Document
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 April 23, 2016
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 May 26, 2016, the registrant had outstanding 73,556,053 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
April 23, 2016 and January 2, 2016
(in thousands, except per share data)
(unaudited)

 
April 23,
2016
 
January 2,
2016
 
Assets
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
103,708

 
$
90,782

 
Receivables, net
650,993

 
597,788

 
Inventories, net
4,432,968

 
4,174,768

 
Other current assets
78,558

 
77,408

 
Total current assets
5,266,227

 
4,940,746

 
Property and equipment, net of accumulated depreciation of $1,541,340 and $1,489,766
1,432,698

 
1,434,577

 
Goodwill
993,742

 
989,484

 
Intangible assets, net
676,427

 
687,125

 
Other assets, net
69,869

 
75,769

 
 
$
8,438,963

 
$
8,127,701

 
Liabilities and Stockholders' Equity
 

 
 

 
Current liabilities:
 

 
 

 
Current portion of long-term debt
$
598

 
$
598

 
Accounts payable
3,318,048

 
3,203,922

 
Accrued expenses
534,674

 
553,163

 
Other current liabilities
55,243

 
39,794

 
Total current liabilities
3,908,563

 
3,797,477

 
Long-term debt
1,229,888

 
1,206,297

 
Deferred income taxes
442,294

 
433,925

 
Other long-term liabilities
229,079

 
229,354

 
Commitments and contingencies


 


 
Stockholders' equity:
 

 
 

 
Preferred stock, nonvoting, $0.0001 par value
—

 
—

 
Common stock, voting, $0.0001 par value
8

 
7

 
Additional paid-in capital
613,032

 
603,332

 
Treasury stock, at cost
(131,522
)
 
(119,709
)
 
Accumulated other comprehensive loss
(27,816
)
 
(44,059
)
 
Retained earnings
2,175,437

 
2,021,077

 
Total stockholders' equity
2,629,139

 
2,460,648

 
 
$
8,438,963

 
$
8,127,701

 

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


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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Sixteen Week Periods Ended
April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)
 
Sixteen Week Periods Ended
 
April 23,
2016
 
April 25,
2015
Net sales
$
2,979,778

 
$
3,038,233

Cost of sales, including purchasing and warehousing costs
1,629,889

 
1,644,309

Gross profit
1,349,889

 
1,393,924

Selling, general and administrative expenses
1,078,890

 
1,131,396

Operating income
270,999

 
262,528

Other, net:
 
 
 
Interest expense
(18,943
)
 
(21,777
)
Other income (expense), net
3,123

 
(1,908
)
Total other, net
(15,820
)
 
(23,685
)
Income before provision for income taxes
255,179

 
238,843

Provision for income taxes
96,366

 
90,731

Net income
$
158,813

 
$
148,112

 
 
 
 
Basic earnings per common share
$
2.16

 
$
2.02

Diluted earnings per common share
$
2.14

 
$
2.00

Dividends declared per common share
$
0.06

 
$
0.06

 
 
 
 
Weighted average common shares outstanding
73,401

 
73,122

Weighted average common shares outstanding - assuming dilution
73,847

 
73,653


Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
For the Sixteen Week Periods Ended
April 23, 2016 and April 25, 2015
(in thousands)
(unaudited)
 
Sixteen Week Periods Ended
 
April 23,
2016
 
April 25,
2015
Net income
$
158,813

 
$
148,112

Other comprehensive income (loss):
 
 
 
Changes in net unrecognized other postretirement benefit costs, net of $118 and $115 tax
(182
)
 
(178
)
Currency translation adjustments
16,425

 
(7,463
)
Total other comprehensive income (loss)
16,243

 
(7,641
)
Comprehensive income
$
175,056

 
$
140,471


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
Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Sixteen Week Period Ended
April 23, 2016
(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 2, 2016
—

 
$
—

 
74,775

 
$
7

 
$
603,332

 
1,461

 
$
(119,709
)
 
$
(44,059
)
 
$
2,021,077

 
$
2,460,648

Net income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
158,813

 
158,813

Total other comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
16,243

 
 

