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The fair value of 0.09$1.1 million for the O’Reilly shares ofexchanged for CSK’s unvested restricted stock outstanding at July 11, 2008, was based on the fair value per O’Reilly share of $0.9 million was calculated by multiplying$25.37 on the number of O’Reilly shares exchanged, by the $22.77, the average close price of O’Reilly stock prior to the acquisitionJune 9, 2008, measurement date. Direct costs of the acquisition include investment-banking fees, legal and accounting fees, and other external costs directly related to the acquisition.

The preliminary purchase price allocations, adjusted from its initial purchase price allocation, as discussed above, as of the date of acquisition are as follows (in thousands):

Preliminary estimated fair values of intangible assets acquired as of the date of acquisition are as follows (in thousands):

The estimated values of operating leases with unfavorable terms compared with current market conditions totaled approximately $49.9 million. These liabilities have an estimated weighted averageweighted-average useful life of approximately 7.7 years and are included in other liabilities. Favorable and unfavorable lease assets and liabilities will be amortized to rent expense over their expected lives which approximates the period of time that the favorable or unfavorable lease terms will be in effect. Trademarks and trade names have preliminary useful lives of one to three years and will be amortized coincidingto coincide with the anticipated conversion of CSK store brands to the O’Reilly brandbranded locations over that period. See(see Note 3 “Goodwill and Other Intangible Assets”.)

The allocation of the purchase price includes $35.7$36.0 million of accrued liabilities for estimated costs to exit certain activities of CSK, including $31.3$27.6 million of employee separation costs, and $4.1$4.3 million of exit costs associated with the planned closure of 33 CSK stores, and $4.1 million of exit costs associated with the planned closure of other administrative office and distribution facilities. These activities have been accounted for in accordance with EITF No. 95-3,Recognition of Liabilities in Connection with a Purchase Business Combination.Management began to formulate its exit plans prior to the completion of the acquisition. The employee separation costs include anticipated payments, as required under various pre-existing employment arrangements with CSK employees at the time of acquisition, relatedrelating to the planned involuntarily termination of employees performing overlapping or duplicative functions which the Company expects to occur within the first two years after the acquisition date. Management began to formulate an exit plan prior to the completionEvaluation of the acquisition. involuntary team member terminations is substantially complete.

As of September 30, 2008,March 31, 2009, management of the Company had not finalized all exit plans associated with store closures and other facilities related to the CSK acquisitionacquisition. The store closure plans are preliminary pending the completion of evaluations of the physical and

market condition of acquired locations and the Company expects to finalize the plans within the first year after the acquisition date, which may result in adjustments to the allocation of the acquisition purchase price that may impact other current liabilities and goodwill.

The CSK senior credit facility and term loan facility required repayment upon merger or acquisition and the entire amounts outstanding under both facilities were repaid by the Company on the July 11, 2008, acquisition date.

The excess of the preliminary purchase price over the estimated fair values of tangible and identifiable intangible assets acquired and liabilities assumed was recorded as goodwill. Goodwill is not amortizable for financial statement purposes.

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Unaudited Pro Forma Financial Information

The following pro forma financial information presents the combined historical results of the combined Company as if the acquisition had occurred as of the beginning of the respective periods (in thousands, except per share data):

This pro forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, nor is it necessarily indicative of future results and does not reflect potential synergies, integration costs, or other such costs or savings. Certain pro forma adjustments have been made to net income to give effect to: estimated charges to conform CSK’s method of accounting for inventory to LIFO, adjustments to selling, general and administrative expenses to remove the amortization on eliminated CSK historical identifiable intangible assets and deferred liabilities, expenses to amortize the value of identified intangibles acquired in the acquisition (primarily trade names, trademarks and leases), rent and depreciation adjustments to reflect O’Reilly’s purchase of properties under its synthetic lease facility, adjustments to interest expense to reflect the elimination of preexisting O’Reilly and CSK debt, estimated interest expense on O’Reilly’s new asset-based credit facility and other minor adjustments. The pro forma information presented above for the three and nine months ended September 30, 2008, includes certain acquisition related charges, net of tax, of $4.4 million, $2.6 million, and $5.3 million for debt prepayment costs, interim facility commitment fees, and the acceleration of CSK’s stock options and restricted stock as a result of the change in control, respectively.  The pro forma information for the three and nine months ended September 30, 2007, has not been adjusted to give effect to these charges.

