10-Q
Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 18, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

Commission file number 001-16797
________________________

ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________

 Delaware
(State or other jurisdiction of
incorporation or organization)
    54-2049910
(I.R.S. Employer
Identification No.)
 
5008 Airport Road, Roanoke, Virginia 24012
(Address of Principal Executive Offices)
(Zip Code)
 
(540) 362-4911
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x
Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 20, 2015, the registrant had outstanding 73,217,397 shares of Common Stock, par value $0.0001 per share (the only class of common stock of the registrant outstanding).
 


Table of Contents

 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i
Table of Contents

PART I.  FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES 

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
July 18, 2015 and January 3, 2015
(in thousands, except per share data)
(unaudited)

 
July 18,
2015
 
January 3,
2015
 
Assets
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
114,536

 
$
104,671

 
Receivables, net
653,309

 
579,825

 
Inventories, net
4,119,592

 
3,936,955

 
Other current assets
90,491

 
119,589

 
Total current assets
4,977,928

 
4,741,040

 
Property and equipment, net of accumulated depreciation of $1,435,577 and $1,372,359
1,400,342

 
1,432,030

 
Goodwill
991,742

 
995,426

 
Intangible assets, net
714,702

 
748,125

 
Other assets, net
83,161

 
45,737

 
 
$
8,167,875

 
$
7,962,358

 
Liabilities and Stockholders' Equity
 

 
 

 
Current liabilities:
 

 
 

 
Current portion of long-term debt
$
591

 
$
582

 
Accounts payable
3,174,411

 
3,095,365

 
Accrued expenses
547,848

 
520,673

 
Other current liabilities
156,908

 
126,446

 
Total current liabilities
3,879,758

 
3,743,066

 
Long-term debt
1,453,044

 
1,636,311

 
Other long-term liabilities
545,944

 
580,069

 
Commitments and contingencies


 


 
Stockholders' equity:
 

 
 

 
Preferred stock, nonvoting, $0.0001 par value
—

 
—

 
Common stock, voting, $0.0001 par value
7

 
7

 
Additional paid-in capital
582,022

 
562,945

 
Treasury stock, at cost
(114,778
)
 
(113,044
)
 
Accumulated other comprehensive loss
(32,730
)
 
(12,337
)
 
Retained earnings
1,854,608

 
1,565,341

 
Total stockholders' equity
2,289,129

 
2,002,912

 
 
$
8,167,875

 
$
7,962,358

 

The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.


1
Table of Contents

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Twelve and Twenty-Eight Week Periods Ended
July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)
 
Twelve Week Periods Ended
 
Twenty-Eight Week Periods Ended
 
July 18,
2015
 
July 12,
2014
 
July 18,
2015
 
July 12,
2014
Net sales
$
2,370,037

 
$
2,347,697

 
$
5,408,270

 
$
5,317,196

Cost of sales, including purchasing and warehousing costs
1,282,748

 
1,285,589

 
2,927,057

 
2,901,966

Gross profit
1,087,289

 
1,062,108

 
2,481,213

 
2,415,230

Selling, general and administrative expenses
830,240

 
821,435

 
1,961,636

 
1,918,755

Operating income
257,049

 
240,673

 
519,577

 
496,475

Other, net:
 

 
 

 
 
 
 
Interest expense
(15,438
)
 
(16,861
)
 
(37,215
)
 
(40,503
)
Other (expense) income, net
(3,808
)
 
208

 
(5,716
)
 
811

Total other, net
(19,246
)
 
(16,653
)
 
(42,931
)
 
(39,692
)
Income before provision for income taxes
237,803

 
224,020

 
476,646

 
456,783

Provision for income taxes
87,805

 
84,532

 
178,536

 
169,569

Net income
$
149,998

 
$
139,488

 
$
298,110

 
$
287,214

 
 
 
 
 
 
 
 
Basic earnings per common share
$
2.04

 
$
1.91

 
$
4.06

 
$
3.93

Diluted earnings per common share
$
2.03

 
$
1.89

 
$
4.03

 
$
3.90

Dividends declared per common share
$
0.06

 
$
0.06

 
$
0.12

 
$
0.12

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
73,183

 
72,930

 
73,148

 
72,895

Weighted average common shares outstanding - assuming dilution
73,682

 
73,399

 
73,665

 
73,374


Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
For the Twelve and Twenty-Eight Week Periods Ended
July 18, 2015 and July 12, 2014
(in thousands)
(unaudited)
 
Twelve Week Periods Ended
 
Twenty-Eight Week Periods Ended
 
July 18,
2015
 
July 12,
2014
 
July 18,
2015
 
July 12,
2014
Net income
$
149,998

 
$
139,488

 
$
298,110

 
$
287,214

Other comprehensive loss:
 
 
 
 
 
 
 
Changes in net unrecognized other postretirement benefit costs, net of $86, $89, $202 and $207 tax
(134
)
 
(139
)
 
(312
)
 
(323
)
Currency translation adjustments
(12,618
)
 
6,654

 
(20,081
)
 
3,414

Total other comprehensive (loss) income
(12,752
)
 
6,515

 
(20,393
)
 
3,091

Comprehensive income
$
137,246

 
$
146,003

 
$
277,717

 
$
290,305


The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.


