UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended September 30, 2010March 31, 2011

OR

For the transition period from            to            

Commission file number 0-21318000-21318

O’REILLY AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

233 South Patterson

Springfield, Missouri 65802

(Address of principal executive offices, Zip code)

(417) 862-6708

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x        Accelerated Filer  ¨        Non-Accelerated Filer  ¨        Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Common stock, $0.01 par value – 139,636,795137,870,262 shares outstanding as of November 1, 2010.May 2, 2011.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

FORM 10-Q

Quarter Ended September 30, 2010March 31, 2011

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

Note: The balance sheet at December 31, 2009,2010, has been derived from the audited Consolidated Financial Statementsconsolidated financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain prior period amounts have been reclassified to conform to current period presentation.

See accompanying Notes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

See accompanying Notes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Inin thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.

O’REILLY AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2010March 31, 2011

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of O’Reilly Automotive, Inc. and its subsidiaries (the “Company” or “O’Reilly”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2010,March 31, 2011, are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.2011. Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on reported totals for assets, liabilities, shareholders’ equity, cash flows or net income. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.2010.

NOTE 2 – BUSINESS COMBINATION

On July 11, 2008, the Company completed the acquisition of CSK Auto Corporation (“CSK”), which was one of the largest specialty retailers of auto parts and accessories in the Western United States and one of the largest such retailers in the United States, based on store count at the date of acquisition. The acquisition was accounted for under the purchase method of accounting with O’Reilly Automotive, Inc. as the acquiring entity in accordance with the Statement of Financial Accounting Standard No. 141,Business Combinations. The consideration paid by the Company to complete the acquisition was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The allocation of the purchase price was finalized on June 30, 2009. The results of CSK’s operations have been included in the Company’s consolidated financial statements since the acquisition date.

NOTE 32 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is reviewed annually on December 31November 30 for impairment, or more frequently if events or changes in business conditions indicate that impairment may exist. Goodwill is not amortizable for financial statement purposes. During the three months ended September 30, 2010, the Company recorded an increase in goodwill of $0.1 million. During the nine months ended September 30, 2010,March 31, 2011, the Company recorded a decrease in goodwill of $0.4approximately $0.1 million, primarily due to adjustments to the purchase price allocations related to small acquisitions and adjustments to the provision for income taxes relating to the exerciseexercises of stock options acquired in the July of 2008 CSK Auto Corporation (“CSK”) acquisition (see Note 2).and adjustments to purchase price allocations related to small acquisitions. The Company did not record any goodwill impairment during the three or nine months ended September 30, 2010.March 31, 2011. For the three and nine months ended September 30,March 31, 2011 and 2010, the Company recorded amortization expense of $1.7$1.5 million and $6.6 million, respectively, related to amortizable intangible assets, which are included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2009, the Company recorded amortization expense of $3.1 million and $11.0$2.8 million, respectively, related to amortizable intangible assets, which are included in “Other assets, net” on the accompanying Condensed Consolidated Balance Sheets. The components of the Company’s amortizable and unamortizable intangible assets were as followsare described in the table below, as of September 30, 2010,March 31, 2011, and December 31, 20092010 (in thousands):

IncludedThe favorable lease assets, included in the above table of amortizable intangible assets are favorable leases. These favorable lease assetsabove, were recorded in conjunction with the acquisition of CSK and represent the values of operating leases acquired with favorable terms. These favorable leases had an estimated weighted-average remaining useful life of approximately 10.3 years as of September 30, 2010.March 31, 2011. In addition, the Company has recorded a liability for the values of operating leases with unfavorable terms, acquired in the acquisition of CSK. The cost of these unfavorable lease liabilities totaledCSK, totaling approximately $49.6 million as of September 30, 2010,at March 31, 2011, and December 31, 2009.2010. These unfavorable leases had an estimated weighted-average remaining useful life of approximately 6.46.1 years as of September 30, 2010.March 31, 2011. During the three and nine months ended September 30,March 31, 2011 and 2010, the Company recognized an amortized benefit of $1.8$1.7 million and $4.9$1.2 million, respectively, related to these unfavorable leases. During the three and nine months ended September 30, 2009, the Company recognized an amortized benefit of $2.3 million and $6.5 million, respectively, related to these unfavorableoperating leases. The carrying amount, net of accumulated amortization, of thethese unfavorable lease liabilityliabilities was $31.6$27.8 million and $36.5$29.5 million as of September 30, 2010,March 31, 2011, and December 31, 2009,2010, respectively, and is included in “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets. The liabilities related to these unfavorable leases are not included as a component of the Company’s closed store reserves, which are discussed in Note 4.

NOTE 43 – LONG-TERM DEBT

OutstandingThe amounts included in “Long-term debt, less current portion” and “Current portion of long-term debt wasdebt” on the accompanying Condensed Consolidated Balance Sheets are described in the table below as follows on September 30, 2010,of March 31, 2011, and December 31, 20092010 (in thousands):

6 ³/4% Exchangeable Senior Notes:

On July 11, 2008, the Company executed the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the 6 ³/4% Exchangeable Senior Notes due 2025 (the “Notes”), in which it agreed to become a guarantor, on a subordinated basis, of the $100 million principal amount of the Notes originally issued by CSK pursuant to an Indenture, dated as of December 19, 2005, as amended and supplemented by the First Supplemental Indenture dated as of December 30, 2005, and the Second Supplemental Indenture, dated as of July 27, 2006, 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.

