $2.2 million as of December 31, 2012 and 2011, respectively.
The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Concentrations of credit risk with respect to these receivables are limited because the Company’s customer base consists of a large number of small customers, spreading the credit risk across a broad base. The Company also controls this credit risk through credit approvals, credit limits and accounts receivable and credit monitoring procedures. Generally, the Company does not require security when credit is granted to customers. Credit losses are provided for in the Company’s consolidated financial statements and have consistently been within management’s expectations.
Amounts receivable from vendors:
The Company receives concessions from its vendors through a variety of programs and arrangements, including allowances for new stores and warranties, volume purchase rebates and co-operative advertising. Co-operative advertising allowances that are incremental to the Company’s advertising program, specific to a product or event and identifiable for accounting purposes, are reported as a reduction of advertising expense in the period in which the advertising occurred. All other vendor concessions are recognized as a reduction to the cost of inventory. Amounts receivable from vendors also includes amounts due to the Company for changeover merchandise and product returns. The Company regularly reviews vendor receivables for collectability and assesses the need for a reserve for uncollectable amounts based on an evaluation of the Company’s vendors’ financial positions and corresponding abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable to collect the amounts receivable from vendors and the Company did not record a reserve for uncollectable amounts from vendors in the consolidated financial statements as of December 31, 2012 or 2011.
Inventory:
Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market. Inventory also includes capitalized costs related to procurement, warehousing and distribution centers (“DC”). Cost has been determined using the last-in, first-out (“LIFO”) method, which more accurately matches costs with related revenues.
The replacement cost of inventory was $2.31 billion and
$2.04 billion as of December 31, 2012 and 2011, respectively.
Property and equipment:
Property and equipment are carried at cost. Depreciation is calculated using the straight-line method generally over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the estimated economic life of the assets. The lease term includes renewal options determined by management at lease inception for which failure to execute renewal options would result in a substantial economic penalty to the Company. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included as a component of “Other income (expense)” in the Company’s Consolidated Statements of Income. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The following table identifies the types of property and equipment included in the accompanying consolidated financial statements as of December 31, 2012 and 2011 (in thousands, except useful lives):
|
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Original Useful Lives
|
|
December 31, 2012
|
|
December 31, 2011
|
Land
|
|
$
|
420,292
|
$
|
462,790
|
Buildings and building improvements
|
15 – 39 years
|
|
1,078,265
|
|
1,012,709
|
Leasehold improvements
|
3 – 25 years
|
|
447,046
|
|
395,274
|
Furniture, fixtures and equipment
|
3 – 20 years
|
|
932,406
|
|
906,257
|
Vehicles
|
5 – 10 years
|
|
231,615
|
|
206,685
|
Construction in progress
|
|
|
159,946
|
|
43,281
|
Total property and equipment
|
|
|
3,269,570
|
|
3,026,996
|
Less: accumulated depreciation and amortization
|
|
|
1,057,980
|
|
933,229
|
Net property and equipment
|
|
$
|
2,211,590
|
$
|
2,093,767
|
The gross value of capital lease assets included in the “Vehicles” amounts of the above table was $8.4 million and $8.6 million at December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, the Company recorded accumulated amortization on these capital lease assets in the amounts of $8.4 million and $7.9 million, respectively, all of which was included in “accumulated depreciation and amortization” in the above table.
Notes receivable:
The Company had notes receivable from vendors and other third parties amounting to $9.5 million and $15.0 million at December 31, 2012 and 2011, respectively. The notes receivable, which bear interest at rates ranging from 0% to 10%, are due in varying amounts through March of 2019. Interest income on notes receivable is recorded in accordance with the note terms to the extent that such amounts are expected to be collected. The Company regularly reviews its notes receivable for collectability and assesses the need for a reserve for uncollectable amounts based on an evaluation of the Company’s borrowers’ financial positions and corresponding abilities to meet financial obligations. Management does not believe there is a reasonable likelihood that the Company will be unable to collect the notes receivable and the Company did not record a reserve for uncollectable notes receivable in the consolidated financial statements as of December 31, 2012 or 2011.
Goodwill and other intangible assets:
The accompanying Consolidated Balance Sheets at December 31, 2012 and 2011, include goodwill and other intangible assets recorded as the result of acquisitions. The Company reviews goodwill for impairment annually during the fourth quarter, or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values, rather than systematically amortizing goodwill against earnings. During 2012 and 2011, the goodwill impairment test included a quantitative assessment, which compared the fair value of a reporting unit to its carrying amount, including goodwill. The Company operates as a single reporting unit, and the Company determined that its fair value exceeded its carrying value, including goodwill, as of December 31, 2012 and 2011; as such, no goodwill impairment adjustment was required as of December 31, 2012 and 2011. Finite-lived intangibles are carried at cost. Amortization is calculated using the straight-line method, generally over the estimated useful lives of the intangibles.
Impairment of long-lived assets:
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such an event occurs, the Company compares the sum of the undiscounted expected future cash flows of the asset (asset group) with the carrying amounts of the asset. If the undiscounted expected future cash flows are less than the carrying value of the assets, the Company measures the amount of impairment loss as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company has not historically recorded any material impairment to its long-lived assets; the Company did not record an impairment of long-lived assets during the year ended December 31, 2012 or 2011.
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure. The Company estimates its self-
insurance liabilities by considering a number of factors, including historical claims experience and trend-lines, projected medical and legal inflation, growth patterns and exposure forecasts. Certain of these liabilities were recorded at their net present value discounted using the Company’s incremental borrowing rate of 4.50% and 4.75% as of December 31, 2012 and 2011, respectively.
The following table identifies the components of the Company’s self-insurance reserves as of December 31, 2012 and 2011 (in thousands):
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|
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|
|
|
|
|
|
December 31,
|
|
|
2012
|
|
2011
|
Self-insurance reserves (undiscounted)
|
$
|
122,866
|
$
|
116,696
|
Self-insurance reserves (discounted)
|
$
|
111,840
|
$
|
106,011
|
The current portion of the Company’s discounted self-insurance reserves totaled $54.2 million and $53.2 million as of December 31, 2012 and 2011, respectively. The remainder was included within “Other liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011.
Warranties:
The Company offers warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime warranties. The risk of loss arising from warranty claims is typically the obligation of the Company’s vendors. Certain vendors provide upfront allowances to the Company in lieu of accepting the obligation for warranty claims. For this merchandise, when sold, the Company bears the risk of loss associated with the cost of warranty claims. Differences between vendor allowances received by the Company in lieu of warranty obligations and estimated warranty expense are recorded as an adjustment to cost of sales. Estimated warranty costs, which are recorded as obligations at the time of sale, are based on the historical failure rate of each individual product line. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims. See Note 8 for further information concerning the Company’s aggregate product warranty liability.
