SEC concludes CSK Auto falsified financial statements

The Securities and Exchange Commission has settled its cease-and-desist order proceedings against Phoenix-based CSK Auto Corp., which was acquired by O'Reilly Automotive Inc. last year.

The SEC found that the auto parts retailer violated the anti-fraud, reporting, books and records, and internal controls provisions of federal securities laws when it filed false financial statements in its fiscal 2002, 2003 and 2004 annual reports, according to an SEC news release.

CSK materially overstated its pre-tax income for fiscal 2002 by about 47 percent, or $11 million; its fiscal 2003 income by about $24 million, thereby reporting pre-tax income instead of a pre-tax loss; and its fiscal 2004 income by about 65 percent, or $21 million, the SEC said. The company:

• Failed to write off vendor allowance receivables that it knew, or should have known, were not collectible;

• Improperly recognized certain vendor allowances in fiscal 2003;

• Engaged in several private debt offerings while its false financial statements were outstanding; and

• Failed to implement internal accounting controls.

The SEC has ordered CSK to "cease and desist from committing or causing any violations and any future violations" of certain sections of the Securities Act and the Exchange Act. CSK consented to the order without admitting or denying wrongdoing.

This is the second enforcement action to come out of the SEC's investigation into CSK. In March, the commission filed a civil injunctive action in federal court against the company's former president and chief operating officer, former chief financial officer, former controller and former director of credits and receivables.

Following the SEC announcement Tuesday, Springfield-based O'Reilly Automotive issued a statement on the order, noting that the events occurred at CSK before O'Reilly bought the company. O'Reilly acquired CSK in July 2008 for $1 billion, and CSK is now its indirect wholly owned subsidiary.

"We are pleased that we have been able to conclude this legacy matter with the SEC related to historical conduct at CSK on a basis where no financial burden will be incurred," O'Reilly CEO Greg Henslee said in the company statement. "With this legacy matter behind us, we continue to execute our strategies for the long-term success of our business."