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 6.50% until maturity on December 15, 2025. Prior to their stated maturity, the Notes are exchangeable by the holders only under the following circumstances (as more fully described in the indentures under which the Notes were issued):

On July 1, 2010, the Notes became exchangeable at the option of the holders and remained exchangeable through September 30, 2010, the last trading day of the Company’s third quarter, as provided for in the indentures governing the Notes. The Notes became exchangeable as the Company’s common stock closed at or above 130% of the Exchange Price (as defined in the indentures governing the Notes) for 20 trading days within the 30 consecutive trading day period ending on June 30, 2010. As a result, during the exchange period commencing July 1, 2010, and continuing through and including September 30, 2010, for each $1,000 principal amount of the Notes held, holders of the Notes could, if they elected, surrender their Notes for exchange. If the Notes were exchanged, the Company would 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 exceeded the aggregate principal amount of Notes 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 in principal amount of the Notes is exchangeable into an equivalent value of approximately 25.97 shares of the Company’s common stock and approximately $60.61 in cash. On September 28, 2010, certain holders of the Notes delivered notice to the exchange agent to exercise their right to exchange $11

(1)

Net of original issuance discount of $3.4 million of the principal amount of the Notes. The Cash Settlement Averaging Period (as defined in the indentures governing the Notes) ended on October 27, 2010, and on October 29, 2010 the Company delivered $11 million in cash, which represented the principal amount of the Notes exchanged and the value of partial shares, and 92,855 shares of the Company’s common stock to the exchange agent in settlement of the exchange obligation. Concurrently, the Company retired the $11 million principal amount of the exchanged Notes. On October 1, 2010, the Notes again became exchangeable at the option of the holders and will remain exchangeable through December 31, 2010, the last trading day of the Company’s fourth quarter, as provided for in the indentures governing the Notes. The Notes became exchangeable as the Company’s common stock closed at or above 130% of the Exchange Price (as defined in the indentures governing the Notes) for 20 trading days within the 30 consecutive trading day period ending on September 30, 2010. As a result, during the exchange period commencing October 1, 2010, and continuing through and including December 31, 2010, for each $1,000 principal amount of the Notes held, holders of the Notes may, if they elect, surrender their Notes for exchange. 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 Notes 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 in principal amount of the Notes is exchangeable into an equivalent value of approximately 25.97 shares of the Company’s common stock and approximately $60.61 in cash. The holders of the Notes may require the Company to repurchase some or all of the Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes 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 indentures. The Company may redeem some or all of the Notes 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-calendar days notice. The Company intends to redeem the Notes in December 2010, and plans to fund the redemption with available borrowings under its asset-based revolving credit facility. The Company distinguishes its financial instruments between permanent equity, temporary equity, and assets and liabilities. The share exchange feature and the embedded put and call options within the Notes are required to be accounted for as equity instruments. The difference between the fair value of the Notes at acquisition date and the fair value of the liability component on that date was $2.1 million, which was assigned to equity, and is fixed until the Notes are settled. The principal amount of the Notes as of September 30, 2010, and December 31, 2009, was $100 million and the net carrying amount of the Notes as of September 30, 2010, and December 31, 2009, was $100.2 million and $100.7 million, respectively. The unamortized premium on the Notes was $0.2 million as of September 30, 2010, which will be amortized through December 15, 2010. The unamortized premium on the Notes as of December 31, 2009, was $0.7 million. The if-converted value of the Notes as of September 30, 2010, calculated using the average stock price during the quarter and in accordance with the exchange obligation described above, was $131.4 million. The net interest expense related to the Notes for the three and nine months ended September 30, 2010, was $1.5 million and $4.5 million, respectively, resulting in an effective interest rate of 6.0%. The net interest expense related to the Notes for the three and nine months ended September 30, 2009, was $1.5 million and $4.5 million, respectively, resulting in an effective interest rate of 6.0%. As of September 30, 2010, the entire $100 million of the principal amount of the Notes was outstanding.

Asset-based revolving credit facility:

OnIn July 11,of 2008, in connection with the acquisition of CSK, the Company entered into a credit agreement for a five-year $1.2 billion asset-based revolving credit facility (the “Credit“ABL Credit Facility”), which was scheduled to mature in July of 2013. At December 31, 2010, the Company had outstanding borrowings of $356.0 million under the ABL Credit Facility, of which $106.0 million were not covered under an interest rate swap agreement. All outstanding borrowings under the ABL Credit Facility were repaid, and all related interest rate swap transaction agreements terminated on January 14, 2011, and the ABL Credit Facility was retired concurrent with the issuance of the Company’s 4.875% Senior Notes due 2021, as further described below. In conjunction with the retirement of the Company’s ABL Credit Facility, the Company recognized a one-time adjustment for a non-cash charge to write off the balance of debt issuance costs related to the ABL Credit Facility in the amount of $21.6 million and a one-time charge related to the termination of the Company’s interest rate swap agreements in the amount of $4.2 million, which are included in “Other income (expense)” on the accompanying Condensed Consolidated Statements of Income for the quarter ended March 31, 2011.

4.875% Senior Notes due 2021:

On January 14, 2011, the Company issued $500 million aggregate principal amount of unsecured 4.875% Senior Notes due 2021 (“4.875% Senior Notes”) in the public market, of which certain of the Company’s subsidiaries are the guarantors (“Subsidiary Guarantors”), and United Missouri Bank, N.A. (“UMB”) is trustee. The 4.875% Senior Notes were issued at 99.297% of their face value of $500 million, and mature on January 14, 2021. Interest on the 4.875% Senior Notes accrues at a rate of 4.875% per annum and is payable on January 14 and July 14 of each year beginning on July 14, 2011. Interest is computed on the basis of a 360-day year.

The Company’s credit ratings on its 4.875% Senior Notes, as of March 31, 2011, are identified below:

The proceeds from the 4.875% Senior Notes’ issuance were used to repay all of the Company’s outstanding borrowings under its ABL Credit Facility and to pay fees and expenses related to the offering of the 4.875% Senior Notes, and costs associated with terminating the Company’s existing interest rate swap agreements, with the remainder used for general corporate purposes.