3.Goodwill and Other Intangible Assets

Goodwill is reviewed annually for impairment, or more frequently if events or changes in business conditions indicate that impairment may exist. During the three and nine months ending September 30, 2008,March 31, 2009, the Company recorded additional goodwill of approximately $604.9$2.08 million, primarily due to changes in purchase price allocation in connection with the acquisition of CSK. SeeCSK (see Note 2 “Business Combination”). The Company did not record any goodwill impairment during the three or nine months ended September 30, 2008.March 31, 2009. For the three and nine months ended September 30,March 31, 2009, and 2008, the Company recorded amortization expense of $4.3$4.13 million and $4.4$0.04 million, respectively, related to amortizable intangible assets, which are included in other assets on the accompanying condensed consolidated balance sheets. The components of the Company’s amortizable and unamortizable intangible assets were as follows on September 30, 2008March 31, 2009 and December 31, 20072008 (in thousands):

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In addition, the Company has recorded a liability for the preliminary estimated values of operating leases with unfavorable terms totaling approximately $49.9 million in the other liabilities“other liabilities” section of the condensed consolidated balance sheet. These leases have an estimated weighted average useful life of approximately 7.7 years. During the three and nine months ending September 30, 2008,March 31, 2009, the Company recognized an amortized benefit of $1.9$2.09 million related to these unfavorable operating leases.

The change in the net goodwill for the ninethree months ended September 30, 2008March 31, 2009, is as follows:follows (in thousands):

4.Long-Term Debt

Outstanding long-term debt was a follows on September 30, 2008,March 31, 2009, and December 31, 2007,2008, (in thousands):

On July 11, 2008, in connection with the acquisition of CSK (see Note 2 “Business Combination”), the Company entered into a Credit Agreementcredit agreement (the “Credit Agreement”) for a five-year $1.2 billion asset-based revolving credit facility arranged by Bank of America, N.A. (“BA”) and Lehman Brothers Inc., which the Company used to refinance debt, fund the cash portion of the acquisition, pay for other transaction-related expenses and provide liquidity for the combined Company going forward.

The Credit Agreement is comprised of a five-year $1.075 billion tranche A revolving credit facility and a five-year $125 million first-in-last-out revolving credit facility (FILO tranche), both of which mature on July 11,10, 2013. As part of the Credit Agreement, the Company has pledged substantially all of its assets as collateral and is subject to an ongoing consolidated leverage ratio covenant, with which the Company complied on March 31, 2009. On the date of the transaction, the amount of the borrowing base available, as described in the Credit Agreement, under the credit facility was $1.050$1.05 billion, of which the Company borrowed $588 million. The Company used borrowings under the credit facility to repay certain existing debt of CSK, repay the Company’s $75 million 2006-A Senior Notes and purchase all of the properties that had been leased under the Company’s synthetic lease facility. As of September 30, 2008March 31, 2009, the amount of the borrowing base available under the credit facility was $1.087$1.14 billion of which the Company had outstanding borrowings of $544$675.4 million. The available borrowings under the credit facility are also reduced by stand-by letters of credit issued by the Company primarily to satisfy the requirements of workers compensation, general liability and other insurance policies. As of September 30, 2008,March 31, 2009, the Company had stand-by letters of credit outstanding in the amount of $62.1$74.5 million and the aggregate availability for additional borrowings under the credit facility was $480.9$395 million.

BorrowingsAt March 31, 2009, borrowings under the tranche A revolver currently bearbore interest, at ourthe Company’s option, at a rate equal to either a base rate plus 1.50% per annum or LIBOR plus 2.50% per annum, with each rate being subject to adjustment based upon certain excess availability thresholds. Borrowings under the FILO tranche currently bearbore interest, at ourthe Company’s option, at a rate equal to either a base rate plus 2.75% per annum or LIBOR plus 3.75% per annum, with each rate being subject to adjustment based upon certain excess availability thresholds. The base rate is equal to the higher of the prime lending rate established by BA from time to time and the federal funds effective rate as in effect from time to time plus 0.50%, subject to adjustment based upon remaining available borrowings. Fees related to unused capacity under the credit facility are assessed at a rate of 0.50%0.375% of the remaining available borrowings under the facility, subject to adjustment based upon remaining unused capacity. In addition, the Company paid customary commitment fees,pays letter of credit fees, underwriting fees and other administrative fees in respect to the credit facility.