Litigation reserves:
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred on pending litigation matters. Although the Company cannot ascertain the total amount of liability that it may incur from any of these matters, the Company does not currently believe that in the aggregate, taking into account applicable insurance coverage, these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. In addition, O’Reilly was involved in resolving legacy governmental investigations and litigation commenced by the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) against CSK Automotive Corporation (“CSK”) and certain former CSK employees arising out of alleged conduct relating to periods prior to the Company’s acquisition of CSK; as a result, O’Reilly incurred legal fees and costs related to potential indemnification obligations. See Note 12 for further information concerning these legal matters.
Closed property liabilities:
The Company maintains reserves for closed stores and other properties that are no longer being utilized in current operations. The Company provides for these liabilities using a credit-adjusted discount rate to calculate the present value of the remaining non-cancelable lease payments, occupancy costs and lease termination fees after the close date, net of estimated sublease income. In conjunction with the acquisition of CSK, the Company’s reserves include purchase accounting liabilities related to acquired properties that were no longer being utilized in the acquired business as well as the Company’s planned exit activities. See Note 6 for further information concerning these closed property liabilities.
Derivative instruments and hedging activities:
The Company’s accounting policies for derivative financial instruments are based on whether the instruments meet the criteria for designation as cash flow or fair value hedges. The criteria for designating a derivative as a hedge include the assessment of the instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction and the probability that the underlying transaction will occur. A designated hedge of the exposure to variability in the future cash flows of an asset or a liability qualifies as a cash flow hedge. A designated hedge of the exposure to changes in fair value of an asset or a liability qualifies as a fair value hedge. For derivatives with cash flow hedge accounting designation, the Company would recognize the after-tax gain or loss from the effective portion of the hedge as a component of “Accumulated other comprehensive loss” and would reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same income statement line item as the impact of the hedged transaction. For derivatives with fair value hedge accounting designation, the Company would recognize gains or losses from the change in fair value of these derivatives, as well as the offsetting change in the fair value of the underlying hedged item, in earnings. As of December 31, 2012 and 2011, the Company did not hold any instruments that qualified as cash flow or fair value hedge derivatives.
Share repurchases:
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market conditions. All shares repurchased under the share repurchase program are retired and recorded under the par value method on the accompanying Consolidated Balance Sheets. See Note 9 for further information concerning the Company’s share repurchase program.
Revenue recognition:
Over-the-counter retail sales are recorded when the customer takes possession of the merchandise. Sales to professional service provider customers, also referred to as “commercial sales,” are recorded upon same-day delivery of the merchandise to the customer, generally at the customer’s place of business. Wholesale sales to other retailers, also referred to as “jobber sales,” are recorded upon shipment of the merchandise from a regional distribution center (“DC”) with same-day delivery to the jobber customer's location. Internet retail sales are recorded when the merchandise is shipped or when the merchandise is picked up in a store. All sales are recorded net of estimated returns allowances, discounts and taxes.
Cost of goods sold and selling, general and administrative expenses:
The following table illustrates the primary costs classified in each major expense category:
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Cost of goods sold, including warehouse and distribution expenses
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Selling, general and administrative expenses
|
Total cost of merchandise sold, including:
|
|
Payroll and benefit costs for store and corporate Team Members
|
|
Freight expenses associated with acquiring merchandise and with moving merchandise inventories from the Company's distribution centers to the stores
|
|
Occupancy costs of store and corporate facilities
|
|
Defective merchandise and warranty costs
|
|
Depreciation and amortization related to store and corporate assets
|
Vendor allowances and incentives, including:
|
|
Vehicle expenses for store delivery services
|
|
Allowances that are not reimbursements for specific, incremental and identifiable costs
|
|
Self-insurance costs
|
|
Cash discounts on payments to vendors
|
|
Closed store expenses
|
Costs associated with the Company's supply chain, including:
|
|
Other administrative costs, including:
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|
Payroll and benefit costs
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|
|
Accounting, legal and other professional services
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|
Warehouse occupancy costs
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|
|
Bad debt, banking and credit card fees
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Transportation costs
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|
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Supplies
|
|
Depreciation
|
|
|
Travel
|
Inventory shrinkage
|
|
Advertising costs
|
Operating leases:
The Company recognizes rent expense on a straight-line basis over the lease terms of its stores and DCs. Generally, the lease term for stores is the base lease term and the lease term for DCs includes the base lease term plus certain renewal option periods for which renewal is reasonably assured and failure to exercise the renewal option would result in a significant economic penalty. The Company’s policy is to amortize leasehold improvements associated with the Company’s operating leases over the lesser of the lease term or the estimated economic life of those assets.
Advertising expenses:
Advertising expense consists primarily of expenses related to the Company’s integrated marketing program, which includes television, radio, direct mail and newspaper distribution, in-store and online promotions, and sports and event sponsorships. The Company expenses advertising costs as incurred. The Company also participates in cooperative advertising arrangements with certain of its vendors. Advertising expense included as a component of “Selling, general and administrative expenses” (“SG&A”) on the accompanying Consolidated Statements of Income amounted to $74.8 million, $73.8 million and $70.0 million for the years ended December 31, 2012, 2011 and 2010, 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.
Interest expense:
The Company capitalizes interest costs as a component of construction in progress, based on the weighted-average interest rates incurred on long-term borrowings. Total interest costs capitalized for the years ended December 31, 2012, 2011 and 2010, were $6.1 million, $4.7 million and $5.1 million, respectively.
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 accompanying Consolidated Statements of Income. Deferred debt issuance costs totaled $10.1 million and $9.0 million, net of amortization, as of December 31, 2012 and 2011, respectively, of which $1.5 million and $1.3 million were included within “Other current assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, with the remainder included within “Other assets” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011. All unamortized debt issuance costs related to the Company’s asset-based revolving credit facility (“ABL Credit Facility”) were expensed in January of 2011, in conjunction with the issuance of the Company’s $500 million 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 4 for further information concerning debt issuance costs 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, 2012 and 2011, 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, 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 February of 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" (
“ASU 2013-02”). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements.
The Company plans to adopt this guidance beginning with its first quarter ended March 31, 2013; the application of this guidance affects
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):
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|
|
|
|
|
|
|
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
|
As of December 31, 2012 and 2011, other than goodwill, the Company did not have any other unamortizable intangible assets.