Prior to October 14, 2020, the 4.875% Senior Notes are redeemable in whole, at any time, or in part, from time to time, at the Company’s option upon not less than 30 nor more than 60 days’ notice at a redemption price, plus any accrued and unpaid interest to, but not including, the redemption date, equal to the greater of:

On or after October 14, 2020, the 4.875% Senior Notes are redeemable in whole, at any time, or in part, from time to time, at the Company’s option upon not less than 30 nor more than 60 days’ notice at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date. In addition, if at any time the Company undergoes

a Change of Control Triggering Event (as defined in the indenture governing the 4.875% Senior Notes), holders of the 4.875% Senior Notes may require the Company to repurchase all or a portion of their 4.875% Senior Notes at a price equal to 101% of the principal amount of the 4.875% Senior Notes being repurchased, plus accrued and unpaid interest, if any, to but not including the repurchase date. The principal amount of the 4.875% Senior Notes as of March 31, 2011, was $500 million and the net carrying amount of the 4.875% Senior Notes was $496.6 million. As of March 31, 2011, the unamortized discount on the 4.875% Senior Notes was $3.4 million.

The 4.875% Senior Notes are guaranteed by certain of the Company’s subsidiaries on a senior unsecured basis. The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is wholly-owned, directly or indirectly, by the Company and the Company has no independent assets or operations other than those of its subsidiaries. The only direct or indirect subsidiaries of the Company that are not Subsidiary Guarantors are minor subsidiaries. Neither the Company, nor any of its Subsidiary Guarantors, has any material or significant restrictions on the Company’s ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. The 4.875% Senior Notes are subject to certain customary, positive and negative covenants, with which the Company complied as of March 31, 2011.

Unsecured revolving credit facility:

On January 14, 2011, the Company entered into a new credit agreement for a five-year $750 million unsecured revolving credit facility (the “Revolver”) arranged by Bank of America, N.A. (“BA”). and Barclays Capital, which matures in January of 2016. The Credit Facility is comprisedRevolver includes a $200 million sub-limit for the issuance of a five-year $1.075 billion tranche A revolving credit facility (“tranche A revolver”) and a five-year $125 million first-in-last-out revolving credit facility (“FILO tranche”), both of which mature on July 10, 2013. The terms of the Credit Facility grant the Company the right to terminate the FILO tranche upon meeting certain requirements, including no events of default and aggregate projected availability under the Credit Facility. During the third quarter ended September 30, 2010, the Company, upon meeting all requirements to do so, elected to exercise its right to terminate the FILO tranche. As of September 30, 2010, the amount of the borrowing base available under the Credit Facility was $1.072 billion, of which the Company had outstanding borrowings of $325 million. As of December 31, 2009, the amount of the borrowing base available under the credit facility was $1.196 billion, of which the Company had outstanding borrowings of $678.8 million. The available borrowings under the Credit Facility are also reduced by stand-by letters of credit issued byand a $75 million sub-limit for swing line borrowings. As described in the credit agreement, the Company primarilymay, from time to satisfytime, increase the requirementsfacility to a maximum of workers compensation, general liability and other insurance policies. As of September 30, 2010, the Company had stand-by letters of credit outstanding of $72.9 million and the aggregate availability for additional borrowings$950 million.

Borrowings under the Credit Facility was $673.7 million. As of December 31, 2009, the Company had stand-by letters of credit outstanding in the amount of $72.3 million and the aggregate availability for additional borrowings under the credit facility was $445.2 million. As part of the Credit Facility, 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 as of September 30, 2010.

As of September 30, 2010, borrowings under the tranche A revolver boreRevolver (other than swing line loans) bear interest, at the Company’s option, at either the Base Rate or Eurodollar Rate (both as defined in the agreement) plus a rate equalmargin that varies from 1.325% to either a base rate plus 1.25% per annum or LIBOR plus 2.25% per annum, with2.50% in the case of loans bearing interest at the Eurodollar Rate and 0.325% to 1.50% in the case of loans bearing interest at the Base Rate, in each rate being subject to adjustmentcase based upon certain excess availability thresholds. The base rate is equalthe better of the ratings assigned to the higher of the prime lending rate establishedCompany’s debt by BA from time to time or 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 capacityMoody’s Investor Service, Inc. (“Moody’s”) and Standard & Poor’s Rating Services (“S&P”). Swing line loans made under the Credit Facility are assessedRevolver bear interest at a rate of 0.50% of the remaining available borrowings underBase Rate plus the facility, subject to adjustment based upon remaining unused capacity.applicable margin described above. In addition, the Company pays lettera facility fee on the aggregate amount of credit fees and other administrative feesthe commitments in respectan amount equal to a percentage of such commitments, varying from 0.175% to 0.50% based upon the better of the ratings assigned to the Credit Facility.Company’s debt by Moody’s and S&P. As of September 30, 2010, all of the Company’s borrowings under its Credit Facility were covered under interest rate swap agreements. As of DecemberMarch 31, 2009,2011, the Company had no outstanding borrowings of $278.8 million under its Credit Facility, which were not covered under an interest rate swap agreement, with interest rates ranging from 2.50% to 4.50%.

On each of July 24, 2008, October 14, 2008, and January 21, 2010, the Company entered into interest rate swap transactions with Branch Banking and Trust Company (“BBT”), BA, SunTrust Bank (“SunTrust”) and/or Barclays Capital (“Barclays”). The Company entered into these interest rate swap transactions to mitigate the risk associated with its floating interest rate based on 30-day LIBOR on an aggregate of $450 million of its debt that was outstanding under the Credit Facility. Revolver.

