O REILLY AUTOMOTIVE INC Stock Compensation Disclosure

NOTE 14 – SHARE-BASED COMPENSATION AND BENEFIT PLANS

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The Company recognizes share-based compensation expense based on the fair value of the grants, awards, or shares at the time of the grant, award, or issuance.  Share-based compensation includes stock option awards, restricted stock awards, and stock appreciation rights issued under the Company’s incentive plans and stock issued through the Company’s employee stock purchase plan.

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The table below identifies the shares that have been authorized for issuance and the shares available for future issuance under the Company plans, as of December 31, 2025 (in thousands):

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Stock Options:

The Company’s incentive plans provide for the granting of stock options for the purchase of common stock of the Company to certain key employees of the Company.  Employee stock options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant.  Employee stock options granted under the plans expire after 10 years and typically

vest 25% per year, over four years.  The Company records compensation expense for the grant date fair value of the option awards evenly over the vesting period or minimum required service period.

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The table below identifies stock option activity under these plans during the year ended December 31, 2025:

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The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model.  The Black-Scholes model requires the use of assumptions, including the risk-free rate, expected life, expected volatility, and expected dividend yield.

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The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2025, 2024, and 2023:

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The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2025, 2024, and 2023:

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At December 31, 2025, the remaining unrecognized compensation expense related to unvested stock option awards was $44.2 million, and the weighted-average period of time, over which this cost will be recognized, is 2.6 years.

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Restricted Stock:

The Company’s incentive plans provide for the awarding of shares of restricted stock to certain key employees or the non-employee directors of the Company that vest after one-year or evenly over a three-year period and are held in escrow until such vesting has occurred.  Generally, unvested shares are forfeited when an employee or a director ceases employment or service on the Company’s

Board of Directors, for reasons other than death or retirement.  The fair value of shares awarded under these plans is based on the closing market price of the Company’s common stock on the date of award, and compensation expense is recorded over the vesting period or minimum required service period.

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The table below identifies restricted stock activity under these plans during the year ended December 31, 2025 (in thousands, except per share data):

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The following table summarizes activity related to restricted stock awarded by the Company for the years ended December 31, 2025, 2024, and 2023 (in thousands, except per share data):

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At December 31, 2025, the remaining unrecognized compensation expense related to unvested restricted share awards was $0.5 million, and the weighted-average period of time, over which this cost will be recognized, is 0.3 years.

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Employee Stock Purchase Plan:

The Company’s employee stock purchase plan (the “ESPP”) permits eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value.  Employees may authorize the Company to withhold up to 5% of their annual salary to participate in the plan.  The fair value of shares issued under the ESPP is based on the average of the high and low market prices of the Company’s common stock during the offering periods, and compensation expense is recognized based on the discount between the grant-date fair value and the employee purchase price for the shares sold to employees.

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The table below summarizes activity related to the Company’s ESPP for the years ended December 31, 2025, 2024, and 2023 (in thousands, except per share data):

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Stock Appreciation Rights:

The Company’s incentive plans provide for the granting of stock appreciation rights, which expire after 10 years and vest 25% per year, over four years, and are settled in cash.  There were 176,535 and 204,765 stock appreciation rights outstanding as of December 31, 2025 and 2024, respectively.  During the year ended December 31, 2025, there were 21,270 stock appreciation rights granted, 43,665 stock appreciation rights exercised, and 5,835 stock appreciation rights forfeited.  The liability for compensation to be paid for redeemed stock appreciation rights was $7.3 million and $6.4 million as of December 31, 2025 and 2024, respectively, which were included in “Other liabilities” on the Consolidated Balance Sheets.  The Company recorded compensation expense for stock appreciation rights in the amounts of $2.4 million, $4.3 million and $1.1 million for the year ended December 31, 2025, 2024, and 2023, respectively, which were included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.

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Benefit Plans:

The Company sponsors a contributory profit sharing and savings plan (the “401(k) Plan”) that covers substantially all employees who are at least 21 years of age.  The Company makes matching contributions equal to 100% of the first 2% of each employee’s wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed.  The Company also sponsors a nonqualified deferred compensation plan (the “Deferred Compensation Plan”) for highly compensated employees whose contributions to the 401(k) Plan are limited due to the application of the annual limitation under the Internal Revenue Code.  In the event of bankruptcy, the assets of the Deferred Compensation Plan are available to satisfy the claims of general creditors.  The Company has an unsecured obligation to pay, in the future, the value of the deferred compensation and Company match, if applicable, adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. The Company may make discretionary contributions to the 401(k) Plan or the Deferred Compensation Plan on an annual basis as determined by the Board of Directors.  

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The Company did not make any discretionary contributions to the 401(k) Plan or the Deferred Compensation Plan during the years ended December 31, 2025, 2024, or 2023.  The Company expensed matching contributions under the plans in the amount of $58.9 million, $52.7 million and $48.6 million for the year ended December 31, 2025, 2024, and 2023, respectively, which were primarily included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements of Income.  The liability for compensation deferred under the Deferred Compensation Plan was $67.8 million and $65.2 million as of December 31, 2025 and 2024, respectively, which were included in “Other liabilities” on the accompanying Consolidated Balance Sheets.  See Note 3 for further information concerning the Company’s marketable securities held to fulfill our future unsecured obligations under this plan.