 
16,243

Issuance of shares upon the exercise of stock appreciation rights
 

 
 

 
83

 
1

 
—

 
 

 
 

 
 

 
 

 
1

Tax withholdings related to the exercise of stock appreciation rights
 
 
 
 
 
 
 
 
(11,134
)
 
 
 
 
 
 
 
 
 
(11,134
)
Tax benefit from share-based compensation, net
 

 
 

 
 

 
 

 
13,124

 
 

 
 

 
 

 
 

 
13,124

Restricted stock and restricted stock units vested
 

 
 

 
218

 
 

 
 

 
 

 
 

 
 

 
 

 
—

Share-based compensation
 

 
 

 
 

 
 

 
6,626

 
 

 
 

 
 

 
 

 
6,626

Stock issued under employee stock purchase plan
 

 
 

 
7

 
 

 
1,011

 
 

 
 

 
 

 
 

 
1,011

Repurchase of common stock
 

 
 

 
 

 
 

 
 

 
78

 
(11,813
)
 
 

 
 

 
(11,813
)
Cash dividends declared ($0.06 per common share)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(4,453
)
 
(4,453
)
Other
 

 
 

 
 

 
 

 
73

 
 

 
 

 
 

 
 

 
73

Balance, April 23, 2016
—

 
$
—

 
75,083

 
$
8

 
$
613,032

 
1,539

 
$
(131,522
)
 
$
(27,816
)
 
$
2,175,437

 
$
2,629,139


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


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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands)
(unaudited)
 
Sixteen Week Periods Ended
 
April 23,
2016
 
April 25,
2015
Cash flows from operating activities:
 
 
 
Net income
$
158,813

 
$
148,112

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
79,320

 
83,247

Share-based compensation
6,654

 
8,945

Loss on property and equipment, net
1,484

 
5,371

Other
(2,006
)
 
818

Provision (benefit) for deferred income taxes
7,164

 
(5,206
)
Excess tax benefit from share-based compensation
(13,145
)
 
(6,498
)
Net (increase) decrease in:
 
 
 
Receivables, net
(50,224
)
 
(53,526
)
Inventories, net
(246,458
)
 
(171,865
)
Other assets
3,806

 
(845
)
Net increase in:
 
 
 
Accounts payable
108,500

 
45,678

Accrued expenses
20,025

 
39,494

Other liabilities
1,368

 
8,486

Net cash provided by operating activities
75,301

 
102,211

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(89,138
)
 
(57,038
)
Business acquisitions, net of cash acquired
—

 
(433
)
Proceeds from sales of property and equipment
1,227

 
295

Net cash used in investing activities
(87,911
)
 
(57,176
)
Cash flows from financing activities:
 

 
 

Increase in bank overdrafts
14,644

 
11,628

Borrowings under credit facilities
357,500

 
442,600

Payments on credit facilities
(331,500
)
 
(469,300
)
Dividends paid
(8,850
)
 
(8,813
)
Proceeds from the issuance of common stock, primarily for employee stock purchase plan
1,085

 
1,352

Tax withholdings related to the exercise of stock appreciation rights
(11,134
)
 
(7,572
)
Excess tax benefit from share-based compensation
13,145

 
6,498

Repurchase of common stock
(11,813
)
 
(1,590
)
Other
(125
)
 
(110
)
Net cash provided by (used in) financing activities
22,952

 
(25,307
)
 
 
 
 
Effect of exchange rate changes on cash
2,584

 
(578
)
 
 
 
 
Net increase in cash and cash equivalents
12,926

 
19,150

Cash and cash equivalents, beginning of period
90,782

 
104,671

Cash and cash equivalents, end of period
$
103,708

 
$
123,821

 
 
 
 


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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands)
(unaudited)
 
Sixteen Week Periods Ended
 
April 23,
2016
 
April 25,
2015
Supplemental cash flow information:
 
 
 
Interest paid
$
8,978

 
$
11,592

Income tax payments
56,111

 
48,930

Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
20,504

 
13,973

Changes in other comprehensive income from post retirement benefits
(182
)
 
(178
)
 
 
 
 

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 Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(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 2015 (filed with the SEC on March 1, 2016).

