O'Reilly Auto Parts 2010 Annual Report Download - page 56

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44
Item 7A. 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. We had potential
interest rate exposure with respect to the $356 million outstanding balance on our variable interest rate debt at December 31, 2010;
however, from time to time, we had entered into interest rate swaps to reduce this exposure. On July 24, 2008, October 14, 2008,
November 24, 2008, and January 21, 2010, 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 interest rate swap transaction that we entered into with
BBT on July 24, 2008, for $100 million matured on August 1, 2010; the interest rate swap transaction that we entered into with BBT
on October 14, 2008, for $25 million and was scheduled to mature on October 17, 2010, was terminated at our request on September
16, 2010; the interest rate swap transactions we entered into with BBT, BA and/or SunTrust on October 14, 2008, totaling $75 million,
matured on October 17, 2010, bringing the total notional amount of swapped debt to $250 million as of December 31, 2010. The
Swaps represented 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.
If interest rates increased or decreased by 100 basis points, annualized interest expense and cash payments for interest would increase
or decrease by approximately $1.1 million ($0.7 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 variable interest rate credit facilities, management would likely take further actions
that would seek to mitigate our exposure to interest rate risk.
The interest rate contracts are derivative instruments which have been designated as cash flow hedges. We do not hold or issue
derivative financials instruments for trading purposes.
All of the interest rate swap transactions that existed as of December 31, 2010, for a total notional amount of $250 million, were
terminated at the Company’s request on January 14, 2011, concurrent with the closing and issuance of our 2011 4.875% Senior Notes.
45
Item 8. Financial Statements and Supplementary Data
Index
Management’s Report on Internal Control over Financial Reporting 45
Report of Independent Registered Public Accounting Firm: Internal Control over Financial Reporting 46
Report of Independent Registered Public Accounting Firm: Financial Statements 47
Consolidated Balance Sheets 48
Consolidated Statements of Income 49
Consolidated Statements of Shareholders’ Equity 50
Consolidated Statements of Cash Flows 51
Notes to Consolidated Financial Statements 52
FORM 10-K