The accompanying unaudited condensed consolidated financial statements of O’Reilly Automotive, Inc. and its subsidiaries (the “Company” or “O’Reilly”“O’Reilly��) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 2016,2017, are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.2017. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.

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:

The Company invests in various marketable securities with the intention of selling these securities to fulfill its future unsecured obligation under the Company’s nonqualified deferred compensation plan. See Note 6 for further information concerning the Company’s benefit plans.

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 SeptemberJune 30, 2016,2017, and December 31, 2015,2016, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.

The carrying amounts of the Company’s senior notes and unsecured revolving credit facility borrowings are included in “Long-term debt” on the accompanying Condensed Consolidated Balance Sheets as of SeptemberJune 30, 2016,2017, and December 31, 2015.2016. See Note 3 for further information concerning the Company’s senior notes.notes and unsecured revolving credit facility.

The table below identifies the estimated fair value of the Company’s senior notes, using the market approach. The fair valuesvalue as of SeptemberJune 30, 2016,2017, and December 31, 2015, were2016, was determined by reference to quoted market prices of the same or similar instruments (Level 2) (in thousands):

The accompanying Condensed Consolidated Balance Sheets include other financial instruments, including cash and cash equivalents, accounts receivable, amounts receivable from suppliers 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.

The Company provides 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 suppliers. Certain suppliers 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 supplier 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.

The Company’s product warranty liabilities are included in “Other current liabilities” on the accompanying Condensed Consolidated Balance Sheets as of SeptemberJune 30, 2016,2017, and December 31, 2015.2016. The following table identifies the changes in the Company’s aggregate product warranty liabilities for the ninesix months ended SeptemberJune 30, 20162017 (in thousands):

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. The Company’s Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As announced on FebruaryMay 10, 2016, and May 27, 2016,2017, the Company’s Board of Directors each time approved a resolution to increase the authorization amount under the share repurchase program by an additional $750 million,$1.0 billion, resulting in a cumulative authorization amount of $7.0$8.8 billion. EachThe additional $1.0 billion authorization is effective for a three-year period, beginning on its respective announcement date.

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):

As of SeptemberJune 30, 2016,2017, the Company had $683.5$545.3 million remaining under its share repurchase program. Subsequent to the end of the thirdsecond quarter and through November 8, 2016,August 7, 2017, the Company repurchased an additional 0.60.2 million shares of its common stock under its share repurchase program, at an average price of $269.29,$207.21, for a total investment of $169.9$35.0 million. The Company has repurchased a total of 55.662.4 million shares of its common stock under its share repurchase program since the inception of the program in January of 2011 and through November 8, 2016,August 7, 2017, at an average price of $116.76,$132.00, for a total aggregate investment of $6.5$8.2 billion.

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 and stock issued through the Company’s employee stock purchase plan and stock awarded to employees through other benefit programs.plan.

The Company’s stock-based incentive plans provide for the granting of stock options for the purchase of common stock of the Company to directors and certain key employees of the Company. 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 options granted under the plans expire after seven years and are fully vested after six months. Employee options granted under the plans expire after ten years and typically vest 25% per year, over four years. The Company records compensation expense for the grant dategrant-date fair value of the option awards adjusted for estimated forfeitures, evenly over the vesting period or the minimum required service period.

The table below identifies stock option activity under these plans during the ninesix months ended SeptemberJune 30, 20162017 (in thousands, except per share data):

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.

The following table summarizes activity related to stock options awarded by the Company for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 (in thousands, except per share data):

The weighted-average grant-date fair value of options granted during the ninesix months ended SeptemberJune 30, 2016,2017, was $64.00,$67.43 compared to $51.59$65.18 for the ninesix months ended SeptemberJune 30, 2015.2016. The remaining unrecognized compensation expense related to unvested stock option awards at SeptemberJune 30, 2016,2017, was $29.2$31.4 million, and the weighted-average period of time over which this cost will be recognized is 2.52.8 years.

The Company sponsors other share-based compensation plans: an employee stock purchase plan (the “ESPP”), which permits all eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value; a performance incentive plan, which 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;value, and a director stock plan, which provides for the award of shares of restricted stock to the Company’s independent directors, that vest evenly over a three-year period and are held in escrow until such vesting has occurred. 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, and compensation expense is recognized based on the discount between the fair value and the employee purchase price for the shares sold to employees. The fair value of shares awarded under restrictedthe

director stock plansplan is based on the closing market price of the Company’s common stock on the date of the award, and compensation expense is recorded evenly over the vesting period or the minimum required service period.