On each of July 24, 2008, October 14, 2008, and November 24, 2008, the Company entered into interest rate swap transactions with Branch Banking and Trust Company (“BBT”), BA andand/or SunTrust Bank (“SunTrust”). The Company entered into thethese interest rate swap transactions to mitigate the risk associated with its floating interest rate based on LIBOR on an aggregate of $250$450 million of its debt that is outstanding under the Credit Agreement, dated as of July 11, 2008, with BA as administrative agent, and the other parties thereto (the “Credit Facility”). Each interest rate swap has an effective date of August 1, 2008, and maturity dates of (i) August 1, 2010, for the BBT Swap, (ii) August 1, 2011, for the BA Swap and (iii) August 1, 2011, for the SunTrust Swap.Agreement. The Company is required to make certain monthly fixed rate payments calculated on the notional amounts, of (i) $100

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million for the BBT Swap, (ii) $75 million for the BA Swap and (iii) $75 million for the SunTrust Swap, while the applicable counter party is obligated to make certain monthly floating rate payments to the Company referencing the same notional amount. The interest rate swap transactions effectively fix the annual interest rate payable on these notional amounts of ourthe Company’s debt, which may exist under the Credit Facility to (i) 3.425% for the BBT Swap, (ii) 3.83% for the BA Swap and (iii) 3.83% for the SunTrust Swap,Agreement plus an applicable margin under the terms of the Credit Facility.

On October 14, 2008, the Company entered into interest rate swap transactions with BBT, BA and SunTrust to mitigate the risk associated with the Company’s floating interest rate which is based on LIBOR on an additional $150 million of the Company’s debt that is outstanding under its Credit Agreement, dated as of July 11, 2008. See Note 14 “Subsequent Events”.

same credit facility.

On July 11, 2008, the Company executed the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the Notes, in which it agreed to become a guarantor, on a subordinated basis, of the $100 million principal amount of 6 ³3//4% Exchangeable Senior Notes due 2025 (the “Notes”) originally issued by CSK pursuant to an Indenture, (the “Original Indenture”), dated as of December 19, 2005, as amended and supplemented by the First Supplemental Indenture (the “First Supplemental Indenture”) dated as of December 30, 2005, and the Second Supplemental Indenture, dated as of July 27, 2006, (the “Second Supplemental Indenture”) by and between CSK Auto Corporation, CSK Auto, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee.

On December 31, 2008, and effective as of July 11, 2008, the Company entered into the Fourth Supplemental Indenture in order to correct the definition of Exchange Rate in the Third Supplemental Indenture.

EITF No. 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock, provides guidance for distinguishing between permanent equity, temporary equity, and assets and liabilities. The 6embedded exchange feature in the Notes provides for the issuance of common shares to the extent the Company’s exchange obligation exceeds the debt principal. The share exchange feature and the embedded put options and call options in the debt instrument meet the requirements of EITF No. 00-19 to be accounted for as equity instruments.

3Effective January 1, 2009, the Company adopted the provisions of FASB Staff Position (FSP) APB 14-1,Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants(“FSP APB 14-1”), which impacts the accounting associated with its Notes. FSP APB 14-1 requires the Company to recognize interest expense, including non-cash interest, based on the market rate for similar debt instruments without the conversion feature, which the Company determined to be 5.93%. Under FSP APB 14-1, the liability component of convertible debt was measured as of the acquisition date, using a 5.93% interest rate and an assumed 2.43-year life, as determined by the first date the holders may require the Company redeem the Note. The difference between the fair value of the Notes at acquisition date and the fair value of the liability component was $2.1 million, which was assigned to equity. The retrospective accounting impact the adoption of FSP APB 14-1 had on the Company’s consolidated balance sheet as of December 31, 2008, is immaterial./4%

The Notes are exchangeable, under certain circumstances, into cash and shares of the Company’s common stock. The Notes bear interest at 6.75% per year until December 15, 2010, and 6.5% until maturity on December 15, 2025. Prior to their stated maturity, the 63/4% Notes are exchangeable by the holders only under certain circumstances. InPrior to their stated maturity, these Notes are exchangeable by the holder only under the following circumstances (as more fully described in the indenture under which the Notes were issued):

If the Notes are exchanged, the Company will deliver cash equal to the lesser of the aggregate principal amount of Notes to be exchanged and the Company’s total exchange obligation and, in the event the Company’s total exchange obligation exceeds the aggregate principal amount of anNotes to be exchanged, shares of the Company’s common stock in respect of that excess. The total exchange obligation reflects the exchange rate whereby each $1,000 Principal Amountin principal amount of the Notes shall beis exchangeable into an equivalent value of 25.97 shares of our common stock of O’Reilly and $60.61 in cash.