Intangibles other than goodwill:
The following table identifies the components of the Company’s amortizable intangibles as of December 31, 2012 and 2011 (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Amortizable Intangibles
|
|
Accumulated Amortization (Expense) Benefit
|
|
Net Amortizable Intangibles
|
|
December 31,
2012
|
|
December 31,
2011
|
|
December 31,
2012
|
|
December 31,
2011
|
|
December 31,
2012
|
|
December 31,
2011
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable leases
|
$
|
50,910
|
|
$
|
51,660
|
|
$
|
(28,566)
|
|
$
|
(23,969)
|
|
$
|
22,344
|
|
$
|
27,691
|
Non-compete agreements
|
|
717
|
|
|
793
|
|
|
(447)
|
|
|
(427)
|
|
|
270
|
|
|
366
|
Total amortizable intangible assets
|
$
|
51,627
|
|
$
|
52,453
|
|
$
|
(29,013)
|
|
$
|
(24,396)
|
|
$
|
22,614
|
|
$
|
28,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfavorable leases
|
$
|
49,380
|
|
$
|
49,380
|
|
$
|
32,210
|
|
$
|
26,560
|
|
$
|
17,170
|
|
$
|
22,820
|
The Company recorded favorable lease assets in conjunction with the acquisition of CSK; these favorable lease assets represent the values of operating leases acquired with favorable terms. These favorable leases had an estimated weighted-average remaining useful life of approximately 10.1 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and 2010, the Company recorded amortization expense of $4.7 million, $6.1 million, and $8.5 million, respectively, related to its amortizable intangible assets, which are included in “Other assets, net” on the accompanying Consolidated Balance Sheets.
The Company recorded unfavorable lease liabilities in conjunction with the acquisition of CSK; these unfavorable lease liabilities represent the values of operating leases acquired with unfavorable terms. These unfavorable leases had an estimated weighted-average remaining useful life of approximately 5.3 years as of December 31, 2012. For the years ended December 31, 2012, 2011 and 2010, the Company recognized an amortized benefit of $5.7 million, $6.7 million and $7.0 million, respectively, related to these unfavorable operating leases, which are included in “Other liabilities” on the accompanying Consolidated Balance Sheets. These unfavorable lease liabilities are not included as a component of the Company’s closed store reserves, which are discussed in Note 6.
The following table identifies the estimated amortization expense and benefit of the Company’s intangibles for each of the next five years as of December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
Amortization Benefit
|
|
|
Total Amortization Benefit (Expense)
|
2013
|
$
|
(3,997)
|
|
$
|
4,548
|
|
$
|
551
|
2014
|
|
(3,098)
|
|
|
3,642
|
|
|
544
|
2015
|
|
(2,667)
|
|
|
2,794
|
|
|
127
|
2016
|
|
(2,312)
|
|
|
2,076
|
|
|
(236)
|
2017
|
|
(1,897)
|
|
|
1,493
|
|
|
(404)
|
Total
|
$
|
(13,971)
|
|
$
|
14,553
|
|
$
|
582
|
NOTE 4 – FINANCING
The following table identifies the balances of the Company’s financing facilities as of December 31, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Revolving Credit Facility
|
$
|
-
|
|
$
|
-
|
4.875% Senior Notes due 2021
(1)
, effective intere
st rate of 4.973
%
|
|
497,173
|
|
|
496,824
|
4.625% Senior Notes due 2021
(2)
, effective interest rate
of 4.649
%
|
|
299,545
|
|
|
299,493
|
3.800% Senior Notes due 2021
(3)
, effective interest rate
of 3.845
%
|
|
298,916
|
|
|
-
|
|
|
|
|
|
|
(1)
Net of unamortized discount of
$2.8
million and $3.2 million as of December 31, 2012 and 2011, respectively.
|
(2)
Net of unamortized discount of $0.5 million and $0.5 million as of December 31, 2012 and 2011, respectively.
|
(3)
Net of unamortized discount of $1.1 million as of December 31, 2012.
|
The following table identifies the principal maturities of the Company’s financing facilities as of December 31, 2012 (in thousands):
|
|
|
|
|
|
2013
|
$
|
-
|
2014
|
|
-
|
2015
|
|
-
|
2016
|
|
-
|
2017
|
|
-
|
Thereafter
|
|
1,100,000
|
Total
|
$
|
1,100,000
|
Unsecured revolving credit facility:
I
n January
of
2011, the Company entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility (the “Revolving Credit Facility”) arranged by Bank of America, N.A. (“BA”) and Barclays Capital, originally scheduled to mature in January of 2016.
I
n September
of
2011, the Company amended the credit agreement (the “Credit Agreement”), decreasing the aggregate commitments under the Revolving Credit Facility to $660 million, extending the maturity date on the Credit Agreement to September of 2016 and reducing the facility fee and interest rate margins for borrowing under the
Revolving
Credit Facility. In conjunction with the amendment, the Company recognized a one-time charge related to the modification in the amount of $0.3 million, which is included in “Other income (expense)” on the accompanying Consolidated Statements of Income for the year ended December 31, 2011. The Credit Agreement includes a $200 million sub-limit for the issuance of letters of credit and a $75 million sub-limit for swing line borrowings under the Revolving Credit Facility. As described in the Credit Agreement governing the Revolving Credit Facility, the Company may, from time to time, subject to certain conditions, increase the aggregate commitments under the Revolving Credit Facility by up to $200 million. As of December 31, 2012 and 2011, the Company had outstanding letters of credit, primarily to support obligations related to workers’ compensation, general liability and other insurance policies, in the amount of $57.3 million and $59.9 million, respectively, reducing the aggregate availability under the Revolving Credit Facility by those amounts. As of December 31, 2012 and 2011, the Company had no outstanding borrowings under the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility (other than swing line loans) bear interest, at the Company’s option, at the Base Rate or Eurodollar Rate (both as defined in the Credit Agreement) plus an applicable margin. Swing line loans made under the Revolving Credit Facility bear interest at the Base Rate plus the applicable margin to Base Rate loans. In addition, the Company pays a facility fee on the aggregate amount of the commitments in an amount equal to a percentage of such commitments. The interest rate margins and facility fee are based upon the better of the ratings assigned to the Company’s debt by Moody’s Investor Service, Inc. and Standard & Poor’s Rating Services
, subject to limited exceptions
. Based upon the Company’s credit ratings at December 31, 2012, its margin for Base Rate loans was 0.200%, its margin for Eurodollar Rate loans was 1.200% and its facility fee was 0.175%.
The Credit Agreement contains certain covenants, which include limitations on indebtedness, a minimum fixed charge coverage ratio of 2.00 times through December 31, 2012; 2.25 times thereafter through December 31, 2014; and 2.50 times thereafter through maturity; and a maximum adjusted consolidated leverage ratio of 3.00 times through maturity. The consolidated leverage ratio includes a calculation of adjusted earnings before interest, taxes, depreciation, amortization, rent and stock based compensation expense to adjusted debt. Adjusted debt includes outstanding debt, outstanding letters of credit, six-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company should default on any covenant contained within the Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of credit extensions, immediate payment of outstanding principal amount plus accrued interest and other amounts payable under the Credit Agreement and litigation from lenders. As of December 31, 2012, the Company remained in compliance with all covenants under the Credit Agreement.
