Pep Boys 2012 Annual Report Download - page 74

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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market rate exposure in our financial instruments due to changes in interest rates and
prices.
Variable and Fixed Rate Debt
Our Revolving Credit Agreement bears interest at daily LIBOR plus 2.00% to 2.50% based upon
the then current availability under the facility. At February 2, 2013, there were no outstanding
borrowings under the agreement. Additionally, we have a Senior Secured Term Loan facility due
October 2018 with a balance of $200 million at February 2, 2013, that bears interest at LIBOR subject
to a floor of 1.25%, plus 3.75%. Excluding our interest rate swap, a one percent change in the LIBOR
rate would have affected net earnings by approximately $1.2 million for fiscal 2012. The risks related to
changes in the LIBOR rate are substantially mitigated by our interest rate swap.
The fair value of our Senior Subordinated Notes due October 2018 was $203.5 million at
February 2, 2013. We determine fair value on our fixed rate debt by using quoted market prices and
current interest rates.
Interest Rate Swaps
On October 11, 2012, we settled our interest rate swap designated as a cash flow hedge on
$145.0 million of our Term Loan prior to its amendment and restatement. The swap was used to
minimize interest rate exposure and overall interest costs by converting the variable component of the
total interest rate to a fixed rate of 5.036%. Since February 1, 2008, this swap was deemed to be fully
effective and all adjustments in the interest rate swap’s fair value have been recorded to accumulated
other comprehensive loss. The settlement of this swap resulted in an interest charge of $7.5 million,
which was previously recorded within accumulated other comprehensive loss.
On October 11, 2012, we entered into two new interest rate swaps for a notional amount of
$50.0 million each that together are designated as a cash flow hedge on the first $100.0 million of the
amended and restated Term Loan. The interest rate swaps convert the variable LIBOR portion of the
interest payments, subject to a floor of 1.25%, due on the first $100.0 million of the Term Loan to a
fixed rate of 1.855%.
As of February 2, 2013, the fair value of the new interest rate swaps was a net $1.6 million
payable. As of January 28, 2012, the fair value of the previous swap, terminated in October 2012, was
$12.5 million payable. The swap value is recorded within other long-term liabilities on the balance
sheet.
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