O’Reilly Automotive Annual Report 2008

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FY2008 Annual Report · O’Reilly Automotive

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O ’ R e i l ly A u tOmOt i v e 2 0 0 8 A n n uAl R e pO Rt

r o a d t e s t e d . r e s u lt s d r i v e n .

o’reilly makes a strategic investment in opportunity.

F INANCI AL HIGHL IGHTS

In thousands, except earnings per share data and operating data (a)

years ended December 31

2008

2007

2006

2005

2004

Sales

Operating Income

Net Income(a)

Working Capital

Total Assets

Total Debt

$ 3,576,553

$ 2,522,319

$ 2,283,222

$ 2,045,318

$ 1,721,241

335,617

186,232

821,932

305,151

193,988

573,328

282,315

178,085

566,892

252,524

164,266

424,974

190,458

117,674

479,662

4,193,317

2,279,737

1,977,496

1,718,896

1,432,357

732,695

100,469

110,479

100,774

100,914

947,817

Shareholders’ Equity

2,282,218

1,592,477

1,364,096

1,145,769

Net Income Per Common Share

(assuming dilution)

Weighted-Average Common Shares

(assuming dilution)

Stores At Year-End

Same-Store Sales Gain

1.48

1.67

1.55

1.45

1.05

125,413

3,285

116,080

1,830

115,119

1,640

113,385

1,470

111,423

1,249

1.5%

3.7%

3.3%

7.5%

6.8%

O’Reilly’s dedication to strong and profitable growth led to an increase in sales of $1.1 billion in 2008, fueled by the acquisition of CSK Auto, Inc.
CSK added 1,342 stores and allowed us to expand our geographic footprint into 38 states. We generated positive comparable store sales for
the 16th consecutive year since becoming a public company in 1993. Net income and diluted net income per share in 2008 include charges of
$19.2 million and $0.16, respectively, related to the acquisition of CSK.

SALES (a)

(In millions)

5
3 2

0 2

OPERATING INCOME (a)

EARNINGS PER SHARE (a)

(In thousands)

(Assuming dilution)

7
1
6

5
3
3

1
5
1

5
0
3

5
1
3

2
8
2

4
2
5

2
5
2

8
5
4

0
9
1

5
5

5
4

7
6

8
4

5
0

Our aggressive growth strategy, which
included the acquisition of CSK and the
opening of 150 net new stores in 2008,
resulted in a 42% increase in sales. Our
commitment to excellent customer service
and professionalism continue to be key
factors in our success.

We were able to increase operating margins
10% by continuing to build on our strong
relationships with our vendors as well as by
ensuring we carry the products our customers
desire at each of our 3,285 locations. Operating
income for 2008 includes a charge of $9.6
million related to the acquisition of CSK.

A challenging macroeconomic environment
as well as the acquisition of CSK resulted in
a dilution to earnings in 2008. Diluted net
income per share in 2008 includes charges
of $0.16 related to the acquisition of CSK.
We remain positive about the Company’s
prospects for EPS growth as we continue
to integrate the operations of CSK.

(a) 2004 figures are based on income before cumulative effect of accounting change.

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN

O’Reilly Auto Parts

NASDAQ Retail Trade Stocks

NASDAQ US Market

$ 200

150

100

DEC. 31
200 3

DEC. 31
2 00 4

DEC. 30
2 00 5

DEC. 29
2 00 6

DEC. 31
2 00 7

DEC. 31
2 00 8

R O A D T E S T E D . R E S U L T S D R I V E N .

A STEADY HAND
AT THE WHEEL.

LETTER TO OUR SHAREHOLDERS

The weakening economy presented challenges to
consumers of all income levels, and no one was
immune to these difficult conditions; given the
difficult macroeconomic environment, we are pleased
to have delivered strong results. Through a constant
emphasis on the core O’Reilly culture values of
customer service and expense control, we continued
to successfully execute our dual market strategy and
grow our market share in the face of declining miles
driven and rising unemployment. Team O’Reilly’s
dedication and determination to providing the
best service and value to our customers drove a
comparable store sale increase of 2.6% in 2008 for
core O’Reilly stores.

In 2008 the headwinds on consumer spending,
combined with the limited availability of credit in the
banking system, put pressure on companies across
the retail spectrum, and the automotive aftermarket
was no different. The impact on the automotive
aftermarket participants was manifested in store
closures and industry consolidation. A key component
of our growth strategy has always been to act as an
opportunistic industry consolidator by targeting
once-effective chains that had fallen on hard times,
primarily because of a lack of sufficient capital and the
loss of management focus. We executed this strategy
with very good results in our 1998 purchase of Hi-Lo

Automotive (182 stores), 2001 purchase of Midstates
Auto Parts (82 stores) and 2005 purchase of Midwest
Auto Parts (72 stores). The difficult economic
conditions and tight credit markets again afforded us
the opportunity to be a consolidator in our industry
when, on July 11, 2008, we acquired CSK Auto
Corporation (CSK). At the time of the acquisition,
CSK was one of the largest specialty retailers of auto
parts and accessories in the Western United States
and operated 1,342 stores under the brand names of
Checker Auto Parts, Schuck’s Auto Supply, Kragen
Auto Parts and Murray’s Discount Auto Parts.
CSK had experienced several years of poor
performance primarily caused by a lack of capital,
under-inventoried stores and the absence of consistent,

GREG HENSL EE

T ED WISE

TO M MCFALL

Chief Executive Officer
and Co-President

Chief Operating Officer
and Co-President

Chief Financial Officer
and Executive Vice
President

O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T P G . 1

R O A D T E S T E D . R E S U L T S D R I V E N .

MARKET FACTORS

The fundamental drivers in our industry
remain strong. During challenging economic
conditions, our customers are more willing
to maintain and repair their current vehicle
rather than purchase a new vehicle. This
increase in the average age of vehicles on
the road drives demand for our products.

V E H I C L E P O P U L AT I O N

249 MILLION
2.9 TRILLION
9.8 YEARS

M I L E S D R I V E N

AV E R AG E AG E O F V E H I C L E

MARKET
CONSOLIDATION
OPPORTUNITY

The largest suppliers in the automotive
aftermarket make up a relatively small
percentage of the overall market, even
after several years of steady consolidation.
We continue to opportunistically pursue
strategic acquisitions to take advantage
of further market consolidation.

A U TOZ ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 %

A DVA NCE D AU TO PAR TS . . . . . . . . . . . . . . . . . . . . . 9%

O ’RE ILLY AU TO PART S . . . . . . . . . . . . . . . . . . . . 9%

GENE RAL PART S INC ./C ARQUES T . . . . . . . 5%

GENE RAL PART S/NAPA . . . . . . . . . . . . . . 3%

RE M AINING MAR KET . . . . . . . . . . . . . . 62%

P G . 2 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

cohesive management direction. Facing serious constraints
on access to capital, CSK began exploring strategic alternatives
in early 2008. Due to a complementary geographic
distribution of stores, it had long been speculated that we
would be a likely acquirer of CSK. While we had, at various
times, undertaken cursory discussions along those lines, it
was never a serious consideration given the high price that
would have been necessary to acquire CSK and their public
unwillingness to entertain overtures to be acquired. In light of
their financial condition and public announcement to explore
strategic alternatives, we saw a tremendous opportunity
inherent in CSK at a much more reasonable acquisition
price, and we became very active both inside and outside of
their strategic evaluation process. The difficulty in raising
capital in a historically bad credit market in 2008 presented
a major obstacle to any potential acquirer of CSK. Based
on the strength of our balance sheet and the merits of our
consistently strong historical operating results, we were able
to obtain debt commitments sufficient for us to acquire CSK
in an all-cash deal. With the financing commitments in hand,
we were able to effectively negotiate to acquire CSK. We
were then able to alter the structure of the transaction to an
exchange offer, which allowed us to maintain the financial
flexibility necessary for strategic investments in CSK’s
distribution infrastructure and inventory position.
The true opportunity at CSK is to maintain CSK’s strong
retail base and dramatically increase the commercial business
by successfully implementing our dual market strategy. To
realize the value potential at CSK, we will convert all of the
CSK stores to the O’Reilly brand and implement our dual
market strategy. At the time of the acquisition, only 10% of
CSK’s sales were to commercial installers as compared to 50%
at O’Reilly. To successfully implement our proven dual market
strategy, we will focus on distribution, inventory availability
and culture.
CSK operated a retail-focused distribution network with
four main distribution centers (DCs) servicing stores on a
weekly basis. We are closing one CSK DC that overlaps with
an existing O’Reilly DC, renovating the remaining three
CSK DCs, adding four new DCs and utilizing three existing
O’Reilly DCs to service the acquired CSK stores. This large
investment in distribution infrastructure will allow for nightly
deliveries to all stores and multiple daily store deliveries in the
seven metropolitan areas where the DCs are located.
Prior to the acquisition, the average CSK store stocked
18,000 SKUs. We will eliminate non-core automotive
merchandise and bring the SKU count up to the O’Reilly
average of 21,000 with a clear focus on hard parts.

R O A D T E S T E D . R E S U L T S D R I V E N .

CSK AQUISITION FACTORS

MARKET LEADING
AUTO PA RTS
RE TAI LER

With very little overlap
in O’Reilly’s and CSK’s
geographical footprints,
this merger provides an
exceptional opportunity to
augment CSK’s strong retail
presence by incorporating
O’Reilly’s installer customer
expertise, while also
providing more tools for
CSK to emerge as a more
competitive retailer.

NATIO NAL
PLATFORM

ENHANCE CSK’S
OPERATIONS

COST SAV INGS
OPPORTUNITY

By joining two large industry
leaders, the combined
company will benefit from
increased brand recognition
and increased advertising
synergies. Additionally,
many proven customer
programs will offer nation-
wide advantages to
both our DIY and DIFM
customer base.

O’Reilly’s proven operating
model of overnight
replenishment (multiple
daily deliveries metropolitan
hub and spoke stores) and
a strong performance-based
sales and operations model,
will create positive results
for our team members
and customers.

In addition to leveraging
increased purchasing
power for automotive
parts, tools and equipment,
the combined company
will achieve substantial
savings through improved
administrative efficiencies.

We are excited by the addition of CSK’s outstanding
team and we will instill the O’Reilly Culture to team
members in each of our new stores, DCs and offices.
In addition to our growth through acquisitions,

we continue a robust new store growth program,
only partially scaled back in light of the major capital
commitments and management focus required to
successfully execute the integration of CSK. After
opening 190 stores in 2007, we have reduced our new
store openings in 2008 to 150 and expect to open
another 150 new stores in 2009. To support this new
store growth, we opened the Lubbock, Texas DC in
2008, which is also being leveraged to support acquired
CSK stores in El Paso and New Mexico, and we will
open the Greensboro, North Carolina DC in 2009 to
continue our expansion into the Mid-Atlantic states.

As we look forward to 2009, it appears the strong
economic headwinds we are currently experiencing
will not soon abate; however, we remain excited about
the potential to significantly enhance the performance
of the acquired CSK stores, and we remain confident
in our ability to continue to gain market share in our
existing markets by focusing on the core O’Reilly
values of customer service and expense control.

Sincerely,

G REG HE NSL EE

T ED WISE

TO M MCFA LL

Chief Executive Officer
and Co-President

Chief Operating Officer
and Co-President

Chief Financial Officer
and Executive Vice
President

EXPERIENCED
MANAGEMENT TEAM

Our executive management team has more
than 190 years of combined experience
in the automotive aftermarket industry.
Their goal is to continue to strengthen the
power of the O’Reilly brand by building on
the proven results and business model we
started with our first store in 1957.

Seated: Greg Henslee, David O’Reilly, Ted Wise;
Standing: Jeff Shaw, Greg Johnson, Mike Swearengin,
Tom McFall

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R O A D T E S T E D . R E S U L T S D R I V E N .

WHERE WE’VE BEEN.
WHERE
WE’RE HEADING.

PROVEN: What we are doing with our new store
and acquisition growth at O’Reilly is really nothing
different than what we’ve done to grow from our
original store in 1957 to 3,285 stores in 2008. We
are staying true to our proven business model.
We remain road tested and results driven.
OPPORTUNITY: We have the opportunity with
the acquisition of CSK Auto to rapidly expand our
proven dual market strategy into the western half of
the country. We will implement this strategy with
a strong focus on customer service, distribution
support and product offerings.

P G . 4 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

R O A D T E S T E D . R E S U L T S D R I V E N .

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R O A D T E S T E D . R E S U L T S D R I V E N .
R O A D T E S T E D . R E S U L T S D R I V E N .

WE ARE ROAD TESTED.
WE ARE
PROVEN.

P G . 6 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T
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PROVEN

R O A D T E S T E D . R E S U L T S D R I V E N .

DUAL MARKET
STRATEGY

Our dual market strategy focuses on serving both the
wholesale and retail sides of our industry and is road tested
and proven – it sets us apart from our competition. Our
business model has yielded a consistent, long-term 50/50
business split between our do-it-yourself and professional
installer customers. We will roll out this business strategy
to our newly acquired CSK stores as we complete the
integration process. This dual market strategy allows O’Reilly
to offer the best combination of inventory, availability,
competitive prices, quality and service.
Our commitment to the professional installer business
started with our first store in 1957. We understand the needs of
our commercial customers and know how critical timely, high-
quality service is to the success of their business. We believe the
key to growing and maintaining strong relationships with our
customers is delivering extensive parts knowledge, providing
the highest parts availability, and offering timely delivery – all
at competitive prices. Installers value our extensive support
programs, professional training classes and the dedicated sales
team of more than 400 who devote their time to helping our
valued customers run profitable businesses.

EXT R AOR D INARY SERVICE
When it comes to customer service, little things mean a lot – like
acknowledging a customer as they enter the store, smiling at them
as you help find products and thanking them for their business as
you hand them their receipt.

“ It comes downs to the fundamentals, which are built into
our culture values. The two we focus the most energy on
are customer service and expense control.”

GR EG HENSLEE,
CHIEF EXECU TI VE OFFIC E R
AN D CO-PRESI DE NT

O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T P G . 7

R O A D T E S T E D . R E S U L T S D R I V E N .

PROVEN

STRATEGIC
DISTRIBUTION
CENTERS

To maintain our goal of having the right part at the
right price at the right time, O’Reilly has strategically
deployed inventory at regional DCs across the
country to provide a higher level of service to our
network of stores. These DCs provide the fuel for the
Team O’Reilly engine by stocking, on average, more
than 116,000 different parts for our customers.
Virtually every O’Reilly store is within 250 miles
of one of these 15 DCs, allowing us to provide daily
or nightly delivery to our stores. This extensive
distribution infrastructure allows customers
quicker access to the parts they need to fix their
cars. For our installer customers, this availability
is key to “turning” their bays, satisfying customers
and strengthening their business.
A huge part of our competitive advantage
continues to be our ability to get the right
parts to our stores five days a week. In many
metropolitan areas, we make as many as four to
eight deliveries to each of our stores, each day to
benefit our installer customers. Regardless of the
store location, our delivery team members drive
overnight five days a week from our DCs to deliver
parts to every store.

CORE O’REILLY
DISTRIBUTION CENTERS

O’Reilly offers its customers the product strength
of 15 DCs across the United States. In addition,
proposed and under development centers will
provide our growing company with an even wider
distribution reach.

UNDER
DEVELOPMENT

Greensboro, NC

CORE
O’REILLY

Atlanta, GA
Billings, MT
Dallas, TX
Des Moines, IA
Houston, TX
Indianapolis, IN
Kansas City, MO
Knoxville, TN

Little Rock, AR
Lubbock, TX
Minneapolis, MN
Mobile, AL
Nashville, TN
Oklahoma City, OK
Springfield, MO

DAILY D ELIVERY
Our DCs stock more than 116,000 parts,
many of which are of the hard-to-find variety.
When a customer orders a part not currently
in stock at one of our stores, our advanced
inventory control system and distribution
technology ensure that the part is picked,
packed and delivered to the store that day
or night.

P G . 8 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

PROVEN

R O A D T E S T E D . R E S U L T S D R I V E N .

QUALITY
AUTO PARTS

Our stores offer a wide selection of brand-name
and private-label products for domestic and
imported automobiles, vans and trucks to
customers who range from light do-it-yourselfers
to professional installers. All of these parts meet
or exceed original equipment requirements.
Our merchandise includes nationally recognized,
well-advertised, premium, name-brand products
such as AC Delco, Moog, Wagner, Gates Rubber,
Federal Mogul, Monroe, Prestone, Quaker
State, Pennzoil, Castrol, Valvoline, STP, BWD,
Cardone, WIX, Armor All and Turtle Wax. In
addition to the name-brand products we stock,
our stores carry a wide variety of high-quality
private-label products under our O’Reilly
Auto Parts®, BestTest®, Micro-Gard®, Power
Torque®, Miles Ahead®, Super Start®, BrakeBest®,
Ultima®, MasterPro®, Murray®, and Omnispark®
proprietary name brands.
Our private-label products are produced by
nationally recognized manufacturers and meet
or exceed original equipment manufacturer
specifications and provide a great combination
of quality and value – a characteristic important
to our DIY customers.

SALES
(In billions)

Solid core O’Reilly same store sales
as well as the acquisition of CSK led
to an increase in sales of 42% in 2008.
We continue to execute our proven dual
market strategy by serving both the
professional installer as well as the
do-it-yourself customer.

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

1
9
9
6

1
9
9
7

1
9
9
8

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

2
0
0
4

2
0
0
5

2
0
0
6

2
0
0
7

2
0
0
8

O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T P G . 9

R O A D T E S T E D . R E S U L T S D R I V E N .

PROVEN

PROFESSIONAL
PARTS PEOPLE

We have a strong commitment to staffing our stores with
professional parts people and supplying them the tools they
need to be the first call for installers. We work hard to be the
friendliest, most knowledgeable parts store in town.
All team members share the common goal of making
Team O’Reilly successful. Each of our 40,000 team members
is dedicated to providing our customers with solutions to
their automotive parts needs supported by outstanding
customer service.
The knowledge of the professional parts people in our stores
does not happen by chance. We focus on hiring outgoing, friendly
people with a mechanical inclination and strong customer service
skills. Ideal candidates range from inexperienced people who want
to work hard and learn, to experienced parts professionals working
outside our organization. Each store team member participates in
extensive and ongoing training in our industry-leading program
that emphasizes customer service and technical knowledge,
particularly with respect to hard parts. These philosophies and our
performance-based incentive programs ensure that our stores are
staffed with the most professional parts people in the business.

AUTOMOTIVE AFTERMARKET
INDUSTRY OVERVIEW

Our intent is to be the dominant auto parts provider in
all the markets we serve by providing significant value
to both installers and DIY customers.

T HE F RIEND LIEST
PAR TS STO R E IN TOWN
We spend a lot of time and resources
making sure that we don’t lose sight of
what made us successful in the past.
We are confident that those time-tested
values will continue to make us successful
in the future.

D I Y M A R K E T

$ 82 BILLION
$ 40 BILLION
$ 60 BILLION

P R O F E S S I O N A L I N S TA L L E R M A R K E T

E S T I M AT E D U N P E R F O R M E D M A I N T E N A N C E

P G . 1 0 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

R O A D T E S T E D . R E S U L T S D R I V E N .
R O A D T E S T E D . R E S U L T S D R I V E N .

WE ARE VALUE DRIVEN.
WE HAVE A GREAT
OPPORTUNITY.