Senior notes:
4.875% Senior Notes due 2021
:
On January 14, 2011, the Company issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021 (“4.875% Senior Notes due 2021”) at a price to the public of 99.297% of their face value with United Missouri Bank, N.A. (“UMB”) as trustee. Interest on the 4.875% Senior Notes due 2021 is payable on January 14 and July 14 of each year and is computed on the basis of a 360-day year.
4.625% Senior Notes due 2021
:
On September 19, 2011, the Company issued $300 million aggregate principal amount of unsecured 4.625% Senior Notes due 2021 (“4.625% Senior Notes due 2021”) at a price to the public of 99.826% of their face value with UMB as trustee. Interest on the 4.625% Senior Notes due 2021 is payable on March 15 and September 15 of each year and is computed on the basis of a 360-day year.
3.800% Senior Notes due 2022:
On August 21, 2012, the Company issued $300 million aggregate principal amount of unsecured 3.800% Senior Notes due 2022 (
“
3.800% Senior Notes due 2022
”
) at a price to the public of 99.627% of their face value with UMB as trustee. Interest on the 3.800% Senior Notes due 2022 is payable on March 1 and September 1
of each year
, beginning on March 1, 2013, and is computed on the
basis of a 360-day year. The net proceeds from the issuance of the 3.800% Senior Notes due 2022 were used to pay fees and expenses related to the offering, with the remainder intended to be used to repay borrowings outstanding from time to time under the Revolving Credit Facility and for general corporate purposes, including share repurchases.
The senior notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries (“Subsidiary Guarantors”) that incurs or guarantees the Company’s obligations under the Company’s Revolving Credit Facility or certain other debt of the Company or any of the Subsidiary Guarantors. The guarantees are
joint and several and full and unconditional, subject to certain customary automatic release provisions, including release of the subsidiary guarantor’s guarantee under the Company’s Credit Agreement and certain other debt, or, in certain circumstances, the sale or other disposition of a majority of the voting power of the capital interest in, or of all or substantially all of the property of, the subsidiary guarantor
. Each of the Subsidiary Guarantors is wholly-owned, directly or indirectly, by the Company and the Company has no independent assets or operations other than those of its subsidiaries. The only direct or indirect subsidiaries of the Company that would not be Subsidiary Guarantors would be minor subsidiaries. Neither the Company, nor any of its Subsidiary Guarantors, are subject to any material or significant restrictions on the Company’s ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. Each of the senior notes is subject to certain customary covenants, with which the Company complied as of December 31, 2012.
NOTE 5 – LEASING
The following table identifies the future minimum lease payments under all of the Company’s operating and capital leases for each of the next five years and in the aggregate as of December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Capital Leases
|
|
|
|
|
|
Related Parties
|
|
Non-Related Parties
|
|
Non-Related Parties
|
|
Total
|
2013
|
|
$
|
4,439
|
|
$
|
235,601
|
|
$
|
234
|
|
$
|
240,274
|
2014
|
|
|
4,487
|
|
|
222,216
|
|
|
77
|
|
|
226,780
|
2015
|
|
|
4,430
|
|
|
198,700
|
|
|
25
|
|
|
203,155
|
2016
|
|
|
3,996
|
|
|
174,171
|
|
|
-
|
|
|
178,167
|
2017
|
|
|
3,300
|
|
|
150,970
|
|
|
-
|
|
|
154,270
|
Thereafter
|
|
|
11,618
|
|
|
829,172
|
|
|
-
|
|
|
840,790
|
Total
|
|
$
|
32,270
|
|
$
|
1,810,830
|
|
$
|
336
|
|
$
|
1,843,436
|
Capital lease agreements:
The Company assumed certain vehicle capital leases in the acquisition of CSK. The remaining vehicle capital lease agreements have contractual terms of nine months, which will expire on October 15, 2013. The present value of the future minimum lease payments under these vehicle capital leases totaled approximately $0.2 million and $0.7 million at December 31, 2012 and 2011, respectively, which were classified as long-term debt in the accompanying consolidated financial statements. The Company did not acquire any additional vehicles under capital leases during the periods ended December 31, 2012 or 2011.
The Company assumed certain building capital leases in the CSK acquisition. The remaining building capital lease agreement will expire on March 31, 2017. The present value of future minimum lease payments under building capital leases totaled approximately $0.2 million and $0.5 million at December 31, 2012 and 2011, respectively, which was classified as long-term debt in the accompanying consolidated financial statements. The Company did not acquire any additional buildings under capital leases during the periods ended December 31, 2012 or 2011.
Operating lease commitments:
The Company leases certain office space, retail stores, property and equipment under long-term, non-cancelable operating leases. Most of these leases include renewal options and some include options to purchase, provisions for percentage rent based on sales and/or incremental step increase provisions.
The future minimum lease payments under the Company’s operating leases, in the table above, do not include potential amounts for percentage rent or other operating lease related costs and have not been reduced by expected future minimum sublease income. Expected future minimum sublease income under non-cancelable subleases is approximately $13.9 million at December 31, 2012.
The following table summarizes the net rent expense amounts for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Minimum operating lease expense
|
$
|
234,113
|
|
$
|
226,158
|
|
$
|
221,540
|
Contingent rents
|
|
744
|
|
|
534
|
|
|
903
|
Other lease related occupancy costs
|
|
10,043
|
|
|
8,821
|
|
|
9,352
|
Total rent expense
|
|
244,900
|
|
|
235,513
|
|
|
231,795
|
Less: sublease income
|
|
4,031
|
|
|
4,616
|
|
|
4,916
|
Net rent expense
|
$
|
240,869
|
|
$
|
230,897
|
|
$
|
226,879
|
NOTE 6
– EXIT ACTIVITIES
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations, and had previously maintained reserves for employee separation liabilities.
The following table identifies the closure reserves for stores, administrative office and distribution facilities, and reserves for employee separation costs at December 31, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Closure Liabilities
|
|
|
Administrative Office and Distribution Facilities Closure Liabilities
|
|
|
Employee Separation Liabilities
|
Balance at December 31, 2010:
|
|
13,971
|
|
|
5,608
|
|
|
1,156
|
Additions and accretion
|
|
695
|
|
|
314
|
|
|
-
|
Payments
|
|
(3,634)
|
|
|
(2,593)
|
|
|
(912)
|
Revisions to estimates
|
|
280
|
|
|
215
|
|
|
(244)
|
Balance at December 31, 2011:
|
|
11,312
|
|
|
3,544
|
|
|
-
|
Additions and accretion
|
|
584
|
|
|
170
|
|
|
-
|
Payments
|
|
(2,998)
|
|
|
(2,038)
|
|
|
-
|
Revisions to estimates
|
|
(561)
|
|
|
-
|
|
|
-
|
Balance at December 31, 2012:
|
$
|
8,337
|
|
$
|
1,676
|
|
$
|
-
|
Store, administrative office and distribution facilities closure liabilities:
The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations. The Company accrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing date, net of estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which currently extend through April 23, 2023. The Company estimates sublease income and future cash flows based on the Company’s experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar assets and existing economic conditions. Adjustments to closed property reserves are made to reflect changes in estimated sublease income or actual contracted exit costs, which vary from original estimates, and are made for material changes in estimates in the period in which the changes become known.