The Revolver contains certain debt covenants, which include limitations on total outstanding borrowings, a minimum fixed charge coverage ratio of 2.0 times from the closing through December 31, 2012; 2.25 times through December 31, 2014; 2.5 times through maturity; and a maximum adjusted consolidated leverage ratio of 3.0 times through maturity. The consolidated leverage ratio includes a calculation of adjusted earnings before interest, rate swap transactiontaxes, depreciation, amortization, rent and stock option compensation expense to adjusted debt. Adjusted debt includes outstanding debt, outstanding stand-by letters of credit, six-times rent expense and excludes any premium or discount recorded in conjunction with the issuance of long-term debt. In the event that the Company entered into with BBTshould default on July 24, 2008, for $100 million matured on August 1, 2010, reducingany covenant contained within the total notionalRevolver, certain actions may be taken, including, but not limited to, possible termination of credit extensions, immediate payment of outstanding principal amount plus accrued interest and litigation from lenders. As of swapped debt to $350 million as of that date. The interest rate swap transaction thatMarch 31, 2011, the Company entered intoremained in compliance with BBT on October 14, 2008, for $25 million and was scheduled to mature on October 17, 2010, was terminated at the Company’s request on September 16, 2010, reducing the total notional amount of swapped debt to $325 million as of that date (see Note 6). The Company is required to make certain monthly fixed rate payments calculated on the notional amounts, while the applicable counterparty is obligated to make certain monthly floating rate paymentsall covenants related 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 the Company’s debt, which exists under the Credit Facility plus an applicable margin under the terms of the Credit Facility. The interest rate swap transactions have maturity dates ranging from October 17, 2010, through October 17, 2011. The counterparties, transaction dates, effective dates, applicable notional amounts, effective index rates and maturity dates of each of the interest rate swap transactions which existed as of September 30, 2010, are included in the table below:

The interest rate swap transactions that the Company entered into with BBT, BA and SunTrust on October 14, 2008, referenced in the table above, for a total of $75 million matured on October 17, 2010, reducing the total notional amount of swapped debt to $250 million as of that date.borrowing arrangements.

NOTE 54 – EXIT ACTIVITIES

The Company maintains reserves for closed stores and other properties that are no longer utilized in current operations as well as reserves for employee separation liabilities. Reserves for closed stores and other properties include stores and other properties acquired in the CSK acquisition (see Note 2). Employee separation liabilities represent costs for anticipated payments, including payments required under various pre-existing employment arrangements with acquired CSK employees, which existed at the time of the acquisition, relating to the planned involuntary termination of employees performing overlapping or duplicative functions. The Company is expected to conclude the restructuring activities related to these employee separation liabilities in the second quarter of 2011.

The Company accrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value of the remaining noncancelablenon-cancelable lease payments, contractual 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, which currently extend through April 30, 2023. 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 contracted exit costs, which vary from original estimates. Adjustments are made for material changes in estimates in the period in which the changes become known.

The following table is a summary ofidentifies the closure reserves for stores, administrative office and distribution facilities, and reserves for employee separation costs as of September 30, 2010,at March 31, 2011, and December 31, 20092010 (in thousands):

The revisions to estimates in closure reserves for stores and administrative office and distribution facilities included changes in the estimates of sublease agreements, changes in assumptions of various store and office closure activities, and changes in assumed leasing arrangements since the acquisition of CSK. The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through September 30, 2010,March 31, 2011, was $23.1$23.7 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit activity through September 30, 2010,March 31, 2011, was $9.2$9.5 million. The balance of both these reserves is included in “Other current liabilities” and “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets based upon the dates when the reserves are expected to be settled. The revisions to estimates in the reserves for employee separation liabilities include additional severance and incentive compensation accrued for employees of CSK. The cumulative amount incurred in employee separation liabilities from the inception of the exit activity through September 30, 2010,March 31, 2011, was $29.4$30.2 million, the balance of which is included in “Accrued payroll” on the accompanying Condensed Consolidated Balance Sheets.

NOTE 65 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest rate risk management:management:

As discussed in Note 4, on each of July 24, 2008, October 14, 2008, and January 21, 2010,3, the Company entered into various interest rate swap transactionstransaction agreements with BBT, BA, SunTrust and/or Barclaysvarious counterparties to mitigate cash flow risk associated with the floating interest rate, basedrates on the one-month LIBOR rate on an aggregate of $450 million of the debt outstanding borrowings under its ABL Credit Facility. The interest rate swap transaction that the Company entered into with BBT on July 24, 2008, for $100 million matured on August 1, 2010, reducing the total notional amount of swapped debt to $350 million as of that date. The interest rate swap transaction that the Company entered into with BBT on October 14, 2008, for $25 million and was scheduled to mature on October 17, 2010, was terminated at the Company’s request on September 16, 2010, reducing the total notional amount of swapped debt to $325 million as of that date. The swap transactions have beenwere designated as cash flow hedges with interest payments designed to offset the interest payments for borrowings under the ABL Credit Facility that correspond tocorresponded with the notional amounts of the swaps. The fair values of the Company’s outstanding hedges arewere recorded as a liability onin the accompanying Condensed Consolidated Balance Sheets at September 30, 2010, and December 31, 2009. For qualifying cash flow hedges, the2010. The effective portion of the change in the fair value of the derivative instrument isCompany’s cash flow hedges was recorded as a component of “Accumulated other comprehensive loss” and any ineffectiveness iswas recognized in earnings in the period of ineffectiveness. The change in the fair valueAll of the $25 million interest rate swap contract, which wastransaction agreements were terminated byat the CompanyCompany’s request on September 16, 2010, was deemed to be ineffective asJanuary 14, 2011, concurrent with the retirement of the termination date. The Company recognized $0.1 millionABL Credit Facility and the issuance of its 4.875% Senior Notes, as described in “Interest expense” for the three and nine months ended September 30, 2010, asNote 3. As a result of this termination, the hedge ineffectiveness.Company’s interest rate swap hedges were terminated and the Company recognized a charge of $4.2 million, which was included as a component of “Other income (expense)” on the accompanying Condensed Consolidated Statements of Income for the quarter ended March 31, 2011. As of September 30, 2010,March 31, 2011, the Company’s remaining hedgingCompany did not hold any instruments have been deemed to be highly effective. that qualified as cash flow hedge derivatives.