O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T P G . 1 1
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R O A D T E S T E D . R E S U L T S D R I V E N .

OP PORTUNITY

EXPANDING
INFRASTRUCTURE

Our mission is to be the dominant supplier of auto parts in
the markets we serve by executing our Dual Market strategy.
We have the same goal at our newly acquired CSK stores.
These acquired stores give us the opportunity to rapidly
expand O’Reilly’s Dual Market strategy and culture across
the western half of the United States.
To implement this proven strategy throughout the
acquired CSK store network, the stores need quick access
to the broad array of hard parts required to be an installer’s
primary parts supplier. To accomplish this, we are making
a significant investment to upgrade and add distribution
capacity throughout CSK markets. We will be upgrading
current facilities in Phoenix, Arizona, Detroit, Michigan, and
Northern California. In addition, we have new DC facilities
identified in Southern California, Seattle, Washington, and
Denver, Colorado, and are identifying a facility in Utah. By
the end of our DC build-out, all of the stores in the chain will
have same-day or same-night access to more than 116,000
SKUs from their supporting DC.

CSK

O’Reilly 2008 Consolidated

3,285 STORES

IN 38 STATES

INVEST ING I N O UR
D IST R IBUTIO N CENT ERS
With stores in 38 states,
O’Reilly has the opportunity
to continue its consistent,
proven approach of
consolidating market share
and reaching even more
customers. We will offer
all the great services and
products our customers
have come to know and love
about O’Reilly throughout
the majority of the country.

CSK CONVERSIONS

UNDER DEVELOPMENT

PROPOSED

CORE O’REILLY

Detroit, MI
Phoenix, AZ
Dixon, CA

Denver, CO
Southern California
Seattle, WA

Salt Lake City, UT

Atlanta, GA
Billings, MT
Dallas, TX
Des Moines, IA
Houston, TX
Indianapolis, IN
Kansas City, MO
Knoxville, TN

Little Rock, AR
Lubbock, TX
Minneapolis, MN
Mobile, AL
Nashville, TN
Oklahoma City, OK
Springfield, MO

P G . 1 2 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

OPPORTUNITY

R O A D T E S T E D . R E S U L T S D R I V E N .

CONSOLIDATING
UNDER ONE BRAND

CSK operated under four brand names – Schuck’s, Kragen,
Checker and Murray’s – and over the next two years we will
consolidate all stores under the O’Reilly brand. We started the
conversion process with 185 stores in the Central United States.
To facilitate the immediate change of a store’s servicing
DC, we lift the inventory, reset the store fixtures and put in
new inventory, fully aligning the store’s merchandise section
with its new servicing DC. We replace the legacy POS
system with an O’Reilly POS system, which allows them to
be connected to our inventory control and replenishment
systems. We then re-open as an O’Reilly store within a week
of starting the extensive process.
As we open new DCs and update existing facilities to the
O’Reilly system, we will convert the stores they service. By
converting stores one servicing distribution area at a time,
we will break down the 1,300 store acquisitions into several
100 to 300 store blocks.

BEFO R E AND AF T ER
When we convert stores, we focus on creating professional parts
stores, enhancing store-specific hard-part assortments, and
eliminating non-core merchandise. These stores adopt O’Reilly’s
consistent layout with efficient, attractive front rooms and more
back-room space for hard parts.

RE-BRANDING TIMELINE

2008
Q4

2009
Q1

2009
Q2

2009
Q3

2009
Q4

2010
Q1

2010
Q2

2010
Q3

2010
Q4

1. Convert Northern Plains, New Mexico,
1

4. Seattle DC opens
4

El Paso and Chicago stores – all stores
in O’Reilly’s existing distribution reach

2. Convert Detroit, MI distribution center
2

3. Convert Michigan and Ohio stores
3

5. Denver and Southern California DCs open
5

6. Utah DC open
6

7. Convert West Coast stores
7

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R O A D T E S T E D . R E S U L T S D R I V E N .

INTEGRATING CULTURES

THE RIGHT PEOPLE AND THE RIGHT PARTS AT THE RIGHT PRICES.

The process of integrating CSK Auto requires much
more than just changing shirts. It is a demanding
endeavor that requires the full commitment of every
team member. The acquisition gives O’Reilly the
opportunity to introduce CSK team members to
our Live Green culture and become part of Team
O’Reilly, as happened with our acquisitions of Hi-Lo
Automotive, Mid-State Auto Parts, Midwest Auto Parts
and many, many individually acquired parts stores.
This culture, or the ability to LIVE GREEN, is
the foundation of our beginning, our growth and
our future. It means offering great customer service,
watching our expenses, working hard and supporting
each other. The importance of every team member
is critical to the success of our company. It is this
dedication that will be our key advantage as we
compete in the future.

P G . 1 4 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T
P G . 1 4 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

OPPORTUNITY

R O A D T E S T E D . R E S U L T S D R I V E N .

STRENGTHENING
PRODUCT OFFERINGS

If you drive a car, you will eventually have a part
fail, and O’Reilly wants to be there to help you –
by providing unbeatable parts availability, high-
quality products and competitive prices.
With cars lasting longer, more car makers
selling cars in the United States and parts
becoming more model-specific, the number of
hard-part SKUs has exploded during the past 15
years. To efficiently manage this, we’ve developed
an industry-leading inventory management
system that we hone and refine on a daily basis.
Our system allows us to dynamically customize
each store’s inventory to fit the vehicle population
for that area and provide real-time product
mix changes to adapt to changing customer
demands. O’Reilly’s commitment is to have the
right part for our customers – in a quality brand,
at a competitive price, offered by professional
parts people focused on helping you solve your
problem and get your car back on the road.
Over the next year, we will align all of our major
product lines across the chain. For the acquired CSK
stores, this will mean adding a much wider breadth
of hard parts and the elimination of non-core
automotive merchandise. Through the application
of our finely tuned inventory management system,
we will customize each store’s hard-parts offerings to
satisfy the specific vehicle population demands for
that market.

AVAILABILITY, Q UALIT Y
AND CO MPET IT IVE PR ICES
We strive to be smarter and more efficient than our
competitors at customizing each store’s inventory
to fit the vehicle population for each area.

“ Our goal is to both anticipate and respond to our customers’
needs. We do this by providing our customers the right mix
of good, better and best auto parts – offering value across the
product spectrum.”

MI KE SWEARENGIN,
SENIOR VIC E PRE SI DENT
OF MERCHA NDISE

O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T P G . 1 5

R O A D T E S T E D . R E S U L T S D R I V E N .

DEAR SHAREHOLDERS,

The primary responsibility
of O’Reilly Automotive’s
Board of Directors is to
vigilantly establish and
monitor the corporate
governance practices, and
provide oversight of the
business and affairs of
the company.

P G . 1 6 O ’ R E I L LY A U T O M O T I V E 2 0 0 8 A N N U A L R E P O R T

In fulfilling these responsibilities during 2008,
O’Reilly Automotive has complied with the
company’s corporate governance requirements,
the corporate governance best practice guidelines
established by the NASDAQ stock exchange, the
provisions of the Sarbanes-Oxley Act of 2002
and the rules adopted by the U.S. Securities and
Exchange Commission pursuant to the Act.
O’Reilly Automotive’s Board of Directors will
keep its governance responsibilities in mind
as we oversee the current and future direction
of the business and affairs of the company to
help ensure the best interest of the company’s
shareholders are served.

On behalf of the Board of Directors,

DAV ID E. O’ REILLY
Chairman of the Board

R o a d T e sTe d . R e s u l Ts d Ri v e n .

O’REILLY 2008
FINANCIAL
RESULTS

“ We remain confident in our ability to continue
to gain market share in our existing markets
by focusing on the core O’Reilly values of
customer service and expense control.”

GreG Henslee,
Ch ief e x eCu tiv e OffiCer
and CO-President

INdE x

Selected Financial Data

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures
About Market Risks

Management’s Report on Internal Control
Over Financial Reporting

Report of Independent Registered Public Accounting Firm:

Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm:

Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Directors and Executive Committee and
Operations Management Listings

Shareholder Information

1 8

2 2

3 4

3 5

3 6

3 8

4 0

4 2

6 3

6 4

o’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 1 7

SELECTEd F INANCI AL d ATA

(In thousands, except per share data)
Years ended December 31,

I NCOME S TATEMENT d ATA :
Sales

Cost of goods sold, including warehouse and distribution expenses

Gross profit

Selling, general and administrative expenses

Operating income

Other income (expense), net

Income before income taxes and cumulative effect of accounting change

Provision for income taxes

Income before cumulative effect of accounting change

Cumulative effect of accounting change, net of tax (a)

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

$ 3,576,553

$ 2,522,319

$ 2,283,222

$ 2,045,318

$ 1,721,241

$ 1,511,816

$ 1,312,490

$ 1,092,112

890,421

754,122

1,948,627

1,627,926

1,292,309

335,617

(33,085)

302,532

116,300

186,232

1,401,859

1,120,460

815,309

305,151

2,337

307,488

113,500

193,988

1,276,511

1,006,711

724,396

282,315

(50)

282,265

104,180

178,085

Net income

186,232

193,988

178,085

164,266

139,566

100,087

81,992

66,352

51,708

45,639

BA S IC E A RNINgS p ER COMMON SH A RE :
Income before cumulative effect of accounting change

Cumulative effect of accounting change (a)

Net income per share

Weighted-average common shares outstanding

E A RN I NgS p ER COMMON SH A RE- A S SUM INg d I LUT ION :
Income before cumulative effect of accounting change

Cumulative effect of accounting change (a)

Net income per share

1.50

1.69

124,526

114,667

1.48

1.67

1.57

113,253

1.55

Weighted-average common shares outstanding – adjusted

125,413

116,080

115,119

113,385

111,423

109,060

107,384

105,572

103,456

99,430

pRO FORM A INCOME S TATEMENT d ATA : (B)
Sales

Cost of goods sold, including warehouse and distribution expenses

Gross profit

Selling, general and administrative expenses

Operating income

Other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Net income per share

Net income per share – assuming dilution

(a) The cumulative change in accounting method, effective January 1, 2004, changed the method of applying LIFO accounting policy for certain inventory costs.

Under the new method, included in the value of inventory are certain procurement, warehousing and distribution center costs
The previous method was to recognize those costs as incurred, reported as a component of costs of goods sold.

(b) The pro forma income statement reflects the retroactive application of the cumulative effect of the accounting change to historical periods.

p g . 1 8 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

111,613

110,020

107,816

106,228

104,242

102,336

97,348

1,152,815

892,503

639,979

252,524

(1,455)

251,069

86,803

164,266

978,076

743,165

552,707

190,458

(2,721)

187,737

70,063

117,674

21,892

1.47

1.45

1.07

0.20

1.27

1.05

0.20

1.25

873,481

638,335

473,060

165,275

(5,233)

160,042

59,955

100,087

0.93

0.92

872,658

639,158

473,060

166,098

(5,233)

160,865

60,266

100,599

0.93

0.92

759,090

553,400

415,099

138,301

(7,319)

130,982

48,990

81,992

0.77

0.76

754,844

557,646

415,099

142,547

(7,319)

135,228

50,595

84,633

0.80

0.79

624,294

467,818

353,987

113,831

(7,104)

106,727

40,375

66,352

0.64

0.63

618,217

473,895

353,987

119,908

(7,104)

112,804

42,672

70,132

0.67

0.66

507,720

382,701

292,672

90,029

(6,870)

83,159

31,451

51,708

0.51

0.50

501,567

388,854

292,672

96,182

(6,870)

89,312

33,776

55,536

0.54

428,832

325,290

248,370

76,920

(3,896)

73,024

27,385

45,639

0.47

0.46

425,229

328,893

248,370

80,523

(3,896)

76,627

28,747

47,880

0.49

0.48

$ 1,511,816

$ 1,312,490

$ 1,092,112

890,421

754,122

1,948,627

1,627,926

1,292,309

335,617

(33,085)

302,532

116,300

186,232

1,401,859

1,120,460

815,309

305,151

2,337

307,488

113,500

193,988

1,276,511

1,006,711

724,396

282,315

(50)

282,265

104,180

178,085

1.50

1.48

1.69

1.67

1.57

1.55

(In thousands, except per share data)

Years ended December 31,

I NCOME S TAT EMENT d ATA :

Sales

Gross profit

Selling, general and administrative expenses

Operating income

Other income (expense), net

Cost of goods sold, including warehouse and distribution expenses

Income before income taxes and cumulative effect of accounting change

Provision for income taxes

Income before cumulative effect of accounting change

Cumulative effect of accounting change, net of tax (a)

BA S IC E A RNINgS p ER COMMON SH A RE :

Income before cumulative effect of accounting change

Cumulative effect of accounting change (a)

Net income per share

E A RN INgS p ER COMMON SH A RE- A S SUM INg d I LUT ION :

Income before cumulative effect of accounting change

Cumulative effect of accounting change (a)

Net income per share

pRO FORM A INCOME S TATEMENT d ATA : (B)

Cost of goods sold, including warehouse and distribution expenses

Selling, general and administrative expenses

Sales

Gross profit

Operating income

Other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Net income per share

Net income per share – assuming dilution

Weighted-average common shares outstanding

124,526

114,667

113,253

(a) The cumulative change in accounting method, effective January 1, 2004, changed the method of applying LIFO accounting policy for certain inventory costs.

Under the new method, included in the value of inventory are certain procurement, warehousing and distribution center costs

The previous method was to recognize those costs as incurred, reported as a component of costs of goods sold.

(b) The pro forma income statement reflects the retroactive application of the cumulative effect of the accounting change to historical periods.

SELECTEd F INANCI AL d ATA (CON T I NUE d)

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

$ 3,576,553

$ 2,522,319

$ 2,283,222

$ 2,045,318

$ 1,721,241

$ 1,511,816

$ 1,312,490

$ 1,092,112

890,421

754,122

1,152,815

892,503

639,979

252,524

(1,455)

251,069

86,803

164,266

978,076

743,165

552,707

190,458

(2,721)

187,737

70,063

117,674

21,892

873,481

638,335

473,060

165,275

(5,233)

160,042

59,955

100,087

759,090

553,400

415,099

138,301

(7,319)

130,982

48,990

81,992

624,294

467,818

353,987

113,831

(7,104)

106,727

40,375

66,352

507,720

382,701

292,672

90,029

(6,870)

83,159

31,451

51,708

428,832

325,290

248,370

76,920

(3,896)

73,024

27,385

45,639

Net income

186,232

193,988

178,085

164,266

139,566

100,087

81,992

66,352

51,708

45,639

Weighted-average common shares outstanding – adjusted

125,413

116,080

115,119

113,385

111,423

109,060

107,384

105,572

103,456

99,430

1.47

111,613

1.45

1.07

0.20

1.27

110,020

1.05

0.20

1.25

0.93

107,816

0.92

0.77

106,228

0.76

0.64

104,242

0.63

0.51

102,336

0.50

0.47

97,348

0.46

$ 1,511,816

$ 1,312,490

$ 1,092,112

890,421

754,122

872,658

639,158

473,060

166,098

(5,233)

160,865

60,266

100,599

0.93

0.92

754,844

557,646

415,099

142,547

(7,319)

135,228

50,595

84,633

0.80

0.79

618,217

473,895

353,987

119,908

(7,104)

112,804

42,672

70,132

0.67

0.66

501,567

388,854

292,672

96,182

(6,870)

89,312

33,776

55,536

0.54

425,229

328,893

248,370

80,523

(3,896)

76,627

28,747

47,880

0.49

0.48

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 1 9

SELECTEd F INANCI AL d ATA (CON T I NUE d)

(In thousands, except per share data)
Years ended December 31,

SELECTEd O pER AT INg d ATA :
Number of stores at year-end (a)

Total store square footage at year-end (in 000’s)(a)(b)

Sales per weighted-average store (in 000’s)(a)(b)

Sales per weighted-average square foot (b)

Percentage increase in same store sales (c)(d)

BA L A NCE SHEE T d ATA :
Working capital

Total assets

Current portion of long-term debt and short-term debt

Long-term debt, less current portion

Shareholders’ equity

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

3,285

1,830

1,640

23,205

1,379

201

1.5%

12,439

1,430

212

3.7%

11,004

1,439

215

3.3%

821,932

573,328

566,892

4,193,317

2,279,737

1,977,496

8,131

724,564

25,320

75,149

2,282,218

1,592,477

309

110,170

1,364,096

1,470

9,801

1,478

220

7.5%

1,249

8,318

1,443

217

6.8%

1,109

7,348

1,413

215

7.8%

981

6,408

1,372

211

3.7%

424,974

479,662

441,617

483,623

429,527

296,272

249,351

1,718,896

1,432,357

1,157,033

1,009,419

75,313

25,461

1,145,769

592

100,322

947,817

925

120,977

784,285

682

190,470

650,524

875

5,882

1,426

219

8.8%

856,859

16,843

165,618

556,291

672

4,491

1,412

218

5.0%

715,995

49,121

90,463

463,731

571

3,777

1,422

223

9.6%

610,442

19,358

90,704

403,044

(a) Store count for 2002 does not include 27 stores acquired from Dick Smith Enterprises and Davie Automotive, Inc. in December 2002.

(b) Total square footage includes normal selling, office, stockroom and receiving space. Sales per weighted-average store and square foot are weighted to consider the

approximate dates of store openings or expansions.

(c) Same-store sales are calculated based on the change in sales of stores open at least one year. Prior to 2000, same-store sales data was calculated based on the change
in sales of only those stores open during both full periods being compared. Percentage increase in same-store sales is calculated based on store sales results, which
exclude sales of specialty machinery, sales by outside salesmen and sales to team members.

(d) Same-store sales for 2008 includes sales for stores acquired in the CSK acquisition. Comparable stores sales for O’Reilly stores open at least one year increased 2.6%
for the year ended December 31, 2008. Comparable stores sales for CSK stores open at least one year decreased 1.7% for the portion of CSK’s sales in 2008 since
the July 11, 2008, acquisition.

p g . 2 0 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

SELECTEd F INANCI AL d ATA (CON T I NUE d)

1,470

9,801

1,478

220

7.5%

1,249

8,318

1,443

217

6.8%

1,109

7,348

1,413

215

7.8%

981

6,408

1,372

211

3.7%

875

5,882

1,426

219

8.8%

672

4,491

1,412

218

5.0%

571

3,777

1,422

223

9.6%

424,974

479,662

441,617

483,623

429,527

296,272

249,351

1,718,896

1,432,357

1,157,033

1,009,419

75,313

25,461

1,145,769

592

100,322

947,817

925

120,977

784,285

682

190,470

650,524

856,859

16,843

165,618

556,291

715,995

49,121

90,463

463,731

610,442

19,358

90,704

403,044

(In thousands, except per share data)

Years ended December 31,

SELECTEd O pER AT INg d ATA :

Number of stores at year-end (a)

Total store square footage at year-end (in 000’s)(a)(b)

Sales per weighted-average store (in 000’s)(a)(b)

Sales per weighted-average square foot (b)

Percentage increase in same store sales (c)(d)

BA L A NCE SHEE T d ATA :

Working capital

Total assets

Current portion of long-term debt and short-term debt

Long-term debt, less current portion

Shareholders’ equity

3,285

1,830

1,640

23,205

1,379

201

1.5%

12,439

1,430

212

3.7%

11,004

1,439

215

3.3%

821,932

573,328

566,892

4,193,317

2,279,737

1,977,496

8,131

724,564

25,320

75,149

2,282,218

1,592,477

309

110,170

1,364,096

(a) Store count for 2002 does not include 27 stores acquired from Dick Smith Enterprises and Davie Automotive, Inc. in December 2002.