Revisions to estimates in closure reserves for stores and administrative office and distribution facilities include changes in the estimates of sublease agreements, changes in assumptions of various store and office closure activities, changes in assumed leasing arrangements and actual exit costs since the inception of the exit activities. Revisions to estimates and additions or accretions to closure reserves for stores and administrative office and distribution facilities are included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010.
The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through December 31, 2012, was $24.4 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit activity through December 31, 2012, was $10.0 million. The balance of both these reserves is included in “Other current liabilities” and “Other liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011, based upon the dates when the reserves are expected to be settled.
Employee separation liabilities:
The Company had previously maintained a reserve for employee separation liabilities. Employee separation liabilities represented costs for anticipated payments, including payments required under various pre-existing employment arrangements with acquired CSK employees, which existed at the time of the acquisition, related to the planned involuntary termination of employees performing
overlapping or duplicative functions. The Company completed all restructuring activities related to these employee separation liabilities during 2012, and the reserve had no remaining balance as of December 31, 2012.
Revisions to estimates for employee separation liabilities included changes in assumptions surrounding the timing required to consolidate certain duplicative administration functions from the inception of the exit activities. Revisions to estimates and additions or accretions to employee separation liabilities are included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income for the years ended December 31, 2011 and 2010.
The cumulative amount incurred for employee separation liabilities from the inception of the exit activity through December 31, 2012, was $29.4 million.
NOTE 7
– DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Historically, the Company entered into interest rate swap contracts with various counterparties to mitigate cash flow risk associated with floating interest rates on outstanding borrowings under its ABL Credit Facility. The fair values of the Company’s outstanding hedges were recorded as liabilities, t
he effective portion of the change in fair values of the Company’s cash flow hedges was recorded as a component of “Accumulated other comprehensive loss”, and any ineffectiveness was recognized in “Other income (expense)” in the accompanying Consolidated Statements of Income in the period of ineffectiveness. The interest rate swap contracts were designated as cash flow hedges with interest payments designed to offset the interest payments for borrowings under the ABL Credit Facility that corresponded with the notional amounts of the swaps. In January of 2011, the ABL Credit Facility was retired concurrent with the issuance of the Company’s 4.875% Senior Notes due 2021 and all interest rate swap contracts were terminated at the Company’s request. The Company recognized a charge of $4.2 million related to the termination of the interest rate swap contracts, which was included as a component of “Other income (expense)” in the accompanying Consolidated Statements of Income for the year ended December 31, 2011. During 2010,
one interest rate swap contract was terminated at the Company’s request and was deemed to be ineffective as of the termination date. The Company recognized $0.1 million in “Other income (expense)” on the accompanying Consolidated Statements of Income for the year ended December 31, 2010, as a result of this hedge ineffectiveness.
As of December 31, 2012, the Company did not hold any instruments that qualified as cash flow hedge derivatives.
The table below outlines the effects the Company’s derivative financial instruments had on its Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Loss Recognized in Income on Derivatives
|
Derivatives Designated as Hedging Instruments
|
|
|
For the Year Ended December 31,
|
|
|
Classification
|
2012
|
|
2011
|
|
2010
|
Interest rate swap contracts
|
|
Other income (expense)
|
$
|
-
|
|
$
|
(4,237)
|
|
$
|
(65)
|
NOTE 8 – WARRANTIES
The Company provides warranties on certain merchandise it sells with warranty periods ranging from 30 days to limited lifetime warranties. Estimated warranty costs are based on the historical failure rate of each individual product line and are recorded as obligations. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims. The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011.
The following table identifies the changes in the Company’s aggregate product warranty liabilities for the years ended December 31,
2012 and 2011
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Balance at January 1,
|
$
|
21,642
|
|
$
|
22,429
|
Warranty claims
|
|
(50,009)
|
|
|
(46,779)
|
Warranty accruals
|
|
56,368
|
|
|
45,992
|
Balance at December 31,
|
$
|
28,001
|
|
$
|
21,642
|
NOTE 9 – SHARE REPURCHASE PROGRAM
In January of 2011, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market
conditions, for a three-year period. The Company and its Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. During 2012, the Company’s Board of Directors approved resolutions to increase the cumulative authorization amount to $3.0 billion.
Each prior
$500 million authorization
was
effective for a three-year period, a
nd expires November 12, 2015.
The following table identifies shares of the Company’s common stock that have been repurchased as part of the Company’s publicly announced share repurchase program (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2012
|
|
2011
|
Shares repurchased
|
|
16,201
|
|
|
15,877
|
Average price per share
|
$
|
89.20
|
|
$
|
61.49
|
Total investment
|
$
|
1,445,044
|
|
$
|
976,322
|
As of December 31, 2012, the Company had $
578.6
million remaining under its share repurchase program.
Subsequent to the end of the year and through the date of this filing, the Company repurchased an additional
2.1
million shares of its common stock under its share repurchase program at an average price of $
90.09
for a total investment of $
185.6
million. The Company has repurchased a total of
34.1
million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 through and including February 28, 2013, at an average price of $
76.37
for a total aggregate investment of $
2.6
billion.
NOTE 10 – SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER COMPENSATION AND BENEFIT PLANS
The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the grant, award or issuance. Share-based compensation includes stock option awards issued under the Company’s employee incentive plans and director stock plan, restricted stock awarded under the Company’s employee incentive plans, performance incentive plan and director stock plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees through other benefit programs.
The table below identifies the shares that have been authorized for issuance and the shares available for future issuance under the Company plans, as of December 31, 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
Plans
|
|
Total Shares Authorized for Issuance under the Plans
|
|
Shares Available for Future Issuance under the Plans
|
Employee Incentive Plans
|
|
34,000
|
|
6,544
|
Director Stock Plan
|
|
1,000
|
|
277
|
Performance Incentive Plan
|
|
650
|
|
381
|
Employee Stock Purchase Plan
|
|
4,250
|
|
1,002
|
Profit Sharing and Savings Plan
|
|
4,200
|
|
349
|
Stock options:
The Company’s employee incentive plans provide for the granting of stock options for the purchase of the common stock of the Company to certain key employees of the Company. Employee stock options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant. Employee stock options granted under the plans expire after ten years and typically vest 25% per year, over four years, or the minimum required service period. The Company records compensation expense for the grant date fair value of the option awards, adjusted for estimated forfeitures, evenly over the vesting period.
