O'Reilly Auto Parts 2013 Annual Report Download - page 60

FORM 10-K
54
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
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
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, net of cooperative advertising allowances from vendors that were incremental to the specific advertising program
and identifiable, included as a component of “Selling, general and administrative expenses” (“SG&A”) on the accompanying Consolidated
Statements of Income amounted to $78.3 million, $74.8 million and $73.8 million for the years ended December 31, 2013, 2012 and
2011, 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 12 for further information concerning these plans.
Pre-opening expenses:
Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to SG&A as incurred.
Costs associated with the opening of new distribution centers, which consist primarily of payroll and occupancy costs, are included as a
component of “Cost of goods sold, including warehouse and distribution expenses” on the accompanying Consolidated Statements of
Income as incurred.