2
Table of Contents


Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Twenty-Eight Week Period Ended
July 18, 2015
(in thousands, except per share data)
(unaudited)
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock,
at cost
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
Balance, January 3, 2015
—

 
$
—

 
74,493

 
$
7

 
$
562,945

 
1,419

 
$
(113,044
)
 
$
(12,337
)
 
$
1,565,341

 
$
2,002,912

Net income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
298,110

 
298,110

Total other comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(20,393
)
 
 

 
(20,393
)
Issuance of shares upon the exercise of stock appreciation rights
 

 
 

 
97

 
 

 


 
 

 
 

 
 

 
 

 
—

Tax withholdings related to the exercise of stock appreciation rights
 
 
 
 
 
 
 
 
(9,589
)
 
 
 
 
 
 
 
 
 
(9,589
)
Tax benefit from share-based compensation, net
 

 
 

 
 

 
 

 
8,428

 
 

 
 

 
 

 
 

 
8,428

Restricted stock and restricted stock units vested
 

 
 

 
26

 
 

 
 

 
 

 
 

 
 

 
 

 
—

Share-based compensation
 

 
 

 
 

 
 

 
17,726

 
 

 
 

 
 

 
 

 
17,726

Stock issued under employee stock purchase plan
 

 
 

 
18

 
 

 
2,491

 
 

 
 

 
 

 
 

 
2,491

Repurchase of common stock
 

 
 

 
 

 
 

 
 

 
11

 
(1,734
)
 
 

 
 

 
(1,734
)
Cash dividends ($0.12 per common share)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(8,843
)
 
(8,843
)
Other
 

 
 

 
 

 
 

 
21

 
 

 
 

 
 

 
 

 
21

Balance, July 18, 2015
—

 
$
—

 
74,634

 
$
7

 
$
582,022

 
1,430

 
$
(114,778
)
 
$
(32,730
)
 
$
1,854,608

 
$
2,289,129


The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.


3
Table of Contents

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Twenty-Eight Week Periods Ended
July 18, 2015 and July 12, 2014
(in thousands)
(unaudited)
 
Twenty-Eight Week Periods Ended
 
July 18,
2015
 
July 12,
2014
Cash flows from operating activities:
 
 
 
Net income
$
298,110

 
$
287,214

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
145,860

 
152,703

Share-based compensation
17,726

 
12,363

Loss on property and equipment, net
7,027

 
989

Other
1,432

 
1,402

(Benefit) provision for deferred income taxes
(8,481
)
 
12,201

Excess tax benefit from share-based compensation
(8,435
)
 
(5,138
)
Net increase in, net of effect from acquisition of businesses:
 
 
 
Receivables, net
(76,124
)
 
(87,365
)
Inventories, net
(182,504
)
 
(217,372
)
Other assets
(10,498
)
 
(39,048
)
Net increase in, net of effect from acquisition of businesses:
 
 
 
Accounts payable
85,907

 
169,352

Accrued expenses
55,741

 
32,181

Other liabilities
5,055

 
1,079

Net cash provided by operating activities
330,816

 
320,561

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(114,535
)
 
(106,270
)
Business acquisitions, net of cash acquired
(16,431
)
 
(2,059,184
)
Proceeds from sales of property and equipment
477

 
130

Net cash used in investing activities
(130,489
)
 
(2,165,324
)
Cash flows from financing activities:
 

 
 

Increase in bank overdrafts
9,880

 
6,221

Borrowings under credit facilities
460,700

 
1,677,600

Payments on credit facilities
(644,100
)
 
(862,600
)
Dividends paid
(13,227
)
 
(13,178
)
Proceeds from the issuance of common stock, primarily for employee stock purchase plan
2,512

 
4,208

Tax withholdings related to the exercise of stock appreciation rights
(9,589
)
 
(4,120
)
Excess tax benefit from share-based compensation
8,435

 
5,138

Repurchase of common stock
(1,734
)
 
(757
)
Contingent consideration related to previous business acquisition
—

 
(10,047
)
Other
(207
)
 
(406
)
Net cash (used in) provided by financing activities
(187,330
)
 
802,059

 
 
 
 
Effect of exchange rate changes on cash
(3,132
)
 
(2,321
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
9,865

 
(1,045,025
)
Cash and cash equivalents, beginning of period
104,671

 
1,112,471

Cash and cash equivalents, end of period
$
114,536

 
$
67,446

 
 
 
 


4
Table of Contents

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Twenty-Eight Week Periods Ended
July 18, 2015 and July 12, 2014
(in thousands)
(unaudited)
 
Twenty-Eight Week Periods Ended
 
July 18,
2015
 
July 12,
2014
Supplemental cash flow information:
 
 
 
Interest paid
$
40,439

 
$
28,745

Income tax payments
108,786

 
136,964

Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
13,083

 
16,375

Changes in other comprehensive income from post retirement benefits
(312
)
 
(323
)
 
 
 
 

The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.


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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)



1.
Basis of Presentation:

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company and include the accounts of Advance Auto Parts, Inc. ("Advance"), its wholly owned subsidiary, Advance Stores Company, Incorporated ("Advance Stores"), and its subsidiaries (collectively, the "Company"). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted based upon the Securities and Exchange Commission ("SEC") interim reporting guidance. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for Fiscal 2014 (filed with the SEC on March 3, 2015).

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. These policies are presented in Note 2 to the consolidated financial statements included in the Company’s Annual Report.

The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full fiscal year. The first quarter of each of the Company's fiscal years contains 16 weeks. The Company's remaining three quarters consist of 12 weeks, with the exception of the fourth quarter of fiscal 2014 which contained 13 weeks due to the 53-week fiscal year in 2014. The Company's next 53-week fiscal year is 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Acquisitions

During the twenty-eight weeks ended July 18, 2015, the Company acquired 20 stores through multiple cash transactions. The aggregate cost of the store acquisitions was $16,431, the value of which was primarily attributed to inventory, accounts receivable and goodwill. Preliminary estimates of the fair value of assets and liabilities assumed are included in the balance sheet as of July 18, 2015. Proforma financial information is not provided based on materiality.

On January 2, 2014, the Company acquired General Parts International, Inc. ("GPI") in an all cash transaction. GPI, formerly a privately-held company, is a leading distributor and supplier of original equipment and aftermarket replacement products for Commercial markets operating under the Carquest and Worldpac trade names. As of the acquisition date, GPI operated 1,223 Carquest stores and 103 Worldpac branches located in 45 states and Canada and serviced approximately 1,400 independently-owned Carquest stores.

The Company acquired all of GPI's assets and liabilities as a result of the transaction. Under the terms of the agreement, the Company acquired all of the outstanding stock of GPI for a purchase price of $2,080,804 (subject to adjustment for certain closing items) consisting of $1,307,991 in cash to GPI's shareholders, the repayment of $694,301 of GPI debt and $78,512 in make-whole fees and transaction related expenses paid by the Company on GPI's behalf. The Company included the financial results of GPI in its consolidated financial statements commencing January 2, 2014.



