O'Reilly Auto Parts 2015 Annual Report Download - page 57

FORM 10-K
49
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 charges to its long-
lived assets and the Company did not record a material impairment charge to its long-lived assets during the year ended December 31,
2015 or 2014.
Valuation of investments:
The Company has an unsecured obligation to pay, in the future, the value of deferred compensation and a Company match relating to
employee participation in the Company’s nonqualified deferred compensation plan (the "Deferred Compensation Plan"), see Note 9 for
further information concerning the Company's benefit plans. The future obligation is adjusted to reflect the performance, whether positive
or negative, of selected investment measurement options, chosen by each participant. The Company invests in various marketable
securities with the intention of selling these securities to fulfill its future obligations under the Deferred Compensation Plan. The
investments in this plan were stated at fair value based on quoted market prices, were accounted for as trading securities and were included
as a component of "Other assets, net" on the accompanying Consolidated Balance Sheets as of December 31, 2015 and 2014. See Note
2 for further information concerning the fair value measurements of the Company's marketable securities.
Self-insurance reserves:
The Company uses a combination of insurance and self-insurance mechanisms to provide for 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 an estimate of their net present value, using a credit-adjusted discount
rate.
The following table identifies the components of the Company's self-insurance reserves as of December 31, 2015 and 2014 (in thousands):
December 31,
2015 2014
Self-insurance reserves (undiscounted) $ 141,173 $ 132,879
Self-insurance reserves (discounted) 131,990 123,276
The current portion of the Company's discounted self-insurance reserves totaled $72.7 million and $64.9 million as of December 31,
2015 and 2014, respectively. The remainder was included within "Other liabilities" on the accompanying Consolidated Balance Sheets
as of December 31, 2015 and 2014.
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 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. See Note 7 for further information concerning the Company's aggregate product warranty liabilities.
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 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. See Note 14 for further information concerning the
Company's litigation reserves.
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.