The table below summarizes activity related to the Company’s other share-based compensation plans for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 (in thousands):

The Company sponsors a contributory profit sharing and savings plan (the “401(k) Plan”) that covers substantially all employees who are at least 21 years of age and have completed one year 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. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. 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 make any discretionary contributions to the 401(k) Plan during the three or ninesix months ended SeptemberJune 30, 20162017 or 2015.2016. The Company expensed matching contributions under the 401(k) Plan in the amounts of $5.3$5.8 million and $4.8$5.5 million for the three months ended SeptemberJune 30, 20162017 and 2015,2016, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income. The Company expensed matching contributions under the 401(k) Plan in the amounts of $15.5$11.3 million and $13.4$10.5 million for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively, which were included in “Selling, general and administrative expenses”expense” on the accompanying Condensed Consolidated Statements of Income.

The Company sponsors a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for highly compensated employees whose contributions to the 401(k) Plan are limited due to the application of the annual limitations under the Internal Revenue Code. The Deferred Compensation Plan provides these employees with the opportunity to defer the full 6% of matched compensation, including salary and incentive based compensation that was precluded under the Company’s 401(k) Plan, which is then matched by the Company using the same formula as the 401(k) Plan. An employee generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The Company has an unsecured obligation to pay, in the future, the value of the deferred compensation and Company match, adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. The liability for compensation deferred under the Deferred Compensation Plan was $19.7$23.4 million and $16.9$20.5 million as of SeptemberJune 30, 2016,2017, and December 31, 2015,2016, respectively, which was included in “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of less than $0.1 million for each of the three months ended SeptemberJune 30, 20162017 and 2015,2016, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income. The Company expensed matching contributions under the Deferred Compensation Plan in the amount of $0.1 million for each of the ninesix months ended SeptemberJune 30, 20162017 and 2015, respectively,2016, which were included in “Selling, general and administrative expenses” on the accompanying Condensed Consolidated Statements of Income.

The following table illustrates the computation of basic and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 (in thousands, except per share data):

For the three and ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, the computation of diluted earnings per share did not include certain securities. These securities represent underlying stock options not included in the computation of diluted earnings per share, because the inclusion of such equity awards would have been antidilutive.

Subsequent to the end of the thirdsecond quarter and through November 8, 2016,August 7, 2017, the Company repurchased an additional 0.60.2 million shares of its common stock under its share repurchase program, at an average price of $269.29,$207.21, for a total investment of $169.9$35.0 million.

O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records reservesaccrues 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 reservesaccrues 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,accruals, will have a material adverse effect on its consolidated financial position, results of operations or cash flows in a particular quarter or annual period.

We believe the increased sales achieved by our stores are the result of store growth, sales from one additional day due to Leap Day for the nine months ended September 30, 2016,48 acquired Bond stores and the high levels of customer service provided by our well-trained and technically proficient Team Members, superior inventory availability, including same day and over-night access to inventory in our regional distribution centers, enhanced services and programs offered in our stores, a broader selection of product offerings in most stores with a dynamic catalog system to identify and source parts, a targeted promotional and advertising effort through a variety of media and localized promotional events, continued improvement in the merchandising and store layouts of our stores, compensation programs for all store Team Members that provide incentives for performance and our continued focus on serving both DIY and professional service provider customers.