(b) Total square footage includes normal selling, office, stockroom and receiving space. Sales per weighted-average store and square foot are weighted to consider the

approximate dates of store openings or expansions.

(c) Same-store sales are calculated based on the change in sales of stores open at least one year. Prior to 2000, same-store sales data was calculated based on the change

in sales of only those stores open during both full periods being compared. Percentage increase in same-store sales is calculated based on store sales results, which

exclude sales of specialty machinery, sales by outside salesmen and sales to team members.

(d) Same-store sales for 2008 includes sales for stores acquired in the CSK acquisition. Comparable stores sales for O’Reilly stores open at least one year increased 2.6%

for the year ended December 31, 2008. Comparable stores sales for CSK stores open at least one year decreased 1.7% for the portion of CSK’s sales in 2008 since

the July 11, 2008, acquisition.

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 2 1

MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS

The following discussion of our financial condition, results of operations and liquidity and capital resources should be read in conjunction with our
consolidated financial statements, related notes and other financial information included elsewhere in this annual report.

FORWA Rd - LOOK INg S TATEMENT S
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 annual report that are not historical facts are forward-looking
statements, such as statements discussing among other things, expected growth, store development 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 ability to hire and retain qualified employees, risks associated with the integration of acquired businesses including CSK Auto Corporation
(“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.

OV ERV I E W
We are one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States,
selling our products to both do-it-yourself (DIY) customers and professional installers. Our stores carry an extensive product line consisting
of new and remanufactured automotive hard parts, maintenance items and accessories and a complete line of auto body paint and related
materials, automotive tools and professional installer service equipment. On July 11, 2008, we completed the acquisition of CSK, 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 the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts,
Schuck’s Auto Supply, Kragen Auto Parts and Murray’s Discount Auto Parts.

We view the following factors to be the key drivers of current and future demand for the products we sell:

NUMBER OF MILES dRIVEN ANd NUMBER OF REgISTEREd VEHICLES – The total number of miles driven in the U.S. heavily influences the
demand for the repair and maintenance products we sell. The long-term trend in the number of vehicles on the road and the total miles driven
in the U.S. has exhibited steady growth over the past decade. Since 1998, the total number of miles driven in the United States has increased at
an annual rate of approximately 1.6%. The total number of vehicles on the road has increased from 197 million registered light vehicles in 1998
to 241 million in 2007. Total number of miles driven remained relatively unchanged in 2007 and declined by 3.6% in 2008, as many consumers
responded to rising fuel prices and other economic constraints in part by curtailing automobile usage. We believe that the decrease in miles
driven in 2008 and expected decrease in 2009 is a short-term trend and that long-term miles driven will increase in the future because of the
increasing number of vehicles on the road.

AVERAgE VEHICLE AgE – Changes in the average age of vehicles on the road impacts demand for automotive aftermarket products. As the average
age of a vehicle increases, the vehicle goes through more routine maintenance cycles requiring replacement parts such as brakes, belts, hoses,
batteries, and filters. The sales of these products are a key component of our business. The average age of the vehicle population has increased over
the past decade from 8.9 years for passenger cars and 8.3 years for light trucks in 1998 to 10.4 and 9.0 years, respectively, in 2007. Based on the
dramatic decrease in the sale of new cars and light trucks in 2008, and the expected decrease in 2009, we expect that consumers will continue to
choose to keep their vehicles longer and drive them at higher mileages and that this increasing trend in average vehicle age will continue.

UNpERFORMEd MAINTENANCE – According to estimates compiled by the Automotive Aftermarket Industry Association, the annual amount
of unperformed or underperformed maintenance in the United States totaled $60 billion for 2007. This metric represents the degree to which
routine vehicle maintenance recommended by the manufacturer is not being performed. Consumer decisions to avoid or defer maintenance
affect demand for our products and the total amount of unperformed maintenance represents potential future demand. We believe that
challenging macroeconomic conditions in 2007 and 2008 contributed to the amount of unperformed maintenance.

p g . 2 2 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS (CON T I NUE d)

pROdUCT qUALITY dIFFERENTIATION – We provide our customers with an assortment of products that are differentiated by quality and price for
most of the product lines we offer. For many of our product offerings, this quality differentiation reflects “good”, “better”, and “best” alternatives. Our
sales and total gross margin dollars are highest for the “best” quality category of products. Consumers’ willingness to select products at a higher point
on the value spectrum is a driver of sales and profitability in our industry. We believe that the average consumer’s tendency has been to “trade-down”
to lower quality products during the recent challenging economic conditions. We have ongoing initiatives targeted to marketing higher quality
products to our customers and expect our customers to be more willing to return to purchasing up on the value spectrum in the future.

RECENT d E V ELOpMENT S

On July 11, 2008, we completed the acquisition of CSK, 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. Pursuant to the merger agreement, each share of CSK
common stock outstanding immediately prior to the merger was canceled and converted into the right to receive 0.4285 of a share of O’Reilly
common stock and $1.00 in cash. To fund the transaction, we entered into a Credit Agreement for a $1.2 billion asset-based revolving credit
facility arranged by Bank of America, N.A., which we used to refinance debt, fund the cash portion of the acquisition, pay for other transaction-
related expenses and provide liquidity for our combined Company going forward. The results of CSK’s operations have been included in our
consolidated financial statements since the acquisition date.

At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts, Schuck’s Auto Supply,
Kragen Auto Parts and Murray’s Discount Auto Parts. This added stores in twelve new states: Alaska, Arizona, California, Colorado, Hawaii,
Idaho, Michigan, Nevada, New Mexico, Oregon, Utah and Washington, and a number of new markets in states where O’Reilly had a presence
prior to the acquisition. As of December 31, 2008, we had converted 51 CSK stores to O’Reilly brands, merged 35 CSK stores with existing
O’Reilly locations, closed six CSK stores and opened four new CSK stores.

RE SULT S OF OpER AT IONS
The following table sets forth, certain income statement data as a percentage of sales for the years indicated:

Years ended December 31,

Sales

Cost of goods sold, including warehouse and distribution expenses

Gross profit

Selling, general and administrative expenses

Operating income

Debt prepayment costs

Interim facility commitment fee

Interest expense

Interest income

Other income, net

Income before income taxes

Provision for income taxes

Net income

2008

2007

2006

100%

54.5

45.5

36.1

9.4

(0.2)

(0.1)

(0.7)

0.1

8.5

3.3

55.6

44.4

32.3

12.1

(0.1)

0.1

12.2

4.5

5.2%

7.7%

55.9

44.1

31.7

12.4

(0.2)

0.1

12.4

4.6

7.8%

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MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS (CON T I NUE d)

2 0 0 8 COMpA RE d TO 2 0 07
Sales increased $1.05 billion, or 42%, from $2.52 billion in 2007 to $3.58 billion in 2008, due to the acquisition of 1,342 CSK stores and the
addition of 150 net new O’Reilly stores opened during 2008. The following table presents the components of the increase in sales for the year
ended December 31, 2008:

December 31, 2008, compared to the same period in 2007

(In millions)

O’Reilly stores:

Comparable store sales

Stores opened throughout 2007, excluding sales for stores open at least one year

that are included in that are included in comparable store sales

Sales of stores opened in 2008

Non-store sales including machinery, sales to independent parts

stores and team members

CSK stores:

Total increase in sales

Increase/(Decrease) in Sales For the Year Ended

65.0

92.3

61.8

(1.1)

836.2

1,054.2

We believe that the increased sales achieved by our existing stores is the result of superior inventory availability, a broader selection of
products in most stores, targeted promotional and advertising efforts through a variety of media and localized promotional events, continued
improvement in the merchandising and layout of stores, compensation programs for all store team members that provide incentives for
performance and our continued focus on serving professional installers. Consolidated comparable store sales for stores open at least one
year increased 1.5% for the year ended December 31, 2008. This increase in 2008 was less than the prior year’s increase of 3.7% and historical
trends primarily due to challenging external macroeconomic factors in 2008 as well as a decline in comparable store sales in the stores
added in the CSK acquisition. The external macroeconomic factors which we believe negatively impacted our sales were constraints on our
customers’ discretionary income resulting from inflation, declining home and investment asset values, higher gas prices in early 2008, increased
unemployment and the impact of a contraction in the US economy. Comparable store sales for O’Reilly stores, including CSK stores after
conversion to the O’Reilly brand, but excluding the acquired, yet-to-be-converted CSK stores, increased 2.6% for the year ended December
31, 2008. Comparable store sales for acquired CSK stores open at least one year decreased 1.7% for the portion of those stores’ sales since the
July 11, 2008 acquisition by O’Reilly as compared to the same period in 2007 when CSK’s sales were not included in our consolidated financial
statements. We anticipate that continued store unit and sales growth consistent with our historical rates will continue in the future. We expect
future sales growth as the CSK stores are converted to the O’Reilly dual market strategy. Comparable store sales are calculated based on
the change in sales of stores open at least one year and exclude sales of specialty machinery, sales to independent parts stores and sales to
team members.

The following table presents quarterly results for non-store sales that are excluded from the calculation of comparable stores sales:

(In millions):

For the quarter ended:

March 31

June 30

September 30

December 31

For the year ended December 31:

2008

2007

2006

Gross profit increased $507.5 million, or 45%, from $1.12 billion (44.4% of sales) in 2007 to $1.63 billion (45.5% of sales) in 2008. The increase
in gross profit dollars was primarily the result of the increase in sales resulting from the acquisition of CSK, the increase from new stores and
increased sales levels at existing stores. The increase in gross profit as a percentage of sales is the result of improved product mix, lower product
acquisition cost and distribution system improvements. We improved our product mix by continuing to implement strategies to differentiate
our merchandise selections at each store based on customer demand and vehicle demographics in the store’s market and through ongoing
Team Member training initiatives focused on selling products with greater gross margin contribution. Additionally, gross margin percentage
improved as a result of the inclusion of sales from stores acquired in the acquisition of CSK. Gross margin percentages on the sales at these
stores are higher than existing O’Reilly stores primarily because a greater proportion of these sales are made to DIY customers (which typically

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have higher gross margin percentages) and because of market conditions, primarily overall price levels, that are specific to the markets in which
the acquired stores are located. Product acquisition costs improved due to increased production by our suppliers in lower-cost foreign countries
and improved negotiating leverage with our vendors as a result of our significant growth. Improvements in our distribution system were the
result of capital projects designed to create operating expense efficiencies. We anticipate these trends to continue at a moderate rate in 2009,
with more significant improvements resulting from continued product acquisition cost reductions relating to the CSK acquisition.

SG&A increased $477 million, or 59%, from $815.3 million (32.3% of sales) in 2007 to $1.29 billion (36.1% of sales) in 2008. The dollar increase
in SG&A expenses resulted primarily from the acquisition of CSK and from additional team members and resources to support our increased
store count. The increase in SG&A expenses as a percentage of sales was primarily due to the addition of the CSK store base which has a higher
expense structure than the core O’Reilly store base, a one-time charge of $9.6 million to align CSK’s vacation policy with the Company’s policy,
$5.3 million of non-cash amortization of CSK trade names and trade marks and partial de-leverage of fixed SG&A expenses on low comparable
store sales increases.

Interest expense increased $22 million, from $4 million (or 0.1% of sales) in 2007 to $26 million (or 0.7% of sales) in 2008. The increase in
interest expense is the result of borrowings under our new asset-based revolving credit facility that were used to fund the CSK acquisition as
well as amortization of a portion of the debt issuance costs. Other one-time charges were incurred in 2008 of $4.2 million for interim financing
facility commitment fees related to the CSK acquisition and $7.2 million of debt prepayment costs resulting from the payoff of our existing
senior notes and synthetic lease facility.

Our provision for income taxes increased from $114 million in 2007 (36.9% effective tax rate) to $116 million in 2008 (38.4% effective tax rate). The
increase in effective tax rate is the result of our acquisition of CSK and the generally higher effective tax rates in most states where the acquired CSK
stores are located. The increase is also attributable to a one-time charge to adjust tax liabilities in the amount $3.1 million relating to the acquisition.

As a result of the impacts discussed above, net income decreased $7.8 million from $194.0 million in 2007 (7.7% of sales) to $186.2 million in
2008 (5.2% of sales). Diluted earnings per share decreased $0.19 per share in 2008 to $1.48 per share on 125.4 million diluted shares outstanding
from $1.67 per share in 2007 on 116.1 million diluted shares outstanding. The increase in dilutive shares outstanding is principally the result of
shares exchanged in the acquisition of CSK.

2 0 07 COMpA RE d TO 2 0 0 6
Sales increased $239 million, or 10.5%, from $2.28 billion in 2006 to $2.52 billion in 2007, due to 190 net additional stores opened during
2007 which contributed $72.5 million to the sales increase, a full year of sales for stores opened throughout 2006 adding $83.5 million and a
3.7% increase in same-store sales for stores open at least one year providing $82.6 million of the sales increase. We believe that the increased
sales achieved by our existing stores are the result of superior inventory availability, offering a broader selection of products in most stores,
an increased promotional and advertising effort through a variety of media and localized promotional events, continued improvement in the
merchandising and store layouts of most stores, compensation programs for all store team members that provide incentives for performance
and our continued focus on serving professional installers. The same store sales increase in 2007 of 3.7% was greater than the prior year’s
increase of 3.3%, but below our historical results. The decrease from historical trends is the result of challenging external macroeconomic
factors in 2006 and 2007. The external macroeconomic factors, which we believe negatively impacted our sales, were constraints on our
customers’ discretionary income as a result of increased interest rates and higher energy costs. Consumers also encountered higher gas prices,
which resulted in annual miles driven, a key driver of demand for our products, remaining flat in comparison to the long-term trend of annual
increases. We anticipate that continued store unit and sales growth consistent with our historical rates will continue in the future.

December 31, 2007 compared to the same period in 2006
(In millions)

O’Reilly stores:

Comparable store sales

Stores opened throughout 2006, excluding stores open

at least one year that are included in comparable store sales

Sales of stores opened in 2007

Non-store sales including machinery, sales to independent parts

stores and team members

Total increase in sales

Increase in Sales For the Year Ended

82.6

83.5

72.5

0.5

239.1

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MANAgEMENT ’S dISCUSSION ANd ANALYSIS
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Gross profit increased $113.7 million, or 11.3%, from $1.01 billion (44.1% of sales) in 2006 to $1.12 billion (44.4% of sales) in 2007, primarily
due to the increase in sales resulting from a larger number of stores and increased sales levels at existing stores. The increase in gross profit as a
percent of sales is the result of improvements in product mix, lower product acquisition cost and distribution system efficiencies. Improvements
in product mix were the result of strategies which differentiated our merchandise selections at each store based on customer demand and
vehicle demographics in the store’s market and through ongoing Team Member training initiatives focused on selling products with greater
gross margin contribution. Product acquisition cost improved due to increased imports from lower cost providers in foreign countries as well
as improved negotiating leverage with our vendors resulting from our increased purchasing power. Improvements in our distribution system
were the result of capital projects designed to create operating expense efficiencies. We anticipate these trends to continue at a moderate rate
throughout 2008.

SG&A increased $90.9 million, or 12.6%, from $724.4 million (31.7% of sales) in 2006 to $815.3 million (32.3% of sales) in 2007. The increase in
these expenses was primarily attributable to increased salaries and benefits, rent and other costs associated with the addition of employees and
facilities to support the increased level of our operations. The increase in SG&A as a percentage of sales was the result of increased store salaries
primarily driven by the timing of new store openings, higher advertising costs, increased depreciation expense primarily driven by investment
in new store technology and increased stock compensation expense.

Other income, net, increased by $2.4 million from ($0.1) million in 2006 to $2.3 million in 2007. The increase was primarily due to decreased
interest expense on long-term debt resulting from a reduction in the interest rate on long-term debt as well as increased interest income derived
from a higher than average cash balance.

Provision for income taxes increased from $104.2 million in 2006 (36.9% effective tax rate) to $113.5 million in 2007 (36.9% effective tax rate).
The increase in the dollar amount was due to the increase of income before income taxes.

As a result of the impacts discussed above, net income increased $15.9 million from $178.1 million in 2006 (7.8% of sales) to $194.0 million in
2007 (7.7% of sales). Diluted earnings per share increased $0.12 per share in 2007 to $1.67 per share on 116.1 million diluted shares outstanding
from $1.55 per share in 2006 on 115.1 million diluted shares outstanding.

L IqU I dI T Y A Nd CA pI TA L RE SOURCE S
Net cash provided by operating activities was $298.5 million in 2008, $299.4 million in 2007 and $185.9 million in 2006. Net cash provided
by operating activities in 2008 was consistent with the cash provided by operating activities in 2007 principally because an increase in net
inventory investment in 2008 was offset by an increase in operating income adjusted for non-cash depreciation and amortization expenses, and
a one-time non-cash charge of $9.6 million to align, where possible, CSK’s vacation policy with the Company’s policy. Net inventory investment
reflects our investment in inventory net of the amount of accounts payable to vendors. The increase in net inventory investment in 2008 was
the result of investments made to improve the inventory availability in the stores acquired in the acquisition of CSK. The average per-store
inventory for core O’Reilly stores increased to $489,000 as of December 31, 2008, from $482,000 as of December 31, 2007. CSK store’s average
per-store inventory increased from $417,000 at the date of acquisition, to $461,000 as of December 31, 2008.

The increase in net cash provided by operating activities in 2007 was due to increased net income and a reduction in net inventory investment.
The reduction in net inventory investment is the result of reductions in our per-store inventory levels and our ongoing effort to extend terms
with our vendors. Reductions in our per-store inventory levels are driven by our continued optimization of inventory selection at our stores and
our ability to efficiently deploy inventory throughout our distribution network.

Net cash used in investing activities was $367.6 million in 2008, $300.3 million in 2007 and $225.2 million in 2006. The increase in cash used in
investing activities in 2008 was principally due to an increase in capital expenditures and payments made in association with the acquisition of
CSK. Capital expenditures were $341.7 million in 2008, $282.7 million in 2007 and $228.9 million in 2006. The increase in capital expenditures
in 2008 was the result of the July 11, 2008 purchase of properties previously leased under our synthetic lease facility in conjunction with
the financing of the acquisition of CSK, the addition of a distribution center facility in Lubbock, Texas, cash paid in the construction of a
distribution center in Greensboro, North Carolina planned to open in 2009 and capital investments made in the initial stage of our integration
of the operations of CSK. The 2008 increase in capital expenditures from these items was partially offset by decreased capital expenditures for
new store construction. We opened 150, 190 and 170 net stores in 2008, 2007 and 2006, respectively. The increase in cash used in investing
activities in 2007 compared to 2006 was due to increases in capital expenditures resulting from our increased number of new stores, store
relocations, enhancements in existing store technology and the purchase of $21.7 million of CSK shares. These expenditures were primarily
related to the opening of new stores and distribution centers, as well as the relocation or remodeling of existing stores.

