Advance Auto Parts 2001 Annual Report Download - page 17

28 ADVANCE AUTO PARTS ANNUAL REPORT 2001 ADVANCE AUTO PARTS ANNUAL REPORT 2001 29
13. Long-term Debt:
Long-term debt consists of the following:
December 29, December 30,
2001 2000
Senior Debt:
Tranche A, Senior Secured Term Loan at variable interest rates
(5.44% at December 29, 2001), due November 2006 $ 180,000 $ -
Tranche B, Senior Secured Term Loan at variable interest rates
(7.00% at December 29, 2001), due November 2007 305,000 -
Revolving facility at variable interest rates (5.44% at December 29, 2001), due November 2006 10,000 -
McDuffie County Authority taxable industrial development revenue bonds,
issued December 31,1997, interest due monthly at an adjustable rate established
by the Remarketing Agent (2.10% at December 29, 2001), principal due on November 1, 2002 10,000 10,000
Deferred term loan at variable interest rates (9.25% at December 30, 2000), repaid - 90,000
Delayed draw facilities at variable interest rates, (8.47% at December 30, 2000), repaid - 94,000
Revolving facility at variable interest rates (8.50% at December 30, 2000), repaid - 15,000
Tranche B facility at variable interest rates (9.19% at December 30, 2000), repaid - 123,500
Other - 784
Subordinated Debt:
Subordinated notes payable, interest due semi-annually at 10.25%, due April 2008 169,450 169,450
Subordinated notes payable, interest due semi-annually at 10.25%, due April 2008,
face amount of $200,000 less unamortized discount of $14,087 at December 29, 2001 185,913 -
Discount debentures, interest at 12.875%, due April 2009, face amount of $112,000
less unamortized discount of $16,626 and $27,785 at December 29, 2001 and
December 30, 2000, respectively (subordinate to substantially all other liabilities) 95,374 84,215
Total long-term debt 955,737 586,949
Less: Current portion of long-term debt (23,715) (9,985)
Long-term debt, excluding current portion $ 932,022 $ 576,964
Advance Auto Parts, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
December 29, 2001, December 30, 2000 and January 1, 2000 (in thousands, except per share data and per store data)
Senior Debt:
During 2001, Advance Stores Company, Incorporated (“Stores”), a wholly
owned subsidiary of the Company, entered into a new senior bank credit
facility, or the senior credit facility, with a syndicate of banks which
provided for (1) $485,000 in term loans, consisting of a $180,000 tranche
A term loan facility with a maturity of five years and a $305,000 tranche B
term loan facility with a maturity of six years and (2) $160,000 under a
revolving credit facility (which provides for the issuance of letters of credit
with a sublimit of $35,000) with a maturity of five years. A portion of the
proceeds was used to repay the Company’s outstanding borrowing under
the previous credit facility of $270,299 and to finance the Discount
acquisition (Note 3). As a result of the repayment of this debt the Company
recorded an extraordinary loss related to the write-off of deferred financing
costs in the fourth quarter of fiscal 2001 of $3,682, net of $2,424 income
taxes. As of December 29, 2001 the Company has borrowed approximately
$10,000 under the revolving credit facility and has $17,445 in letters of
credit outstanding, which has reduced availability under the credit facility
to approximately $132,555.
The tranche A term loan requires scheduled repayments of $11,000 to
$24,500 semi-annually beginning November 2002 through November 2006
at which point it will be fully repaid. The tranche B term loan requires
scheduled repayments of $2,500 semi-annually beginning November 2002
through May 2007 at which time the Company will be required to pay the
remaining balance at maturity in November 2007.
Borrowings under the senior credit facility are required to be prepaid,
subject to certain exceptions, with (1) 50% of the Excess Cash Flow (as
defined in the senior credit facility) unless the Company’s Leverage Ratio
at the end of any fiscal year is 2.0 or less, in which case 25% of Excess
Cash Flow for such fiscal year will be required to be repaid, (2) 100% of
the net cash proceeds of all asset sales or other dispositions of property by
the Company and its subsidiaries, subject to certain exceptions (including
exceptions for reinvestment of certain asset sale proceeds within 270 days
of such sale and certain sale-leaseback transactions), and (3) 100% of the
net proceeds of certain issuances of debt or equity by the Company and its
subsidiaries. The Company is required to make an Excess Cash Flow
prepayment of $228 in first quarter of fiscal 2002 under the current credit
facility and made a $6,244 mandatory prepayment under the prior credit
agreement for fiscal 2000 in fiscal 2001.
Voluntary prepayments and voluntary reductions of the unutilized
portion of the revolving credit facility are permitted in whole or in part, at
the Company’s option, in minimum principal amounts specified in the
senior credit facility, without premium or penalty, subject to reimbursement
of the lenders’ redeployment costs in the case of a prepayment of adjusted
LIBOR borrowings other than on the last day of the relevant interest period.
Voluntary prepayments under the tranche A term loan facility and the
tranche B term loan facility will (1) generally be allocated among those
facilities on a pro rata basis (based on the then outstanding principal amount
of the loans under each facility) and (2) within each such facility, be applied
to the installments under the amortization schedule within the following 12
months under such facility and all remaining amounts will be applied pro
rata to the remaining amortization payments under such facility.
The interest rate on the tranche A term loan facility and the revolving
credit facility is based, at the Company’s option, on either an adjusted
LIBOR rate, plus a margin, or an alternate base rate, plus a margin. From
July 14, 2002, the interest rates under the tranche A term loan facility and
the revolving credit facility will be subject to adjustment according to a
pricing grid based upon the Company’s Leverage Ratio (as defined in the
senior credit facility). The initial margins are 3.50% and 2.50% for the
adjusted LIBOR rate and alternate base rate borrowings, respectively, and
can step down incrementally to 2.25% and 1.25%, respectively, if the
Company’s Leverage Ratio is less than 2.00 to 1.00. The interest rate on the
tranche B term loan is based, at the Company’s option, on either an
adjusted LIBOR rate plus 4.00% per annum with a floor of 3.00%, or an
alternate base rate plus 3.00% per annum. A commitment fee of 0.50% per
annum will be charged on the unused portion of the revolving credit
facility, payable quarterly in arrears.
The senior credit facility is guaranteed by the Company and by each of
it’s existing domestic subsidiaries and will be guaranteed by all future
domestic subsidiaries. The senior credit facility is secured by a first priority
lien on substantially all, subject to certain exceptions, of the Company’s
properties and assets and the properties and assets of its existing domestic
subsidiaries (including Discount and its subsidiaries) and will be secured
by the properties and assets of our future domestic subsidiaries. The senior
credit facility contains covenants restricting the ability of the Company and
its subsidiaries to, among other things, (1) declare dividends or redeem or
repurchase capital stock, (2) prepay, redeem or purchase debt, (3) incur
liens or engage in sale-leaseback transactions, (4) make loans and
investments, (5) incur additional debt (including hedging arrangements),
(6) engage in certain mergers, acquisitions and asset sales, (7) engage in
transactions with affiliates, (8) change the nature of our business and the
business conducted by our subsidiaries and (9) change the holding
company status of Advance. The Company is required to comply with
financial covenants with respect to a maximum leverage ratio, a minimum
interest coverage ratio, a minimum current assets to funded senior debt
ratio and maximum limits on capital expenditures.
On December 31, 1997, the Company entered into an agreement with
McDuffie County Authority under which bond proceeds of $10,000 were
issued to construct a distribution center. Proceeds of the bond offering were
fully expended during fiscal 1999. These industrial development revenue
bonds currently bear interest at a variable rate, with a one-time option to
convert to a fixed rate, and are secured by a letter of credit.