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 1 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.

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.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update ("ASU") 2015-3 "Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" effective January 3, 2016, or the beginning of fiscal 2016. ASU 2015-3 simplifies the presentation of debt issuance costs by requiring such costs be presented as a deduction from the corresponding debt liability. Concurrently, the Company also adopted ASU 2015-15 "Interest - Imputed Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" which clarifies that entities may continue to defer and present debt issuance costs associated with a line-of-credit as an asset and subsequently amortize the deferred costs ratably over the term of the arrangement. The adoption of these ASU's have been retrospectively applied and resulted in a reclassification of $6,864 of debt issuance costs from Other assets,net to Long-term debt in the accompanying consolidated balance sheets as of January 2, 2016.

The Company adopted 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" effective January 3, 2016, or the beginning of fiscal 2016. 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 adoption of this standard did not impact the Company's consolidated financial statements as the Company's policies were already consistent with the new guidance.



6
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Recently Issued Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" aimed at simplifying certain aspects of accounting for share-based payment transactions. The areas for simplification include the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The standard will be applied both prospectively and retrospectively depending on the provision. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This ASU is a comprehensive new lease standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets, and lease liabilities by lessees, for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." Although the ASU retains many of the current requirements for financial instruments, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; 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 July 2015, the FASB issued 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 realizable 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 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.

In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers." This ASU, along with subsequent ASU's issued to clarify certain provisions of ASU 2014-09, provides 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


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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


2015, the FASB issued ASU 2015-14 which defers 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. Entities may choose from two transition methods, with certain practical expedients, a full retrospective method or the modified retrospective method. The Company is in the process of evaluating the potential future impact, if any, of this standard on its consolidated financial position, results of operations and cash flows, and which method of adoption is most appropriate for the Company.

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 April 23, 2016 and January 2, 2016. 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 2016 and prior years. As a result of utilizing LIFO, the Company recorded a reduction to cost of sales of $31,489 and $16,531 for the sixteen weeks ended April 23, 2016 and April 25, 2015, 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 and execution of merchandising strategies.

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 April 23, 2016 and January 2, 2016 were as follows:

 
April 23,
2016
 
January 2,
2016
Inventories at FIFO, net
$
4,236,352

 
$
4,009,641

Adjustments to state inventories at LIFO
196,616

 
165,127

Inventories at LIFO, net
$
4,432,968

 
$
4,174,768


3. Exit Activities:

Integration of Carquest stores

The Company approved plans in June 2014 to begin consolidating its Carquest stores acquired with General Parts International, Inc. (“GPI”) on January 2, 2014 as part of a multi-year integration plan. As of April 23, 2016, 266 Carquest stores acquired with GPI had been consolidated into existing Advance Auto Parts stores and 186 stores had been converted to the Advance Auto Parts format. In addition, the Company continued to consolidate or convert the remaining stores that were acquired with B.W.P. Distributors, Inc. ("BWP") on December 31, 2012 (which also operated under the Carquest trade name), all of which had been consolidated or converted as of April 23, 2016. During the sixteen weeks ended April 23, 2016 a total of 89 Carquest stores were consolidated and 27 Carquest stores were converted. During the sixteen weeks ended April 25, 2015 a total of 14 Carquest stores were consolidated and three Carquest stores were converted. Plans are in place to consolidate or convert the remaining Carquest stores over the next few years. As of April 23, 2016, the Company had 768 stores still operating under the Carquest name. The Company incurred $12,185 and $2,733 of exit costs related to the consolidations and conversions during the sixteen weeks ended April 23, 2016 and April 25, 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).


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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)



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 also relocated various functions between its existing offices in Roanoke and Raleigh. The relocations and office closings were substantially complete by the end of 2015. The Company incurred restructuring costs of approximately $22,100 under these plans through the end of 2015. Substantially all of these costs were cash expenditures. During the sixteen weeks ended April 25, 2015, the Company recognized $2,007 of severance/outplacement benefits under these restructuring plans and other severance related to the acquisition of GPI. During the sixteen weeks ended April 25, 2015, the Company recognized $1,854 of relocation costs.