The tablestable below representrepresents the effecteffects the Company’s derivative financial instruments had on its condensed consolidated financial statementsCondensed Consolidated Balance Sheets as of March 31, 2011, and December 31, 2010 (in thousands):

The table below represents the effects the Company’s derivative financial instruments had on its Condensed Consolidated Statements of Income as of March 31, 2011 and 2010 (in thousands):

NOTE 76 – FAIR VALUE MEASUREMENTS

The Company uses the fair value hierarchy, which prioritizes the inputs used to measure the fair value of certain of its financial instruments. 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 Company uses the income and market approaches to determine the fair value of its assets and liabilities. The three levels of the fair value hierarchy are set forth below:

6 ³/4% Exchangeable4.875% Senior Notes:

The carrying amount of the Company’s 6 ³/4% Exchangeable4.875% Senior Notes is included in “Current portion of long-term debt”“Long-term debt, less current portion” on the accompanying Condensed Consolidated Balance Sheets. The estimated fair valuesvalue of the Company’s 6 ³/4% Exchangeable4.875% Senior Notes as of March 31, 2011, which areis determined by reference to quoted market prices (Level 1), areis included in the table below (in thousands):

Interest rate swap contracts:

The fair valuesvalue of the Company’s outstanding interest rate swap contracts, areas discussed in Note 3 and Note 5, was included in “Other current liabilities” and “Other liabilities” on the accompanying Condensed Consolidated Balance Sheets.Sheets as of December 31, 2010. The fair value of the interest rate swap contracts arewas based on the discounted net present value of the swapswaps using third party quotes (Level 2). Changes in fair market value arewere recorded in “Accumulated other comprehensive income (loss),loss” on the accompanying Condensed Consolidated Balance Sheets, and changes resulting from ineffectiveness arethe termination of the interest rate swap contracts were recorded in current earnings.“Other income (expense)” on the accompanying Condensed Consolidated Statements of Income. All of the interest rate swap transaction agreements that existed as of December 31, 2010, were terminated at the Company’s request on January 14, 2011, concurrent with the retirement of the ABL Credit Facility and the issuance of its 4.875% Senior Notes, as discussed in Note 3. The fair value of the Company’s interest rate contractsswap agreements as of December 31, 2010, is included in the tablestable below (in thousands):

Asset-based revolving credit facility:

The Company has determined that the estimated fair value of its asset-based revolving credit facility approximatesABL Credit Facility, as discussed in Note 3, approximated the carrying amount of $325 million and $678.8$356.0 million at September 30, 2010, and December 31, 2009, respectively,2010, which areis included in “Long-term debt, less current portion” on the accompanying Condensed Consolidated Balance Sheets. These valuations were determined by consulting investment bankers, the Company’s observations of the value tendered by counterparties moving into and out of the facility and an analysis of the changes in credit spreads for comparable companies in the industry (Level 2). All outstanding borrowings under the ABL Credit Facility were repaid on January 14, 2011, and the facility was retired concurrent with the issuance of the Company’s 4.875% Senior Notes as discussed in Note 3.

NOTE 87 – ACCUMULATED OTHER COMPREHENSIVE LOSSSHAREHOLDERS’ EQUITY

Accumulated other comprehensive loss:

Unrealized losses, net of tax, from interest rate swap contractsagreements that qualifyqualified as cash flow hedges arewere included in “Accumulated other comprehensive loss” on the accompanying Condensed Consolidated Balance Sheets.Sheets at December 31, 2010. As discussed in Notes 3 and 5, all interest rate swap agreements were terminated on January 14, 2011. The adjustment to “Accumulated other comprehensive loss” for the three months ended September 30, 2010,March 31, 2011, totaled $2.2$4.8 million with a corresponding tax liabilityasset of $0.8$1.8 million resulting in a net of tax effect of $1.4$3.0 million. The adjustment to “Accumulated other comprehensive loss” for the nine months ended September 30, 2010, totaled $6.4 million with a corresponding tax liability of $2.5 million resulting in a net of tax effect of $3.9 million. During the three months ended September 30, 2010, $0.1 million was reclassified from “Accumulated other comprehensive loss” into earnings due to the ineffectiveness of an interest rate swap contract which was terminated on September 16, 2010 (see Note 6). Changes in “Accumulated other comprehensive loss” for the ninethree months ended September 30, 2010,March 31, 2011, consisted of the following (in thousands):

Comprehensive income for the three and nine months ended September 30,March 31, 2011 and 2010, was $117.9$105.4 million and $317.5$98.4 million, respectively. Comprehensive income

Share repurchase program:

In January of 2011, the Company’s Board of Directors approved a $500 million share repurchase program. Under the program, the Company may, from time to time, repurchase shares of its common stock, solely through open market purchases effected through a broker dealer at prevailing market prices, based on a variety of factors such as price, corporate trading policy requirements and overall market conditions, for a three-year period. The Company and its Board of Directors may increase or otherwise modify, renew, suspend or terminate the repurchase program at any time, without prior notice.

The Company repurchased 2.6 million shares of its common stock under its publicly announced repurchase program during the three and nine months ended September 30, 2009, was $89.4March 31, 2011, at an average price per share of $55.54, for a total investment of $145.0 million. As of March 31, 2011, the Company had $355.0 million remaining under its repurchase program. From April 1, 2011, through and $237.7including May 9, 2011, the Company repurchased 1.1 million respectively.shares of its common stock at an average price of $56.84, for a total investment of $62.9 million.