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Our plan for the integration of the CSK acquisition and our continuing store expansion program will require significant capital expenditures
and working capital investments in 2009. Total capital expenditures in 2009 are expected to range from $420 million to $470 million. The CSK
integration plan will require capital expenditures for the planned addition of facilities to enhance distribution infrastructure and the conversion
of acquired stores to the O’Reilly brand. Costs associated with the conversion of CSK stores include investments in store computer systems,
signage, fixtures, interior and exterior renovation, and delivery vehicles. The estimated conversion cost per store is expected to be approximately
$135,000. Additionally, our 2009 growth plans call for approximately 150 new stores and the addition of a distribution center in Greensboro,
North Carolina. The costs associated with the opening of a new store (including the cost of land acquisition, improvements, fixtures, net
inventory investment and computer equipment) are estimated to average approximately $1.3 million to $1.5 million; however, such costs may be
significantly reduced where we lease, rather than purchase, the store site. We plan to finance our expansion program through cash expected to
be provided from operating activities and available borrowings under our ABL Credit Facility.

Net cash provided by financing activities was $52.8 million in 2008, $18.6 million in 2007 and $37.8 million in 2006. The increase in cash
provided by financing activities in 2008 is primarily the result of the proceeds from borrowings under our asset-based credit facility partially
offset by the payment of outstanding principal balances on existing debt and debt assumed in the CSK acquisition, debt issuance costs and
prepayment costs in association with the financing of the acquisition of CSK. The decrease in cash provided by financing activities in 2007
versus 2006 is due to net repayments of long-term debt.

On July 11, 2008, in connection with the acquisition of CSK, we entered into a Credit Agreement for a five-year $1.2 billion asset-based
revolving credit facility (“ABL Credit Facility”) arranged by Bank of America, N.A., which we 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. This facility
replaced a previous unsecured, five-year syndicated revolving credit facility in the amount of $100 million.

The ABL Credit Facility is comprised of a $1.075 billion tranche A revolving credit facility and a $125.0 million first-in-last-out revolving credit
facility (FILO tranche). As part of the ABL Credit Agreement, the Company has pledged virtually all of its assets as collateral and is subject to
an ongoing consolidated leverage ratio covenant. On the date of the transaction, the amount of the borrowing base available, as described in the
ABL Credit Agreement, under the ABL Credit Facility was $1.05 billion of which we borrowed $588 million. We used borrowings under the
ABL Credit Facility to repay certain existing debt of CSK, repay our $75 million 2006-A Senior Notes and purchase all of the properties that had
been leased under our synthetic lease facility. We believe that cash expected to be provided by operating activities and our ABL Credit Facility
will be sufficient to fund both our short-term and long-term capital and liquidity needs for the foreseeable future. At December 31, 2008, our
borrowing base was $1.124 billion, of which we had borrowed $614.2 million.

Borrowings under the tranche A revolver bear interest, at our option, at a rate equal to either a base rate plus 1.50% per annum or LIBOR plus
2.5% per annum, with each rate being subject to adjustment based upon certain excess availability thresholds. Borrowings under the FILO
tranche bear interest, at our 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 Bank of America from time to time and the federal funds effective rate as in effect from time to time plus 0.50%. Fees related to
unused capacity under the ABL Credit Facility are assessed at a rate of 0.5% of the remaining available borrowings under the facility, subject to
adjustment based upon remaining unused capacity. In addition, we paid customary commitment fees, letter of credit fees, underwriting fees and
other administrative fees in respect of the credit facility.

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On July 24, 2008, October 14, 2008, and November 24, 2008, we entered into interest rate swap transactions with Branch Banking and Trust
Company (“BBT”), Bank of America, N.A. (“BA”) and SunTrust Bank (“SunTrust”). We entered into these interest rate swap transactions to
mitigate the risk associated with our floating interest rate based on LIBOR on an aggregate of $450 million of our debt that is outstanding under
our ABL Credit Agreement, dated as of July 11, 2008. We are required to make certain monthly fixed rate payments calculated on the notional
amounts, while the applicable counter party is obligated to make certain monthly floating rate payments to us referencing the same notional
amount. The interest rate swap transactions effectively fix the annual interest rate payable on these notional amounts of our debt, which may
exist under the ABL Credit Facility plus an applicable margin under the terms of the ABL Credit Facility. The counterparties, transaction dates,
effective dates, applicable notional amounts, effective index rates and maturity dates of each of the interest rate swap transactions are included in
the table below:

Counterparty

Transaction
Date

Effective
Date

Notional
Amount
(in thousands)

Effective
Interest Rate at
Spread at
Index Rate Dec. 31, 2008 Dec. 31, 2008

Effective

8/1/2008

100,000

3.425%

3.75%

7.175%

7/24/2008

8/1/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

11/24/2008

11/28/2008

25,000

75,000

50,000

25,000

50,000

450,000

3.830

2.990

3.010

3.050

2.990

3.560

1.950

3.75

2.50

Maturity
Date

8/1/2010

8/1/2011

7.580

6.330

5.490

10/17/2010

5.510

5.550

5.490

10/17/2010

6.060

10/17/2011

4.450

11/28/2009

BBT

SunTrust

BBT

SunTrust

On July 11, 2008, O’Reilly agreed to become a guarantor, on a subordinated basis, of the $100 million principal amount of 6 3/4% Exchangeable
Senior Notes due 2025 (the “Notes”) originally issued by CSK. The Notes are exchangeable, under certain circumstances, into cash and shares of
our 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 Notes are exchangeable by the holders only under certain circumstances. Prior 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):

•

During any fiscal quarter (and only during that fiscal quarter) commencing after July 11, 2008, if the last reported sale price of our common
stock is greater than or equal to 130% of the applicable exchange price of $36.17 for at least 20 trading days in the period of 30 consecutive
trading days ending on the last trading day of the preceding fiscal quarter;

If the Notes have been called for redemption by the Company; or

Upon the occurrence of specified corporate transactions, such as a change in control.

Upon exchange of the Notes, we will deliver cash equal to the lesser of the aggregate principal amount of notes to be exchanged and our total
exchange obligation and, in the event our total exchange obligation exceeds the aggregate principal amount of notes to be exchanged, shares of
our 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 25.9697 shares of our common stock and $60.6061 in cash.

The noteholders may require us 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 indenture. We 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.

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OF F BA L A NCE SHEE T A RR A NgEMENT S

We have utilized various financial instruments from time to time as sources of cash when such instruments provided a cost effective alternative
to our existing sources of cash. We do not believe, however, that we are dependent on the availability of these instruments to fund our working
capital requirements or our growth plans.

On December 29, 2000, we entered into a sale-leaseback transaction with an unrelated party. Under the terms of the transaction, we sold 90
properties, including land, buildings and improvements, which generated $52.3 million of cash. The lease, which is being accounted for as an
operating lease, provides for an initial lease term of 21 years and may be extended for one initial ten-year period and two additional successive
periods of five years each. The resulting gain of $4.5 million has been deferred and is being amortized over the initial lease term. Net rent
expense during the initial term will be approximately $5.5 million annually.

In August 2001, we entered into a sale-leaseback with O’Reilly-Wooten 2000 LLC (an entity owned by certain affiliates of the Company). The
transaction involved the sale and leaseback of nine O’Reilly Auto Parts stores and generated approximately $5.6 million of cash. The transaction
did not result in a material gain or loss. The lease, which has been accounted for as an operating lease, calls for an initial term of 15 years with
three five-year renewal options.

On September 28, 2007, we completed a second amended and restated master agreement to our $49 million Synthetic Operating Lease
Facility with a group of financial institutions. The terms of such lease facility provided for an initial lease period of seven years, a residual value
guarantee of approximately $39.7 million at December 31, 2007 and purchase options on the properties. On July 11, 2008, we, in connection
with the acquisition of CSK, purchased all the properties included in our Synthetic Operating Lease Facility for $49.3 million, thus terminating
the facility. The purchase was funded through borrowings under the ABL Credit Facility.

We issue stand-by letters of credit provided by a $200 million sub limit under the ABL Credit Facility that reduce our available borrowings.
These letters of credit are issued primarily to satisfy the requirements of workers compensation, general liability and other insurance policies.
Substantially all of the outstanding letters of credit have a one-year term from the date of issuance. Letters of credit totaling $55.6 million and
$28.6 million were outstanding at December 31, 2008 and 2007, respectively.

CR I T ICA L ACCOUNT INg p OL ICI E S A Nd E S T IM ATE S
The preparation of our financial statements in accordance with accounting policies generally accepted in the United States (“GAAP”) requires
the application of certain estimates and judgments by management. Management bases its assumptions, estimates, and adjustments on
historical experience, current trends and other factors believed to be relevant at the time the consolidated financial statements are prepared.
Management believes that the following policies are critical due to the inherent uncertainty of these matters and the complex and subjective
judgments required to establish these estimates. Management continues to review these critical accounting policies and estimates to ensure that
the consolidated financial statements are presented fairly in accordance with GAAP. However, actual results could differ from our assumptions
and estimates and such differences could be material.

VENdOR CONCESSIONS – We receive concessions from our vendors through a variety of programs and arrangements, including co-operative
advertising, allowances for warranties, merchandise allowances and volume purchase rebates. Co-operative advertising allowances that are
incremental to our advertising program, specific to a product or event and identifiable for accounting purposes, are reported as a reduction
of advertising expense in the period in which the advertising occurred. All other material vendor concessions are recognized as a reduction
to the cost of inventory. Amounts receivable from vendors also include amounts due to us relating to vendor purchases and product returns.
Management regularly reviews amounts receivable from vendors and assesses the need for a reserve for uncollectible amounts based on our
evaluation of our vendors’ financial position and corresponding ability to meet their financial obligations. Based on our historical results and
current assessment, we have not recorded a reserve for uncollectible amounts in our consolidated financial statements, and we do not believe
there is a reasonable likelihood that our ability to collect these amounts will differ from our expectations. The eventual ability of our vendors to
pay us the obliged amounts could differ from our assumptions and estimates, and we may be exposed to losses or gains that could be material.

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SELF-INSURANCE RESERVES – We use a combination of insurance and self-insurance mechanisms to provide for potential liabilities from
workers’ compensation, general liability, vehicle liability, property loss, and employee health care benefits. With the exception of employee
health care benefit liabilities, which are limited by the design of these plans, we obtain third-party insurance coverage to limit our exposure for
any individual workers’ compensation, general liability, vehicle liability or property loss claim. When estimating our self-insurance liabilities, we
consider a number of factors, including historical claims experience and trend-lines, projected medical and legal inflation, and growth patterns
and exposure forecasts. The assumptions made by management as they relate to each of these factors represent our judgment as to the most
probable cumulative impact of each factor to our future obligations. Our calculation of self-insurance liabilities requires management to apply
judgment to estimate the ultimate cost to settle reported claims and claims incurred but not yet reported as of the balance sheet date and the
application of alternative assumptions could result in a different estimate of these liabilities. Actual claim activity or development may vary from
our assumptions and estimates, which may result in material losses or gains. As we obtain additional information that affects the assumptions
and estimates we used to recognize liabilities for claims incurred in prior accounting periods, we adjust our self-insurance liabilities to reflect
the revised estimates based on this additional information. The long-term portions of these liabilities are recorded at our estimate of their
net present value. These liabilities do not have scheduled maturities, but we can estimate the timing of future payments based upon historical
patterns. We could apply alternative assumptions regarding the timing of payments or the applicable discount rate that could result in materially
different estimates of the net present value of the liabilities. If self-insurance reserves were changed 10% from our estimated reserves
at December 31, 2008, the financial impact would have been approximately $8.6 million or 2.8% of pretax income for the year ended
December 31, 2008.

ACCOUNTS RECEIVABLE – Management estimates the allowance for doubtful accounts based on historical loss ratios and other relevant factors.
Actual results have consistently been within management’s expectations, and we do not believe there is a reasonable likelihood that there will
be a material change in the future that will require a significant change in the assumptions or estimates we use to calculate our allowance for
doubtful accounts. However, if actual results differ from our estimates, we may be exposed to losses or gains. If the allowance for doubtful
accounts were changed 30% from our estimated allowance at December 31, 2008, the financial impact would have been approximately $1.4
million or 0.4% of pretax income for the year ended December 31, 2008.

TAxES – We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex
issues, which may require an extended period of time to resolve. We regularly review our potential tax liabilities for tax years subject to audit.
The amount of such liabilities is based on various factors, such as differing interpretations of tax regulations by the responsible tax authority,
experience with previous tax audits and applicable tax law rulings. Changes in our tax liability may occur in the future as our assessments
change based on the progress of tax examinations in various jurisdictions and/or changes in tax regulations. In management’s opinion, adequate
provisions for income taxes have been made for all years presented. The estimates of our potential tax liabilities contain uncertainties because
management must use judgment to estimate the exposures associated with our various tax positions and actual results could differ from our
estimates. Alternatively, we could have applied assumptions regarding the eventual outcome of the resolution of open tax positions that could
differ from our current estimates but that would still be reasonable given the nature of a particular position. Our judgment regarding the most
likely outcome of uncertain tax positions has historically resulted in an estimate of our tax liability that is greater than actual results. While our
estimates are subject to the uncertainty noted in the preceding discussion, our initial estimates of our potential tax liabilities have historically
not been materially different from actual results except in instances where we have reversed liabilities that were recorded for periods that
were subsequently closed with the applicable taxing authority. The accounting for our tax reserves changed with the adoption of Financial
Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109” (“FIN 48”) on January 1, 2007.

INVENTORY OBSOLESCENCE ANd SHRINK – Inventory, which consists of automotive hard parts, maintenance items, accessories and tools is
stated at the lower of cost or market. The extended nature of the life cycle of our products is such that the risk of obsolescence of our inventory
is minimal. The products that we sell generally have applications in our markets for a relatively long period of time in conjunction with the
corresponding vehicle population. We have developed sophisticated systems for monitoring the life cycle of a given product and, accordingly,
have historically been very successful in adjusting the volume of our inventory in conjunction with a decrease in demand. We do record
a reserve to reduce the carrying value of our inventory through a charge to cost of sales in the isolated instances where we believe that the
market value of a product line is lower than our recorded cost. This reserve is based on our assumptions about the marketability of our existing
inventory and is subject to uncertainty to the extent that we must estimate, at a given point in time, the market value of inventory that will be
sold in future periods. Ultimately, our projections could differ from actual results and could result in a material impact to our stated inventory
balances. We have historically not had to materially adjust our obsolescence reserves due to the factors discussed above and do not anticipate
that we will experience material changes in our estimates in the future.

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2 0 0 8 an n u a l R e p oR T

MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS (CON T I NUE d)

We also record a reserve to reduce the carrying value of our perpetual inventory to account for quantities in our perpetual records above the
actual existing quantities on hand caused by unrecorded shrink. We estimate this reserve based on the results of our extensive and frequent
cycle counting programs and periodic, full physical inventories at our stores and distribution centers. To the extent that our estimates do not
accurately reflect the actual unrecorded inventory shrinkage, we could potentially experience a material impact to our inventory balances.
We have historically been able to provide a timely and accurate measurement of shrink and have not experienced material adjustments to our
estimates. If unrecorded shrink were changed 10% from the estimate that we recorded based on our historical experience at December 31, 2008,
the financial impact would have been approximately $0.9 million or 0.3% of pretax income for the year ended December 31, 2008.

VALUATION OF LONg-LIVEd ASSETS ANd gOOd WILL – In accordance with the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), we evaluate the carrying value of long-lived
assets whenever events or changes in circumstances indicate that a potential impairment has occurred. As part of the evaluation, we review
performance at the store level to identify any stores with current period operating losses that should be considered for impairment. A potential
impairment has occurred if the projected future undiscounted cash flows realized from the best possible use of the asset are less than the
carrying value of the asset. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from
the use of that asset in operations. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized
for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Our impairment analyses contain estimates due to
the inherently judgmental nature of forecasting long-term estimated cash flows and determining the ultimate useful lives and fair values of the
assets. Actual results could differ from these estimates, which could materially impact our impairment assessment.

Under the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we review
goodwill and other intangible assets for impairment annually or when events or changes in circumstances indicate the carrying value of these
assets might exceed their current fair values. The Company has not historically recorded an impairment to its goodwill or intangible assets.
The process of evaluating goodwill for impairment involves the determination of the fair value of our Company. Inherent in such fair value
determinations are certain judgments and estimates, including estimates which incorporate assumptions marketplace participants would use
in making their estimates of fair value. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is
impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.

CONT R ACTUA L OBL Ig AT IONS
We have other liabilities reflected in our balance sheet, including deferred income taxes and self-insurance accruals. Interest payments on our
variable rate long-term debt are not included in the financial commitments table. The payment obligations associated with these liabilities are
not reflected in the financial commitments table due to the absence of scheduled payments. Therefore, the timing of these payments cannot be
determined, except for amounts estimated to be payable in 2009 that are included in current liabilities. In addition, we have commitments with
various vendors for the purchase of inventory as of December 31, 2008. The financial commitments table excludes these commitments because
they are cancelable by their terms.

Our contractual obligations, as in effect at December 31, 2008, including commitments for future payments under non-cancelable lease
arrangements, short and long-term debt arrangements, interest payments related to long-term debt, fixed payments related to interest rate
swaps and purchase obligations for construction contract commitments, are summarized below and are fully disclosed in Notes 4 and 6 to the
consolidated financial statements.

(In thousands)

Total

Before 1 Year

1-2 Years

3-4 Years Years 5 and Over

Payments Due By Period

Contractual Obligations:

Long-term debt

717,768

614,200

103,568

Payments under interest rate swap agreements

Future minimum lease payments under capital leases

135,663

16,174

Future minimum lease payments under operating leases

1,505,771

Other obligations

Purchase obligations

4,800

130,106

21,596

8,808

213,482

600

130,106

29,870

6,096

370,074

1,200

13,000

1,168

283,505

1,200

71,197

102

638,710

1,800

Total contractual cash obligations

$ 2,510,282

374,592

407,240

913,073

815,377

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p g . 3 1

MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS (CON T I NUE d)

I NF L AT ION A Nd SE A SONA L I T Y
For the last three fiscal years, we have been successful, in many cases, in reducing the effects of merchandise cost increases principally by
taking advantage of vendor incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying.
To the extent our acquisition cost increased due to base commodity price increases industry-wide, we have typically been able to pass along
these increased costs through higher retail prices for the affected products. As a result, we do not believe our operations have been materially,
adversely affected by inflation.

To some extent, our business is seasonal primarily as a result of the impact of weather conditions on customer buying patterns. While we have
historically realized operating profits in each quarter of the year, our store sales and profits have historically been higher in the second and third
quarters (April through September) than in the first and fourth quarters of the year.

qUA R TERLY RE SULT S
The following table sets forth certain quarterly unaudited operating data for fiscal 2008 and 2007. The unaudited quarterly information includes
all adjustments which management considers necessary for a fair presentation of the information shown.

The unaudited operating data presented below should be read in conjunction with our consolidated financial statements and related notes
included elsewhere in this annual report, and the other financial information included therein.

(In thousands, except per share data)

Sales

Gross profit

Operating income

Net income

Basic net income per common share

Net income per common share – assuming dilution

(In thousands, except per share data)

Sales

Gross profit

Operating income

Net income

Basic net income per common share

Net income per common share – assuming dilution

Fiscal 2008

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

646,220

704,430

1,111,272

1,114,631

288,494

74,156

46,331

0.40

317,097

88,388

55,788

0.48

507,206

92,471

41,399

0.31

515,129

80,602

42,714

0.32

Fiscal 2007

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

613,145

643,108

661,778

604,288

269,281

77,192

48,407

0.42

287,185

81,558

51,899

0.45

293,701

82,716

53,087

0.46

270,293

63,685

40,595

0.35

NE W ACCOUNT INg p RONOUNCEMENT S
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,
Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The provisions of SFAS No. 157 for financial assets and liabilities, as well as any other assets and liabilities that
are carried at fair value on a recurring basis in financial statements, are effective for financial statements issued for fiscal years beginning after
November 15, 2007 (fiscal year 2008 for us). FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, delayed the effective
date of SFAS No. 157 for most nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008 (fiscal year
2009 for us). The implementation of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008, did not have a material
impact on our consolidated financial position, results of operations or cash flows. We do not anticipate SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities will have a material impact on our consolidated financial position, results of operations or cash flows.