The noteholders may require the Company to repurchase some or all of the notesNotes for cash at a repurchase price equal to 100% of the principal amount of the notesNotes being repurchased, plus any accrued and unpaid interest on December 15, 2010; December 15, 2015; or December 15, 2020, or on any date following a fundamental change as described in the indenture. The Company may redeem some or all of the notesNotes for cash at a redemption price of 100% of the principal amount plus any accrued and unpaid interest on or after December 15, 2010, upon at least 35 calendar35-calendar days notice.

5.Synthetic Lease Facility

On July 11, 2008, the Company, in connection with the acquisition of CSK, purchased all the properties included in its Synthetic Operating Lease Facility in the amount of $49.3 million, thus terminating the facility. The purchase was funded through borrowings under a new asset-based revolving credit facility. See Note 4 “Long-Term Debt” and Note 2 “Business Combination”.

6.Store Closing Costs

The Company maintains reserves for closed stores and other properties that are no longer being utilized in current operations and accounts for these costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. TheActivities. Upon the decision to close facilities, the Company providesaccrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the remaining noncancelable lease payments, occupancy costs and lease termination fees after the closing date, net of estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease terms. The Company estimates sublease income and future cash flows based on the Company’s experience and knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar assets and existing economic conditions. Adjustments to closed property reserves are made to reflect changes in estimated sublease income or actual exit costs from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known.

In connection with the acquisition of CSK, the Company recorded $4.1$4.3 million of exit costs associated with the planned closure of 33 CSK stores, and other facilities and assumed CSK’s existing closed stores liabilities of $3.0$4.0 million related to 127 locations that were closed prior to the Company’s acquisition of CSK.CSK, recorded $4.1 million of exit costs associated with the planned closure of CSK administrative office and distribution facilities and recorded $27.6 million of employee separation costs. The estimates of exit costs associated with planned closures of CSK stores, offices and distribution facilities and employee separation costs are preliminary and subject to adjustment.

Following is a summary of store closure reserves for stores, administrative office and distribution facilities and reserves for employee separation costs at September 30,March 31, 2009, and December 31, 2008, and 2007 (in thousands):

		Store Closure Liabilities				Administrative Office and Distribution Facilities Closure Liabilities				Employee Separation Liabilities
Balance at January 1, 2008:		$	1,841			$	—			$	—
Recorded CSK liabilities assumed, as of July 11, 2008			2,984				—				—
Planned CSK exit activities			4,141				4,127				27,613
Additions and accretion			764				—				—
Payments			(2,591	)			—				(2,534	)
Revisions to estimates			235				—				—
Ending Balance at December 31, 2008:		$	7,374			$	4,127			$	25,079
Additions and accretion			155				29				—
Payments			(956	)			(330	)			(15,537	)
Revisions to estimates			438				—				—
Ending Balance at March 31, 2009:		$	7,011			$	3,826			$	9,542

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7.Derivative Instruments

On January 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No. 161”), an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures of the Company’s derivative and hedging activities. FAS 161 does not change the accounting for derivative and hedging activities, but rather provides more detailed disclosures on (i) how and why the Company uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for, and (iii) how derivative instruments and related hedged items affect the Company’s consolidated financial statements.