Our comparable store sales increases for the three and ninesix months ended SeptemberJune 30, 2016,2017, were driven by increases in average ticket values for both our DIY and professional service provider customers, partially offset by negative customer transaction counts from both our DIY and professional service provider customers. The improvementimprovements in average ticket values waswere the result of the increasing complexity and cost of replacement parts necessary to maintain the current population of better engineered and more technically advanced vehicles. These better engineered, more technically advanced vehicles require less frequent repairs, as the component parts are more durable and last for longer periods of time, which creates pressure on customer transaction counts, but whentime. When repairs are required,needed, the cost of replacement parts is, on average, greater. Despitegreater, which is a benefit to average ticket values; however, the addeddecrease in repair frequency creates pressure due to these better engineered vehicles requiring less frequent repairs, customer transaction counts for both DIY and professional service provider customers during the three and nine months ended September 30, 2016, increased. The increase in customer transaction counts was driven by lower gas prices and decreasing unemployment levels, which led to increased miles driven and a corresponding increase in vehicle maintenance. These factors created a positive macroeconomic environment, which was beneficial to both DIY and professional service provideron customer transaction counts. Our continued focus on ensuring our stores are staffed with knowledgeable parts professionals to assist our DIY customers during high DIY traffic periods, including nights and weekends, was also a benefit to the increase in DIY transaction counts. Professional service provider customer transaction counts continue to grow, particularly at our less mature stores, and this growth was a benefit to the increase in our professional service provider customerCustomer transaction counts during the threecurrent periods were also negatively impacted by softer industry demand, resulting, in part, from the second consecutive, unseasonably mild winter weather and nine months ended September 30, 2016.a cool, wet start to summer in many of our markets. The mild winter weather did not stress vehicle components to the degree more typical harsh winter weather would, which resulted in a lower level of automobile parts breakage and associated demand for our products. The cool, wet start to summer resulted in a lower level of demand, as the absence of typical seasonally high temperatures resulted in fewer temperature related vehicle repairs.

We opened 5246 and 141105 net, new stores during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to 5837 and 15789 net, new stores for the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively. As of SeptemberJune 30, 2016,2017, we operated 4,7124,934 stores in 4547 states compared to 4,5234,660 stores in 4344 states at SeptemberJune 30, 2015.2016. We anticipate total new store growth to be 210190 net, new store openings in 2017, slightly below the 2016 and 190 net, new store openings due to the resources necessary to convert the 48 Bond stores acquired in December 2016 to our systems, inventory selection and décor packages during 2017.

Our long-term business strategy requires capital to open new stores, fund strategic acquisitions, expand distribution infrastructure, operate and maintain existing stores and may include the opportunistic repurchase of shares of our common stock through our Board-approved share repurchase program. The primary sources of our liquidity are funds generated from operations and borrowed under our unsecured revolving credit facility. Decreased demand for our products or changes in customer buying patterns could negatively impact our ability to generate funds from operations. Additionally, decreased demand or changes in buying patterns could impact our ability to meet the debt covenants of our credit agreement and, therefore, negatively impact the funds available under our unsecured revolving credit facility. We believe that cash expected to be provided by operating activities and availability under our unsecured revolving credit facility will be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. However, there can be no assurance that we will continue to generate cash flows at or above recent levels.

The following table identifies cash provided by/(used in) our operating, investing and financing activities for the ninesix months ended SeptemberJune 30, 20162017 and 20152016 (in thousands):

The increasedecrease in net cash provided by operating activities during the ninesix months ended SeptemberJune 30, 2016,2017, compared to the same period in 2015,2016, was primarily due to a larger decreasean increase in our net inventory investment, and a largerpartially offset by an increase in net income partially offset by a decrease inand income taxes payable. Net inventory investment reflectsThe increase in our investment in inventory, net of the amount of accounts payable to suppliers. The larger decrease in net inventory investment is primarily the result of a slower pace of inventory purchases and a corresponding decrease in the current period,associated accounts payable as a percentage of inventory, due to a softer sales environment, as compared to the same period in the prior year, was primarily attributable to incrementally better terms from our suppliers participatingyear. The increase in our enhanced supplier financing programs, which enable us to negotiate extended payment terms with our suppliers. The decrease incash provided by income taxes payable in the current period, as compared to the same period in the prior year, was primarily the result of a prepaid income taxes position at the end of 2016, versus an income taxes payable position at the end of 2015, versus a prepaid income taxes position at the end of 2014.2015.

The increase in net cash used in investing activities during the ninesix months ended SeptemberJune 30, 2016,2017, compared to the same period in 2015,2016, was primarily the result of an increase in capital expenditures. The increase in capital expenditures was primarily related to the timing of property acquisitions, closings and construction costs for new stores and our distribution expansion projects during the current period, as compared to the same period in the prior year.

The decreaseincrease in net cash used in financing activities during the ninesix months ended SeptemberJune 30, 2016,2017, compared to the same period in 2015,2016, was primarily attributable to the net proceeds from the issuance of long-term debt during the current period, partially offset by an increase in repurchases of our common stock during the current period, as compared to the same period in the prior year, partially offset by a higher level of net borrowings during the current period, as compared to the same period in the prior year.