Subordinated Debt:
The $169,450 Senior Subordinated Notes (the “Notes”) and the $185,913
Senior Subordinated Notes (the “New Notes”) are both unsecured and are
subordinate in right of payment to all existing and future Senior Debt. The
Notes and New Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after April 15, 2003. The new notes
accrete at an effective yield of 11.875% less cash interest of 10.250%
through maturity in April 2008. As of December 29, 2001, the New Notes
have been accreted by $309.
Upon the occurrence of a change of control, each holder of the Notes
and the New Notes will have the right to require the Company to
repurchase all or any part of such holder’s Notes and New Notes at an
offering price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of purchase.
The Notes and the New Notes contain various non-financial restrictive
covenants that limit, among other things, the ability of the Company and its
subsidiaries to issue preferred stock, repurchase stock and incur certain
indebtedness, engage in transactions with affiliates, pay dividends or certain
other distributions, make certain investments and sell stock of subsidiaries.
During fiscal 2000, the Company repurchased on the open market
$30,550 face value of Notes at a price ranging from 81.5 to 82.5 percent of
their face value. Accordingly, the Company recorded a gain related to the
extinguishment of this debt of $2,933, net of $1,759 provided for income
taxes and $868 for the write off of the associated deferred debt issuance costs.
The Discount Debentures (the “Debentures”) accrete at a rate of
12.875%, compounded semi-annually, to an aggregate principal amount of
$112,000 by April 15, 2003. Cash interest will not accrue on the
Debentures prior to April 15, 2003. Commencing April 15, 2003, cash
interest on the Debentures will accrue and be payable, at a rate of 12.875%
per annum, semi-annually in arrears on each April 15 and October 15. As
of December 29, 2001, the Debentures have been accreted by $35,357 with
corresponding interest expense of $11,159, $9,853 and $8,700 recognized
for the years ended December 29, 2001, December 30, 2000 and January
1, 2000, respectively. The Debentures are redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2003.
Upon the occurrence of a change of control, each holder of the
Debentures will have the right to require the Company to purchase the
Debentures at a price in cash equal to 101% of the accreted value thereof
plus liquidated damages, if any, thereon in the case of any such purchase
prior to April 15, 2003, or 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and liquidated damages, if any, thereon to
the date of purchase in the case of any such purchase on or after April 15,
2003. As Advance may not have any significant assets other than capital
stock of Stores (which is pledged to secure Advance’s obligations under the
senior credit facility), the Company’s ability to purchase all or any part of
the Debentures upon the occurrence of a change in control will be
dependent upon the receipt of dividends or other distributions from Stores
or its subsidiaries. The senior credit facility, the Notes and the New Notes
have certain restrictions for Stores with respect to paying dividends and
making any other distributions.
The Debentures are subordinated to substantially all of the Company’s
other liabilities. The Debentures contain certain non-financial restrictive
covenants that are similar to the covenants contained in the Notes and the
New Notes.
As of December 29, 2001, the Company was in compliance with the
covenants of the senior credit facility, the Notes, the New Notes and
Debentures. Substantially all of the net assets of the Company’s
subsidiaries are restricted at December 29, 2001.
The aggregate future annual maturities of long-term debt, net of the
unamortized discount related to the New Notes and the Debentures, are
as follows:
2002 $ 23,715
2003 32,385
2004 48,578
2005 53,975
2006 63,975
Thereafter 733,109
$ 955,737
14. Stockholder Subscription Receivables:
The Company established a stock subscription plan in fiscal 1998, which
allows certain directors, officers and key team members of the Company to
purchase shares of common stock. The plan requires that the purchase
price of the stock equal the fair market value at the time of the purchase
and allows fifty percent of the purchase price to be executed through the
delivery of a full recourse promissory note. The notes provide for annual
interest payments, at the prime rate (4.75% at December 29, 2001), with
Advance Auto Parts, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued)
December 29, 2001, December 30, 2000 and January 1, 2000 (in thousands, except per share data and per store data)