The table below identifies the employee stock option activity under these plans during the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average Exercise Price
|
|
Average Remaining Contractual Terms
(in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2011
|
7,393
|
|
$
|
37.41
|
|
|
|
|
|
Granted
|
1,834
|
|
|
88.75
|
|
|
|
|
|
Exercised
|
(1,831)
|
|
|
29.41
|
|
|
|
|
|
Forfeited
|
(675)
|
|
|
62.97
|
|
|
|
|
|
Outstanding at December 31, 2012
|
6,721
|
|
$
|
51.03
|
|
6.86
|
|
$
|
258,059
|
Vested or expected to vest at December 31, 2012
|
6,224
|
|
$
|
49.17
|
|
6.70
|
|
$
|
250,536
|
Exercisable at December 31, 2012
|
3,527
|
|
$
|
31.36
|
|
5.17
|
|
$
|
204,777
|
The Company’s director stock plan provides for the granting of stock options for the purchase of the common stock of the Company to directors of the Company. Director stock options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant. Director stock options granted under the plans expire after seven years and vest fully after six months. The Company records compensation expense for the grant date fair value of the option awards evenly over the vesting period.
The table below identifies the director stock option activity under this plan during the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average Exercise Price
|
|
Average Remaining Contractual Terms
(in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2011
|
97
|
|
$
|
35.00
|
|
|
|
|
|
Granted
|
-
|
|
|
-
|
|
|
|
|
|
Exercised
|
(29)
|
|
|
34.92
|
|
|
|
|
|
Forfeited
|
-
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2012
|
68
|
|
$
|
35.03
|
|
3.31
|
|
$
|
3,698
|
Vested or expected to vest at December 31, 2012
|
68
|
|
$
|
35.03
|
|
3.31
|
|
$
|
3,698
|
Exercisable at December 31, 2012
|
68
|
|
$
|
35.03
|
|
3.31
|
|
$
|
3,698
|
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected dividend yield.
·
|
Risk-free interest rate
– The United States Treasury rates in effect at the time the options are granted for the options’ expected life.
|
·
|
Expected life
- Represents the period of time that options granted are expected to be outstanding. The Company uses historical experience to estimate the expected life of options granted.
|
·
|
Expected volatility
– Measure of the amount by which the Company’s stock price has historically fluctuated.
|
·
|
Expected dividend yield –
The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.
|
The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
2010
|
Risk free interest rate
|
0.59
|
%
|
|
1.16
|
%
|
|
1.67
|
%
|
Expected life
|
3.9
|
Years
|
|
3.7
|
Years
|
|
4.3
|
Years
|
Expected volatility
|
33.5
|
%
|
|
33.3
|
%
|
|
33.9
|
%
|
Expected dividend yield
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to becoming fully vested. The Company’s estimate is evaluated periodically, is based upon historical experience at the time of evaluation and reduces expense ratably over the vesting period or the minimum required service period.
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Compensation expense for stock options awarded (in millions)
|
$
|
18.5
|
|
$
|
17.6
|
|
$
|
14.9
|
Income tax benefit from compensation expense related to stock options (in millions)
|
|
7.1
|
|
|
6.8
|
|
|
5.7
|
Total intrinsic value of stock options exercised (in millions)
|
|
113.6
|
|
|
71.5
|
|
|
60.0
|
Cash received from exercise of stock options (in millions)
|
|
54.9
|
|
|
50.3
|
|
|
56.9
|
Weighted-average grant-date fair value of options awarded
|
$
|
23.57
|
|
$
|
16.93
|
|
$
|
14.24
|
Weighted-average remaining contractual life of exercisable options (in years)
|
|
5.13
|
|
|
5.12
|
|
|
5.21
|
The remaining unrecognized compensation expense related to unvested stock option awards at December 31, 2012, was $53.5 million and the weighted-average period of time over which this cost will be recognized is 3.0 years.
Restricted stock:
The Company’s performance incentive plan provides for the award of shares of restricted stock to its corporate and senior management that vest evenly over a three-year period and are held in escrow until such vesting has occurred. Generally, unvested shares are forfeited when an employee ceases employment. The fair value of shares awarded under this plan is based on the closing market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting period.
The table below identifies the employee restricted stock activity under this plan during the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at December 31, 2011
|
40
|
|
$
|
50.72
|
Granted during the period
|
18
|
|
|
86.90
|
Vested during the period
(1)
|
(30)
|
|
|
55.11
|
Forfeited during the period
|
(1)
|
|
|
61.08
|
Non-vested at December 31, 2012
|
27
|
|
$
|
70.64
|
|
|
|
|
|
(1)
Includes 13 thousand shares withheld to cover employees' taxes upon vesting.
|
The Company’s director stock plan provides for the award of shares of restricted stock that vest evenly over a three-year period and are held in escrow until such vesting has occurred. Generally, unvested shares are forfeited when a director ceases their service on the Company’s Board of Directors. The fair value of shares awarded under this plan is based on the closing market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting period.
The table below identifies the director restricted stock activity under this plan during the year ended December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Non-vested at December 31, 2011
|
8
|
|
$
|
59.65
|
Granted during the period
|
5
|
|
|
102.39
|
Vested during the period
|
(3)
|
|
|
59.65
|
Forfeited during the period
|
-
|
|
|
-
|
Non-vested at December 31, 201
2
|
10
|
|
$
|
79.58
|
The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Compensation expense for restricted shares awarded (in millions)
|
$
|
2.0
|
|
$
|
1.7
|
|
$
|
0.9
|
Income tax benefit from compensation expense related to restricted shares (in millions)
|
$
|
0.8
|
|
$
|
0.6
|
|
$
|
0.4
|
Total fair value of restricted shares at vest date (in millions)
|
$
|
2.7
|
|
$
|
2.6
|
|
$
|
1.6
|
Shares awarded under the plans (in thousands)
|
|
23.7
|
|
|
49.9
|
|
|
41.1
|
Average grant-date fair value of shares awarded under the plans
|
$
|
90.10
|
|
$
|
56.18
|
|
$
|
39.57
|
The remaining unrecognized compensation expense related to unvested restricted share awards at December 31, 2012, was $2.7 million and the weighted-average period of time over which this cost will be recognized is 2.1 years
.
