O'Reilly Auto Parts 2009 Annual Report Download - page 84

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As of December 31, 2009, the Company had net operating loss carry forwards for federal income tax purposes of $51,578,000 (for
which a portion are also available for state tax purposes) and general business tax credit carry forwards available for federal and state
tax purposes of $2,386,000 and $4,305,000, respectively. The Company also has an alternative minimum tax credit carry forward for
federal tax purposes of $2,510,000. The net operating loss carry forwards generally expire in years ranging from 2021 to 2027, and
the tax credits generally expire in years ranging from 2019 to 2028. The alternative minimum tax credit carry forward does not expire.
As of the years ended December 31, 2009, 2008 and 2007, the Company had recorded a reserve for unrecognized tax benefits
(including interest) of $37,600,000, $34,300,000 and $19,700,000, respectively, of which $37,600,000, $34,300,000 and $19,700,000
would affect the Company’s effective tax rate if recognized, generally net of federal tax affect. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. As of the years ended December 31, 2009, 2008 and 2007, the
Company had accrued approximately $4,030,000, $3,900,000 and $2,748,000, respectively, of interest related to uncertain tax
positions before the benefit of the deduction for interest on state and federal returns. During the years ended December 31, 2009, 2008
and 2007, the Company recorded tax expense related to an increase in its liability for interest of $1,521,000, $1,429,000 and
$1,289,000, respectively. Although unrecognized tax benefits for individual tax positions may increase or decrease during 2010, the
Company expects a reduction of $3,465,000 of unrecognized tax benefits during the one-year period subsequent to December 31,
2009, resulting from settlement or expiration of the statute of limitations.
The O’Reilly U.S. federal income tax returns for tax years 2006 and beyond remain subject to examination by the Internal Revenue
Service (“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2006 and 2007 federal income tax returns in the
fourth quarter of 2009. The statute of limitations for the O’Reilly federal income tax returns for tax years 2005 and prior have expired.
The statute of limitations for the O’Reilly U.S. federal income tax return for 2006 will expire on September 15, 2010, unless otherwise
extended. The IRS is currently conducting an examination of the O’Reilly consolidated return for the tax year 2008. The O’Reilly
state income tax returns remain subject to examination by various state authorities for tax years ranging from 2001 through 2008.
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 finally used. The IRS
completed an examination of the CSK consolidated federal tax return for the fiscal years ended January 30, 2005, January 29, 2006,
February 4, 2007, and February 2, 2008. The 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 finally used.
A summary of the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the years ended
December 31, 2009, 2008 and 2007, is shown below (in thousands):
2009 2008 2007
Balance as of January 1 $ 30,400 $ 16,952 $ 13,245
Addition based on tax positions related to the current year 5,900 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 (2,730) (810) (604)
Balance as of December 31 $ 33,570 $ 30,400 $ 16,952
NOTE 14 — LEGAL MATTERS
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 effect on its consolidated financial position, results of operations or cash flows in a particular
quarter or annual period. In addition, O'Reilly is involved in resolving the governmental investigations that were being conducted
against CSK prior to its acquisition by O'Reilly.
CSK Pre-Acquisition Matters – Governmental Investigations and Actions
As previously reported, the pre-acquisition SEC investigation of CSK, which commenced in 2006, was settled in May 2009 by
administrative order without fines, disgorgement or other financial remedies. However, the DOJ’s criminal investigation into these
same matters remains ongoing. In addition, the previously reported SEC complaint against four (4) former employees of CSK for
alleged conduct related to CSK’s historical accounting practices remains ongoing, though one of those former employees died in
January, 2010. The action filed by the SEC on July 22, 2009, against Maynard L. Jenkins, the former chief executive officer of CSK
seeking reimbursement from Mr. Jenkins of certain bonuses and stock sale profits pursuant to Section 304 of the Sarbanes-Oxley Act