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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Segment and Related Information

As of July 18, 2015, the Company's operations are comprised of 5,252 stores and 117 distribution branches, which operate in the United States, Canada, Puerto Rico and the U.S. Virgin Islands primarily under the trade names “Advance Auto Parts,” "Carquest," "Autopart International" and "Worldpac." These locations offer a broad selection of brand name, original equipment manufacturer ("OEM") and proprietary automotive replacement parts, accessories, and maintenance items primarily for domestic and imported cars and light trucks. While the mix of do-it-yourself ("DIY") and do-it-for-me ("Commercial") customers varies among the four store brands, all of the locations serve customers through similar distribution channels. The Company has begun implementation of its plan to fully integrate the Carquest company-operated stores and overall operations into Advance Auto Parts by the end of fiscal 2017 and to eventually integrate the availability of all of the Company's product offerings throughout the entire chain.

The Company's Advance Auto Parts operations are comprised of five geographic areas which include the operations of the stores operating under the Advance Auto Parts, Carquest and Autopart International trade names. Each of the Advance Auto Parts geographic areas, in addition to Worldpac, are individually considered operating segments which are aggregated into one reportable segment. Effective in the first quarter of 2015, the Company expanded from three geographic areas, which previously comprised the Advance Auto Parts and Autopart International operations, to five geographic areas inclusive of the Carquest operations, such that Carquest is no longer a separate operating segment. Included in the Company's overall store operations are sales generated from its e-commerce platforms. The Company's e-commerce platforms, primarily consisting of its online websites and Commercial ordering platforms, are part of its integrated operating approach of serving its DIY and Commercial customers. The Company's online websites allow its DIY customers to pick up merchandise at a conveniently located store location or have their purchases shipped directly to them. The majority of the Company's online DIY sales are picked up at store locations. Through the Company's online ordering platforms, Commercial customers can conveniently place orders with a designated store location for delivery to their places of business or pick-up.

New Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2015-11 "Inventory (Topic 330): Simplifying the Measurement of Inventory." ASU 2015-11 requires entities to measure most inventory at the lower of cost or net recognizable value, simplifying the current requirement that inventories be measured at the lower of cost or market. The ASU will not apply to inventories that are measured using the last-in, first-out method or retail inventory method. The guidance will be effective prospectively for annual periods, and interim periods within those annual periods, that begin after December 15, 2016; earlier adoption is permitted. As the majority of the Company's inventory is accounted for under the last-in, first-out method, the adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.

In April 2015, the FASB issued ASU 2015-3 "Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs." ASU 2015-3 simplifies the presentation of debt issuance costs by requiring such costs be presented as a deduction from the corresponding debt liability. The guidance is effective for financial statements issued for reporting periods beginning after December 15, 2015 and interim periods within the reporting periods and requires retrospective presentation; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.

In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." This new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. This ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.



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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


In June 2014, the FASB issued ASU 2014-12 “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; earlier adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers." This ASU is a comprehensive new revenue recognition model that expands disclosure requirements and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which defers of the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 will become effective during annual reporting periods beginning after December 15, 2017 and interim reporting periods during the year of adoption with public entities permitted to early adopt for reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance on the Company's consolidated financial condition, results of operations and cash flows.

In April 2014, the FASB issued ASU No. 2014-08 "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of Equity", which amends the definition of a discontinued operation in Accounting Standards Codification, or ASC, 205-20 and requires entities to provide additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The new guidance changes the definition of a discontinued operation and requires discontinued operations treatment for disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an entity’s operations or financial results. The Company adopted this guidance effective January 4, 2015. The adoption of this guidance affects prospective presentation of disposals and did not have an impact on the Company's consolidated financial condition, results of operations or cash flows.

2.
Inventories, net:

Inventories are stated at the lower of cost or market. The Company used the LIFO method of accounting for approximately 89% of inventories at July 18, 2015 and 88% of inventories at January 3, 2015. Under LIFO, the Company’s cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in Fiscal 2015 and prior years. As a result of utilizing LIFO, the Company recorded a decrease to cost of sales of $34,622 and $9,332 for the twenty-eight weeks ended July 18, 2015 and July 12, 2014, respectively. The Company's overall costs to acquire inventory for the same or similar products have generally decreased historically as the Company has been able to leverage its continued growth, execution of merchandising strategies and realization of supply chain efficiencies.

An actual valuation of inventory under the LIFO method is performed by the Company at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected fiscal year-end inventory levels and costs.

Inventory balances at July 18, 2015 and January 3, 2015 were as follows:

 
July 18,
2015
 
January 3,
2015
Inventories at FIFO, net
$
3,962,138

 
$
3,814,123

Adjustments to state inventories at LIFO
157,454

 
122,832

Inventories at LIFO, net
$
4,119,592

 
$
3,936,955




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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


3. Exit Activities and Impairment:

Office Consolidations

In June 2014, the Company approved plans to relocate operations from its Minneapolis, Minnesota and Campbell, California offices to other existing offices of the Company, including its offices in Newark, California, Roanoke, Virginia and Raleigh, North Carolina, and to close its Minneapolis and Campbell offices. The Company is also relocating various functions between its existing offices in Roanoke and Raleigh. The relocations and office closings are substantially complete as of July 18, 2015.

In connection with these relocations and office closings, the Company plans to relocate some employees and terminate the employment of others. The Board of Directors of the Company approved this action in order to take advantage of synergies following the acquisition of GPI and to capitalize on the strength of existing locations and organizational experience. The Company estimates that it will incur restructuring costs of approximately $25,700 under these plans through the end of 2015. Substantially all of these costs are expected to be cash expenditures. This estimate includes approximately $11,200 of employee severance costs and $14,500 of relocation costs.

Employees receiving severance/outplacement benefits will be required to render service until they are terminated in order to receive the benefits. Therefore, the severance/outplacement benefits will be recognized over the related service periods. During the twelve and twenty-eight weeks ended July 18, 2015 the Company recognized $1,021 and $3,027, respectively, of severance/outplacement benefits under these restructuring plans and other severance related to the acquisition of GPI. Other restructuring costs, including costs to relocate employees, will be recognized in the period in which the liability is incurred. During the twelve and twenty-eight weeks ended July 18, 2015 the Company recognized $915 and $2,770, respectively, of relocation costs.