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2 0 0 8 an n u a l R e p oR T

MANAgEMENT ’S dISCUSSION ANd ANALYSIS
OF F INANCI AL C ONdI T ION AN d RESULTS OF Op ER AT IONS (CON T I NUE d)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No.
159 permits entities to measure selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings at each subsequent reporting date. The provisions of SFAS No. 159 are effective as of
the beginning of our 2008 fiscal year. As we elected not to measure any eligible items using the fair value option in accordance with SFAS No.
159, the adoption of SFAS No. 159 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (revised 2007) (“SFAS No. 141(R)”). SFAS No. 141(R) applies to
any transaction or other event that meets the definition of a business combination. Where applicable, SFAS No. 141(R) establishes principles
and requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the
acquiree and goodwill or gain from a bargain purchase. In addition, SFAS No. 141(R) determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the business combination. This statement is to be applied prospectively for
fiscal years beginning after December 15, 2008. We do not expect the initial adoption of SFAS No. 141(R) to have a material impact; however,
the impact of SFAS No. 141(R) on a future business combination could be material and would be evaluated at that time.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB
No. 51 (“SFAS 160”), which is effective for fiscal years beginning after December 15, 2008. SFAS 160 states that accounting and reporting for
minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The calculation of earnings per
share will continue to be based on income amounts attributable to the parent. SFAS 160 applies to all entities that prepare consolidated financial
statements, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate
a subsidiary. The provisions of SFAS 160 will be effective for us beginning January 1, 2009, and will be applied prospectively. We do not expect
the adoption of SFAS 160 will have a material impact on our consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133 (“SFAS No. 161”), which requires entities that utilize derivative instruments to provide qualitative disclosures about their
objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives.
SFAS No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial
statements, how the provisions of FASB Statement No. 133 have been applied, and the impact that hedges have on an entity’s financial position,
financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. We will adopt the provisions of SFAS No. 161 beginning with our March 2009 interim consolidated financial statements.

In May 2008, the FASB issued FSP Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 clarifies the accounting for convertible
debt instruments that may be settled in cash (including partial cash settlement) upon conversion and specifies that issuers of such instruments
should separately account for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 requires bifurcation of a component
of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest
expense in the Company’s consolidated statement of operations. FSP APB 14-1 is effective for fiscal years and interim periods beginning
after December 15, 2008, with early application prohibited. We will adopt the provisions of FSP APB 14-1 beginning with our March 2009
interim consolidated financial statements; however, we do not anticipate that the adoption of FSP APB 14-1 will have a material impact on our
consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Heirarchy of Generally Accepted Accounting Principles (“SFAS 162”). This standard is intended
to improve financial reporting by identifying a consistent framework or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with generally accepted accounting principles in the United States. SFAS 162 is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411. “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles.”

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 3 3

qUANT I TAT I VE AN d qUA L I TAT I VE dISCLOSURES A BOUT M ARKET R ISK

We are subject to interest rate risk to the extent we borrow against our credit facilities with variable interest rates. At December 31, 2007, we did
not have amounts borrowed against our variable rate credit facilities and, as a result, did not have material market risk exposure. Primarily as a
result of borrowings in 2008 to fund the acquisition of CSK, we have interest rate exposure with respect to the $614 million outstanding balance
on our variable interest rate debt at December 31, 2008; however, from time to time, we have entered into interest rate swaps to reduce this
exposure. On July 24, 2008, October 14, 2008, and November 24, 2008, we reduced our exposure to changes in interest rates by entering into
interest rate swap contracts (“the Swaps”) with a total notional amount of $450 million. The Swaps represent contracts to exchange a floating
rate for fixed interest payments periodically over the life of the Swap agreement without exchange of the underlying notional amount. The
notional amount of the swap is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The
Swaps have been designated as cash flow hedges. If interest rates increased or decreased by 100 basis points, annualized interest expense and
cash payments for interest would increase or decrease by approximately $1.6 million ($1.0 million after tax), based on our exposure to interest
rate changes on variable rate debt that is not covered by the Swaps. This analysis does not consider the effects of the change in the level of overall
economic activity that could exist in an environment of adversely changing interest rates. In the event of an adverse change in interest rates and
to the extent that we have amounts outstanding under our asset-based credit facility, management would likely take further actions that would
seek to mitigate our exposure to interest rate risk.

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2 0 0 8 an n u a l R e p oR T

MANAgEMENT ’S REpORT ON INTERNAL CONTROL OVER F INANCI AL REpORT INg

The management of O’Reilly Automotive, Inc. and Subsidiaries (the “Company”), under the supervision and with the participation of the
Company’s principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States.

Internal control over financial reporting includes all policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.

Management recognizes that all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to risk. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal
Control – Integrated Framework. Based on this assessment, management believes that as of December 31, 2008, the Company’s internal control
over financial reporting is effective based on those criteria.

Ernst & Young LLP, Independent Registered Public Accounting Firm, has audited the Company’s consolidated financial statements and has
issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, as stated in their report which is
included herein.

GreG henslee
Chief Executive Officer
and Co-President
February 27, 2009

thOmas mCf al l
Executive Vice President of Finance
and Chief Financial Officer
February 27, 2009

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 3 5

REpORT OF INdEpENdENT REgISTEREd pUBL IC ACCOUNT INg F IRM

The Board of Directors and Shareholders of O’Reilly Automotive, Inc. and Subsidiaries:

We have audited O’Reilly Automotive, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). O’Reilly Automotive, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, O’Reilly Automotive, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2008 of O’Reilly Automotive, Inc. and Subsidiaries and our report dated February 27,
2009 expressed an unqualified opinion thereon.

Kansas City, Missouri
February 27, 2009

p g . 3 6 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

REpORT OF INdEpENdENT REgISTEREd pUBL IC ACCOUNT INg F IRM

The Board of Directors and Shareholders of O’Reilly Automotive, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of O’Reilly Automotive, Inc. and Subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2008. Our audits also included financial statement schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of O’Reilly
Automotive, Inc. and Subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), O’Reilly
Automotive, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 27, 2009 expressed an unqualified opinion thereon.

Kansas City, Missouri
February 27, 2009

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 3 7

CONSOL IdATEd BA L ANCE S HEETS

(In thousands, except share data)
Years ended December 31,

A S SE T S :
Current assets:

Cash and cash equivalents

Accounts receivable, less allowance for doubtful

accounts of $4,521 in 2008 and $3,179 in 2007

Amounts receivable from vendors

Inventory

Deferred income taxes

Other current assets

Total current assets

Property and equipment, at cost

Less: accumulated depreciation and amortization

Net property and equipment

Notes receivable, less current portion

Goodwill

Deferred income taxes

Other assets, net

Total assets

L I A BI L I T I E S A N d SH A REHOL dERS’ E qU I T Y:
Current liabilities:

Accounts payable

Self insurance reserve

Accrued payroll

Accrued benefits and withholdings

Deferred income taxes

Other current liabilities

Current portion of long-term debt

Total current liabilities

Long-term debt, less current portion

Deferred income taxes

Other liabilities

Shareholders’ equity:

Preferred stock, $0.01 par value:

Authorized shares – 5,000,000

Issued and outstanding shares – none

Common stock, $0.01 par value:

Authorized shares – 245,000,000

Issued and outstanding shares – 134,828,650 in 2008 and 115,260,564 in 2007

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

See accompanying Notes to Consolidated Financial Statements.

p g . 3 8 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

2008

2007

31,301

47,555

105,985

59,826

1,570,144

64,028

44,149

1,875,433

1,939,532

489,639

1,449,893

21,548

720,508

28,767

97,168

84,242

48,263

881,761

40,483

1,102,304

1,479,779

389,619

1,090,160

25,437

50,447

11,389

4,193,317

2,279,737

736,986

380,683

65,170

60,616

38,583

144,015

8,131

1,053,501

724,564

133,034

29,967

23,739

13,496

6,235

49,536

25,320

528,976

75,149

27,241

55,894

1,348

949,758

1,342,625

(11,513)

2,282,218

1,153

441,731

1,156,393

(6,800)

1,592,477

4,193,317

2,279,737

CONSOL IdATEd STATEMENTS OF INCOME

(In thousands, except per share data)
Years ended December 31,

Sales

Cost of goods sold, including warehouse and distribution expenses

Gross profit

Selling, general and administrative expenses

Operating income

Other income (expense), net:

Debt prepayment costs

Interim facility commitment fee

Interest expense

Interest income

Other, net

Total other income (expense), net

Income before income taxes

Provision for income taxes

Net income

Basic income per common share:

Net income per common share

Weighted-average common shares outstanding

Income per common share-assuming dilution:

Net income per common share-assuming dilution

2008

2007

2006

3,576,553

2,522,319

2,283,222

1,948,627

1,627,926

1,292,309

335,617

(7,157)

(4,150)

(26,138)

3,185

1,175

(33,085)

302,532

116,300

186,232

1,401,859

1,120,460

815,309

305,151

(3,723)

4,077

1,983

(2,337)

307,488

113,500

193,988

1.50

1.69

124,526

114,667

1.48

1.67

1,276,511

1,006,711

724,396

282,315

(4,322)

1,573

2,699

(50)

282,265

104,180

178,085

1.57

113,253

1.55

115,119

Adjusted weighted-average common shares outstanding

125,413

116,080

See accompanying Notes to Consolidated Financial Statements.

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CONSOL IdATEd STATEMENTS OF SHAREHOLdERS’ EqUI T Y

(In thousands)

Common Stock
Shares Par Value

Additional
Paid-In
Capital

Accumulated
Other
Retained Comprehensive
Loss
Earnings

Comprehensive
Income

Total

Balance at December 31, 2005

112,389

$ 1,124 $ 360,325 $ 784,320

-- $ 1,145,769

Net income

Other comprehensive income

Comprehensive income

Issuance of common stock under

employee benefit plans

Issuance of common stock under

stock option plans

Tax benefit of stock options exercised

Share based compensation

387

1,153

12,169

15,959

8,538

3,561

178,085

Balance at December 31, 2006

113,929

$ 1,139

$ 400,552 $ 962,405

Net income

Other comprehensive loss

Comprehensive income

Issuance of common stock under

employee benefit plans

Issuance of common stock under

stock option plans

Tax benefit of stock options exercised

Share based compensation

367

965

11,543

17,114

6,835

5,687

193,988

178,085

12,173

15,970

8,538

3,561

$ 1,364,096

193,988

(6,800)

187,188

11,547

17,124

6,835

5,687

Balance at December 31, 2007

115,261 $ 1,153

$ 441,731

$ 1,156,393

$ (6,800)

$ 1,592,477

Net income

Other comprehensive loss

Comprehensive income

Issuance of common stock under

employee benefit plans

Issuance of common stock under

stock option plans

546

876

13,710

18,277

Issued in CSK acquisition

18,146

181

465,645

Tax benefit of stock options exercised

Share based compensation

1,573

8,822

186,232

(4,713)

181,519

13,715

18,286

465,826

1,573

8,822

Balance at December 31, 2008

134,829

$ 1,348 $ 949,758 $ 1,342,625

$ (11,513) $ 2,282,218

See accompanying Notes to Consolidated Financial Statements.

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CONSOL IdATEd STATEMENTS O F C ASH F LOWS

(In thousands)
Years ended December 31,

OpER AT INg ACT I V I T I E S
Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization on property and equipment

Amortization of intangible items

Premium on 6 ¾% exchangeable notes

Amortization of debt issuance costs

Deferred income taxes

Share based compensation programs

Other

Changes in operating assets and liabilities:

Accounts receivable

Inventory

Accounts payable

Other

Net cash provided by operating activities

I N V E S T INg ACT I V I T I E S
Cash component of acquisition price of CSK Automotive, Inc., net of cash acquired

Purchases of property and equipment

Proceeds from sale of property and equipment

Payments received on notes receivable

Purchase of short-term investments

Other

Net cash used in investing activities

F I N A NCI Ng ACT I V I T I E S
Proceeds from issuance of long-term debt

Payment of debt issuance costs

Principal payments on long-term debt and capital leases

Debt prepayment costs

Issuance cost of equity exchanged in CSK acquisition

Tax benefit of stock options exercised

Net proceeds from issuance of common stock

Other

Net cash provided by financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

2008

2007

2006

186,232

193,988

178,085

107,345

5,653

(352)

4,084

11,031

13,554

8,226

(7,437)

(142,333)

50,410

62,129

298,542

78,943

64,938

(6,341)

12,777

5,007

(8,555)

(68,823)

62,279

30,143

299,418

(1,017)

11,029

1,812

(9,426)

(91,427)

25,737

6,197

185,928

(33,767)

(341,679)

(282,655)

(228,871)

1,246

5,342

1,261

(367,597)

619,047

(43,239)

(539,791)

(7,157)

(1,218)

2,184

22,995

(20)

52,801

(16,254)

47,555

31,301

2,327

5,202

(21,724)

(3,468)

(300,318)

16,450

(26,460)

6,835

21,727

18,552

17,652

29,903

47,555

875

5,174

(2,379)

(225,201)

88,950

(80,189)

8,538

20,493

37,792

(1,481)

31,384

29,903

SUppLEMENTA L d I SCLOSURE S OF CA SH F LOW INFORM AT ION :
Income taxes paid

Interest paid, net of capitalized interest

See accompanying Notes to Consolidated Financial Statements.

74,227

17,824

93,040

3,727

98,650

4,536

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

NOTE 1 – SUMMA RY OF S IgN I F ICA NT ACCOUNT INg pOL ICI E S

NATURE OF BUSINESS

O’Reilly Automotive, Inc. (the “Company”) is a specialty retailer and supplier of automotive aftermarket parts, tools, supplies and accessories to
both the do-it-yourself (“DIY”) customer and the professional installer in 38 states.

pRINCIpLES OF CONSOLIdATION

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation. On July 11, 2008, the Company completed the acquisition of CSK Auto
Corporation (“CSK”), 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. The results of CSK’s operations have been included in the Company’s consolidated financial
statements since the acquisition date.

REVENUE RECOgNITION

Over-the-counter retail sales are recorded when the customer takes possession of the merchandise. Sales to professional installers, also referred
to as “commercial sales,” are recorded upon same-day delivery of the merchandise to the customer, generally at the customer’s place of business.
Wholesale sales to other retailers, also referred to as “jobber sales,” are recorded upon shipment of the merchandise from a regional distribution
center with same-day delivery to the jobber customer’s location. All sales are recorded net of estimated allowances, discounts and taxes.

USE OF ESTIMATES

The preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States
(“GAAP”), requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.

CASH EqUIVALENTS

Cash equivalents consist of investments with maturities of 90 days or less at the day of purchase.

ACCOUNTS RECEIVABLE

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to
make required payments. The Company considers the following factors when determining if collection is reasonably assured: customer credit-
worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms.

INVENTORY

Inventory, which consists of automotive hard parts, maintenance items, accessories and tools, is stated at the lower of cost or market. Inventory
also includes related procurement, warehousing and distribution center costs. Cost has been determined using the last-in, first-out (“LIFO”)
method. The replacement cost of inventory was $1,630,549,000 and $888,299,000 as of December 31, 2008 and 2007, respectively.

AMOUNTS RECEIVABLE FROM VENdORS

The Company receives concessions from its vendors through a variety of programs and arrangements, including co-operative advertising,
devaluation programs, allowances for warranties and volume purchase rebates. Co-operative advertising allowances that are incremental to
the Company’s advertising program, specific to a product or event and identifiable for accounting purposes, are reported as a reduction of
advertising expense in the period in which the advertising occurred. All other material vendor concessions are recognized as a reduction to
the cost of inventory. Amounts receivable from vendors also includes amounts due to the Company for changeover merchandise and product
returns. The Company regularly reviews vendor receivables for collectibility and assesses the need for a reserve for uncollectible amounts based
on an evaluation of the Company’s vendors’ financial positions and corresponding abilities to meet financial obligations. Management does not
believe there is a reasonable likelihood that the Company will be unable to collect the amounts receivable from vendors and the Company did
not record a reserve for uncollectible amounts in the consolidated financial statements at December 31, 2008 and 2007.

dEBT ISSUANCE COSTS

Deferred debt issuance costs of $39.2 million, net of amortization, are included in Other assets as of December 31, 2008. Deferred debt issuance
costs are being amortized using the straight-line method over the term of the corresponding long-term debt issue and are included in interest
expense in our Consolidated Statements of Income.

INVESTMENTS

The Company determines the appropriate classification of marketable equity securities at the time of purchase and reevaluates such designation
as of each balance sheet date. Available-for-sale securities are stated at fair value, with the unrecognized gains and losses, net of tax, reported
in accumulated other comprehensive income (loss). Available-for-sale securities, consisting of the Company’s investment in the stock of CSK,
in the amount of $10.8 million, stated at fair value, are included in Other Current Assets on the Company’s balance sheet at December 31,

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

2007. Upon completion of the Company’s acquisition of CSK on July 11, 2008, the investment in CSK stock was included as a component of
the purchase price of CSK and allocated preliminarily to the assets acquired and liabilities assumed of CSK. The Company did not own any
available-for-sale securities on December 31, 2008.

pROpERTY ANd EqUIpMENT

Property and equipment are carried at cost. Depreciation is provided on a straight-line method over the estimated useful lives of the assets and includes
depreciation related to assets recorded under capital lease agreements. Leasehold improvements are amortized over the lesser of the lease term or the
estimated economic life of the assets. The lease term includes renewal options determined by management at lease inception for which failure to
renew options would result in a substantial economic penalty to the Company. Maintenance and repairs are charged to expense as incurred. Upon
retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included in the determination of net income
as a component of other income (expense). The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.

Property and equipment consists of the following:

(In thousands)

Land

Buildings and building improvements

Leasehold improvements

Furniture, fixtures and equipment

Vehicles

Construction in progress

Less: accumulated depreciation and amortization

Net property and equipment

Original Useful Lives

December 31, 2008

December 31, 2007

281,814

220,950

15 – 39 years

3 – 25 years

3 – 20 years

5 – 10 years

638,976

268,574

556,706

127,709

65,753

1,939,532

489,639

501,598

189,097

429,217

102,665

36,252

1,479,779

389,619

1,449,893

1,090,160

The Company capitalizes interest costs as a component of construction in progress, based on the weighted-average rates paid for long-term borrowings.
Total interest costs capitalized for the years ended December 31, 2008, 2007 and 2006 were $2,318,000, $2,554,000 and $2,639,000, respectively.

gOOd WILL ANd OTHER INTANgIBLE ASSETS

The accompanying consolidated balance sheets at December 31, 2008, and December 31, 2007, include goodwill and other intangible assets
recorded as the result of previous acquisitions. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
requires the Company to assess goodwill and indefinite lived intangible assets for impairment rather than systematically amortize goodwill
against earnings. The Company reviews goodwill and indefinite lived intangible assets for impairment annually or when events or changes in
circumstances indicate the carrying value of these assets might exceed their current fair values. The goodwill impairment test compares the fair
value of a reporting unit to its carrying amount, including goodwill. The Company operates as one reporting unit, and its fair value exceeds its
carrying value, including goodwill. Therefore, the Company has determined that no impairment of goodwill existed at December 31, 2008,
and December 31, 2007.

