Advance Auto Parts 2008 Annual Report Download - page 75

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
January 3, 2009, December 29, 2007 and December 30, 2006
(in thousands, except per share data)
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-21
The Company’s financial assets and liabilities measured at fair value are grouped in three levels. The levels
prioritize the inputs used to measure the fair value of these assets or liabilities. These levels are:
• Level 1 – Unadjusted quoted prices that are available in active markets for identical assets or
liabilities at the measurement date.
• Level 2 – Inputs other than quoted prices that are observable for assets and liabilities at the
measurement date, either directly or indirectly. These inputs include quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are less active, inputs other than quoted prices that are observable for the asset or liability or
corroborated by other observable market data.
• Level 3 – Unobservable inputs for assets or liabilities that are not able to be corroborated by
observable market data and reflect the use of a reporting entity’s own assumptions. These values are
generally determined using pricing models for which the assumptions utilize management’s estimates
of market participant assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances where inputs
used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been
determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our
assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment,
including the consideration of inputs specific to the asset or liability.
The following table sets forth our financial assets and liabilities that were measured at fair value on a recurring
basis during the 2008 fiscal year, including at January 3, 2009:
Level 1 Level 2 Level 3
Quoted Prices in Significant
Fair Value at Active Markets for Significant Other Unobservable
January 3, 2009 Identical Assets Observable Inputs Inputs
Interest rate swaps 21,979$ -$ 21,979$ -$
Fair Value Measurements at Reporting Date Using
The fair value of these interest rate swaps at January 3, 2009 and December 29, 2007, respectively, was an
unrecognized loss of $21,979 and $7,645. The fair value of the Company’s interest rate swaps is mainly based on
observable interest rate yield curves for similar instruments. As of January 3, 2009 and December 29, 2007, the
Company also reported additional financial assets and liabilities at their respective carrying amounts, which included
cash equivalents and bank overdrafts. The carrying amounts of these instruments approximate fair value because of
their short maturity.
The following financial liabilities were measured at fair value for the 2008 fiscal year pursuant to SFAS 107,
“Disclosures about Fair Value of Financial Instruments.” As of January 3, 2009 and December 29, 2007, the fair
value of the Company’s long-term debt with a carrying value of $455,161 and $505,062, respectively, was
approximately $374,000 and $502,000, respectively, and was based on similar long-term debt issues available to the
Company as of that date.