On January 14, 2011, weApril 5, 2017, the Company entered into a new credit agreement as amended by Amendment No. 1 dated as of September 9, 2011, and as further amended by Amendment No. 2 dated as of July 2, 2013, and as further amended by Amendment No. 3 dated as of June 18, 2015 (the “Credit Agreement”). The new Credit Agreement provides for a $600 millionfive-year $1.2 billion unsecured revolving credit facility (the “Revolving Credit

As of SeptemberJune 30, 2016,2017, we had outstanding letters of credit, primarily to support obligations related to workers’ compensation, general liability and other insurance policies, in the amount of $39$41 million, reducing the aggregate availability under the Revolvingnew Credit FacilityAgreement by that amount. As of SeptemberJune 30, 2016,2017, we had no outstanding borrowings under the new Revolving Credit Facility.Facility in the amount of $716 million.

We have issued a cumulative $1.90 billion aggregate principal amount of unsecured senior notes, which are due between January 2021 and March 2026, with UMBUnited Missouri Bank as trustee. Interest on the senior notes, ranging from 3.550% to 4.875%, is payable semi-annually and is computed on the basis of a 360-day year.

The indentures governing our senior notes contain covenants that limit our ability and the ability of certain of our subsidiaries to, among other things: (i)things, create certain liens on assets to secure certain debt; (ii)debt and enter into certain sale and leaseback transactions;transactions, and (iii)limit our ability to merge or consolidate with another company or transfer all or substantially all of our or its property, in each case as set forth in the indentures. These covenants are, however, subject to a number of important limitations and exceptions. As of SeptemberJune 30, 2016,2017, we were in compliance with the covenants applicable to our senior notes.

The Credit Agreement contains certain covenants, including limitations on indebtedness, a minimum consolidated fixed charge coverage ratio of 2.50 times2.50:1.00 and a maximum consolidated leverage ratio of 3.00 times.3.00:1.00. The consolidated fixed charge coverage ratio includes a calculation of earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based compensation expense to fixed charges. Fixed charges include interest expense, capitalized interest and rent expense. The consolidated leverage ratio includes a calculation of adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and non-cash share-based compensation expense (“EBITDAR”).expense. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit and similar instruments, six-timesfive-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that we should default on any covenant contained within the new Credit Agreement, certain actions may be taken, including, but not limited to, possible termination of commitments, immediate payment of outstanding principal amounts plus accrued interest and other amounts payable under the new Credit Agreement and litigation from our lenders.

We had a consolidated fixed charge coverage ratio of 6.146.00 times and 5.846.15 times as of SeptemberJune 30, 20162017 and 2015,2016, respectively, and a consolidated leverage ratio of 1.661.82 times and 1.571.56 times as of SeptemberJune 30, 20162017 and 2015,2016, respectively, remaining in compliance with all covenants related to the borrowing arrangements. Under our current financing plan, we have targeted an adjusted debt to EBITDAR ratio range of 2.00 times to 2.25 times.

The table below outlines the calculations of the consolidated fixed charge coverage ratio and consolidated leverage ratio covenants, as defined in the new Credit Agreement governing the new Revolving Credit Facility, for the twelve months ended SeptemberJune 30, 20162017 and 20152016 (dollars in thousands):

Free cash flow, the consolidated fixed charge coverage ratio and the consolidated leverage ratio discussed and presented in the tables above are not derived in accordance with United States generally accepted accounting principles (“GAAP”). We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe that the presentation of our free cash flow, consolidated fixed charge coverage ratio and consolidated leverage ratio provides meaningful supplemental information to both management and investors and reflects the required covenants under the Credit Agreement. We include these items in judging our performance and believe this non-GAAP information is useful to investors as well. Material limitations of these non-GAAP measures are that such measures do not reflect actual GAAP amounts. We compensate for such limitations by presenting, in the tables above, a reconciliation to the most directly comparable GAAP measures.

In January of 2011, our Board of Directors approved a share repurchase program. Under the program, we may, from time to time, repurchase shares of our 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. Our Board of Directors may increase or otherwise modify, renew, suspend or terminate the share repurchase program at any time, without prior notice. As announced on FebruaryMay 10, 2016, and May 27, 2016,2017, our Board of Directors each time approved a resolution to increase the authorization amount under our share repurchase program by an additional $750 million,$1.00 billion, resulting in a cumulative authorization amount of $7.00$8.75 billion. EachThe additional $1.00 billion authorization is effective for a three-year period, beginning on its respective announcement date.