OpERATINg LEASES

The Company’s policy is to amortize leasehold improvements over the lesser of the lease term or the estimated economic life of those assets.
Generally, for stores the lease term is the base lease term and for distribution centers the lease term includes the base lease term plus certain
renewal option periods for which renewal is reasonably assured and failure to exercise the renewal option would result in a significant economic
penalty. The calculation for straight-line rent expense is based on the same lease term.

NOTES RECEIVABLE

The Company had notes receivable from vendors and other third parties amounting to $28,221,000 and $32,119,000 at December 31, 2008 and
2007, respectively. The notes receivable, which bear interest at rates ranging from 0% to 10%, are due in varying amounts through August 2017.

SELF-INSURANCE RESERVES

The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’ compensation,
general liability, vehicle liability, property loss, and employee health care benefits. With the exception of employee health care benefit liabilities,
which are limited by the design of these plans, the Company obtains third-party insurance coverage to limit its exposure. The Company
estimates its self-insurance liabilities by considering a number of factors, including historical claims experience and trend-lines, projected
medical and legal inflation, and growth patterns and exposure forecasts.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

WARRANTY COSTS

The Company offers warranties on the merchandise it sells with warranty periods ranging from 30 days to lifetime, limited warranties. The
risk of loss arising from warranty claims is typically the obligation of the Company’s vendors, but for a small portion of merchandise sold, the
Company bears the risk of loss associated with the cost of warranty claims. Estimated warranty costs, which are recorded as obligations at the
time of sale, are based on the historical failure rate of each individual product line. The Company’s historical experience has been that failure
rates are relatively consistent over time and that the ultimate cost of warranty claims to the Company has been driven by volume of units sold
as opposed to fluctuations in failure rates or the variation of the cost of individual claims. To the extent vendors provide upfront allowances in
lieu of accepting the obligation for warranty claims and the allowance is in excess of the related warranty expense, the excess is recorded as a
reduction to cost of sales.

dERIVATIVE INSTRUMENTS ANd HEdgINg ACTIVITIES

The Company’s accounting policies for derivative financial instruments are based on whether the instruments meet the criteria for designation
as cash flow or fair value hedges. A designated hedge of the exposure to variability in the future cash flows of an asset or a liability qualifies
as a cash flow hedge. A designated hedge of the exposure to changes in fair value of an asset or a liability qualifies as a fair value hedge. The
criteria for designating a derivative as a hedge includes the assessment of the instrument’s effectiveness in risk reduction, matching of the
derivative instrument to its underlying transaction and the probability that the underlying transaction will occur. For derivatives with cash
flow hedge accounting designation, the Company reports the after-tax gain or loss from the effective portion of the hedge as a component of
accumulated other comprehensive income (loss) and reclassifies it into earnings in the same period or periods in which the hedged transaction
affects earnings, and within the same income statement line item as the impact of the hedged transaction. For derivatives with fair value hedge
accounting designation, the Company would recognize gains or losses from the change in fair value of these derivatives, as well as the offsetting
change in the fair value of the underlying hedged item, in earnings.

The Company currently holds derivative financial instruments to manage interest rate risk. The Company has designated these derivative
financial instruments as cash flow hedges. The derivative financial instruments are recorded at fair value and are included in other long-term
liabilities. Derivative instruments recorded at fair value as liabilities totaled $18.9 million as of December 31, 2008. The Company did not hold
any derivative instruments at December 31, 2007. On a quarterly basis, the Company measures the effectiveness of the derivative financial
instruments by comparing the present value of the cumulative change in the expected future interest to be paid or received on the variable leg
of the instruments against the expected future interest payments on the corresponding variable rate debt. In addition, the Company compares
the critical terms, including notional amounts, underlying indexes and reset dates of the derivative financial instruments with the respective
variable rate debt to ensure all terms agree. Any ineffectiveness would be reclassified from accumulated other comprehensive income (loss) to
interest expense. As of December 31, 2008, the Company had no ineffectiveness on its derivative financial instruments. See Note 8 for further
information concerning these derivative instruments accounted for as hedges.

INCOME TAxES

The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and liabilities using enacted tax rules currently scheduled to be in effect for
the year in which the differences are expected to reverse, and also includes the amount of tax carryforwards. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income in the period of the enactment date. The Company records a valuation allowance
against deferred tax assets to the extent it is more likely than not the amount will not be realized, based upon evidence available at the time of
the determination, and any change in the valuation allowance is recorded in the period of a change in such determination.

AdVERTISINg COSTS

The Company expenses advertising costs as incurred. Advertising expense charged to operations amounted to $65,640,000, $40,472,000 and
$34,929,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

pRE-OpENINg COSTS

Costs associated with the opening of new stores, which consist primarily of payroll and occupancy costs, are charged to operations as incurred.

SHARE-BASEd COMpENSATION pLANS

The Company currently sponsors share-based employee benefit plans and stock option plans. In accordance with Statement of Financial
Accounting Standards No. 123R, Share Based Payment (“SFAS No. 123R”), the Company recognizes compensation expense for its share-based
payments based on the fair value of the awards on the date of the grant. 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. See Note 11 for further information concerning these plans.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

LITIgATION RESERVES

O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. The Company records reserves for
litigation losses in instances where a material adverse outcome is probable and the Company is able to reasonably estimate of the probable loss.
The Company reserves for an estimate of material legal costs to be incurred on pending litigation matters. Although we cannot ascertain the
amount of liability that we may incur from any of these matters, we do not currently believe that, in the aggregate, these matters will have a
material adverse effect on our consolidated financial position, results or operations or cash flows. In addition, O’Reilly is involved in resolving
legacy governmental investigations that were being conducted against CSK prior to the acquisition. Further detail regarding such matters is
described in Note 14.

CLOSEd STORE LIABILITIES

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. The Company provides for these
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 close date, net of estimated sublease income. In conjunction with the acquisition of CSK, the Company’s
reserves include purchase accounting liabilities related to acquired properties that are no longer being utilized in the acquired business and the
Company’s planned exit activities. See Note 7 for further information concerning these liabilities.

EARNINgS pER SHARE

Basic earnings per share is based on the weighted-average outstanding common shares. Diluted earnings per share is based on the weighted-
average outstanding shares adjusted for the effect of common stock equivalents. Common stock equivalents that could potentially dilute
basic earnings per share in the future that were not included in the fully diluted computation because they would have been antidilutive were
5,184,000, 1,613,000 and 448,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

CONCENTRATION OF CREdIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, accounts
receivable and notes receivable.

The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Concentrations of credit
risk with respect to these receivables are limited because the Company’s customer base consists of a large number of smaller customers, thus
spreading the credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. Generally, the
Company does not require security when credit is granted to customers. Credit losses are provided for in the Company’s consolidated financial
statements and consistently have been within management’s expectations.

The Company has entered into various derivative financial instruments to mitigate the risk of interest rate fluctuations on its variable rate
long-term debt. If the market interest rate on the Company’s net derivative positions with counterparties exceeds a specified threshold, the
counterparty is required to transfer cash in excess of the threshold to the Company. Conversely, if the market value of the net derivative
positions falls below a specified threshold, the Company is required to transfer cash below the threshold to the counterparty. The Company
is exposed to credit loss in the event of nonperformance by counterparties on derivative contracts used in these hedging activities. The
counterparties to the Company’s derivative contracts are major financial institutions and the Company has not experienced nonperformance by
any of its counterparties.

The carrying value of the Company’s non-derivative financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable and long-term debt and excluding the 6¾% exchangeable notes, as reported in the accompanying consolidated balance
sheets, approximates fair value. The carrying value of the Company’s derivative financial instruments have been adjusted to fair value in the
accompanying consolidated balance sheets.

NEW ACCOUNTINg pRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,
Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The provisions of SFAS No. 157 for financial assets and liabilities, as well as any other assets and liabilities that
are carried at fair value on a recurring basis in financial statements, are effective for financial statements issued for fiscal years beginning after
November 15, 2007 (fiscal year 2008 for us). FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, delayed the effective date
of SFAS No. 157 for most nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008 (fiscal year 2009
for us). The implementation of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008, did not have a material impact
on the Company’s consolidated financial position, results of operations or cash flows. The Company does not anticipate the adoption of SFAS
No. 157 for nonfinancial assets will have a material impact on its consolidated financial position, results of operations or cash flows.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS
No. 159 permits entities to choose to measure selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The provisions of SFAS No. 159 are
effective as of the beginning of the Company’s 2008 fiscal year. As the Company elected not to measure any eligible items using the fair value
option in accordance with SFAS No. 159, the adoption of SFAS No. 159 did not have a material impact on its consolidated financial position,
results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141, Business Combinations (revised 2007) (“SFAS No. 141©”). SFAS No. 141(R) applies to any
transaction or other event that meets the definition of a business combination. Where applicable, SFAS No. 141(R) establishes principles and
requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the
acquiree and goodwill or gain from a bargain purchase. In addition, SFAS No. 141(R) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the business combination. This statement is to be applied prospectively
for fiscal years beginning after December 15, 2008. The Company does not expect the initial adoption of SFAS No. 141(R) to have a material
impact; however, the impact of SFAS No. 141(R) on a future business combination could be material and would be evaluated at that time.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB
No. 51 (“SFAS 160”), which is effective for fiscal years beginning after December 15, 2008. SFAS 160 states that accounting and reporting for
minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The calculation of earnings per
share will continue to be based on income amounts attributable to the parent. SFAS 160 applies to all entities that prepare consolidated financial
statements, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate
a subsidiary. The provisions of SFAS 160 will be effective for the Company beginning January 1, 2009, and will be applied prospectively. The
Company does not expect the adoption of SFAS 160 will have a material impact on its consolidated financial position, results of operations
or cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133 (“SFAS No. 161”), which requires entities that utilize derivative instruments to provide qualitative disclosures about their
objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives.
SFAS No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial
statements, how the provisions of FASB Statement No. 133 have been applied, and the impact that hedges have on an entity’s financial position,
financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. The Company will adopt the provisions of SFAS No. 161 beginning with its March 2009 interim consolidated
financial statements.

In May 2008, the FASB issued Financial Statements Pronouncements Accounting Principles Board Opinion No. 14-1, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). The FSP APB 14-1 clarifies
the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion and specifies
that issuers of such instruments should separately account for the liability and equity components of certain convertible debt instruments in a
manner that reflects the issuer’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 requires
bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be
recognized as part of interest expense in the Company’s consolidated statement of operations. FSP APB 14-1 is effective for fiscal years and interim
periods beginning after December 15, 2008, with early application prohibited. The Company will adopt the provisions of FSP APB 14-1 beginning
with its March 2009 interim consolidated financial statements; however the Company does not anticipate that the adoption of FSP APB 14-1 will
have a material impact on its consolidated financial position, results of operations or cash flows.

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NOTE 2 – BUS INE S S COMBIN AT ION

On July 11, 2008, the Company completed the acquisition of CSK, 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. Pursuant to the merger agreement, each
share of CSK common stock outstanding immediately prior to the merger was canceled and converted into the right to receive 0.4285 of a share
of O’Reilly common stock and $1.00 in cash. To fund the transaction, the Company entered into a credit agreement for a $1.2 billion asset-
based revolving credit facility arranged by Bank of America, N.A., 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 results of CSK’s
operations have been included in the Company’s consolidated financial statements since the acquisition date.

At the date of the acquisition, CSK had 1,342 stores in 22 states, operating under four brand names: Checker Auto Parts, Schuck’s Auto Supply,
Kragen Auto Parts and Murray’s Discount Auto Parts. This acquisition allowed the Company to enter into twelve new states: Alaska, Arizona,
California, Colorado, Hawaii, Idaho, Michigan, Nevada, New Mexico, Oregon, Utah and Washington, and a number of new markets. As of
December 31, 2008, the Company had converted 51 CSK stores to O’Reilly brands, merged 35 CSK stores with existing O’Reilly locations,
closed six CSK stores and opened four new CSK stores.

pURCHASE pRICE ALLOCATION

The preliminary purchase price of CSK’s acquired operations as of the date of acquisition was comprised of:

(In thousands)

O’Reilly stock exchanged for CSK shares

Cash payment to CSK shareholders

CSK shares purchased by O’Reilly prior to merger

Fair value of options and unvested restricted stock exchanged

Direct costs of the acquisition

Total purchase price

459,308

42,253

21,724

7,736

10,973

541,994

The acquisition was accounted for under the purchase method of accounting with O’Reilly Automotive, Inc. as the acquiring entity in
accordance with SFAS No. 141, “Business Combinations” (“SFAS No. 141”). Accordingly, the consideration paid by the Company to complete
the acquisition has been allocated preliminarily to the assets acquired and liabilities assumed based upon their estimated fair values as of the
date of the acquisition. The allocation of purchase price is based upon certain external valuations and other analyses, including the review
of legal reserves for legacy governmental investigations being conducted against CSK and its former officers as discussed further in Note 14,
that have not been finalized as of the date of this filing. Accordingly, the purchase price allocations are preliminary and are subject to future
adjustments during the maximum one-year allocation period as defined in SFAS No. 141. The Company has adjusted its initial acquisition
cost and purchase price allocation to reflect adjustments to the fair values of common stock issued, as discussed further below, certain assets,
reserves associated with plans to involuntarily terminate certain team members of CSK, estimated legal reserves and store closure reserves.

O’Reilly exchanged 18,104,371 shares of common stock pursuant to the formula prescribed in the merger agreement and as described above. In
accordance with Emerging Issues Task Force (“EITF”) 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities
Issued in a Purchase Business Combination, the value of the O’Reilly stock exchanged for CSK shares of $25.37 per share was determined based
on the average close price of O’Reilly stock beginning two days before and ending two days after June 9, 2008. The June 9, 2008, measurement
date reflects the last day when the number of O’Reilly shares issuable in the transaction became fixed such that subsequent applications of the
formula in the merger agreement did not result in a change in the total number of shares exchanged. The fair value of options exchanged in the
merger of $6.7 million was based on CSK’s 3.69 million outstanding options on July 11, 2008, multiplied by the exchange ratio adjusted to reflect
the $1.00 per share cash consideration. The weighted-average fair value per option of $3.82 was determined using a Black-Scholes valuation
model with the following weighted-average assumptions:

Risk free interest rate

Expected life

Expected volatility

Expected dividend yield

2.5%

2.3 Years

29.9%

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

The fair value O’Reilly shares exchanged for CSK’s unvested restricted stock outstanding at July 11, 2008, of $1.1 million was based on the fair
value per share of $25.37 on the June 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)

Inventory

Other current assets

Property and equipment

Goodwill

Deferred income taxes

Other intangible assets

Other assets

Total assets acquired

Senior credit facility

Term loan facility

Capital lease obligations

Other current liabilities

6 ¾% senior exchangeable notes

Other liabilities

Total liabilities assumed

Net assets acquired

546,052

77,307

126,670

670,508

134,074

65,270

9,241

1,629,122

343,921

86,700

15,212

467,773

103,920

69,602

1,087,128

541,994

Preliminary estimated fair values of intangible assets acquired as of the date of acquisition are as follows:

(In thousands)

Trademarks and trade names

Favorable property leases

Total intangible assets

Weighted-Average
Intangible assets Useful Lives (In years)

13,000

52,270

65,270

1.4

10.7

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-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 coinciding with the
anticipated conversion of CSK store brands to the O’Reilly brand over that period. See Note 3 “Goodwill and Other Intangible Assets.”

The allocation of the purchase price includes $35.8 million of accrued liabilities for estimated costs to exit certain activities of CSK, including
$27.6 million of employee separation costs, $4.1 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 acordance 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, related 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. Evaluation of involuntary team member terminations is substantially complete.

As of December 31, 2008, management of the Company had not finalized all exit plans associated with store closures and other facilities related
to the CSK acquisition. The store closure plans are preliminary pending the completion of evaluations of the physical and market condition of

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

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.

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)

Sales

Net income

Net income per common share

Net income per common share-assuming dilution

Weighted-average common shares outstanding

Adjusted weighted-average common shares outstanding – assuming dilution

Pro Forma Results
of Operations for
the Year Ended

Pro Forma Results
of Operations for
the Year Ended
December 31, 2008 December 31, 2007

4,494,475

176,385

1.32

1.31

134,023

134,910

4,371,979

176,165

1.33

1.31

132,612

134,389

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
year ended December 31, 2008, includes certain acquisition related charges, net of tax, of $4.4 million, $2.6 million, and $5.7 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 year ended December 31, 2007, has not been adjusted to give effect to these charges.

NOTE 3 – g OOdW I LL A Nd OTHER INTA N g IBLE A S SE T S

During the year ending December 31, 2008, the Company recorded goodwill of approximately $670.5 million in connection with the
acquisition of CSK. See Note 2 “Business Combination”. For the years ended December 31, 2008, December 31, 2007, and December 31, 2006,
the Company recorded amortization expense of $9.2 million, $0.2 million, and $0.2 million, respectively, related to amortizable intangible
assets, which are included in other assets on the accompanying consolidated balance sheets. The components of the Company’s amortizable and
unamortizable intangible assets were as follows on December 31, 2008 and December 31, 2007:

(In thousands)

Dec. 31, 2008

Dec. 31, 2007

Dec. 31, 2008

Dec. 31, 2007

Cost

Accumulated Amortization

Amortizable intangible assets

Favorable leases

Trade names and trademarks

Other

Total amortizable intangible assets

Unamortizable intangible assets

Goodwill

Total unamortizable intangible assets

52,270

13,000

819

66,089

720,508

731

3,690

5,312

547

9,549

394

50,447

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

In addition, the Company has recorded a liability for the preliminary estimated values of operating leases with unfavorable terms, acquired in
the acquisition of CSK, totaling approximately $49.9 million, which is included in the other liabilities section of the 2008 consolidated balance
sheet. These leases have an estimated weighted-average useful life of approximately 7.7 years. During the year ending December 31, 2008, the
Company recognized an amortized benefit of $3.9 million related to these unfavorable operating leases.

At December 31, 2008, estimated net amortization of the Company’s intangible assets and liabilities for each of the next five years is as follows:

(In thousands)

2009

2010

2011

2012

2013

The change in the net goodwill for the years ended December 31, 2008, and December 31, 2007, is as follows:

(In thousands)

Balance at December 31, 2006

Other

Balance at December 31, 2007

Acquisition of CSK Automotive, Inc.

