O'Reilly Auto Parts 2008 Annual Report Download - page 36

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PG.34 O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. e Swaps represent contracts to exchange a oating
rate for xed interest payments periodically over the life of the Swap agreement without exchange of the underlying notional amount. e
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. e
Swaps have been designated as cash ow 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 aer tax), based on our exposure to interest
rate changes on variable rate debt that is not covered by the Swaps. is analysis does not consider the eects 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.