The following table identifies shares of our common stock that have been repurchased as part of our publicly announced share repurchase program (in thousands, except per share data):

As of SeptemberJune 30, 2016,2017, we had $683$545 million remaining under our share repurchase program. Subsequent to the end of the thirdsecond quarter and through November 8, 2016,August 7, 2017, we repurchased an0.2 million additional 0.6 million shares of our common stock under our share repurchase program, at an average price of $269.29,$207.21, for a total investment of $170$35 million. We have repurchased a total of 55.662.4 million shares of our common stock under our share repurchase program since the inception of the program in January of 2011 and through November 8, 2016,August 7, 2017, at an average price of $116.76,$132.00, for a total aggregate investment of $6.49$8.24 billion.

There have been no material changes to the contractual obligations, to which we are committed, since those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.2016.

The preparation of our financial statements in accordance with GAAP requires the application of certain estimates and judgments by management. Management bases its assumptions, estimates, and adjustments on historical experience, current trends and other factors believed to be relevant at the time the condensed consolidated financial statements are prepared. There have been no material changes in the critical accounting estimates since those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.2016.

We have been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of supplier incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the extent our acquisition costs increased due to base commodity price increases industry-wide, we have typically been able to pass along these increased costs through higher retail prices for the affected products. As a result, we do not believe inflation has had a material adverse effect on our operations.

To some extent, our business is seasonal primarily as a result of the impact of weather conditions on customer buying patterns. While we have historically realized operating profits in each quarter of the year, our store sales and profits have historically been higher in the second and third quarters (April through September) than in the first and fourth quarters (October through March) of the year.

In May of 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 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. In August of 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), to defer the effective date of ASU 2014-09 by one year. For public companies, ASU 2015-14

changes ASU 2014-09 to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. These ASUs can be adopted retrospectively or as a cumulative-effective adjustment at the date of adoption, with early adoption allowed, but not before December 15, 2016. We will adopt this guidance beginning with our first quarter ending March 31, 2018. We arehave established a task force, composed of multiple functional groups inside of the Company, which is currently in the process of evaluating critical components of this new guidance and the potential future impact if any, of ASU 2014-09the guidance on our consolidated financial position, results of operations and cash flows,flows. Based on the preliminary work completed, we are considering the potential implications of the new standard on our recognition of customer related accounts receivable, warranty costs that are not the responsibility of our suppliers, the application of the Company’s retail O’Rewards loyalty program and which methodall applicable financial statement disclosures required by the new guidance. At this time, the task force has not completed its evaluation of adoption is most appropriate for us.the impact or means of adoption.

In February of 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial

In March of 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments” (“ASU 2016-06”). ASU 2016-06 clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to the economic characteristics and risks of the debt hosts and requires entities to solely use the four-step decision sequence, which is already in existence, when assessing the embedded call or put options. For public companies, ASU 2016-06 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and can be adopted on a modified retrospective basis, with early adoption permitted. We will adopt this guidance beginning with our first quarter ending March 31, 2017. The application of this guidance is not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.

In June of 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Under ASU 2016-13, businesses and other organizations are required to present financial assets, measured at amortized costs basis, at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis, such as trade receivables. The measurement of expected credit loss will be based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. For public companies, ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. We will adopt this guidance beginning with our first quarter ending March 31, 2020. The application of this new guidance is not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.

In August of 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”Payments (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice for eight specific parts on cash flow statement presentation and classification: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments; contingent consideration payments made after a business combination; proceeds from

the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance (COLI) policies; distributions received from equity method investments; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. For public companies, ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and requires retrospective adoption, with early adoption permitted. We will adopt this guidance beginning with our first quarter ending March 31, 2018. The application of this new guidance is not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.

In May of 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 provides clarity and reduces both the diversity in practice and cost and complexity when applying stock compensation guidance to a change to the terms or conditions of a share-based payment award. For public companies, ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and requires prospective adoption, with early adoption permitted. We will adopt this guidance beginning with our first quarter ending March 31, 2018. The application of this new guidance is not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.