O'Reilly Auto Parts 2011 Annual Report Download - page 79

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O’Reilly Litigation:
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CSK Pre-Acquisition Matters – Governmental Investigations and Actions:
As previously reported, the governmental investigations of CSK regarding its legacy pre-acquisition accounting practices have
concluded.
CSK’s former Controller and its former Director of Credit and Receivables pled guilty to obstruction of justice on April 7, 2009 and
April 15, 2009, respectively, as previously reported. They were sentenced on November 7, 2011. CSK’s former Chief Financial
Officer was sentenced, as previously reported, on September 19, 2011. No appeal followed. Accordingly, with the sentencing on
November 7, 2011, criminal proceedings against former CSK employees have reached finality.
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 of 2002,
as previously reported, has also reached finality. On November 16, 2011, the Court entered a Final Judgment which required Mr.
Jenkins to reimburse $2.8 million to the Company as successor SEC issuer to CSK Auto Corp. Since entry of the Final Judgment, the
payment obligation created thereunder has been satisfied and O’Reilly has recorded the reimbursement as an adjustment to operating
income in the fourth quarter of 2011.
The previously reported SEC civil action for alleged misconduct related to CSK’s historical accounting practices against the former
Chief Financial Officer, Controller and Director of Credit and Receivables of CSK, remains ongoing. However, on January 20, 2012,
the parties filed a ―Joint Report On Settlement Talks‖ wherein they report that offers of settlement had been made which would be
presented to the Commission for its consideration and approval. The parties have requested a ―complete litigation standstill‖ while the
Commission considers the settlement offers made. Under Delaware law, the charter documents of the CSK entities, and certain
indemnification agreements, CSK may have certain indemnification obligations in connection with the SEC civil action, and, as a
result, O’Reilly is currently incurring legal fees in relation to the ongoing SEC litigation. Some of these indemnification obligations
and other related costs may not be covered by CSK’s insurance policies.
As a result of the CSK acquisition, O’Reilly has incurred and expects to continue to incur additional legal fees and costs related to the
indemnity obligations arising from the litigation commenced by the DOJ and SEC against CSK’s former employees until final
resolution of the remaining matters. O’Reilly has a remaining reserve, with respect to the indemnification obligations of $14.1 million
at December 31, 2011, which relates to both expected additional legal fees and costs and to the payment of those legal fees and costs
already incurred.
The remaining litigation, as described above, is subject to uncertainty, and, given its complexity and scope, the final outcome cannot
be predicted at this time. It is possible that in a particular quarter or annual period the Company’s results of operations and cash flows
could be materially affected by an ultimate resolution of such matter, depending, in part, upon the results of operations or cash flows
for such period. However, at this time, management believes that the ultimate outcome of the pending matters, after consideration of
applicable reserves should not have a material adverse effect on the Company’s consolidated financial condition, results of operations
or cash flows.
NOTE 13—RELATED PARTIES
The Company leases certain land and buildings related to 77 of its O'Reilly Auto Parts stores and one of its bulk facilities under
fifteen- or twenty-year operating lease agreements with entities in which certain of the Company’s affiliated directors, members of an
affiliated director’s immediate family or certain of the Company’s executive officers, are affiliated. Generally, these lease agreements
provide for renewal options for an additional five years at the option of the Company and the lease agreements are periodically
modified to further extend the lease term for specific stores under the agreements (see Note 11). Lease payments under these
operating leases totaled $4.2 million, $4.4 million and $4.1 million during the years ended December 31, 2011, 2010 and 2009,
respectively. We believe that the lease agreements with the affiliated entities are on terms comparable to those obtainable from third
parties.
FORM 10-K