Other Exit Activities

During the sixteen weeks ended April 25, 2015 the Company completed its plans approved in August 2014 to consolidate and covert its 40 Autopart International ("AI") stores located in Florida into Advance Auto Parts stores. The Company incurred $2,700 of exit costs associated with this plan during the sixteen weeks ended April 25, 2015, consisting primarily of closed facility lease obligations.

Total Restructuring Liabilities

A summary of the Company’s restructuring liabilities, which are recorded in accrued expenses (current portion) and long-term liabilities (long-term portion) in the accompanying condensed consolidated balance sheet, are presented in the following table:
 
 
Closed Facility Lease Obligations
 
Severance
 
Relocation and Other Exit Costs
 
Total
 
 
 
 
 
 
 
 
 
 
 
Balance, January 2, 2016
 
$
42,490

 
$
6,255

 
$
351

 
$
49,096

 
Reserves established
 
14,088

 
420

 
133

 
14,641

 
Change in estimates
 
(1,198
)
 
(255
)
 
—

 
(1,453
)
 
Cash payments
 
(6,162
)
 
(4,465
)
 
(189
)
 
(10,816
)
 
Balance, April 23, 2016
 
$
49,218

 
$
1,955

 
$
295

 
$
51,468

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 3, 2015
 
$
19,270

 
$
5,804

 
$
1,816

 
$
26,890

 
Reserves established
 
34,699

 
13,351

 
4,419

 
52,469

 
Change in estimates
 
(205
)
 
(2,009
)
 
—

 
(2,214
)
 
Cash payments
 
(11,274
)
 
(10,891
)
 
(5,884
)
 
(28,049
)
 
Balance, January 2, 2016
 
$
42,490

 
$
6,255

 
$
351

 
$
49,096

 





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Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


4. Goodwill and Intangible Assets:

Goodwill

The following table reflects the carrying amount of goodwill and the changes in goodwill carrying amounts.
 
April 23,
2016
 
January 2,
2016
 
 
(16 weeks ended)
 
(52 weeks ended)
 
Goodwill, beginning of period
$
989,484

 
$
995,426

 
Acquisitions
—

 
1,995

 
Changes in foreign currency exchange rates
4,258

 
(7,937
)
 
 
 
 
 
 
Goodwill, end of period
$
993,742

 
$
989,484

 

During 2015, the Company added $1,995 of goodwill associated with the acquisition of 23 stores.

Intangible Assets Other Than Goodwill

Amortization expense was $14,942 and $16,150 for the sixteen weeks ended April 23, 2016 and April 25, 2015, respectively. The gross carrying amounts and accumulated amortization of acquired intangible assets as of April 23, 2016 and January 2, 2016 are comprised of the following:
 
 
April 23, 2016
 
January 2, 2016
 
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
350,871

 
$
(69,719
)
 
$
281,152

 
$
358,655

 
$
(70,367
)
 
$
288,288

Acquired technology
 
—

 
—

 
—

 
8,850

 
(8,850
)
 
—

Favorable leases
 
56,147

 
(26,652
)
 
29,495

 
56,040

 
(23,984
)
 
32,056

Non-compete and other
 
54,129

 
(25,389
)
 
28,740

 
57,430

 
(25,368
)
 
32,062

 
 
461,147

 
(121,760
)
 
339,387

 
480,975

 
(128,569
)
 
352,406

 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Brands, trademark and tradenames
 
337,040

 
—

 
337,040

 
334,719

 
—

 
334,719

 
 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets
 
$
798,187

 
$
(121,760
)
 
$
676,427

 
$
815,694

 
$
(128,569
)
 
$
687,125


During the sixteen weeks ended April 23, 2016, the Company retired $21,950 of fully amortized intangible assets, impacting both the gross carrying amount and accumulated amortization by this amount.
 


10
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Future Amortization Expense

The table below shows expected amortization expense for the next five years for acquired intangible assets recorded as of April 23, 2016:

Fiscal Year
 
Amount
Remainder of 2016
 
$
33,280

2017
 
45,869

2018
 
42,986

2019
 
31,895

2020
 
31,751

Thereafter
 
153,606


5. Receivables, net:

Receivables consist of the following:
 
 
April 23,
2016
 
January 2,
2016
Trade
 
$
427,002

 
$
379,832

Vendor
 
243,622

 
229,496

Other
 
12,585

 
14,218

Total receivables
 
683,209

 
623,546

Less: Allowance for doubtful accounts
 
(32,216
)
 
(25,758
)
Receivables, net
 
$
650,993

 
$
597,788




11
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


6. Long-term Debt:

Long-term debt consists of the following:
 
April 23,
2016
 
January 2,
2016
 
Revolving facility at variable interest rates (1.70% and 2.05% at April 23, 2016 and January 2, 2016, respectively) due December 5, 2018
$
106,000

 
$
80,000

 
Term loan at variable interest rates (1.69% at April 23, 2016 and January 2, 2016) due January 2, 2019
80,000

 
80,000

 
5.75% Senior Unsecured Notes (net of unamortized discount and debt issuance costs of $2,399 and $2,577 at April 23, 2016 and January 2, 2016, respectively) due May 1, 2020
297,601

 
297,423

 
4.50% Senior Unsecured Notes (net of unamortized discount and debt issuance costs of $1,575 and $1,660 at April 23, 2016 and January 2, 2016, respectively) due January 15, 2022
298,425

 
298,340

 
4.50% Senior Unsecured Notes (net of unamortized discount and debt issuance costs of $4,023 and $4,179 at April 23, 2016 and January 2, 2016) due December 1, 2023
445,977

 
445,821

 
Other
2,483

 
5,311

 
 
1,230,486

 
1,206,895

 
Less: Current portion of long-term debt
(598
)
 
(598
)
 
Long-term debt, excluding current portion
$
1,229,888

 
$
1,206,297

 

Adoption of new accounting pronouncement

The Company adopted ASU 2015-3 and ASU 2015-15 effective January 3, 2016, or the beginning of fiscal 2016. ASU 2015-3 simplifies the presentation of debt issuance costs by requiring such costs be presented as a deduction from the corresponding debt liability. ASU 2015-15 clarifies that entities may continue to defer and present debt issuance costs associated with a line-of-credit as an asset and subsequently amortize the deferred costs ratably over the term of the arrangement. The adoption of these ASU's has been retrospectively applied and resulted in a reclassification of $6,864 of debt issuance costs from Other assets to Long-term debt as of January 2, 2016.

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 April 23, 2016, under the 2013 Credit Agreement, the Company had outstanding borrowings of $106,000 under the revolver and $80,000 under the term loan. As of April 23, 2016, the Company also had letters of credit outstanding of $105,714, which reduced the availability under the revolver to $788,286. 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 1.10% and 0.10% per annum for the adjusted


12
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


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 0.15% 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 1.25% and 0.25% 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 April 23, 2016.

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 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


13
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


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 $28,301 as of April 23, 2016. 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 $72,237 as of April 23, 2016. 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 sixteen weeks ended April 23, 2016, the Company had no significant assets or liabilities that were measured at fair value on a recurring basis.

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 sixteen weeks ended April 23, 2016, the Company had no significant fair value measurements of non-financial assets or liabilities.


14
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)



Fair Value of Financial Assets and Liabilities

The carrying amounts 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 liabilities approximate fair value. The carrying value and fair value of the Company's long-term debt as of April 23, 2016 and January 2, 2016, respectively, are as follows:
 
April 23,
2016
 
January 2,
2016
 
Carrying Value
$
1,229,888

 
$
1,206,297

 
Fair Value
$
1,312,000

 
$
1,262,000

 

The adoption of ASU 2015-3 resulted in a reclassification of $6,864 of debt issuance costs from Other assets, net to Long-term debt decreasing the carrying value as of January 2, 2016.
 
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 April 23, 2016 was authorized by its Board of Directors on May 14, 2012.

During the sixteen week period ended April 23, 2016 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 April 23, 2016.

 The Company repurchased 78 shares of its common stock at an aggregate cost of $11,813, or an average price of $152.51 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock units during the sixteen weeks ended April 23, 2016.

