Advance Auto Parts 2007 Annual Report Download - page 72

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 29, 2007, December 30, 2006 and December 31, 2005
(in thousands, except per share data)
The following table reflects the impact on net income and earnings per share as if the Company had applied the
fair value based method of recognizing share-based compensation costs as prescribed by SFAS No. 123 for the
fiscal year ended December 31, 2005.
2005
Net income, as reported 234,725$
Add: Total stock-based employee compensation
expense included in reported net income, net
of related tax effects 225
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (9,622)
Pro forma net income 225,328$
Net income per share:
Basic, as reported 2.17$
Basic, pro forma 2.08
Diluted, as reported 2.13
Diluted, pro forma 2.04
Earnings Per Share of Common Stock
Basic earnings per share of common stock has been computed based on the weighted-average number of
common shares outstanding, less stock held in treasury and shares of non-vested restricted stock, during the period.
Diluted earnings per share of common stock reflects the increase in the weighted-average number of shares of
common stock outstanding, outstanding deferred stock units and the impact of outstanding stock options, stock
appreciation rights and shares of unvested restricted stock (collectively “share-based awards”), calculated on the
treasury stock method as modified by the adoption of SFAS 123R. There were 3,192, 2,140 and 517 antidilutive
share-based awards for the fiscal years ended December 29, 2007, December 30, 2006 and December 31, 2005,
respectively.
Hedge Activities
The Company utilizes interest rate swaps to limit its cash flow risk on its variable rate debt. In accordance with
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the fair value of the Company’s
outstanding hedges is recorded as an asset or liability in the accompanying condensed consolidated balance sheets at
December 29, 2007 and December 30, 2006, respectively. The Company uses the 90-day, adjusted LIBOR interest
rate and has the intent and ability to continue to use this rate on its hedged borrowings. Accordingly, the Company
does not recognize any ineffectiveness on the swaps as allowed under Derivative Implementation Group Issue No.
G7, “Cash Flow Hedges: Measuring the Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the
Shortcut Method Is Not Applied” and has recorded all adjustments to the fair value of the hedge instruments in
accumulated other comprehensive income through the maturity date of the applicable hedge arrangement.
During fiscal 2007, the Company entered into an interest rate swap on an aggregate of $50,000 of debt under its
term loan. Additionally, the Company has outstanding four interest rate swap agreements on an aggregate of
$225,000 of debt under its revolving credit facility. These four swaps were entered in October 2006 in connection
with the termination of its previous three interest rate swaps. Accordingly, the Company recognized income of
$2,873 in fiscal 2006 resulting from the reclassification of the previously unrealized gain from other comprehensive
income. The Company’s currently outstanding swaps have fixed the Company’s LIBOR rate on an aggregate of
$275,000 of hedged debt at rates ranging from 4.01% to 4.98%. All of the swaps expire in October 2011.
F-13