Integration of Carquest stores

The Company also approved plans in June 2014 to begin consolidating its Carquest stores acquired on January 2, 2014. As of July 18, 2015, 128 Carquest stores had been consolidated into existing Advance Auto Parts stores and 62 Carquest stores had been converted to the Advance Auto Parts format. This includes the consolidation of 30 Carquest stores and conversion of 52 Carquest stores during the twenty-eight weeks ended July 18, 2015. Plans are in place to consolidate or convert the remaining Carquest stores by the middle of 2017. In addition, the Company will continue to consolidate or convert the remaining stores that were acquired with B.W.P. Distributors, Inc. ("BWP") on December 31, 2012 (which also operate under the Carquest trade name), 36 of which had been consolidated and 33 had been converted as of July 18, 2015. Two of these stores were consolidated and one store was converted during the twenty-eight weeks ended July 18, 2015. The Company estimates that the total exit costs to be incurred as a result of consolidations and conversions during Fiscal 2015 will be approximately $8,500, consisting primarily of closed store lease obligations. The Company incurred $1,188 and $3,921 of exit costs related to the consolidation of Carquest stores during the twelve and twenty-eight weeks ended July 18, 2015, respectively.

Contract termination costs, such as those associated with leases on closed stores, will be recognized at the cease-use date. Closed lease liabilities include the present value of the remaining lease obligations and management’s estimate of future costs of insurance, property tax and common area maintenance (reduced by the present value of estimated revenues from subleases and lease buyouts).

Other Exit Activities

In August 2014, the Company approved plans to consolidate and convert its 40 Autoparts International ("AI") stores located in Florida into Advance Auto Parts stores. As of July 18, 2015, all of the AI consolidations and conversions were completed. During the twenty-eight weeks ended July 18, 2015, the Company incurred $2,700 of exit costs associated with these plans.



9
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Total Restructuring Liabilities

A summary of the Company’s restructuring liabilities, which are recorded in accrued expenses (current portion) and other long-term liabilities (long-term portion) in the accompanying condensed consolidated balance sheet, are presented in the following table:
 
 
Closed Store Lease Obligations
 
Severance
 
Relocation and Other Exit Costs
 
Total
 
For the twelve weeks ended July 18, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, April 25, 2015
 
$
23,611

 
$
3,897

 
$
1,857

 
$
29,365

 
Reserves established
 
1,564

 
1,137

 
915

 
3,616

 
Change in estimates
 
(402
)
 
(116
)
 
—

 
(518
)
 
Cash payments
 
(2,537
)
 
(2,284
)
 
(1,968
)
 
(6,789
)
 
Balance, July 18, 2015
 
$
22,236

 
$
2,634

 
$
804

 
$
25,674

 
 
 
 
 
 
 
 
 
 
 
For the twenty-eight weeks ended July 18, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 3, 2015
 
$
19,270

 
$
5,804

 
$
1,816

 
$
26,890

 
Reserves established
 
7,837

 
4,009

 
2,770

 
14,616

 
Change in estimates
 
1,404

 
(982
)
 
—

 
422

 
Cash payments
 
(6,275
)
 
(6,197
)
 
(3,782
)
 
(16,254
)
 
Balance, July, 18, 2015
 
$
22,236

 
$
2,634

 
$
804

 
$
25,674

 

Subsequent Event

Subsequent to July 18, 2015, the Company approved a plan to close 50 underperforming stores during the remainder of 2015 and to eliminate certain positions at its corporate offices. The majority of the eliminations will be effective during the Company's third quarter. The Company estimates that it will incur restructuring costs of $16,000 to $20,000 related to the store closures and approximately $6,000 related to the corporate position eliminations. Substantially all of these costs are expected to be cash expenditures.

4. Goodwill and Intangible Assets:

Goodwill

The following table reflects the carrying amount of goodwill and the changes in goodwill carrying amounts.
 
July 18,
2015
 
January 3,
2015
 
 
(28 weeks ended)
 
(53 weeks ended)
 
Goodwill, beginning of period
$
995,426

 
$
199,835

 
Acquisitions
1,798

 
798,043

 
Changes in foreign currency exchange rates
(5,482
)
 
(2,452
)
 
 
 
 
 
 
Goodwill, end of period
$
991,742

 
$
995,426

 

During the twenty-eight weeks ended July 18, 2015, the Company added $1,798 of goodwill associated with the acquisition of 20 stores. During 2014, the Company acquired GPI which resulted in the addition of $797,391 of goodwill and also added $652 of goodwill associated with the acquisition of nine stores.



10
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Intangible Assets Other Than Goodwill

In 2014, the Company recorded an increase to intangible assets of $757,453 related to the acquisition of GPI and nine stores. The increase included customer relationships of $330,293 which will be amortized over 12 years, non-competes totaling $50,695 which will be amortized over 5 years and favorable leases of $56,465 which will be amortized over the life of the respective leases at a weighted average of 4.5 years. The increase also includes indefinite-life intangibles of $320,000 from acquired brands.

Amortization expense was $12,062 and $13,331 for the twelve weeks ended July 18, 2015 and July 12, 2014, respectively. Amortization expense was $28,212 and $30,921 for the twenty-eight weeks ended July 18, 2015 and July 12, 2014, respectively. The gross carrying amounts and accumulated amortization of acquired intangible assets as of July 18, 2015 and January 3, 2015 are comprised of the following:
 
 
July 18, 2015
 
January 3, 2015
 
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
360,139

 
$
(56,827
)
 
$
303,312

 
$
362,483

 
$
(40,609
)
 
$
321,874

Acquired technology
 
8,850

 
(8,766
)
 
84

 
8,850

 
(8,569
)
 
281

Favorable leases
 
56,110

 
(17,958
)
 
38,152

 
56,342

 
(11,939
)
 
44,403

Non-compete and other
 
57,142

 
(20,374
)
 
36,768

 
56,780

 
(14,596
)
 