NOTE 98 – SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER BENEFIT PLANS

The Company recognizes share-based compensation expense based on the fair value of the grants, awards or shares at the time of the grant.grant, award or issuance. Share-based payments include stock option awards issued under the Company’s employee stock option plan, director stock option plan, restricted stock awarded under the Company’s employee incentive plan and director 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 providesplans provide 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 closing market valueprice 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 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. The following table summarizes the stock option activity during the first ninethree months of 2010:2011:

The Company recognized stock option compensation costsexpense of approximately $3.8$4.4 million and $11.3$3.6 million for the three and nine months ended September 30,March 31, 2011 and 2010, respectively, and recognized a corresponding income tax benefit of approximately $1.5$1.7 million and $4.3$1.4 million, for the three and nine months ended September 30, 2010, respectively. The Company recognized stock option compensation costs of approximately $3.3 million and $10.2 million for the three and nine months ended September 30, 2009, respectively, and recognized a corresponding income tax benefit of approximately $1.3 million and $4.0 million for the three and nine months ended September 30, 2009, respectively.

The fair value of each stock option grant 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 expected volatility, expected life, the risk free rate and the expected dividend yield. Expected volatility is based upon the historical volatility of the Company’s stock. Expected life represents the period of time that options granted are expected to be outstanding. The Company uses historical data and experience to estimate the expected life of options granted. The risk free interest raterates for periods within the contractual life of the options isare based on the United States Treasury rates in effect at the time the options are granted for the options’ expected life.

The following weighted-average assumptions, identified in the table below, were used for grants issued infor the ninethree months ended September 30, 2010March 31, 2011 and 2009:2010:

The weighted-average grant-date fair value of options granted during the first ninethree months of 2010ended March 31, 2011, was $13.58$16.84 compared to a weighted-average grant-date fair value of $10.92$12.22 for the first ninethree months of 2009.ended March 31, 2010. The remaining unrecognized compensation costexpense related to unvested awards at September 30, 2010,March 31, 2011, was $36.9$38.3 million, and the weighted-average period of time over which this cost will be recognized is 2.63.0 years.

Other employee benefit plans:

The Company sponsors other share-based employee benefit plans including a contributory profit sharing and savings plan that covers substantially all employees, an employee stock purchase plan which permits all eligible employees to purchase shares of the Company’s common stock at 85% of the fair market value and a performance incentive plan under which the Company’s senior management is awarded shares of restricted stock that vest equally over a three-year period. Compensation expense recognized under these plans is measured based on the market price of the Company’s common stock on the date of award and is recorded over the vesting period. During the three and nine months ended September 30, 2010,March 31, 2011, the Company recorded approximately $0.5 million and $1.5$0.7 million of compensation costexpense for benefits provided under these plans and a corresponding income tax benefit of approximately $0.2 million and $0.6 million, respectively.$0.3 million. During the three and nine months ended September 30, 2009,March 31, 2010, the Company recorded approximately $2.7 million and $7.6$0.5 million of compensation costexpense for benefits provided under these plans and recognized a corresponding income tax benefit of approximately $1.1 million and $3.0 million, respectively.$0.2 million.

NOTE 109 – INCOMEEARNINGS PER COMMON SHARE

The following table sets forthbelow summarizes the computation of basic and diluted incomeearnings per common share for the three and nine months ended September 30,March 31, 2011 and 2010 (in thousands, except per share data):

Incremental net shares for the exchange feature of the Notes, (see Note 4), were included in the diluted earnings per share calculation for the three and nine months ended September 30, 2010, and forFor the three months ended September 30, 2009; however, the incremental net shares for the exchange feature of the Notes were not included in the diluted earnings per share calculation for the nine months ended September 30, 2009, as the impact of the Notes would have been antidilutive.

For the threeMarch 31, 2011 and nine months ended September 30, 2010, the Company did not include in the computation of diluted earnings per share approximately 1.0 million and 1.5 million shares, respectively. For the three and nine months ended September 30, 2009, the Company did not include in the computation of diluted earnings per share approximately 0.1 million and 1.6 million shares, respectively.certain common stock equivalents. These sharescommon stock equivalents represent underlying stock options not included in the computation of diluted earnings per share, because the inclusion of such sharesequivalents would have been antidilutive. The table below identifies the antidilutive stock options for the three months ended March 31, 2011 and 2010 (in thousands):

The exchangeable notes were retired in December of 2010, and therefore had no dilutive effect on 2011 results. Incremental net shares for the exchange feature of the exchangeable notes were included in the diluted earnings per share calculation for the three months ended March 31, 2010.

NOTE 1110 – 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, taking into account applicable insurance and reserves, 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 and CSK’s former officers prior to its acquisition by O’Reilly, Automotive, Inc. as described below.

CSK Pre-Acquisition Matters – Governmental Investigations and Actions:

As previously reported, the pre-acquisition Securities and Exchange Commission (“SEC”) investigation of CSK, which commenced in 2006, was settled in May of 2009 by administrative order without fines, disgorgement or other financial remedies. The Department of Justice (“DOJ”)’s criminal investigation into these same matters as previously disclosed is near a conclusion and is described more fully below. In addition, the previously reported SEC complaint against three (3) former employees of CSK for alleged conduct related to CSK’s historical accounting practices remains ongoing. The action filed by the SEC on July 22, 2009, against Maynard L. Jenkins, the former chief executive officerChief 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, also continues. However, on March 24, 2011, the parties filed a Stipulation announcing a tentative settlement agreement had been reached, subject to approval by the SEC’s Commissioners. At the request of the parties, and by Order dated March 25, 2011, the matter has been stayed pending final approval of the parties’ tentative settlement. The previously reported DOJ criminal complaint againstprosecution of Don Watson, the former Chief Financial Officer of CSK, remains ongoing with trial set to commence on or about June 5,7, 2011.

With respect to the ongoing DOJ investigation into CSK’s pre-acquisition accounting practices as referenced above, as previously disclosed, attorneys from the DOJ indicated that as a result of conduct alleged against the former employees, as set forth in the pleadings in United States vs. Fraser, et. al., U.S. District Court, District of Arizona; Case No: 2:09-cr-00372-SRB, the DOJ believes criminal charges against CSK are appropriate. O’Reilly has continued to cooperate with and engage in discussions with the DOJ, as previously disclosed, to resolve the pre-acquisition accounting issues related to CSK arising from the conduct of its former employees as referenced above. O’Reilly and the DOJ have now agreed in principle, subject to final documentation, to resolve the DOJ investigation of CSK’s legacy pre-acquisition accounting practices. Based uponThe Company and the agreement in principleDOJ continue work to complete the final documentation necessary for a final settlement, O’Reilly has recorded an additional charge of $5.9 million in the third quarter of 2010 to increase its accrual in anticipationexecution of the DOJ, CSK and O’Reilly executing a Non-Prosecution Agreement previously referenced and paying apayment of the one-time monetary penalty of $20.9 million, dollars.also previously reported. The Company’s total reserve related to the DOJ investigation of CSK was $21.4$21.3 million as of September 30, 2010,March 31, 2011, which relates to the amount of the monetary penalty and associated legal costs.

Notwithstanding the agreement in principle with the DOJ, several of CSK’s former directors or officers and current or former employees have been or may be interviewed or deposed as part of criminal, administrative and civil investigations and lawsuits. As described above, certain former employees of CSK are the subject of civil and criminal litigation commenced by the government. Under Delaware law, the charter documents of the CSK entities and certain indemnification agreements, CSK has certain obligations to indemnify these persons and, as a result, O’Reilly is currently incurring legal fees on behalf of these persons in relation to pending matters. 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 expects to continue to incur ongoing legal fees related to the indemnity obligations related to the litigation that has commenced by the DOJ and SEC of CSK’s former employees. O’Reilly has a remaining reserve, with respect to such indemnification obligations, of $18.8$16.8 million as of September 30, 2010,at March 31, 2011, which was primarily recorded as an assumed liability in the Company’s allocation of the purchase price of CSK.

The foregoing governmental investigations and indemnification matters are subject to many uncertainties, and, given their complexity and scope, their 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 unfavorable resolution of such matters, 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 all of such regulatory proceedings and other matters that are pending, after consideration of applicable reserves and potentially available insurance coverage benefits not contemplated in recorded reserves, should not have a material adverse effect on the Company’s consolidated financial condition, results of operations and cash flows.

NOTE 1211 – RECENT ACCOUNTING PRONOUNCEMENTS

With the exception of any pronouncements stated below, there have been noNo recent accounting pronouncements or changes in accounting pronouncements have occurred since those discussed in our Annual Report on Form 10-K for the year ended December 31, 2009,2010, that are of material significance, or have potential material significance, to the Company.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements(“ASU 2010-06”). ASU 2010-06 amends Subtopic 820-10, requiring additional disclosures regarding fair value measurements such as transfers in and out of Levels 1 and 2, as well as separate disclosures about activity relating to Level 3 measurements. ASU 2010-06 clarifies existing disclosure requirements related to the level of disaggregation and input valuation techniques. The updated guidance is effective for interim and annual periods beginning after December 15, 2009, with the exception of the new Level 3 activity disclosures, which are effective for interim and annual periods beginning after December 15, 2010. The application of this guidance affects disclosures only and therefore, did not have an impact on the Company’s consolidated financial condition, results of operations or cash flows.

In May 2009, the FASB issued FASB Accounting Standards Codification 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC 855 is effective for interim or fiscal periods ending after June 15, 2009. The Company adopted the provisions of ASC 855 beginning with its condensed consolidated financial statements for the quarter ended June 30, 2009. On February 24, 2010, the FASB issued Accounting Standards Update No 2010-09Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”), which was effective immediately. The ASU amended FASB ASC 855, to address certain implementation issues related to an entity’s requirement to perform and disclose subsequent events procedures. The amendments that are specifically relevant include the requirement that SEC filers evaluate subsequent events through the date the financial statements are issued, and the exemption of SEC filers from disclosing the date through which subsequent events have been evaluated. The Company adopted the provisions of ASU 2010-09 beginning with its condensed consolidated financial statements for the quarter ended March, 31, 2010. The adoption of ASC 855 and ASU 2010-09 did not have a material impact on the Company’s financial position, results of operations or cash flows.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, “we,” “us,” “our” and similar terms, as well as references to the “Company” or “O’Reilly” refer to O’Reilly Automotive, Inc. and its subsidiaries.

In Management’s Discussion and Analysis (“MD&A”), we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect our future results, which include the topics bulletedare identified below:

The review of Management’s Discussion and AnalysisMD&A should be made in conjunction with our condensed consolidated financial statements, related notes and other financial information included elsewhere in this quarterly report.

FORWARD-LOOKING STATEMENTS

We claim the protection of the safe-harbor for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as “expect,” “believe,” “anticipate,” “should,” “plan,” “intend,” “estimate,” “project,” “will” or similar words. In addition, statements contained within this quarterly report that are not historical facts are forward-looking statements, such as statements discussing among other things, expected growth, store development, CSK Auto Corporation (“CSK”) Department of Justice (“DOJ”) investigation resolution, integration and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results. Such statements are subject to risks, uncertainties and assumptions, including, but not limited to, competition, product demand, the market for auto parts, the economy in general, inflation, consumer debt levels, governmental approvals, our increased debt levels, credit ratings on our public debt, our ability to hire and retain qualified employees, risks associated with the integration of acquired businesses includingsuch as the acquisition and integration of CSK, weather, terrorist activities, war and the threat of war. Actual results may materially differ from anticipated results described or implied in these forward-looking statements. Please refer to the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2009,2010, for additional factors that could materially affect our financial performance.

OVERVIEW

We are one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States,U.S., selling our products to both do-it-yourself (“DIY”) customers and professional installers. At September 30, 2010,service providers. During the first quarter ended March 31, 2011, we opened 55 stores, including our first store in West Virginia, and closed 12 stores. As of March 31, 2011, we operated 3,5363,613 stores in 3839 states. The table below depicts our store activity from December 31, 2009, through September 30, 2010:

Our stores carry an extensive product line, including the products bulletedidentified below:

Many of our stores offer enhanced services and programs to our customers, including those bulletedidentified below:

OurWe continue our strategy continues to be theof opening of new stores to achieve greater penetration in existing markets and expansion into new, contiguous markets. We plan to open approximately 150 new stores in 2010, and approximately 170 net, new stores in 2011. We typically open new stores either by (i) constructing a new store at a site we purchase or lease and stocking the new store with fixtures and inventory, (ii) acquiring an independently owned auto parts store, typically by the purchase of substantially all of the inventory and other assets (other than realty) of such store, or (iii) purchasing multi-store chains. We believe that our dual market strategy of targeting both the do-it-yourselfDIY retail customer and commercial installerprofessional service provider positions the Companyus extremely well to take advantage of growth in the automotive aftermarket business. We believe our investment in store growth will be funded with the cash flows generated by our existing operations.operations and through available borrowings under our existing credit facility.

We believe that the number of U.S. miles driven, new light vehicle sales, number of U.S. registered vehicles, new light vehicle sales, average vehicle age, unperformed maintenance, unemployment and product quality differentiation are key drivers of current and future demand of products sold within the automotive aftermarket.

Number of miles driven:driven:

Total miles driven in the U.S., along with changes in the average age of vehicles on the road, heavily influenceinfluences the demand for the repair and maintenance products we sell. Historically, the long-term trend in the total miles driven in the U.S. has steadily increased. According to the Department of Transportation, between 19992002 and 2007, the total number of miles driven in the U.S. increased at an average annual rate of approximately 1.6%1.4%. In 2008, however, difficult macroeconomic conditions and record high gas prices during the first half of the year led to a decrease in the number of miles driven, and in 2009, miles driven remained relatively flat. During the first eight months ofIn 2010, miles driven in the United StatesU.S. increased by 0.4%. We believe this slight increase is a result0.7% and the number of stabilization of the economy, unemployment and gas prices. Milesmiles driven in the U.S. has increased each month since March and,by 0.6% through the first two months of 2011. Historically, spikes in gasoline prices have contributed to flat or declining U.S. total miles driven as consumers reacted to the increased expense by reducing travel. Through April of 2011, average gasoline prices increased 24% when compared to the same period in 2010. As the U.S. economy recovers and gasoline prices stabilize, we believe that annual miles driven will return to historical growth rates and continue to increase the demand for our products.

Number of U.S. registered vehicles and new light vehicle sales:

As reported by the Automotive Aftermarket Industry Association (“AAIA”), the total number of vehicles on the road in the U.S. has exhibited steady growth over the past decade, with the total number of registered vehicles increasing 18%, from 205 million light vehicles in 2000 to 242 million in 2009. New light vehicle sales:

As a result ofsales, however, have declined over the past decade. From 2000 to 2007, new car sales in the U.S. decreased by 7%, from 17.4 million in 2000 to 16.2 million vehicles in 2007. Due to the recent difficult macroeconomic environment in the U.S., beginningnew light vehicles sales declined by 18% in 2008 to 13.2 million and declined by 21% in 2009 to 10.4 million vehicles, which is the numberlowest level in the past decade. As of the end of the quarter, the seasonally adjusted annual rate (“SAAR”) of sales of total light vehicle purchases declined sharply. The Automotive Aftermarket Industry Association (“AAIA”) estimates that new car salesvehicles in the U.S. decreased 4.7% between 1999 and 2007 forincreased to $13 million – this increase has been a steady trend since mid-2009; however, the monthly SAAR of sales of total light vehicles remains below historical rates. Based on the current economic environment, we believe new light vehicle market; however, sales for the same market decreased by 18.5% in 2008will remain below historic levels and 21.2% in 2009. We believe that consumers will continue to defer the purchase of new vehicles and choose to keep their vehicles longer and drive them at higher miles, continuing the trend of an aging vehicle population.

Average vehicle age of registered vehicles:vehicles:

As reported by the AAIA, the average age of the U.S. vehicle population has increased over the past decade from 9.1 years for passenger cars and 8.58.4 years for light trucks in 19992000 to 10.6 and 9.6 years in 2009, respectively. We believe this increase in average age can be attributed to better engineered and built vehicles, which can be reliably driven at higher miles due to better quality power trains, and interiors and exteriors, the decrease in new car sales over the past two years and the consumers’ willingness to invest in maintaining their higher-mileage, better built vehicles. As the average age of the vehicle on the road increases, a larger percentage of miles are being driven by vehicles which are outside of manufacturer warranty. These out-of-warranty, older vehicles generate strong demand for our products as they go through more routine maintenance cycles, have more frequent mechanical failures, which require replacement parts, such as brakes, belts, hoses, batteries and filters and generally require more maintenance than newer vehicles would require.vehicles.

Unperformed maintenance:maintenance:

According to estimates compiled by the Automotive Aftermarket Suppliers Association, the annual amount of unperformed or underperformed maintenance in the U.S. totaled $54 billion for 2009 versus $50 billion for 2008. This metric represents the degree to which routine vehicle maintenance recommended by the manufacturer is not being performed. Consumer decisionsConsumers’ decision to avoid or defer maintenance affectaffects demand for our products, and the total amount of unperformed maintenance represents potential future demand. We believe that challenging macroeconomic conditions beginning in 2008 continuing into 2009 and 2010, contributed to the increased amount of unperformed maintenance;maintenance in 2009; however, with the reduced number of new car sales we believe the amount of underperformed maintenance is decreasing as people place a higherand consumers’ increased focus on maintaining their current vehicle with the expectation of keeping the vehicle longer than they would have in a better macroeconomic environment.environment, we believe the amount of underperformed maintenance decreased in 2010, resulting in a strong year in the automotive aftermarket.

Unemployment: