Advance Auto Parts 2010 Annual Report Download - page 75

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2011, January 2, 2010 and January 3, 2009
(in thousands, except per share data)
.
F-21
In connection with the offering of the Notes, the Company amended its revolving credit facility to add each of
the Company’s domestic subsidiaries as guarantors. The subsidiary guarantees related to the Company’s revolving
credit facility and Notes are full and unconditional and joint and several, and there are no restrictions on the ability
of Advance to obtain funds from its subsidiaries. Also, Advance has no independent assets or operations, and the
subsidiaries not guaranteeing the revolving credit facility and Notes are minor as defined by the SEC.
The Company’s revolving credit facility contains covenants restricting its ability to, among other things: (1)
create, incur or assume additional debt (including hedging arrangements), (2) incur liens or engage in sale-leaseback
transactions, (3) make loans and investments, (4) guarantee obligations, (5) engage in certain mergers, acquisitions
and asset sales, (6) change the nature of the Company’s business and the business conducted by its subsidiaries and
(7) change Advance’s status as a holding company. The Company is also required to comply with financial
covenants with respect to a maximum leverage ratio and a minimum consolidated coverage ratio. The Company was
in compliance with these covenants at January 1, 2011 and January 2, 2010. The Company’s revolving credit facility
also provides for customary events of default, covenant defaults and cross-defaults to its other material indebtedness.
The interest rate on borrowings under the revolving credit facility is based, at the Company’s option, on an
adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a margin. The current margin is 0.625% and 0.0%
per annum for the adjusted LIBOR and alternate base rate borrowings, respectively. Under the terms of the
revolving credit facility, the interest rate and commitment fee are based on the Company’s credit rating.
On April 29, 2010, the Company fully repaid the outstanding balance under its unsecured four-year term loan
with proceeds from the offering of the senior unsecured notes.
Other
As of January 1, 2011, the Company had $3,000 outstanding under an economic development note and other
financing arrangements.
7. Derivative Instruments and Hedging Activities:
The Company had previously entered into interest rate swap agreements as a hedge to the variable rate interest
payments on its bank debt. Effective April 24, 2010, the Company’s outstanding interest rate swaps no longer
qualified for hedge accounting as a result of the Company’s intent to pay off its bank debt with the proceeds from
the offering of the Notes. Accordingly, the Company has recorded all subsequent changes in the fair value of the
interest rate swaps through earnings and will amortize the previously recorded unrecognized loss in accumulated
other comprehensive loss over the remaining life of the swaps which mature in October 2011. As of January 1,
2011, the Company had interest rate swaps with an aggregate notional value of $275,000 at rates ranging from
4.01% to 4.98%.