42,184

 
 
482,241

 
(103,925
)
 
378,316

 
484,455

 
(75,713
)
 
408,742

 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Brands, trademark and tradenames
 
336,386

 
—

 
336,386

 
339,383

 
—

 
339,383

 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
 
$
818,627

 
$
(103,925
)
 
$
714,702

 
$
823,838

 
$
(75,713
)
 
$
748,125

 
Future Amortization Expense

The table below shows expected amortization expense for the next five years for acquired intangible assets recorded as of July 18, 2015:

Fiscal Year
 
Amount
Remainder of 2015
 
$
23,719

2016
 
48,134

2017
 
45,782

2018
 
42,770

2019
 
32,010

Thereafter
 
185,901




11
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


5. Receivables, net:

Receivables consist of the following:
 
 
July 18,
2015
 
January 3,
2015
Trade
 
$
417,282

 
$
360,922

Vendor
 
239,951

 
222,476

Other
 
18,065

 
12,579

Total receivables
 
675,298

 
595,977

Less: Allowance for doubtful accounts
 
(21,989
)
 
(16,152
)
Receivables, net
 
$
653,309

 
$
579,825


6. Long-term Debt:

Long-term debt consists of the following:
 
July 18,
2015
 
January 3,
2015
 
Revolving facility at variable interest rates (1.90% and 2.45% at July 18, 2015 and January 3, 2015, respectively, due December 5, 2018)
$
60,000

 
$
93,400

 
Term loan at variable interest rates (1.69% and 1.72% at July 18, 2015 and January 3, 2015, respectively) due January 2, 2019
340,000

 
490,000

 
5.75% Senior Unsecured Notes (net of unamortized discount of $681 and $746 at July 18, 2015 and January 3, 2015, respectively) due May 1, 2020
299,319

 
299,254

 
4.50% Senior Unsecured Notes (net of unamortized discount of $67 and $72 at July 18, 2015 and January 3, 2015, respectively) due January 15, 2022
299,933

 
299,928

 
4.50% Senior Unsecured Notes (net of unamortized discount of $1,208 and $1,271 at July 18, 2015 and January 3, 2015, respectively) due December 1, 2023
448,792

 
448,729

 
Other
5,591

 
5,582

 
 
1,453,635

 
1,636,893

 
Less: Current portion of long-term debt
(591
)
 
(582
)
 
Long-term debt, excluding current portion
$
1,453,044

 
$
1,636,311

 
 
Bank Debt

The Company has a credit agreement (the “2013 Credit Agreement”) which provides a $700,000 unsecured term loan and a $1,000,000 unsecured revolving credit facility with Advance Stores, as Borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. The revolving credit facility also provides for the issuance of letters of credit with a sub-limit of $300,000 and swingline loans in an amount not to exceed $50,000. The Company may request, subject to agreement by one or more lenders, that the total revolving commitment be increased by an amount not to exceed $250,000 by those respective lenders (up to a total commitment of $1,250,000) during the term of the 2013 Credit Agreement. Voluntary prepayments and voluntary reductions of the revolving balance are permitted in whole or in part, at the Company’s option, in minimum principal amounts as specified in the 2013 Credit Agreement. Under the terms of the 2013 Credit Agreement the revolving credit facility terminates in December 2018 and the term loan matures in January 2019.

As of July 18, 2015, under the 2013 Credit Agreement, the Company had outstanding borrowings of $60,000 under the revolver and $340,000 under the term loan. As of July 18, 2015, the Company also had letters of credit outstanding of


12
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


$120,737, which reduced the availability under the revolver to $819,263. The letters of credit generally have a term of one year or less and primarily serve as collateral for the Company’s self-insurance policies.

The interest rate on borrowings under the revolving credit facility is based, at the Company’s option, on adjusted LIBOR, plus a margin, or an alternate base rate, plus a margin. The current margin is 1.30% and 0.30% per annum for the adjusted LIBOR and alternate base rate borrowings, respectively. A facility fee is charged on the total amount of the revolving credit facility, payable in arrears. The current facility fee rate is 0.20% per annum. Under the terms of the 2013 Credit Agreement, the interest rate and facility fee are subject to change based on the Company’s credit rating.

The interest rate on the term loan is based, at the Company’s option, on adjusted LIBOR, plus a margin, or an alternate base rate, plus a margin. The current margin is 1.50% and 0.50% per annum for the adjusted LIBOR and alternate base rate borrowings, respectively. Under the terms of the term loan, the interest rate is subject to change based on the Company’s credit rating.

The 2013 Credit Agreement contains customary covenants restricting the ability of: (a) subsidiaries of Advance Stores to, among other things, create, incur or assume additional debt; (b) Advance Stores and its subsidiaries to, among other things, (i) incur liens, (ii) make loans and investments, (iii) guarantee obligations, and (iv) change the nature of its business conducted by itself and its subsidiaries; (c) Advance, Advance Stores and their subsidiaries to, among other things (i) engage in certain mergers, acquisitions, asset sales and liquidations, (ii) enter into certain hedging arrangements, (iii) enter into restrictive agreements limiting its ability to incur liens on any of its property or assets, pay distributions, repay loans, or guarantee indebtedness of its subsidiaries, and (iv) engage in sale-leaseback transactions; and (d) Advance, among other things, to change its holding company status. Advance and Advance Stores are required to comply with financial covenants with respect to a maximum leverage ratio and a minimum consolidated coverage ratio. The 2013 Credit Agreement also provides for customary events of default, including non-payment defaults, covenant defaults and cross-defaults to Advance Stores’ other material indebtedness. The Company was in compliance with its covenants with respect to the 2013 Credit Agreement as of July 18, 2015 and January 3, 2015.

Senior Unsecured Notes

The Company's 4.50% senior unsecured notes were issued in December 2013 at 99.69% of the principal amount of $450,000 and are due December 1, 2023 (the “2023 Notes”). The 2023 Notes bear interest at a rate of 4.50% per year payable semi-annually in arrears on June 1 and December 1 of each year. The Company's 4.50% senior unsecured notes were issued in January 2012 at 99.968% of the principal amount of $300,000 and are due January 15, 2022 (the “2022 Notes”). The 2022 Notes bear interest at a rate of 4.50% per year payable semi-annually in arrears on January 15 and July 15 of each year. The Company’s 5.75% senior unsecured notes were issued in April 2010 at 99.587% of the principal amount of $300,000 and are due May 1, 2020 (the “2020 Notes” or collectively with the 2023 Notes and the 2022 Notes, “the Notes”). The 2020 Notes bear interest at a rate of 5.75% per year payable semi-annually in arrears on May 1 and November 1 of each year. Advance served as the issuer of the Notes with certain of Advance's domestic subsidiaries currently serving as subsidiary guarantors. The terms of the Notes are governed by an indenture (as amended, supplemented, waived or otherwise modified, the “Indenture”) among the Company, the subsidiary guarantors from time to time party thereto and Wells Fargo Bank, National Association, as Trustee.

The Company may redeem some or all of the Notes at any time or from time to time, at the redemption price described in the Indenture. In addition, in the event of a Change of Control Triggering Event (as defined in the Indenture for the Notes), the Company will be required to offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. The Notes are currently fully and unconditionally guaranteed, jointly and severally, on an unsubordinated and unsecured basis by each of the subsidiary guarantors. The Company will be permitted to release guarantees without the consent of holders of the Notes under the circumstances described in the Indenture: (i) upon the release of the guarantee of the Company’s other debt that resulted in the affected subsidiary becoming a guarantor of this debt; (ii) upon the sale or other disposition of all or substantially all of the stock or assets of the subsidiary guarantor; or (iii) upon the Company’s exercise of its legal or covenant defeasance option.

The Indenture contains customary provisions for events of default including for: (i) failure to pay principal or interest when due and payable; (ii) failure to comply with covenants or agreements in the Indenture or the Notes and failure to cure or obtain


13
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


a waiver of such default upon notice; (iii) a default under any debt for money borrowed by the Company or any of its subsidiaries that results in acceleration of the maturity of such debt, or failure to pay any such debt within any applicable grace period after final stated maturity, in an aggregate amount greater than $25,000 without such debt having been discharged or acceleration having been rescinded or annulled within 10 days after receipt by the Company of notice of the default by the Trustee or holders of not less than 25% in aggregate principal amount of the Notes then outstanding; and (iv) events of bankruptcy, insolvency or reorganization affecting the Company and certain of its subsidiaries. In the case of an event of default, the principal amount of the Notes plus accrued and unpaid interest may be accelerated. The Indenture also contains covenants limiting the ability of the Company and its subsidiaries to incur debt secured by liens and to enter into sale and lease-back transactions.

Debt Guarantees

The Company is a guarantor of loans made by banks to various independently-owned Carquest stores that are customers of the Company ("Independents") totaling $29,525 as of July 18, 2015. The Company has concluded that some of these guarantees meet the definition of a variable interest in a variable interest entity. However, the Company does not have the power to direct the activities that most significantly affect the economic performance of the Independents and therefore is not the primary beneficiary of these stores. Upon entering into a relationship with certain Independents, the Company guaranteed the debt of those stores to aid in the procurement of business loans. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized in these agreements is $69,102 as of July 18, 2015. The Company believes that the likelihood of performance under these guarantees is remote, and any fair value attributable to these guarantees would be very minimal.

7. Fair Value Measurements:
 
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, and 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.

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 categorized 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

During the twenty-eight weeks ended July 18, 2015, the Company had no significant assets or liabilities that were measured at fair value on a recurring basis.

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, bank overdrafts, accounts payable, accrued expenses and the current portion of long term debt approximate their fair values due to the relatively short term nature of these instruments. The fair value of the Company’s senior unsecured notes was determined using Level 2 inputs based on quoted market prices, and the Company believes that the carrying value of its other long-term debt and certain long-term


14
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


liabilities approximate fair value. The carrying value and fair value of the Company's long-term debt as of July 18, 2015 and January 3, 2015, respectively, are as follows:
 
July 18,
2015
 
January 3,
2015
 
Carrying Value
$
1,453,044

 
$
1,636,311

 
Fair Value
$
1,522,000

 
$
1,728,000

 

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). During the twenty-eight weeks ended July 18, 2015, the Company had no significant fair value measurements of non-financial assets or liabilities subsequent to initial recognition.
 
8. Stock Repurchases:

The Company’s stock repurchase program allows it to repurchase its common stock on the open market or in privately negotiated transactions from time to time in accordance with the requirements of the SEC. The Company's $500,000 stock repurchase program in place as of July 18, 2015 was authorized by its Board of Directors on May 14, 2012.

During the twelve and twenty-eight week periods ended July 18, 2015 the Company repurchased no shares of its common stock under its stock repurchase program. The Company had $415,092 remaining under its stock repurchase program as of July 18, 2015.

The Company repurchased 1 share of its common stock at an aggregate cost of $144, or an average price of $155.41 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock and restricted stock units during the twelve weeks ended July 18, 2015. The Company repurchased 11 shares of its common stock at an aggregate cost of $1,734, or an average price of $157.98 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock and restricted stock units during the twenty-eight weeks ended July 18, 2015.

9. Earnings per Share:

Certain of the Company’s shares granted to Team Members in the form of restricted stock and restricted stock units are considered participating securities which require the use of the two-class method for the computation of basic and diluted earnings per share. For the twelve week periods ended July 18, 2015 and July 12, 2014, earnings of $545 and $455, respectively, were allocated to the participating securities. For the twenty-eight week periods ended July 18, 2015 and July 12, 2014, earnings of $1,079 and $890, respectively, were allocated to the participating securities.

Diluted earnings per share are calculated by including the effect of dilutive securities. Share-based awards to purchase approximately 3 and 12 shares of common stock that had an exercise price in excess of the average market price of the common stock during the twelve week periods ended July 18, 2015 and July 12, 2014, respectively, were not included in the calculation of diluted earnings per share because they were anti-dilutive. Share-based awards to purchase approximately 11 and 25 shares of common stock that had an exercise price in excess of the average market price of the common stock during the twenty-eight week periods ended July 18, 2015 and July 12, 2014, respectively, were not included in the calculation of diluted earnings per share because they were anti-dilutive.



