O'Reilly Auto Parts 2012 Annual Report Download - page 63

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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):
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
N
et property and equipmen
t
$ 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-