O'Reilly Auto Parts 2015 Annual Report Download - page 58

FORM 10-K
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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 8 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 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.
The Company maintains a retail loyalty program named O'Reilly O'Rewards, designed to build brand recognition. The program allows
a retail customer to enroll at no charge, does not impose a membership fee and provides members with the ability to earn loyalty points
by making qualifying purchases at the Company's stores. Upon reaching established thresholds, the members are automatically issued
coupons, which expire 90 days after issuance, have no cash value and may be redeemed for most items in the Company's stores with a
total purchase price equal to or greater than the value of the coupon. Points accrued in a member's account, which have not been awarded
to the member with a coupon, expire 12 months after the date in which they were earned. The Company records a deferred revenue
liability, based on a breakage adjusted estimated redemption rate, and a corresponding reduction in revenue in periods when loyalty points
are earned by members. The Company recognizes revenue and a corresponding reduction to the deferred revenue liability in periods
when loyalty program issued coupons are redeemed by members. As of December 31, 2015, the Company had recorded a deferred
revenue liability of $7.2 million related to its loyalty program, which was included as a component of "Other liabilities" in the accompanying
Consolidated Balance Sheets, and during the year ended December 31, 2015, the Company recognized $11.2 million of deferred revenue
related to its loyalty program. As of December 31, 2014, the Company recorded a deferred revenue liability of $4.3 million related to
its loyalty program, which was included as a component of "Other liabilities" in the accompanying Consolidated Balance Sheets, and
during the year ended December 31, 2014, the Company recognized $5.6 million of deferred revenue related to its loyalty program.
Cost of goods sold and selling, general and administrative expenses:
The following table illustrates the primary costs classified in each major expense category:
Cost of goods sold, including warehouse and distribution
expenses 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
Supplier 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 suppliers Closed store expenses
Costs associated with the Company's supply chain, including: Other administrative costs, including:
Payroll and benefit costs Accounting, legal and other professional services
Warehouse occupancy costs Bad debt, banking and credit card fees
Transportation costs 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, DCs and corporate offices. Generally,
the lease term for stores and corporate offices 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