O'Reilly Auto Parts 2012 Annual Report Download - page 65

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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:
Cost of goods sold, including warehouse and distribution 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:
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 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.