Interest Rate Risk Management

As discussed in Note 4, on each of July 24, 2008, October 14, 2008, and November 24, 2008, the Company entered into interest rate swap transactions with BBT, BA andand/or SunTrust to mitigate cash flow risk associated with the floating interest rate based on the one month LIBOR rate on an aggregate of $250$450 million of the debt outstanding under the Credit Agreement, dated as of July 11, 2008.Agreement. The swap transactions have been designated as cash flow hedges with interest payments designed to perfectly matchoffset the interest payments for borrowings under the Credit Agreement that correspond to notional amounts of the swaps. In accordance with FASBStatement No. 133, issued by the FASB,Accounting for Derivative Instruments and Hedging Activities, the fair value of the Company’s outstanding hedges are recorded as an asset ora liability in the accompanying condensed consolidated balance sheets at September 30, 2008.March 31, 2009. Changes in fair market value are recorded in other comprehensive income (loss), and any changes resulting from ineffectiveness of the hedge transactions would be recorded in current earnings; however, ineffectiveness is not expected during the lifeearnings. The Company’s hedging instruments have been deemed to be highly effective as of the swap.March 31, 2009. The fair value of the swap transactions at September 30, 2008,March 31, 2009, was a payable of $1.6$18.7 million ($1.011.4 million net of tax). The net amount is included as a component of other comprehensive loss.

8.Fair Value MeasurementsThe table below represents the amount recorded in the Company’s balance sheet as being a payable to counterparties at March 31, 2009 (in thousands):

The table below represents unrealized losses related to derivative amounts included in other comprehensive loss for the three months ended March 31, 2009 (in thousands):

The Company adopted SFAS No. 157 at the beginning of its 2008 fiscal year. SFAS No. 157 clarifies the definition of fair value, describes the method used to appropriately measure fair value in accordance with generally accepted accounting principles and expands fair value disclosure requirements. This statement applies whenever other accounting pronouncements require or permit fair value measurements.

The fair value hierarchy established under SFAS No. 157 prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:

·

The fair value of the interest rate swap transactions are based on the discounted net present value of the swap using third party quotes (level 2). Changes in fair market value are recorded in other comprehensive income (loss), and changes resulting from ineffectiveness are recorded in current earnings.

9.Other Comprehensive LossAssets and liabilities measured at fair value are based on one or more of three valuation techniques noted in SFAS 157. The three valuation techniques are identified in the table below and are as follows:

Unrealized holding gains

Assets and liabilities measured at fair value on available-for-sale securities, consistinga recurring basis are as follows (in thousands):

The estimated fair values of the Company’s investment in CSK common stock priorfinancial instruments, which are determined by reference to the Company’s completionquoted market prices, where available, or are based on comparisons to similar instruments of the acquisition of CSK,comparable maturities, are as well as unrealizedfollows (in thousands):

Unrealized losses from interest rate swaps that qualify as cash flow hedges are included in accumulated other comprehensive income (loss). The adjustment to accumulated other comprehensive loss for the ninethree months ended September 30, 2008,March 31, 2009, totaled $9.3$0.13 million with a corresponding tax liability of $3.5$0.05 million resulting in a net of tax effect of $5.8$0.08 million.

Changes in accumulated other comprehensive income (loss) for the ninethree months ended September 30, 2008 consistMarch 31, 2009, consisted of the following (in thousands):

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Comprehensive income for the year ended December 31, 2008, was $181.5 million. Comprehensive income for the three and nine months ended September 30,March 31, 2009, and 2008 was $39.9$62.3 million and $149.3 million, respectively.  Comprehensive income for the three and nine months ended September 30, 2007 was $53.1 million and $153.4$52.1 million, respectively.

10.Stock-based Employee Compensation Plans

In accordance with Statement of Financial Accounting Standards No. 123R,Share Based Payment (“SFAS No. 123R”), the Company recognizes share-based compensation expense based on the fair value of the awards. Share-based payments include stock option awards issued under the Company’s employee stock option plan, director stock option plan, stock issued through the Company’s employee stock purchase plan and stock awarded to employees through other benefit programs.

Stock Options

The Company’s employee stock-based incentive plan provides for the granting of stock options for the purchase of common stock of the Company to directors and certain key employees of the Company. Options are granted at an exercise price that is equal to the market value of the Company’s common stock on the date of the grant. Director options granted under the plan expire after seven years and are fully vested after six months. Employee options granted under the O’Reilly plan expire after ten years and typically vest 25% a year over four years. The Company records compensation expense for the grant date fair value of option awards evenly over the vesting period under the straight-line method. On July 11, 2008, the Company, in connection with the acquisition of CSK Auto Corporation (“CSK”), assumed all of CSK’s stock option plans.  Employee options granted under these CSK plans became 100% vested upon the change in control and were converted into options to purchase common stock of O’Reilly as part of the purchase consideration in the acquisition of CSK.  The converted CSK options expire seven years after the date of the original grant.  The following table summarizes the stock option transactions during the first nine monthsquarter of 2008:2009: