O'Reilly Auto Parts 2013 Annual Report Download - page 67

FORM 10-K
61
The following table identifies the closure reserves for stores and administrative office and distribution facilities, at December 31, 2013
and 2012 (in thousands):
Store Closure
Liabilities
Administrative Office and Distribution
Facilities Closure Liabilities
Balance at December 31, 2011 $ 11,312 $ 3,544
Additions and accretion 584 170
Payments (2,998) (2,038)
Revisions to estimates (561)—
Balance at December 31, 2012 8,337 1,676
Additions and accretion 459 105
Payments (2,458) (422)
Revisions to estimates (499)—
Balance at December 31, 2013 $ 5,839 $ 1,359
The Company accrues for closed property operating lease liabilities using a credit-adjusted discount rate to calculate the present value
of the remaining non-cancelable lease payments, contractual occupancy costs and lease termination fees after the closing date, net of
estimated sublease income. The closed property lease liabilities are expected to be paid over the remaining lease terms, which currently
extend through April 30, 2023. The Company estimates sublease income and future cash flows based on the Company’s experience and
knowledge of the market in which the closed property is located, the Company’s previous efforts to dispose of similar assets and existing
economic conditions. Adjustments to closed property reserves are made to reflect changes in estimated sublease income or actual
contracted exit costs, which vary from original estimates, and are made for material changes in estimates in the period in which the
changes become known.
Revisions to estimates in closure reserves for stores and administrative office and distribution facilities include changes in the estimates
of sublease agreements, changes in assumptions of various store closure activities, changes in assumed leasing arrangements and actual
exit costs since the inception of the exit activities. Revisions to estimates and additions or accretions to reserves for store and administrative
office closure liabilities are included in “Selling, general and administrative expenses” on the accompanying Consolidated Statements
of Income for the year ended December 31, 2013 and 2012. Revisions to estimates and additions or accretions to reserves for distribution
facility closure liabilities are included in “Cost of goods sold, including warehouse and distribution expenses” on the accompanying
Consolidated Statements of Income for the years ended December 31, 2013 and 2012.
The cumulative amount incurred in closure reserves for stores from the inception of the exit activity through December 31, 2013, was
$24.4 million. The cumulative amount incurred in administrative office and distribution facilities from the inception of the exit activity
through December 31, 2013, was $10.1 million. The balance of both these reserves is included in “Other current liabilities” and “Other
liabilities” on the accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012, based upon the dates when the reserves
are expected to be settled.
NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Historically, the Company entered into interest rate swap contracts with various counterparties to mitigate cash flow risk associated with
floating interest rates on previously outstanding borrowings under its asset-based revolving credit facility (the "ABL Credit Facility").
The fair values of the Company’s outstanding hedges were recorded as liabilities, the effective portion of the change in fair values of the
Company’s cash flow hedges was recorded as a component of “Accumulated other comprehensive loss”, and any ineffectiveness was
recognized in “Other income (expense)” in the accompanying Consolidated Statements of Income in the period of ineffectiveness. The
interest rate swap contracts were designated as cash flow hedges with interest payments designed to offset the interest payments for
borrowings under the ABL Credit Facility that corresponded with the notional amounts of the swaps. In January of 2011, the ABL Credit
Facility was retired concurrent with the issuance of the Company’s 4.875% Senior Notes due 2021 and all interest rate swap contracts
were terminated at the Company’s request. The Company recognized a charge of $4.2 million related to the termination of the interest
rate swap contracts, which was included as a component of “Other income (expense)” in the accompanying Consolidated Statements of
Income for the year ended December 31, 2011. As of December 31, 2013 and 2012, the Company did not hold any instruments that
qualified as cash flow hedge derivatives.