Advance Auto Parts 2004 Annual Report Download - page 27

Advance฀Auto฀Parts,฀Inc.฀and฀Subsidiaries
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credit฀ with฀ a฀ sub฀ limit฀ of฀ $70.0฀ million).฀ In฀ conjunction฀฀
with฀ this฀ refinancing,฀ we฀ wrote฀ off฀ deferred฀ financing฀
costs฀related฀to฀the฀previous฀term฀loans฀in฀accordance฀with฀
EITF฀Issue฀No.฀96-19,฀“Debtor’s฀Accounting฀for฀a฀Modifica-
tion฀ or฀ Exchange฀ of฀ Debt฀ Instruments.”฀ The฀ write-off฀ of฀
these฀ costs฀ combined฀ with฀ additional฀ costs฀ required฀ to฀
establish฀the฀new฀facility฀resulted฀in฀a฀loss฀on฀extinguish-
ment฀of฀debt฀of฀$2.8฀million฀in฀the฀accompanying฀consoli-
dated฀statements฀of฀operations฀for฀the฀year฀ended฀January฀1,฀
2005.฀Earlier฀during฀fiscal฀2004,฀we฀made฀$105.0฀million฀
of฀repayments฀on฀our฀previous฀senior฀credit฀facility฀prior฀to฀
their฀scheduled฀maturity.฀In฀conjunction฀with฀these฀partial฀
repayments,฀we฀wrote฀off฀$0.4฀million,฀which฀is฀also฀clas-
sified฀as฀a฀loss฀on฀extinguishment฀of฀debt฀in฀the฀accompa-
nying฀ consolidated฀ statements฀ of฀ operations฀ for฀ the฀ year฀
ended฀January฀1,฀2005.
฀ At฀January฀1,฀2005,฀ our฀ senior฀credit฀facility฀ consisted฀
of฀ (1)฀ a฀ tranche฀ A฀ term฀ loan฀ facility฀ with฀ a฀ balance฀ of฀
$200.0฀million,฀a฀tranche฀B฀term฀loan฀facility฀with฀a฀bal-
ance฀ of฀ $170.0฀ million,฀ a฀ delayed฀ draw฀ term฀ loan฀ with฀ a฀
balance฀of฀$100.0฀million฀and฀(2)฀a฀$200.0฀million฀revolv-
ing฀credit฀facility฀(including฀a฀letter฀of฀credit฀sub฀facility)฀
(of฀which฀$161.2฀million฀was฀available฀as฀a฀result฀of฀$38.8฀
million฀in฀letters฀of฀credit฀outstanding).฀The฀senior฀credit฀
facility฀ is฀ jointly฀ and฀ severally฀ guaranteed฀ by฀ all฀ of฀ our฀
domestic฀ subsidiaries฀ (including฀ Discount฀ and฀ its฀ subsid-
iaries)฀and฀is฀secured฀by฀all฀of฀our฀assets฀and฀the฀assets฀of฀
our฀ existing฀ and฀ future฀ domestic฀ subsidiaries฀ (including฀
Discount฀and฀its฀subsidiaries).
฀ The฀ tranche฀ A฀ term฀ loan฀ currently฀ requires฀ scheduled฀
repayments฀of฀ $7.5฀million฀on฀ March฀31,฀2005฀and฀ quar-
terly฀thereafter฀through฀December฀31,฀2006,฀$10.0฀million฀
on฀ March฀ 31,฀ 2007฀ and฀ quarterly฀ thereafter฀ through฀
December฀31,฀2007,฀$12.5฀million฀on฀March฀31,฀2008฀and฀
quarterly฀thereafter฀through฀June฀30,฀2009฀and฀$25.0฀mil-
lion฀due฀at฀maturity฀on฀September฀30,฀2009.฀The฀tranche฀B฀
term฀loan฀currently฀requires฀scheduled฀repayments฀of฀$0.4฀
million฀on฀ March฀31,฀2005฀and฀ quarterly฀thereafter,฀with฀฀
a฀ final฀ payment฀ of฀ $160.7฀ million฀ due฀ at฀ maturity฀ on฀
September฀30,฀2010.฀The฀delayed฀draw฀term฀loan฀currently฀
requires฀scheduled฀ repayments฀of฀0.25%฀of฀the฀ aggregate฀
principal฀amount฀outstanding฀on฀March฀31,฀2006฀and฀quar-
terly฀ thereafter,฀ with฀ a฀ final฀ payment฀ due฀ at฀ maturity฀ on฀
September฀ 30,฀ 2010.฀ The฀ revolver฀ expires฀ on฀ September฀
30,฀2009.
฀ The฀interest฀rates฀on฀the฀tranche฀A฀and฀B฀term฀loans,฀the฀
delayed฀draw฀term฀loan฀and฀the฀revolver฀are฀based,฀at฀our฀
option,฀ on฀ an฀ adjusted฀ LIBOR฀ rate,฀ plus฀ a฀ margin,฀ or฀ an฀
alternate฀ base฀ rate,฀ plus฀ a฀ margin.฀ The฀ initial฀ margin฀ for฀
the฀tranche฀A฀term฀loan฀and฀revolver฀is฀1.50%฀and฀0.50%฀
per฀ annum฀ for฀ the฀ adjusted฀ LIBOR฀ and฀ alternate฀ base฀฀
rate฀ borrowings,฀ respectively.฀ The฀ initial฀ margin฀ for฀ the฀฀
tranche฀ B฀ term฀ loan฀ and฀ the฀ delayed฀ draw฀ term฀ loan฀ is฀
1.75%฀and฀0.75%฀per฀annum฀for฀the฀adjusted฀LIBOR฀and฀
alternate฀ base฀ rate฀ borrowings,฀ respectively.฀ Additionally,฀
a฀commitment฀fee฀of฀0.375%฀per฀annum฀is฀charged฀on฀the฀
unused฀ portion฀ of฀ the฀ tranche฀ A฀ term฀ loan฀ and฀ revolver,฀
payable฀in฀arrears.฀A฀commitment฀fee฀of฀1.75%฀per฀annum฀
is฀charged฀on฀the฀unused฀portion฀of฀the฀delayed฀draw฀term฀
loan,฀payable฀in฀arrears.
฀ As฀ of฀ January฀ 1,฀ 2005,฀ we฀ had฀ two฀ interest฀ rate฀ swap฀
agreements฀outstanding฀on฀an฀aggregate฀of฀$125฀million฀of฀
debt฀under฀ our฀ credit฀facility.฀The฀ first฀swap฀ allows฀us฀to฀
fix฀our฀LIBOR฀rate฀at฀2.269%฀on฀$75.0฀million฀of฀variable฀
rate฀ debt.฀ The฀ first฀ swap฀ has฀ a฀ term฀ of฀ 36฀ months฀ and฀
expires฀in฀the฀first฀quarter฀of฀fiscal฀2006.฀The฀second฀swap฀
allows฀us฀to฀fix฀our฀LIBOR฀rate฀at฀1.79%฀on฀$50.0฀million฀
of฀ variable฀ rate฀ debt.฀ The฀ second฀ swap฀ has฀ a฀ term฀ of฀ 24฀
months฀and฀expires฀in฀the฀first฀quarter฀of฀fiscal฀2005.
฀ Subsequent฀to฀January฀1,฀2005฀and฀in฀an฀effort฀to฀man-
age฀our฀future฀interest฀rate฀risk,฀we฀entered฀into฀the฀follow-
ing฀three฀new฀interest฀rate฀swap฀agreements฀on฀an฀aggregate฀
of฀$175฀million฀of฀debt฀under฀our฀senior฀credit฀facility:
•฀ ฀The฀first฀ swap,฀ beginning฀in฀March฀ 2005,฀allows฀ us฀ to฀
fix฀our฀total฀interest฀rate฀at฀4.153%฀on฀$50฀million฀of฀our฀
debt฀for฀a฀term฀of฀48฀months;
•฀ ฀The฀second฀swap,฀beginning฀in฀March฀2005,฀allows฀us฀to฀
fix฀our฀total฀interest฀rate฀at฀4.255%฀on฀$75฀million฀of฀our฀
debt฀for฀a฀term฀of฀60฀months;฀and
•฀ ฀The฀third฀swap,฀beginning฀in฀March฀2006,฀allows฀us฀to฀
fix฀our฀total฀ interest฀rate฀at฀4.6125%฀on฀$50฀million฀of฀
our฀debt฀for฀a฀term฀of฀54฀months.
฀ The฀ senior฀ credit฀ facility฀ is฀ secured฀ by฀ a฀ first฀ priority฀
lien฀ on฀ substantially฀ all,฀ subject฀ to฀ certain฀ exceptions,฀ of฀
our฀ assets฀ and฀ the฀ assets฀ of฀ our฀ existing฀ domestic฀ sub-
sidiaries฀and฀will฀be฀secured฀by฀the฀properties฀and฀assets฀
of฀our฀future฀domestic฀subsidiaries.฀The฀senior฀credit฀facil-
ity฀ contains฀ covenants฀ restricting฀ the฀ ability฀ of฀ us฀ and฀฀
our฀ subsidiaries฀ to,฀ among฀ other฀ things,฀ (1)฀ declare฀ divi-
dends฀ 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฀our฀ passive฀holding฀company฀
status.฀We฀are฀also฀required฀to฀comply฀with฀financial฀cov-
enants฀with฀respect฀to฀a฀maximum฀leverage฀ratio,฀a฀mini-
mum฀interest฀coverage฀ratio,฀a฀minimum฀current฀assets฀to฀
funded฀senior฀debt฀ratio,฀a฀maximum฀senior฀leverage฀ratio฀
and฀limits฀on฀capital฀expenditures.฀We฀were฀in฀compliance฀
with฀the฀above฀covenants฀at฀January฀1,฀2005.