O'Reilly Auto Parts 2015 Annual Report Download - page 55

FORM 10-K
47
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
O'Reilly Automotive, Inc. ("O'Reilly" or the "Company") is a specialty retailer and supplier of automotive aftermarket parts. The
Company's stores carry an extensive product line, including new and remanufactured automotive hard parts, maintenance items and
various automotive accessories. As of December 31, 2015, the Company owned and operated 4,571 stores in 44 states, servicing both
the do-it-yourself ("DIY") customer and the professional service provider. The Company's robust distribution system provides stores
with same-day or overnight access to an extensive inventory of hard-to-find items not typically stocked in the stores of other auto parts
retailers.
Segment reporting:
The Company is managed and operated by a single management team reporting to the chief operating decision maker. O'Reilly stores
have similar characteristics including the nature of the products and services, the type and class of customers and the methods used to
distribute products and provide service to its customers and, as a whole, make up a single operating segment. The Company does not
prepare discrete financial information with respect to product lines, types of customers or geographic locations and as such has one
reportable segment.
Reclassification:
Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had an effect on
previously reported totals for assets and liabilities but had no effect on reported totals for shareholders' equity, cash flows or net income.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances
and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of the consolidated financial statements, in conformity with United States generally accepted accounting principles
("GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could materially differ from those estimates.
Cash equivalents:
Cash equivalents include investments with maturities of 90 days or less on the date of purchase.
Accounts receivable:
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company's customers
to make required payments. The Company considers the following factors when determining if collection is reasonably assured: customer
creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment
terms. Allowances for doubtful accounts are determined based on historical experience and an evaluation of the current composition of
accounts receivable. Amounts due to the Company from its Team Members are included as a component of accounts receivable. These
amounts consist primarily of purchases of merchandise on Team Member accounts. Accounts receivable due from Team Members was
approximately $1.1 million and $1.0 million as of December 31, 2015 and 2014, respectively.
The Company grants credit to certain customers who meet the Company's pre-established credit requirements. Concentrations of credit
risk with respect to these receivables are limited because the Company's customer base consists of a large number of small customers,
spreading the credit risk across a broad base. The Company also controls this credit risk through credit approvals, credit limits and
accounts receivable and credit monitoring procedures. Generally, the Company does not require security when credit is granted to
customers. Credit losses are provided for in the Company's consolidated financial statements and have consistently been within
management's expectations.
Amounts receivable from suppliers:
The Company receives concessions from its suppliers through a variety of programs and arrangements, including allowances for new
stores and warranties, volume purchase rebates and co-operative advertising. Co-operative advertising allowances that are incremental
to the Company's advertising program, specific to a product or event and identifiable for accounting purposes are reported as a reduction
of advertising expense in the period in which the advertising occurred. All other supplier concessions are recognized as a reduction to
the cost of sales. Amounts receivable from suppliers also includes amounts due to the Company for changeover merchandise and product
returns. The Company regularly reviews supplier receivables for collectability and assesses the need for a reserve for uncollectable
amounts based on an evaluation of the Company's suppliers' 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 amounts receivable from