15
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


The following table illustrates the computation of basic and diluted earnings per share for the twelve and twenty-eight week periods ended July 18, 2015 and July 12, 2014, respectively: 
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
 
July 18,
2015
 
July 12,
2014
 
July 18,
2015
 
July 12,
2014
Numerator
 
 
 
 
 
 
 
Net income
$
149,998

 
$
139,488

 
$
298,110

 
$
287,214

Participating securities' share in earnings
(545
)
 
(455
)
 
(1,079
)
 
(890
)
Net income applicable to common shares
$
149,453

 
$
139,033

 
$
297,031

 
$
286,324

Denominator
 
 
 
 
 

 
 
Basic weighted average common shares
73,183

 
72,930

 
73,148

 
72,895

Dilutive impact of share-based awards
499

 
469

 
517

 
479

Diluted weighted average common shares
73,682

 
73,399

 
73,665

 
73,374

 
 
 
 
 
 
 
 
Basic earnings per common share
 

 
 

 
 
 
 
Net income applicable to common stockholders
$
2.04

 
$
1.91

 
$
4.06

 
$
3.93

 
 
 
 
 
 
 
 
Diluted earnings per common share
 

 
 

 
 
 
 
Net income applicable to common stockholders
$
2.03

 
$
1.89

 
$
4.03

 
$
3.90


10. Warranty Liabilities:

The following table presents changes in the Company’s warranty reserves:
 
July 18,
2015
 
January 3,
2015
 
(28 weeks ended)
 
(53 weeks ended)
Warranty reserve, beginning of period
$
47,972

 
$
39,512

Reserves acquired with GPI
—

 
4,490

Additions to warranty reserves
23,937

 
52,306

Reserves utilized
(25,322
)
 
(48,336
)
 
 
 
 
Warranty reserve, end of period
$
46,587

 
$
47,972

 
The Company’s warranty liabilities are included in Accrued expenses in its condensed consolidated balance sheets.
 


16
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


11. Condensed Consolidating Financial Statements:

Certain 100% wholly-owned domestic subsidiaries of Advance, including its Material Subsidiaries (as defined in the 2013 Credit Agreement) serve as guarantors of Advance's senior unsecured notes ("Guarantor Subsidiaries"). The subsidiary guarantees related to Advance's senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of Advance to obtain funds from its Guarantor Subsidiaries. Certain of Advance's wholly-owned subsidiaries, including all of its foreign subsidiaries, do not serve as guarantors of Advance's senior unsecured notes ("Non-Guarantor Subsidiaries"). The Non-Guarantor Subsidiaries do not qualify as minor as defined by SEC regulations. Accordingly, the Company presents below the condensed consolidating financial information for the Guarantor Subsidiaries and Non-Guarantor Subsidiaries. Investments in subsidiaries of the Company are required to be presented under the equity method, even though all such subsidiaries meet the requirements to be consolidated under GAAP.

Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, and cash flows of (i) Advance, (ii) the Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries, and (iv) the eliminations necessary to arrive at consolidated information for the Company. The statement of operations eliminations relate primarily to the sale of inventory from a Non-Guarantor Subsidiary to a Guarantor Subsidiary. The balance sheet eliminations relate primarily to the elimination of intercompany receivables and payables and subsidiary investment accounts.

The following tables present condensed consolidating balance sheets as of July 18, 2015 and January 3, 2015 and condensed consolidating statements of operations, comprehensive income and cash flows for the twelve and twenty-eight weeks ended July 18, 2015 and July 12, 2014, and should be read in conjunction with the condensed consolidated financial statements herein.




17
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Balance Sheets
As of July 18, 2015
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9

 
$
79,134

 
$
35,402

 
$
(9
)
 
$
114,536

Receivables, net
—

 
617,666

 
35,643

 
—

 
653,309

Inventories, net
—

 
3,958,082

 
161,510

 
—

 
4,119,592

Other current assets
3,089

 
87,908

 
1,917

 
(2,423
)
 
90,491

Total current assets
3,098

 
4,742,790

 
234,472

 
(2,432
)
 
4,977,928

Property and equipment, net of accumulated depreciation
166

 
1,390,361

 
9,815

 
—

 
1,400,342

Goodwill
—

 
942,616

 
49,126

 
—

 
991,742

Intangible assets, net
—

 
663,756

 
50,946

 
—

 
714,702

Other assets, net
13,129

 
75,200

 
876

 
(6,044
)
 
83,161

Investment in subsidiaries
2,347,662

 
289,980

 
—

 
(2,637,642
)
 
—

Intercompany note receivable
1,048,044

 
—

 
—

 
(1,048,044
)
 
—

Due from intercompany, net
—

 
—

 
279,084

 
(279,084
)
 
—

 
$
3,412,099

 
$
8,104,703

 
$
624,319

 
$
(3,973,246
)
 
$
8,167,875

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
591

 
$
—

 
$
—

 
$
591

Accounts payable
15

 
2,894,916

 
279,480

 
—

 
3,174,411

Accrued expenses
2,123

 
526,696

 
20,215

 
(1,186
)
 
547,848

Other current liabilities
—

 
136,841

 
21,313

 
(1,246
)
 
156,908

Total current liabilities
2,138

 
3,559,044

 
321,008

 
(2,432
)
 
3,879,758

Long-term debt
1,048,044

 
405,000

 
—

 
—

 
1,453,044

Other long-term liabilities
—

 
538,657

 
13,331

 
(6,044
)
 
545,944

Intercompany note payable
—

 
1,048,044

 
—

 
(1,048,044
)
 
—

Due to intercompany, net
72,788

 
206,296

 
—

 
(279,084
)
 
—

Commitments and contingencies

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Stockholders' equity
2,289,129

 
2,347,662

 
289,980

 
(2,637,642
)
 
2,289,129

 
$
3,412,099

 
$
8,104,703

 
$
624,319

 
$
(3,973,246
)
 
$
8,167,875




18
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Balance Sheets
As of January 3, 2015
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9

 
$
65,345

 
$
39,326

 
$
(9
)
 
$
104,671

Receivables, net
—

 
549,151

 
30,674

 
—

 
579,825

Inventories, net
—

 
3,771,816

 
165,139

 
—

 
3,936,955

Other current assets
4,102

 
113,003

 
3,383

 
(899
)
 
119,589

Total current assets
4,111

 
4,499,315

 
238,522

 
(908
)
 
4,741,040

Property and equipment, net of accumulated depreciation
2

 
1,421,325

 
10,703

 
—

 
1,432,030

Goodwill
—

 
940,817

 
54,609

 
—

 
995,426

Intangible assets, net
—

 
689,745

 
58,380

 
—

 
748,125

Other assets, net
12,963

 
37,377

 
683

 
(5,286
)
 
45,737

Investment in subsidiaries
2,057,761

 
280,014

 
—

 
(2,337,775
)
 
—

Intercompany note receivable
1,047,911

 
—

 
—

 
(1,047,911
)
 
—

Due from intercompany, net
—

 
—

 
211,908

 
(211,908
)
 
—

 
$
3,122,748

 
$
7,868,593

 
$
574,805

 
$
(3,603,788
)
 
$
7,962,358

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
—

 
$
582

 
$
—

 
$
—

 
$
582

Accounts payable
—

 
2,845,043

 
250,322

 
—

 
3,095,365

Accrued expenses
4,884

 
498,505

 
17,284

 
—

 
520,673

Other current liabilities
—

 
115,497

 
11,857

 
(908
)
 
126,446

Total current liabilities
4,884

 
3,459,627

 
279,463

 
(908
)
 
3,743,066

Long-term debt
1,047,911

 
588,400

 
—

 
—

 
1,636,311

Other long-term liabilities
—

 
570,027

 
15,328

 
(5,286
)
 
580,069

Intercompany note payable
—

 
1,047,911

 
—

 
(1,047,911
)
 
—

Due to intercompany, net
67,041

 
144,867

 
—

 
(211,908
)
 
—

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity
2,002,912

 
2,057,761

 
280,014

 
(2,337,775
)
 
2,002,912

 
$
3,122,748

 
$
7,868,593

 
$
574,805

 
$
(3,603,788
)
 
$
7,962,358







19
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Statements of Operations
For the Twelve weeks ended July 18, 2015
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,287,522

 
$
161,246

 
$
(78,731
)
 
$
2,370,037

Cost of sales, including purchasing and warehousing costs
—

 
1,244,236

 
117,243

 
(78,731
)
 
1,282,748

Gross profit
—

 
1,043,286

 
44,003

 
—

 
1,087,289

Selling, general and administrative expenses
6,380

 
814,250

 
22,842

 
(13,232
)
 
830,240

Operating (loss) income
(6,380
)
 
229,036

 
21,161

 
13,232

 
257,049

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(12,070
)
 
(3,421
)
 
53

 
—

 
(15,438
)
Other income (expense), net
18,632

 
(5,052
)
 
(4,156
)
 
(13,232
)
 
(3,808
)
Total other, net
6,562

 
(8,473
)
 
(4,103
)
 
(13,232
)
 
(19,246
)
Income before provision for income taxes
182

 
220,563

 
17,058

 
—

 
237,803

Provision for income taxes
444

 
85,731

 
1,630

 
—

 
87,805

(Loss) Income before equity in earnings of subsidiaries
(262
)
 
134,832

 
15,428

 
—

 
149,998

Equity in earnings of subsidiaries
150,260

 
15,428

 
—

 
(165,688
)
 
—

Net income
$
149,998

 
$
150,260

 
$
15,428

 
$
(165,688
)
 
$
149,998


Condensed Consolidating Statements of Operations
For the Twelve weeks ended July 12, 2014
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,259,672

 
$
129,071

 
$
(41,046
)
 
$
2,347,697

Cost of sales, including purchasing and warehousing costs
—

 
1,238,836

 
87,799

 
(41,046
)
 
1,285,589

Gross profit
—

 
1,020,836

 
41,272

 
—

 
1,062,108

Selling, general and administrative expenses
3,999

 
803,083

 
26,903

 
(12,550
)
 
821,435

Operating (loss) income
(3,999
)
 
217,753

 
14,369

 
12,550

 
240,673

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(12,067
)
 
(4,791
)
 
(3
)
 
—

 
(16,861
)
Other income (expense), net
16,100

 
(2,758
)
 
(584
)
 
(12,550
)
 
208

Total other, net
4,033

 
(7,549
)
 
(587
)
 
(12,550
)
 
(16,653
)
Income before provision for income taxes
34

 
210,204

 
13,782

 
—

 
224,020

Provision for income taxes
41

 
81,336

 
3,155

 
—

 
84,532

(Loss) Income before equity in earnings of subsidiaries
(7
)
 
128,868

 
10,627

 
—

 
139,488

Equity in earnings of subsidiaries
139,495

 
10,627

 
—

 
(150,122
)
 
—

Net income
$
139,488

 
$
139,495

 
$
10,627

 
$
(150,122
)
 
$
139,488




20
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended July 18, 2015 and July 12, 2014
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Statements of Operations
For the Twenty-Eight weeks ended July 18, 2015
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
5,243,113

 
$
332,631

 
$
(167,474
)
 
$
5,408,270

Cost of sales, including purchasing and warehousing costs
—

 
2,854,598

 
239,933

 
(167,474
)
 
2,927,057

Gross profit
—

 
2,388,515

 
92,698

 
—

 
2,481,213

Selling, general and administrative expenses
11,108

 
1,930,064

 
51,964

 
(31,500
)
 
1,961,636

Operating (loss) income
(11,108
)
 
458,451

 
40,734

 
31,500

 
519,577

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(28,351
)
 
(9,002
)
 
138

 
—

 
(37,215
)
Other income (expense), net
39,644

 
(7,234
)
 
(6,626
)
 
(31,500
)
 
(5,716
)
Total other, net
11,293

 
(16,236
)
 
(6,488
)
 
(31,500
)
 
(42,931
)
Income before provision for income taxes
185

 
442,215

 
34,246