O'Reilly Auto Parts 2008 Annual Report Download - page 63

O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT PG.61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the O’Reilly U.S. federal income tax return for 2005 will expire on September 15, 2009, unless otherwise extended. e IRS is currently
conducting an examination of the O’Reilly consolidated return for the tax years 2006 and 2007. e O’Reilly state income tax returns remain
subject to examination by various state authorities for tax years ranging from 2001 through 2007.
CSK has had net operating losses in various years dating back to the tax year 1993. For CSK, the statute of limitation for a particular tax year
for examination by the IRS is three years subsequent to the last year in which the loss carryover is nally used. e IRS is conducting an
examination of the CSK consolidated federal tax return for the scal years ending January 30, 2005, January 29, 2006 and February 4, 2007.
e statute of limitation for a particular tax year for examination by various states is generally three to four years subsequent to the last year in
which the loss carryover is nally used.
A summary of the changes in the gross amount of unrecognized tax benets, excluding interest and penalties, for the years ended December 31,
2007, and December 31, 2008, is shown below:
(In thousands) December 31, 2008 December 31, 2007
Balance as of January 1, 2008 $ 16,952 $ 13,245
Addition based on tax positions related to the current year 5,638 3,484
Addition based on tax positions related to prior years -- 827
Addition based on tax positions related to CSK acquisition 8,620 --
Reduction due to lapse of statute of limitations (810) (604)
Balance as of December 31, 2008 $ 30,400 $ 16,952
NOTE 14 – LEGA L M ATTERS
O’REILLY LITIGATION
O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. Although the Company cannot
ascertain the amount of liability that it may incur from any of these matters, it does not currently believe that, in the aggregate, these matters
will have a material adverse eect on its consolidated nancial position, results or operations or cash ows. In addition, O’Reilly is involved in
resolving the governmental investigations that were being conducted against CSK prior to its acquisition by O’Reilly. Further detail regarding
such matters is described below.
CSK PRE-ACQUISITION MATTERS
Investigations by the SEC and Department of Justice respecting certain historical accounting practices of CSK, as previously reported and
as described below, continue. O’Reilly expects to continue to incur ongoing legal expenses related to the governmental investigations and
indemnity obligations and has reserved $7.3 million as an assumed liability in the Company’s preliminary allocation of the purchase price of
CSK. O’Reilly has incurred approximately $1.0 million of such legal costs related to the government investigations and indemnity obligations in
the 4th quarter of 2008 and $1.3 million in the reporting year.
GOVERNMENTAL INVESTIGATIONS
e SEC investigation that began in 2006 related to certain historical accounting practices of CSK continues. On May 1, 2008, CSK received a
notication from the Sta of the Pacic Regional Oce (the “Sta”) of the SEC relating to that investigation. On November 6, 2008, the Sta
informed O’Reilly that the Securities and Exchange Commission (the “Commission”) agreed with the recommendation of Sta to bring charges
against CSK, including charges that CSK violated certain provisions of the federal securities laws, including Section 10(b) of the Exchange Act
and Rule 10b-5 (the antifraud provisions). O’Reilly is in discussions with the Sta to try to resolve CSK’s pre-merger matters with the Sta and
the Commission but cannot predict whether and when it will be able to reach a resolution.
In addition, the U.S. Attorney’s oce in Phoenix (the “USAO”) and the U.S. Department of Justice in Washington, D.C. (the “DOJ”) is
continuing the investigation related to pre-acquisition historical accounting practices of CSK. At this time, O’Reilly is cooperating with requests
from the DOJ to resolve CSK’s pre-merger matters.
INDEMNIFICATION MATTERS
Several of CSK’s former directors or ocers and current or former employees have been or may be interviewed as part of or become the subject
of criminal, administrative and civil investigations and lawsuits. We are involved in working toward resolution of these matters involving such
persons. Under Delaware law, the charter documents of the CSK entities and certain indemnication agreements, we may have an obligation
to indemnify and are currently incurring expenses on the behalf of these persons in relation to pending matters. Some of these indemnication
obligations may not be covered by our directors’ and ocers’ insurance policies.