Other

Balance at December 31, 2008

NOTE 4 – LONg -TERM d EBT

7,001

2,229

995

969

799

11,993

49,065

1,382

50,447

670,508

(447)

720,508

Outstanding long-term debt was as follows on December 31, 2008, and December 31, 2007:

(In thousands)

Capital leases

Series 2001-B Senior Notes

Series 2006-A Senior Notes

6 ¾% Senior Exchangeable Notes

FILO revolving credit facility

Tranche A revolving credit facility

Total debt and capital lease obligations

Current maturities of debt and capital lease obligations

Total long-term debt and capital lease obligations

December 31, 2008 December 31, 2007

14,927

103,568

125,000

489,200

732,695

8,131

724,564

469

25,000

75,000

100,469

25,320

75,149

On July 11, 2008, in connection with the acquisition of CSK (see Note 2 “Business Combination”), the Company entered into its ABL Credit
Agreement for a five-year $1.2 billion asset-based revolving credit facility arranged by Bank of America, N.A. (“BA”), 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 ABL 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, 2013. As part of the ABL Credit Agreement, the Company has
pledged virtually all of its assets as collateral and is subject to an ongoing consolidated leverage ratio covenant. On the date of the transaction,
the amount of the borrowing base available, as described in the ABL Credit Agreement, under the credit facility was $1.050 billion of which

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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 December 31, 2008, the amount of the borrowing base available under the credit facility was $1.124 billion of which the Company
had outstanding borrowings of $614.2 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
December 31, 2008, the Company had stand-by letters of credit outstanding in the amount of $55.6 million and the aggregate availability for
additional borrowings under the credit facility was $454.2 million.

Borrowings under the tranche A revolver currently bear interest, at the 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 bear interest, at the 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. At December 31, 2008,
the Company had borrowings of $164 million under its revolver and swing line facilities, which were not covered under an interest rate swap
agreement, with interest rates ranging from 3.125% to 4.75% at December 31, 2008. 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% or 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, letter of credit fees, underwriting fees and other administrative fees in respect to the credit facility.

On 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”), Bank of America, N.A. (“BA”) and SunTrust Bank (“SunTrust”). The Company entered into these interest rate
swap transactions to mitigate the risk associated with its floating interest rate based on LIBOR on an aggregate of $450 million of its debt that is
outstanding under its ABL Credit Agreement, dated as of July 11, 2008. The Company is required to make certain monthly fixed rate payments
calculated on the notional amounts, 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 the Company’s debt, which may exist under the ABL Credit Facility plus an applicable margin under the terms of the same
credit facility. The counterparties, transaction dates, effective dates, applicable notional amounts, effective index rates and maturity dates of each
of the interest rate swap transactions are in the table below:

Counterparty

Transaction
Date

Effective
Date

Notional
Amount
(In thousands)

Effective
Interest Rate at
Spread at
Index Rate Dec. 31, 2008 Dec. 31, 2008

Effective

8/1/2008

100,000

3.75%

7.175%

7/24/2008

8/1/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

10/14/2008

10/17/2008

11/24/2008

11/28/2008

75,000

25,000

50,000

25,000

50,000

450,000

3.425%

3.830

2.990

3.010

3.050

2.990

3.560

1.950

2.50

3.75

2.50

Maturity
Date

8/1/2010

8/1/2011

10/17/2010

6.330

7.580

6.330

5.490

5.510

5.550

10/17/2010

5.490

10/17/2010

6.060

10/17/2011

4.450

11/28/2009

BBT

SunTrust

BBT

SunTrust

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 6¾% 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 (“Fourth Supplemental Indenture”) in order to correct the definition of Exchange Rate in the
Third Supplemental Indenture.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

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 embedded 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. As such, the share exchange feature and the embedded options have not been accounted for as derivatives. Incremental net shares
for the Notes exchange feature were not included in the diluted earnings per share calculation for the year ended December 31, 2008, as the
impact would have been antidilutive.

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 Notes are
exchangeable by the holders only under certain circumstances. Prior 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 have been called for redemption by the Company; or

•

Upon the occurrence of specified corporate transactions, such as a change in control.

If the 6¾% 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 25.97 shares of our common stock and $60.61 in cash.

The noteholders 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 indenture. 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 leases certain equipment under capital lease agreements. The lease agreements have terms ranging from 36 to 60 months,
expiring on dates ranging from July 2009 to September 2013. Future minimum lease payments under capital leases totaled approximately
$13,962,000 and $469,000 at December 31, 2008 and 2007, respectively, which have been classified as long-term debt in the accompanying
consolidated financial statements. The Company assumed capital lease liabilities totaling $13,022,000 in its acquisition of CSK; in addition the
Company acquired additional equipment under capital leases in the amount of $4,847,000 during the period ended December 31, 2008. The
Company did not acquire any equipment under capital leases during the period ended December 31, 2007. The Company acquired $943,000 of
assets under the capital lease during the periods ended December 31, 2006.

The Company assumed certain building capital leases, which have lease agreements with terms ranging from 48 to 300 months, expiring on
dates ranging from October 2010 to April 2015. The present value of future minimum lease payments under building capital leases totaled
approximately $1,930,000 at December 31, 2008, which has been classified as long-term debt in the accompanying consolidated financial
statements. The Company assumed building capital lease liabilities totalling $2,190,000 in its acquisition of CSK.

Principal maturities of long-term debt and capital lease obligations are as follows:

(In thousands)

2009

2010

2011

2012

2013

Thereafter

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2 0 0 8 an n u a l R e p oR T

8,131

3,614

1,912

835

614,533

103,670

732,695

NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

NOTE 5 – REL ATEd pA R T I E S

The Company leases certain land and buildings related to 49 of its O’Reilly Auto Parts stores under fifteen-year operating lease agreements with
O’Reilly Investment Company and O’Reilly Real Estate Company, partnerships in which certain shareholders and directors of the Company are
partners. Generally, these lease agreements provide for renewal options for an additional five years at the option of the Company and the lease
agreements are periodically modified to further extend the lease term for specific stores under the agreement. Additionally, the Company leases
certain land and buildings related to 21 of its O’Reilly Auto Parts stores under fifteen-year operating lease agreements with O’Reilly-Wooten
2000 LLC, which is owned by certain shareholders and directors of the Company. Generally, these lease agreements provide for renewal options
for two additional five-year terms at the option of the Company (see Note 6). Rent payments under these operating leases totaled $3,542,000,
$3,446,000 and $3,413,000 in 2008, 2007 and 2006, respectively.

NOTE 6 – COMM I TMENT S

LEASE COMMITMENTS

On September 28, 2007, the Company completed a second amended and restated master agreement to its $49 million Synthetic Operating
Lease Facility with a group of financial institutions. The terms of such lease facility provided for an initial lease period of seven years, a residual
value guarantee of approximately $39.7 million at December 31, 2007 and purchase options on the properties. The lease facility also contained a
provision for an event of default whereby the lessor, among other things, may require the Company to purchase any or all of the properties. The
second amended and restated Facility had been accounted for as an operating lease under SFAS No. 13 and related interpretations, including
FASB Interpretation No. 46R. 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.”

The Company also leases certain office space, retail stores, property and equipment under long-term, non-cancelable operating leases. Most of
these leases include renewal options and some include options to purchase and provisions for percentage rent based on sales. At December 31,
2008, future minimum rental payments under all of the Company’s operating leases for each of the next five years and in the aggregate are as
follows:

(In thousands)

2009

2010

2011

2012

2013

Thereafter

Related Parties

Non-related Parties

Total

3,661

3,080

2,869

2,836

2,760

7,600

209,821

213,482

191,319

172,806

152,630

125,279

631,110

194,399

175,675

155,466

128,039

638,710

22,806

1,482,965

1,505,771

Rental expense amounted to $142,363,000, $55,358,000 and $49,245,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

OTHER COMMITMENTS

The Company had construction commitments, which totaled approximately $130.1 million, at December 31, 2008.

NOTE 7 – S TORE CLOS INg COS T S

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. The Company provides 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.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

In connection with the acquisition of CSK, the Company recorded $4.1 million of exit costs associated with the planned closure of 33 CSK
stores and assumed CSK’s existing closed stores liabilities of $3.0 million related to 127 locations that were closed prior to the Company’s
acquisition of CSK. The estimates of exit costs associated with planned closures of CSK stores are preliminary and subject to adjustment.

Following is a summary of store closure reserves at December 31, 2008, and 2007:

(In thousands)

December 31, 2008 December 31, 2007

Balance at January 1:

CSK liabilities assumed, as of July 11, 2008

Planned CSK closures

Additions and accretion

Payments

Revisions to estimates

Balance at December 31:

1,841

2,984

4,141

764

(2,591)

235

7,374

2,264

380

(776)

(27)

1,841

NOTE 8 – d ER I VAT I V E INS T RUMENT S A Nd HE dg INg ACT I V I T I E S

On July 24, 2008, October 14, 2008, and November 24, 2008, the Company entered into interest rate swap transactions with BBT, BA and
SunTrust to mitigate cash flow risk associated with the floating interest rate based on the one month LIBOR rate on an aggregate of $450 million
of the debt outstanding under the ABL Credit Agreement, dated as of July 11, 2008. The swap transactions have been designated as cash flow
hedges with interest payments designed to offset the interest payments for borrowings under the ABL Credit Agreement that correspond
to notional amounts of the swaps. In accordance with FASB No. 133, Accounting for Derivative Instruments and Hedging Activities, the
fair value of the Company’s outstanding hedges are recorded as a liability in the accompanying consolidated balance sheets at December 31,
2008. 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. The Company’s hedging instruments have been deemed to be highly effective as of
December 31, 2008. The fair value of the swap transactions at December 31, 2008, was a payable of $18.8 million ($11.5 million net of tax). The
net amount is included as a component of other comprehensive loss.

NOTE 9 – FA I R VA LUE ME A SUREMENT S

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:

LEVEL 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

LEVEL 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable
as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These
models are primarily industry-standard models that consider various assumptions, including time value, volatility factors, and current market
and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are
observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable
levels at which transactions are executed in the marketplace.

LEVEL 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with
internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.

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.

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Assets and liabilities measured at fair value are based on one or more of three valuation techniques noted in SFAS 157.

A) MARKET AppROACH – prices and other relevant information generated by market transactions involving identical or comparable assets
or liabilities

B) COST AppROACH – amount that would be required to replace the service capacity of an asset (replacement cost)

C) INCOME AppROACH – techniques to convert future amounts to a single present amount based on market expectations (including present
value techniques, option-pricing and excess earnings models)

Assets and liabilities measured at fair value on a recurring basis are as follows:

(In thousands)

December 31, 2008

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Valuation
Technique

Net derivative contracts

(18,874)

(c)

The estimated fair values of the Company’s financial instruments, which are determined by reference to quoted market prices, where available,
or are based on comparisons to similar instruments of comparable maturities, are as follows:

(In thousands)

December 31, 2008

December 31, 2007

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

Obligations under 6 ¾% senior exchangeable notes

103,568

99,750

NOTE 10 – ACCUMUL ATEd OTHER COM pREHENS I V E LOS S

Unrealized holding gains on available-for-sale securities, consisting of the Company’s investment in CSK common stock prior to the Company’s
completion of the acquisition of CSK, as well as 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 year ended December 31,
2008, totaled $8.0 million with a corresponding tax liability of $3.3 million resulting in a net of tax effect of $4.7 million. The adjustment to
accumulated other comprehensive loss for the year ended December 31, 2007, totaled $10.9 million with a corresponding tax liability of $4.1
million resulting in a net of tax effect of $6.8 million.

Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2006, December 31, 2007, and December 31,
2008, consisted of the following:

(In thousands)

Balance at December 31, 2006

Period change

Balance at December 31, 2007

Period change

Balance at December 31, 2008

Unrealized Gains
on Securities

Unrealized Losses on
Cash Flow Hedges

Accumulated Other
Comprehensive Loss

(6,800)

6,800

(11,513)

(6,800)

(4,713)

(11,513)

Comprehensive income for the years ended December 31, 2008, December 31, 2007, and December 31, 2006, was $181.5 million $187.2 million,
and $178.1 million, respectively.

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

The following is a summary of available-for-sale securities included in Other Current Assets on the Company’s balance sheet at December 31, 2007:

(In thousands)

Equity securities

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
(Net Carrying

Amount)

21,724

(10,933)

10,791

Available-for-sale securities held by the Company are securities that are publicly traded in active markets and are valued based on quoted
closing prices as of December 31, 2007. The Company did not hold any available-for-sale securities at December 31, 2008.

NOTE 11 – SH A RE- BA SEd EMpLOY EE COMpENS AT ION pL A NS A Nd OTHER BENEF I T pL A NS

STOCK OpTIONS

The Company’s employee stock-based incentive plans provides for the granting of stock options to certain key employees of the Company for
the purchase of common stock of the Company. A total of 24,000,000 shares have been authorized for issuance under this plan. Options are
granted at an exercise price that is equal to the closing market price of the Company’s common stock on the date of the grant. Options granted
under the plan expire after ten years and typically vest 25% a year, over four years. Under SFAS No. 123R, the Company records compensation
expense for the grant date fair value of option awards evenly over the vesting period under the straight-line method. A summary of the shares
subject to currently issued and outstanding stock options under this plan is as follows:

Weighted -
Average
Exercise
Plan

Weighted -
Average
Remaining
Contractual
Terms (In Years)

Aggregate
Intrinsic
Value

Outstanding at December 31, 2007

6,244,840

Granted

Exchanged CSK options

Exercised

Forfeited

Outstanding at December 31, 2008

Vested or expected to vest at December 31, 2008

Exercisable at December 31, 2008

4,747,575

1,742,278

(848,054)

(615,663)

11,270,976

10,196,979

4,368,702

20.38

26.26

29.05

21.48

30.31

25.25

24.91

23.12

7.08

6.84

4.92

$ 69,646,090

$ 66,743,536

$ 48,823,812

The Company maintains a stock based incentive plan for non-employee directors of the Company pursuant to which the Company may grant
stock options. Up to 1,000,000 shares of common stock have been authorized for issuance under this plan. 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. Options granted under the plan expire after
seven years and vest fully after six months. Under SFAS No. 123R, the Company records compensation expense for the grant date fair value
of option awards evenly over the vesting period under the straight-line method. A summary of the shares subject to currently issued and
outstanding stock options under this plan is as follows:

Weighted -
Average
Exercise
Plan

Weighted -
Average
Remaining
Contractual
Terms (in Years)

Aggregate
Intrinsic
Value

Outstanding at December 31, 2007

215,000

Granted

Exercised

Forfeited

Outstanding at December 31, 2008

Vested or expected to vest at December 31, 2008

Exercisable at December 31, 2008

65,000

(40,000)

240,000

150,000

18.09

24.88

10.33

23.04

23.12

6.56

5.97

2,054,875

1,731,275

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At December 31, 2008, approximately 303,000 and 335,000 shares were available for future grants under the employee stock option plan and
director stock option plan, respectively. For the year ended December 31, 2008, the Company recognized stock option compensation expense
related to these plans of $7,991,000 and a corresponding income tax benefit of $3,072,000. For the year ended December 31, 2007, the Company
recognized stock option compensation expense related to these plans of $4,882,000 and a corresponding income tax benefit of $1,801,000.

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 rate for periods within the contractual life of the options are based on the United States Treasury rates in effect for the expected life of
the options. The following weighted-average assumptions were used for grants issued for the years ended December 31, 2008, 2007 and 2006:

Risk-free interest rate

Expected life (Years)

Expected volatility

Expected dividend yield

2008

2007

2006

2.91%

4.2

26.8%

4.47%

4.4

33.7%

4.01%

4.7

35.1%

The weighted-average grant-date fair value of options granted during the years ended December 31, 2008, 2007 and 2006 were $7.01,
$11.81 and $11.72, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006
were $6,600,000, $19,511,000 and $22,985,000, respectively. The Company recorded cash received from the exercise of stock options of
$18,625,000, $17,124,000 and $15,970,000, in the years ended December 31, 2008, 2007 and 2006, respectively. The remaining unrecognized
compensation cost related to unvested awards at December 31, 2008, was $39,146,000 and the weighted-average period of time over which
this cost will be recognized is 3.19 years.

In conjunction with the acquisition of CSK, the Company exchanged 1,742,278 stock options for all the outstanding stock options held by CSK.
Per the terms of the CSK stock option plan, the vesting of all the outstanding stock options was accelerated upon change in control. This was
recorded as part of the purchase price of CSK’s acquired operations (see Note 2 Business Combination for further information).

EMpLOYEE STOCK pURCHASE pLAN

The Company’s employee stock purchase plan permits all eligible employees to purchase shares of the Company’s common stock at 85% of
the fair market value. Participants may authorize the Company to withhold up to 5% of their annual salary to participate in the plan. The
stock purchase plan authorizes up to 2,750,000 shares to be granted. During the year ended December 31, 2008, the Company issued 208,293
shares under the purchase plan at a weighted average price of $22.61 per share. During the year ended December 31, 2007, the Company
issued 156,466 shares under the purchase plan at a weighted average price of $29.12 per share. During the year ended December 31, 2006, the
Company issued 165,306 shares under the purchase plan at a weighted average price of $27.36 per share. SFAS No. 123R requires compensation
expense to be recognized based on the discount between the grant date fair value and the employee purchase price for shares sold to employees.
During the year ended December 31, 2008, the Company recorded $831,000 of compensation cost related to employee share purchases and a
corresponding income tax benefit of $319,000. During the year ended December 31, 2007, the Company recorded $804,000 of compensation
cost related to employee share purchases and a corresponding income tax benefit of $290,000. At December 31, 2008, approximately 133,000
shares were reserved for future issuance.

OTHER EMpLOYEE BENEFIT pLANS

The Company sponsors a contributory profit sharing and savings plan that covers substantially all employees who are at least 21 years of age and
have at least six months of service. The Company has agreed to make matching contributions equal to 100% of the first 2% of each employee’s
wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. The Company may also make additional
discretionary profit sharing contributions to the plan on an annual basis as determined by the Board of Directors. The Company’s matching
and profit sharing contributions under this plan are funded in the form of shares of the Company’s common stock. A total of 4,200,000 shares
of common stock have been authorized for issuance under this plan. During the year ended December 31, 2008, the Company recorded
$4,159,000 of compensation cost for contributions to this plan and a corresponding income tax benefit of $1,599,000. During the year ended
December 31, 2007, the Company recorded $6,849,000 of compensation cost for contributions to this plan and a corresponding income tax
benefit of $2,527,000. During the year ended December 31, 2006, the Company recorded $6,429,000 of compensation cost for contributions to
this plan and a corresponding income tax benefit of $2,372,000. The Company issued 321,162 shares in 2008 to fund the 2007 profit sharing and
matching contributions at an average grant date fair value of $26.72. The Company issued 197,431 shares in 2007 to fund the 2006 profit sharing
and matching contributions at an average grant date fair value of $32.90. The Company issued 204,000 shares in 2006 to fund the 2005 profit

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NOTES TO CONSOL I dATEd F INANCI AL S TATEMENTS (CON T I NUE d)

sharing and matching contributions at an average grant date fair value of $34.34. A portion of these shares related to profit sharing contributions
accrued in prior periods. At December 31, 2008, approximately 542,000 shares were reserved for future issuance under this plan.

On July 11, 2008 in conjunction with the acquisition of CSK, the Company became the sponsor for a 401(k) plan that is available to all CSK
team members who are at least 21 years of age. The Company matches from 40% to 60% of participant contributions in 10% increments, based
on years of service, up to 4% of the participant’s base salary. The Company matching contributions vest after one year of plan participation or
three years of Company service. The Company’s matching contributions since the July 11, 2008 acquisition date through December 31, 2008
totaled $0.9 million. The CSK 401(k) plan was merged with the Company’s profit sharing and savings plan effective January 1, 2009.