Employee stock purchase plan:
The Company’s employee stock purchase plan (the “ESPP”) permits eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value. Employees may authorize the Company to withhold up to 5% of their annual salary to participate in the plan. The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the Company’s common stock during the offering periods. Compensation expense is recognized based on the discount between the grant-date fair value and the employee purchase price for the shares sold to employees.
The following table summarizes activity related to the Company’s ESPP for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Compensation expense for shares issued under the ESPP (in millions)
|
$
|
1.5
|
|
$
|
1.3
|
|
$
|
1.1
|
Income tax benefit from compensation expense for shares issued under the ESPP (in millions)
|
$
|
0.6
|
|
$
|
0.5
|
|
$
|
0.4
|
Shares issued under the ESPP (in thousands)
|
|
114.6
|
|
|
134.5
|
|
|
152.9
|
Weighted-average price of shares issued under the ESPP
|
$
|
75.42
|
|
$
|
53.93
|
|
$
|
40.86
|
Profit sharing and savings plan:
The Company sponsors a contributory profit sharing and savings plan that covers substantially all employees who are at least 21 years of age and have at least six months of service. The Company makes matching contributions equal to 100% of the first 2% of each employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. The Company may also make additional discretionary profit sharing contributions to the plan on an annual basis as determined by the Board of Directors. The Company did not issue any shares under this plan for the years ended December 31, 2012, 2011 or 2010. The Company does not anticipate funding the plan with the issuance of shares in the future. The Company made monetary matching contributions to the plan in the amounts of $15.6 million, $11.8 million and $11.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
NOTE 11 – COMMITMENTS
Construction commitments:
As of December 31, 2012, the Company had construction commitments in the amount of $89.3 million.
Letter of credit commitments:
As of December 31, 2012, the Company had outstanding letters of credit, primarily to satisfy workers’ compensation, general liability and other insurance policies, in the amount of $57.3 million (see Note 4).
Debt financing commitments:
The Company’s senior notes are redeemable in whole, at any time, or in part, from time to time, at the Company’s option upon not less than 30
nor
more than 60 days’ notice at a redemption price, plus any accrued and unpaid interest to, but not including the redemption date, equal to the greater of (i) 100% of the principal amount thereof or (2) the sum of the present value of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis at the applicable Treasury Yield plus basis points identified in the indentures governing the notes. In addition, if at any time the Company undergoes a Change of Control Triggering Event (as defined in the indentures governing the notes), the holders may require the Company to repurchase all or a portion of their senior notes at a price equal to 101% of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any, to but not including the repurchase date (see Note 4).
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for Team Member health care benefits, workers’ compensation, vehicle liability, general liability and property loss. With the exception of certain Team Member health care benefit liabilities, employment related claims and litigation, certain commercial litigation and certain regulatory matters, the Company obtains third-party insurance coverage to limit its exposure to this obligation.
NOTE 12 – LEGAL MATTERS
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records reserves for litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably estimate the probable loss. The Company reserves for an estimate of material legal costs to be incurred in pending litigation matters. Although the Company cannot ascertain the amount of liability that it may incur from any of these matters, it does not currently
believe that, in the aggregate, these matters, taking into account applicable insurance and reserves, will have a material adverse effect on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.
In addition, O’Reilly was involved in resolving governmental investigations that were being conducted against CSK and CSK’s former officers and other litigation, prior to its acquisition by O’Reilly, as described below.
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have concluded. All criminal charges against former employees of CSK related to its legacy pre-acquisition accounting practices, as well as the civil litigation filed against CSK’s former Chief Executive Officer by the Securities and Exchange Commission (the “SEC”), have concluded.
Under Delaware law, the charter documents of the CSK entities, and certain indemnification agreements, CSK may have certain indemnification obligations. As a result of the CSK acquisition, O’Reilly has incurred legal fees and costs related to these potential indemnification obligations arising from the litigation commenced by the Department of Justice and SEC against CSK’s former employees. Whether those legal fees and costs are covered by CSK’s insurance is subject to uncertainty, and, given its complexity and scope, the final outcome cannot be predicted at this time. O’Reilly has a remaining reserve, with respect to the indemnification obligations of
$13.7 million at December 31, 2012, which
relates to the payment of those legal fees and costs already incurred. It is possible that in a particular quarter or annual period the Company’s results of operations and cash flows could be materially affected by resolution of such matter, depending, in part, upon the results of operations or cash flows for such period. However, at this time, management believes that the ultimate outcome of this matter, after consideration of applicable reserves, should not have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
NOTE 13 – RELATED PARTIES
The Company leases certain land and buildings related to 77 of its O'Reilly Auto Parts stores and one of its bulk facilities under fifteen- or twenty-year operating lease agreements with entities in which certain of the Company’s affiliated directors, members of an affiliated director’s immediate family or certain of the Company’s executive officers, are affiliated. Generally, these lease agreements provide for renewal options for an additional five years at the option of the Company and the lease agreements are periodically modified to further extend the lease term for specific stores under the agreements (see Note 10). Lease payments under these operating leases totaled $4.4 million, $4.2 million and $4.4 million during the years ended December 31, 2012, 2011 and 2010, respectively. We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third parties.
NOTE 14 – INCOME TAXES
Deferred income tax assets (liabilities):
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and also include the tax effect of carryforwards.
The following table identifies significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Deferred tax assets:
|
|
|
|
|
|
Current:
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
1,937
|
|
$
|
1,933
|
Tax credits
|
|
1,583
|
|
|
541
|
Other accruals
|
|
55,683
|
|
|
55,209
|
Total current deferred tax assets:
|
|
59,203
|
|
|
57,683
|
Noncurrent:
|
|
|
|
|
|
Tax credits
|
|
5,333
|
|
|
4,605
|
Net operating losses
|
|
2,077
|
|
|
3,008
|
Other accruals
|
|
58,605
|
|
|
50,855
|
Total noncurrent deferred tax assets:
|
|
66,015
|
|
|
58,468
|
Total deferred tax assets
|
$
|
125,218
|
|
$
|
116,151
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Current:
|
|
|
|
|
|
Inventories
|
$
|
78,675
|
|
$
|
59,673
|
Total current deferred tax liabilities:
|
|
78,675
|
|
|
59,673
|
Noncurrent:
|
|
|
|
|
|
Property and equipment
|
|
132,547
|
|
|
138,132
|
Other
|
|
13,012
|
|
|
9,200
|
Total noncurrent deferred tax liabilities:
|
|
145,559
|
|
|
147,332
|
Total deferred tax liabilities
|
|
224,234
|
|
|
207,005
|
Net deferred tax liabilities
|
$
|
(99,016)
|
|
$
|
(90,854)
|
The following table reconciles the above net deferred tax assets (liabilities) as presented on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
Deferred tax assets - current
|
$
|
59,203
|
|
$
|
57,683
|
Deferred tax liabilities - current
|
|
(78,675)
|
|
|
(59,673)
|
Deferred tax liabilities - current
|
|
(19,472)
|
|
$
|
(1,990)
|
|
|
|
|
|
|
Deferred tax assets - noncurrent
|
|
66,015
|
|
|
58,468
|
Deferred tax liabilities - noncurrent
|
|
(145,559)
|
|
|
(147,332)
|
Deferred tax liabilities - noncurrent
|
|
(79,544)
|
|
$
|
(88,864)
|
|
|
|
|
|
|
Net deferred tax liabilities
|
$
|
(99,016)
|
|
$
|
(90,854)
|
Provision for income taxes:
The following table reconciles the “Provision for income taxes” included in the accompanying Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Deferred
|
|
Total
|
2012
|
|
|
|
|
|
|
|
|
Federal
|
$
|
311,631
|
|
$
|
10,030
|
|
$
|
321,661
|
State
|
|
35,982
|
|
|
(1,868)
|
|
|
34,114
|
|
$
|
347,613
|
|
$
|
8,162
|
|
$
|
355,775
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
Federal
|
$
|
228,443
|
|
$
|
55,175
|
|
$
|
283,618
|
State
|
|
25,537
|
|
|
(1,055)
|
|
|
24,482
|
|
$
|
253,980
|
|
$
|
54,120
|
|
$
|
308,100
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
Federal
|
$
|
146,259
|
|
$
|
88,395
|
|
$
|
234,654
|
State
|
|
24,484
|
|
|
10,862
|
|
|
35,346
|
|
$
|
170,743
|
|
$
|
99,257
|
|
$
|
270,000
|
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, 2012, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Federal income taxes at statutory rate
|
$
|
329,532
|
|
$
|
285,524
|
|
$
|
241,281
|
State income taxes, net of federal tax benefit
|
|
22,426
|
|
|
16,132
|
|
|
22,267
|
Other items, net
|
|
3,817
|
|
|
6,444
|
|
|
6,452
|
Total provision for income taxes
|
$
|
355,775
|
|
$
|
308,100
|
|
$
|
270,000
|
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, 2012, the Company had tax credit carryforwards available for state tax purposes of $6.9 million. As of December 31, 2012, the Company had net operating loss carryforwards available for state purposes of $42.9 million. The Company’s state net operating loss carryforwards generally expire in years ranging from 2021 to 2027, and the Company’s tax credits generally do not expire.
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, 2012, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
Balance as of January 1,
|
$
|
45,800
|
|
$
|
36,710
|
|
$
|
33,570
|
Additions based on tax positions related to the current year
|
|
8,100
|
|
|
7,308
|
|
|
5,138
|
Additions based on tax positions related to prior years
|
|
1,301
|
|
|
4,060
|
|
|
-
|
Payments related to settled items
|
|
(451)
|
|
|
-
|
|
|
-
|
Reductions due to lapse of statute of limitations
|
|
(3,746)
|
|
|
(2,278)
|
|
|
(1,998)
|
Balance as of December 31,
|
$
|
51,004
|
|
$
|
45,800
|
|
$
|
36,710
|
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):
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|
|
|
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|
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For the Year Ended December 31,
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2012
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2011
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|
2010
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Numerator (basic and diluted):
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|
|
|
|
|
|
|
Net income
|
$
|
585,746
|
|
$
|
507,673
|
|
$
|
419,373
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|
|
|
|
|
|
|
|
|
Denominator:
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|
|
|
|
|
|
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
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|
|
136,983
|
|
|
141,992
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|
|
|
|
|
|
|
|
|
Earnings per share-basic
|
$
|
4.83
|
|
$
|
3.77
|
|
$
|
3.02
|
Earnings per share-assuming dilution
|
$
|
4.75
|
|
$
|
3.71
|
|
$
|
2.95
|
|
|
|
|
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|
|
|
|
|
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Antidilutive common stock equivalents not included in the calculation of diluted earnings per share:
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|
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|
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Stock options
(1)
|
|
1,816
|
|
|
1,756
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|
|
1,373
|
Weighted-average exercise price per share of antidilutive stock options
(1)
|
$
|
87.88
|
|
$
|
62.79
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|
$
|
48.15
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|
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|
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(1)
See Note 10 for further discussion on the terms of the Company's share-based compensation plans.
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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.
NOTE 17
– QUARTERLY RESULTS (Unaudited)
The following table sets forth certain quarterly unaudited operating data for the fiscal years ended December 31, 2012 and 2011. The unaudited quarterly information includes all adjustments, which the Company considers necessary for a fair presentation of the information shown:
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Fiscal 2012
|
|
First
|
|
Second
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Third
|
|
Fourth
|
|
Quarter
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|
Quarter
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|
Quarter
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|
Quarter
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(In thousands, except per share data)
|
Sales
|
$
|
1,529,392
|
|
$
|
1,562,849
|
|
$
|
1,601,558
|
|
$
|
1,488,385
|
Gross profit
|
|
761,680
|
|
|
779,861
|
|
|
805,493
|
|
|
750,384
|
Operating income
|
|
247,501
|
|
|
243,603
|
|
|
263,318
|
|
|
222,971
|
Net income
|
|
147,492
|
|
|
146,120
|
|
|
159,332
|
|
|
132,802
|
Earnings per share – basic
|
$
|
1.16
|
|
$
|
1.17
|
|
$
|
1.34
|
|
$
|
1.16
|
Earnings per share – assuming dilution
|
$
|
1.14
|
|
$
|
1.15
|
|
$
|
1.32
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
(In thousands, except per share data)
|
Sales
|
$
|
1,382,738
|
|
$
|
1,479,318
|
|
$
|
1,535,453
|
|
$
|
1,391,307
|
Gross profit
|
|
669,781
|
|
|
718,661
|
|
|
754,210
|
|
|
694,697
|
Former CSK officer clawback
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,798)
|
Operating income
|
|
196,437
|
|
|
222,368
|
|
|
241,050
|
|
|
206,911
|
Write-off of debt issuance costs
|
|
(21,626)
|
|
|
-
|
|
|
-
|
|
|
-
|
Termination of interest rate swap agreements
|
|
(4,237)
|
|
|
-
|
|
|
-
|
|
|
-
|
Net income
|
|
102,474
|
|
|
133,772
|
|
|
148,439
|
|
|
122,988
|
Earnings per share – basic
|
$
|
0.73
|
|
$
|
0.97
|
|
$
|
1.12
|
|
$
|
0.96
|
Earnings per share – assuming dilution
|
$
|
0.72
|
|
$
|
0.96
|
|
$
|
1.10
|
|
$
|
0.94
|
The unaudited operating data presented above should be read in conjunction with the Company’s consolidated financial statements and related notes, and the other financial information included therein.