The Company has in effect a performance incentive plan for the Company’s senior management under which the Company awards shares of
restricted stock that vest equally over a three-year period and are held in escrow until such vesting has occurred. Shares are forfeited when an
employee ceases employment. A total of 650,000 shares of common stock have been authorized for issuance under this plan. Shares awarded
under this plan are valued based on the market price of the Company’s common stock on the date of grant and compensation cost is recorded
over the vesting period. The Company recorded $494,000 of compensation cost for this plan for the year ended December 31, 2008 and
recognized a corresponding income tax benefit of $190,000. The Company recorded $459,000 of compensation cost for this plan for the year
ended December 31, 2007 and recognized a corresponding income tax benefit of $169,000. The Company recorded $416,000 of compensation
cost for this plan for the year ended December 31, 2006 and recognized a corresponding income tax benefit of $154,000. The total fair value
of shares vested (at vest date) for the years ended December 31, 2008, 2007 and 2006 were $497,000, $478,000 and $503,000, respectively. The
remaining unrecognized compensation cost related to unvested awards at December 31, 2008 was $457,000. The Company awarded 16,830
shares under this plan in 2008 with an average grant date fair value of $26.96. The Company awarded 16,189 shares under this plan in 2007 with
an average grant date fair value of $34.02. The Company awarded 18,698 shares under this plan in 2006 with an average grant date fair value of
$33.12. Compensation cost for shares awarded is recognized over the three-year vesting period. Changes in the Company’s restricted stock for
the year ended December 31, 2008 were as follows:

Non-vested at December 31, 2007

Granted during the period

Vested during the period

Forfeited during the period

Non-vested at December 31, 2008

Weighted -
Average
Aggregate
Grant Date
Fair Value

30.80

26.96

31.19

27.63

29.13

15,123

16,830

(16,157)

(415)

15,381

At December 31, 2008, approximately 480,000 shares were reserved for future issuance under this plan.

SUppLEMENTAL RETIREMENT pLAN AgREEMENT

In conjunction with the CSK acquisition on July 11, 2008, the Company assumed a supplemental executive retirement plan agreement with
CSK’s former Chairman and Chief Executive Officer, Maynard Jenkins, which provides supplemental retirement benefits for a period of 10 years
beginning on the first anniversary of the effective date of termination of his employment. Mr. Jenkins retired on August 15, 2007. The benefit
amount in this agreement is fully vested and payable to Mr. Jenkins at a rate of $600,000 per annum. The Company has accrued the entire
present value of this obligation of approximately $4.0 million as of the July 11, 2008 acquisition date. Payments of $0.6 million were made to
Mr. Jenkins since the July 11, 2008, acquisition date.

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NOTE 1 2 – INCOME p ER COMMON SH A RE

The following table sets forth the computation of basic and diluted income per common share:

(In thousands, except per share data)

Numerator (basic and diluted):

Net income

Denominator:

Years ended
December 31, 2008

Years ended
December 31, 2007

Years ended
December 31, 2006

186,232

193,988

178,085

Denominator for basic income per common share–

weighted-average shares

Effect of stock options (See Note 11)

Denominator for diluted income per common share-

124,526

887

adjusted weighted-average shares and assumed conversion

125,413

Basic net income per common share

Net income per common share-assuming dilution

1.50

1.48

114,667

1,413

116,080

1.69

1.67

113,253

1,866

115,119

1.57

1.55

NOTE 1 3 – INCOME TA x E S

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and also include the tax effect of carryforwards. Significant components of
the Company’s deferred tax assets and liabilities are as follows at December 31:

(In thousands)

Deferred tax assets:

Current:

Allowance for doubtful accounts

Unrealized loss on short term investments

Unrealized loss on cash flow hedges

Other accruals

Noncurrent:

Tax credits

Net operating losses

Other accruals

Total deferred tax assets

Deferred tax liabilities:

Current:

Inventories

Noncurrent:

Property and equipment

Other

Total deferred tax liabilities

Net deferred tax liabilities

2008

2007

1,763

7,361

57,518

9,294

38,560

22,380

136,876

1,202

4,133

14,440

17,800

37,575

2,614

26,010

40,896

571

44,081

92,795

40,431

4,610

71,051

(33,476)

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The provision for income taxes consists of the following:

(In thousands)

2008:

Federal

State

2007:

Federal

State

2006:

Federal

State

Current

Deferred

Total

90,544

14,725

105,269

110,302

9,539

119,841

96,824

8,373

105,197

9,313

1,718

11,031

(5,847)

(494)

(6,341)

(938)

(79)

(1,017)

99,857

16,443

116,300

104,455

9,045

113,500

95,886

8,294

104,180

A reconciliation of the provision for income taxes to the amounts computed at the federal statutory rate is as follows:

(In thousands)

2008

2007

2006

Federal income taxes at statutory rate

State income taxes, net of federal tax benefit

Other items, net

105,887

107,620

10,633

(220)

5,880

98,793

5,387

116,300

113,500

104,180

The excess tax benefit associated with the exercise of non-qualified stock options has been reflected as additional paid-in capital in the
accompanying consolidated financial statements.

As of December 31, 2008, the Company had net operating losses for federal income tax purposes of $110.8 million (for which a portion are also
available for state tax purposes) and general business tax credit carryforwards available for federal and state tax purposes of $2.5 million and
$4.3 million, respectively. The Company also has an alternative minimum tax credit carryforward for federal tax purposes of $2.5 million. The
net operating losses generally expire in years ranging from 2021 to 2027, and the tax credits generally expire in years ranging from 2019 to 2028.
The alternative minimum tax credit carryforward does not expire.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. This interpretation provides guidance on
measurement, recognition and derecognition of benefits, classification, interest and penalties, accounting in interim periods, disclosure and
transition and requires that income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized.
No adjustment was required in the liability for unrecognized income tax benefits as a result of the implementation of FIN 48. As of December
31, 2007, and December 31, 2008, the Company had recorded a reserve for unrecognized tax benefits (including interest and penalties) of
$19.7 million and $34.3 million, respectively, of which, would affect the Company’s effective tax rate if recognized, generally net of federal tax
affect. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2007, and
December 31, 2008, the Company had accrued approximately $2.8 million, and $3.9 million, respectively, of interest and penalties related to
uncertain tax positions before the benefit of the deduction for interest on state and federal returns. During the years ended December 31, 2007,
and December 31, 2008, the Company recorded tax expense related to an increase in its liability for interest and penalties of $1.3 million and
$1.4 million, respectively. Although unrecognized tax benefits for individual tax positions may increase or decrease during 2009, the Company
expects a reduction of $1.6 million of unrecognized tax benefits during the one-year period subsequent to December 31, 2008, resulting from
settlement or expiration of the statute of limitations.

The O’Reilly U.S. federal income tax returns for tax years 2005 and beyond remain subject to examination by the Internal Revenue Service
(“IRS”). The IRS concluded an examination of the O’Reilly consolidated 2002, 2003 and 2004 federal income tax returns in the first quarter of
2007. The statute of limitations for the O’Reilly federal income tax returns for tax years 2004 and prior have expired. The statute of limitations

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for the O’Reilly U.S. federal income tax return for 2005 will expire on September 15, 2009, unless otherwise extended. The IRS is currently
conducting an examination of the O’Reilly consolidated return for the tax years 2006 and 2007. The O’Reilly state income tax returns remain
subject to examination by various state authorities for tax years ranging from 2001 through 2007.

CSK has had net operating losses in various years dating back to the tax year 1993. For CSK, the statute of limitation for a particular tax year
for examination by the IRS is three years subsequent to the last year in which the loss carryover is finally used. The IRS is conducting an
examination of the CSK consolidated federal tax return for the fiscal years ending January 30, 2005, January 29, 2006 and February 4, 2007.
The statute of limitation for a particular tax year for examination by various states is generally three to four years subsequent to the last year in
which the loss carryover is finally used.

A summary of the changes in the gross amount of unrecognized tax benefits, excluding interest and penalties, for the years ended December 31,
2007, and December 31, 2008, is shown below:

(In thousands)

December 31, 2008 December 31, 2007

Balance as of January 1, 2008

Addition based on tax positions related to the current year

Addition based on tax positions related to prior years

Addition based on tax positions related to CSK acquisition

Reduction due to lapse of statute of limitations

Balance as of December 31, 2008

NOTE 14 – LEg A L M AT TERS

O’REILLY LITIgATION

16,952

5,638

8,620

(810)

13,245

3,484

827

(604)

30,400

16,952

O’Reilly is currently involved in litigation incidental to the ordinary conduct of the Company’s business. Although the Company cannot
ascertain the amount of liability that it may incur from any of these matters, it does not currently believe that, in the aggregate, these matters
will have a material adverse effect on its consolidated financial position, results or operations or cash flows. In addition, O’Reilly is involved in
resolving the governmental investigations that were being conducted against CSK prior to its acquisition by O’Reilly. Further detail regarding
such matters is described below.

CSK pRE-ACqUISITION MATTERS

Investigations by the SEC and Department of Justice respecting certain historical accounting practices of CSK, as previously reported and
as described below, continue. O’Reilly expects to continue to incur ongoing legal expenses related to the governmental investigations and
indemnity obligations and has reserved $7.3 million as an assumed liability in the Company’s preliminary allocation of the purchase price of
CSK. O’Reilly has incurred approximately $1.0 million of such legal costs related to the government investigations and indemnity obligations in
the 4th quarter of 2008 and $1.3 million in the reporting year.

gOVERNMENTAL INVESTIgATIONS

The SEC investigation that began in 2006 related to certain historical accounting practices of CSK continues. On May 1, 2008, CSK received a
notification from the Staff of the Pacific Regional Office (the “Staff ”) of the SEC relating to that investigation. On November 6, 2008, the Staff
informed O’Reilly that the Securities and Exchange Commission (the “Commission”) agreed with the recommendation of Staff to bring charges
against CSK, including charges that CSK violated certain provisions of the federal securities laws, including Section 10(b) of the Exchange Act
and Rule 10b-5 (the antifraud provisions). O’Reilly is in discussions with the Staff to try to resolve CSK’s pre-merger matters with the Staff and
the Commission but cannot predict whether and when it will be able to reach a resolution.

In addition, the U.S. Attorney’s office in Phoenix (the “USAO”) and the U.S. Department of Justice in Washington, D.C. (the “DOJ”) is
continuing the investigation related to pre-acquisition historical accounting practices of CSK. At this time, O’Reilly is cooperating with requests
from the DOJ to resolve CSK’s pre-merger matters.

INdEMNIFICATION MATTERS

Several of CSK’s former directors or officers and current or former employees have been or may be interviewed as part of or become the subject
of criminal, administrative and civil investigations and lawsuits. We are involved in working toward resolution of these matters involving such
persons. Under Delaware law, the charter documents of the CSK entities and certain indemnification agreements, we may have an obligation
to indemnify and are currently incurring expenses on the behalf of these persons in relation to pending matters. Some of these indemnification
obligations may not be covered by our directors’ and officers’ insurance policies.

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These regulatory proceedings and other proceedings 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 flow could be materially affected by an ultimate unfavorable resolution of these regulatory proceedings or matters subject to
indemnification depending, in part, upon the results of operations or cash flow for such period. However, at this time, management believes
that the ultimate outcome of all of these regulatory proceedings and matters subject to indemnification that are pending, after consideration
of applicable reserves and potentially available insurance coverage benefits, should not have a material adverse effect on the Company’s
consolidated financial condition, results of operations and cash flows.

NOTE 1 5 – SH A REHOLdER R IgHT S p L A N

On May 7, 2002, the Board of Directors adopted a shareholder rights plan whereby one right was distributed for each share of common stock,
par value $.01 per share, of the Company held by stockholders of record (the “Rights”) as of the close of business on May 31, 2002. The Rights
initially entitle stockholders to buy a unit representing one one-hundredth of a share of a new series of preferred stock of the Company for $160
and expire on May 30, 2012. The Rights generally will be exercisable only if a person or group acquires beneficial ownership of 15% or more of
the Company’s common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially
own 15% or more of the Company’s common stock. If a person or group acquires beneficial ownership of 15% or more of the Company’s
common stock, each Right (other than Rights held by the acquiror) will, unless the Rights are redeemed by the Company, become exercisable
upon payment of the exercise price of $160 for an amount of common stock of the Company having a market value of twice the exercise price
of the Right. A copy of the Rights Agreement was filed on June 3, 2002, with the Securities and Exchange Commission, as Exhibit 4.2 to the
Company’s report on Form 8-K.

p g . 6 2 o ’ R e i l ly auTo m oTi v e

2 0 0 8 an n u a l R e p oR T

dIRECTORS ANd E xECUT I VE COMMI T TEE

david O'reilly
Chairman of the Board

Charlie O'reil ly
Vice Chairman of the
Board of Directors

larry O'rei l ly
Vice Chairman of the
Board of Directors

rOsalie O'rei lly -W OOten
Director

Jay B urChfiel d
Director

JOe Greene
Director

Paul ledere r
Director

JOhn murPh y
Director

rOn rash kOW
Director

GreG henslee
Chief Executive Officer
and Co-President

ted Wise
Chief Operating Officer
and Co-President

tOm mC fa ll
Executive Vice President
and Chief Financial Officer

Gr eG JOh nsOn
Senior Vice President
of Distribution

Je ff sh aW
Senior Vice President
of Store Operations/Sales

mik e sWe arenGin
Senior Vice President
of Merchandise

tri Cia h e adl e y
Vice President and Corporate
Secretary/Secretary to Board

tOny B art hOl OmeW
Vice President of Sales

ken COPe
Vice President of Central Division

Bra d kniGht
Vice President of Pricing

Char lie d OWns
Vice President of Real Estate
and Expansion

GreG lanGd O n
Vice President of
Southwest Division

Phy llis evans
Vice President of
Store Administration

kenny mar tin
Vice President of
Northern Division

lar ry ell is
Vice President of Distribution
Western Division

Wayne Pr iCe
Vice President of
Risk Management

ala n f ear s
Vice President of Jobber Sales
and Acquisitions

d OuG r uBle
Vice President of
Marketing/Advertising

J ef f G rOv es
Vice President of Legal and Claim
Services and General Counsel

Bar ry saBOr
Vice President of
Loss Prevention

Gr eG B eCk
Vice President of Purchasing

Bret t heintz
Vice President of Retail Systems

rO sal azar
Vice President of
Northwest Division

B rad B eCkh am
Vice President of Eastern Division

Jaime hinO JO sa
Vice President of Southern
Division

tOm seBOld t
Vice President of Merchandise

keit h Ch il de rs
Vice President of CSK Store
Operations Integration

tOm COnnOr
Vice President of Distribution
Eastern Division

st eve Jasinski
Vice President of
Information Systems

ra ndy JOhnsOn
Vice President of
Store Inventories

Phil thOmPsOn
Vice President of
Human Resources

mike W il liams
Vice President of
Advanced Technology

o ’ R e i l ly auTo m oTi v e 2 0 0 8 an n u a l R e p oR T

p g . 6 3

A N A LYS T COV ER AgE
The following analysts provide research coverage of O’Reilly
Automotive, Inc.:

BB&t CaPital mark et s – Anthony Cristello

Cr edit suisse – Gary Balter

deut sChe Bank researCh – Michael Baker

friedman, BillinGs, & ramsey investment – Stephen Chick

GOld man sa Chs resea rCh – Matthew J. Fassler

J PmOrGan seCur it ies – Christopher Horvers

Bas-ml – Alan Rifkin

mOrGan stanley – Gregory Melich

ray mOnd James & assO Ciat es – Dan Wewer

rBC CaPital mar ket s – Scot Ciccarelli

rO Chdal e seCur it ies – Jaison Blair

sanfOrd Berst ein – Colin McGranahan

sidO t i & COmP any – Scott Stember

stifel niCOlaus & COmP any, inCOrPOrtated – David Schick

uBs eq uit ies – Brian Nagel

WaChO v ia seCur ities – Peter Benedict

Wil liam Blair & COmP any – Jack Murphy

M A RK E T pR ICE S A N d dI V I dENd INFORM AT ION
The prices in the table below represent the high and low sales
price for O’Reilly Automotive, Inc. common stock as reported by
The Nasdaq Global Select Market.

The common stock began trading on April 22, 1993. No cash
dividends have been declared since 1992, and the Company does
not anticipate paying any cash dividends in the foreseeable future.

2008

2007

High

Low

High

Low

First Quarter

$ 32.68

$ 24.08

$ 35.20

$ 31.45

Second Quarter

Third Quarter

Fourth Quarter

For the Year

30.50

30.38

31.18

32.68

22.32

21.92

20.00

38.84

38.20

34.72

38.84

32.58

31.44

30.43

SHAREHOLdER I NFORMAT ION

CORpOR ATE A ddRE S S
233 South Patterson
Springfield, Missouri 65802
417-862-3333
Web site – www.oreillyauto.com

REg I S T R A R A Nd T R A NSFER A gENT
Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078

Inquiries regarding stock transfers, lost certificates or address
changes should be directed to Computershare Investor Services at
the above address.

I Nd Ep ENd ENT REg I S TEREd
pUBL IC ACCOUNT INg F I RM
Ernst & Young LLP
One Kansas City Place
1200 Main Street, Suite 2000
Kansas City, Missouri 64105-2143

A NNUA L MEE T INg
The annual meeting of shareholders of O’Reilly Automotive, Inc.
will be held at 10:00 a.m. local time on May 5, 2009, at the Double
Tree Hotel, 2431 North Glenstone Ave in Springfield, Missouri.
Shareholders of record as of February 27, 2009, will be entitled to
vote at this meeting.

FORM 10 - K REpOR T
The Form 10-K Report of O’Reilly Automotive, Inc. filed with
the Securities and Exchange Commission and our quarterly press
releases are available without charge to shareholders upon written
request. These requests and other investor contacts should be
directed to Thomas McFall, Executive Vice President of Finance and
Chief Financial Officer, at the corporate address.

T R A dI Ng SYMBOL
The Company’s common stock is traded on The Nasdaq Global
Select Market under the symbol ORLY.

NUMBER OF SH A REHOLdERS
As of February 27, 2009, O’Reilly Automotive, Inc. had
approximately 62,000 shareholders based on the number of holders
of record and an estimate of the number of individual participants
represented by security position listings.

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2 0 0 8 an n u a l R e p oR T

MISS ION S TATEMENT

“ O’Reilly Automotive will be the
dominant supplier of auto parts in
our market areas by offering our
retail customers, professional
installers and jobbers the best
combination of inventory, price,
quality and service; providing our
team members with competitive
wages, benefits and working
conditions which promote high
achievement and ensure fair and
equitable treatment; and providing
our stockholders with an excellent
return on their investment.”

BOARD OF
DIRECTORS

TERM EXPIRING IN 2009

JOHN MURPHY

CH AR LI E O’ REI LLY

RONAL D RASHKOW

Director Since 2003
Audit Committee -
Chairman Corporate
Governance/Nominating
Committee

Vice Chairman
of the Board

TERM EXPIRING IN 2010

Director Since 2003
Audit Committee
Compensation
Committee

JOE GREENE

L ARRY O’ RE IL LY

Director Since 1993
Corporate
Governance/Nominating
Committee - Chairman

Vice Chairman
of the Board

ROSAL IE
O ’R EIL LY- WOOT EN

Director

TERM EXPIRING IN 2011

JAY B URCHFIELD

PAU L L EDER ER

DAV ID O’ REILLY

Director Since 1997
Compensation
Committee - Chairman
Corporate
Governance/Nominating
Committee

Lead Director
1993 - July 1997;
Since February 2001
Audit Committee
Compensation
Committee

Chairman of the Board

PROF ITABL E GROWT H .

IT’S WHE RE WE’VE B EEN. IT ’ S WH ERE WE’ RE H EADING.

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