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 sixteen week periods ended April 23, 2016 and April 25, 2015, earnings of $610 and $534, 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 22 and 7 shares of common stock that had an exercise price in excess of the average market price of the common stock during the sixteen week periods ended April 23, 2016 and April 25, 2015, 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 Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


The following table illustrates the computation of basic and diluted earnings per share for the sixteen week periods ended April 23, 2016 and April 25, 2015, respectively: 
 
Sixteen Weeks Ended
 
 
April 23,
2016
 
April 25,
2015
 
Numerator
 
 
 
 
Net income
$
158,813

 
$
148,112

 
Participating securities' share in earnings
(610
)
 
(534
)
 
Net income applicable to common shares
$
158,203

 
$
147,578

 
Denominator
 
 
 
 
Basic weighted average common shares
73,401

 
73,122

 
Dilutive impact of share-based awards
446

 
531

 
Diluted weighted average common shares
73,847

 
73,653

 
 
 
 
 
 
Basic earnings per common share
 

 
 

 
Net income applicable to common stockholders
$
2.16

 
$
2.02

 
 
 
 
 
 
Diluted earnings per common share
 

 
 

 
Net income applicable to common stockholders
$
2.14

 
$
2.00

 

10. Share-Based Compensation:

The Company grants share-based compensation awards to its Team Members and members of its Board of Directors as provided for under the Company’s 2014 Long-Term Incentive Plan, or 2014 LTIP, which was approved by the Company's shareholders on May 14, 2014. Currently, the grants are in the form of stock appreciation rights (“SARs”), restricted stock units ("RSUs") and deferred stock units (“DSUs”).

The Company granted 50 performance-based RSUs, 52 time-based RSUs, 69 time-based SARs and 67 performance-based SARs during the sixteen week period ended April 23, 2016. The majority of these grants represent an off-cycle award granted in accordance with the employment agreement reached with the Company’s new CEO hired in April 2016. The weighted average fair values of the performance-based and time-based RSUs granted during the sixteen week period ended April 23, 2016 were and $160.94 and $157.29 per share, respectively. The fair value of each RSU was determined based on the market price of the Company’s stock on the date of grant. The weighted average fair values of the performance-based and time-based SARs granted during the sixteen week period ended April 23, 2016 were and $37.51 and $43.64 per share, respectively. The fair value of each SAR was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Black-Scholes Option Valuation Assumptions
 
April 23, 2016

 
 
 
Risk-free interest rate (1)
 
1.2
%
Expected dividend yield
 
0.2
%
Expected stock price volatility (2)
 
27.5
%
Expected life of awards (in months) (3)
 
57

    
(1) 
The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate having a term consistent with the expected life of the award.
(2) 
Expected volatility is determined using a blend of historical and implied volatility.
(3) 
The expected life of the Company's awards represents the estimated period of time until exercise and is based on historical experience of previously granted awards.


16
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)



See the Company's Annual Report on Form 10-K for the year ended January 2, 2016, for a more detailed discussion regarding the terms of the Company’s share-based compensation awards.

The Company recognizes share-based compensation expense on a straight-line basis net of estimated forfeitures. Forfeitures are estimated based on historical experience. Total share-based compensation expense included in the Company’s consolidated statements of operations was $6,654 for the sixteen week period ended April 23, 2016 and the related income tax benefit recognized was $2,462. As of April 23, 2016, there was $45,838 of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted average period of 1.8 years.

The aggregate intrinsic value for outstanding awards at April 23, 2016 was approximately $113,986 based on the Company's closing stock price of $158.40 as of the last trading day of the first fiscal quarter ending April 23, 2016. For the sixteen weeks ended April 23, 2016, the aggregate intrinsic value for awards exercised was $57,116.

11. Warranty Liabilities:

The following table presents changes in the Company’s warranty reserves:
 
April 23,
2016
 
January 2,
2016
 
(16 weeks ended)
 
(52 weeks ended)
Warranty reserve, beginning of period
$
44,479

 
$
47,972

Additions to warranty reserves
10,907

 
44,367

Reserves utilized
(11,436
)
 
(47,860
)
 
 
 
 
Warranty reserve, end of period
$
43,950

 
$
44,479

 
The Company’s warranty liabilities are included in Accrued expenses in its condensed consolidated balance sheets.
 
12. 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 April 23, 2016 and January 2, 2016 and condensed consolidating statements of operations, comprehensive income and cash flows for the sixteen weeks ended April 23, 2016 and April 25, 2015, 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 Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Balance Sheets
As of April 23, 2016
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8

 
$
68,563

 
$
35,145

 
$
(8
)
 
$
103,708

Receivables, net
—

 
613,917

 
37,076

 
—

 
650,993

Inventories, net
—

 
4,242,073

 
190,895

 
—

 
4,432,968

Other current assets
12,691

 
76,889

 
1,749

 
(12,771
)
 
78,558

Total current assets
12,699

 
5,001,442

 
264,865

 
(12,779
)
 
5,266,227

Property and equipment, net of accumulated depreciation
146

 
1,422,432

 
10,120

 
—

 
1,432,698

Goodwill
—

 
943,320

 
50,422

 
—

 
993,742

Intangible assets, net
—

 
626,442

 
49,985

 
—

 
676,427

Other assets, net
9,766

 
69,080

 
789

 
(9,766
)
 
69,869

Investment in subsidiaries
2,706,735

 
344,783

 
—

 
(3,051,518
)
 
—

Intercompany note receivable
1,048,240

 
—

 
—

 
(1,048,240
)
 
—

Due from intercompany, net
—

 
—

 
333,654

 
(333,654
)
 
—

 
$
3,777,586

 
$
8,407,499

 
$
709,835

 
$
(4,455,957
)
 
$
8,438,963

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

 
$
598

 
$
—

 
$
—

 
$
598

Accounts payable
203

 
3,016,253

 
301,592

 
—

 
3,318,048

Accrued expenses
3,138

 
514,852

 
29,455

 
(12,771
)
 
534,674

Other current liabilities
—

 
43,997

 
11,254

 
(8
)
 
55,243

Total current liabilities
3,341

 
3,575,700

 
342,301

 
(12,779
)
 
3,908,563

Long-term debt
1,042,003

 
187,885

 
—

 
—

 
1,229,888

Deferred income taxes
—

 
431,785

 
20,275

 
(9,766
)
 
442,294

Other long-term liabilities
—

 
226,603

 
2,476

 
—

 
229,079

Intercompany note payable
—

 
1,048,240

 
—

 
(1,048,240
)
 
—

Due to intercompany, net
103,103

 
230,551

 
—

 
(333,654
)
 
—

Commitments and contingencies

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Stockholders' equity
2,629,139

 
2,706,735

 
344,783

 
(3,051,518
)
 
2,629,139

 
$
3,777,586

 
$
8,407,499

 
$
709,835

 
$
(4,455,957
)
 
$
8,438,963




18
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Balance Sheets
As of January 2, 2016
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8

 
$
63,458

 
$
27,324

 
$
(8
)
 
$
90,782

Receivables, net
—

 
568,106

 
29,682

 
—

 
597,788

Inventories, net
—

 
4,009,335

 
165,433

 
—

 
4,174,768

Other current assets
178

 
78,904

 
1,376

 
(3,050
)
 
77,408

Total current assets
186

 
4,719,803

 
223,815

 
(3,058
)
 
4,940,746

Property and equipment, net of accumulated depreciation
154

 
1,425,319

 
9,104

 
—

 
1,434,577

Goodwill
—

 
943,319

 
46,165

 
—

 
989,484

Intangible assets, net
—

 
640,583

 
46,542

 
—

 
687,125

Other assets, net
9,500

 
75,025

 
745

 
(9,501
)
 
75,769

Investment in subsidiaries
2,523,076

 
302,495

 
—

 
(2,825,571
)
 
—

Intercompany note receivable
1,048,161

 
—

 
—

 
(1,048,161
)
 
—

Due from intercompany, net
—

 
—

 
325,077

 
(325,077
)
 
—

 
$
3,581,077

 
$
8,106,544

 
$
651,448

 
$
(4,211,368
)
 
$
8,127,701

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

 
$
598

 
$
—

 
$
—

 
$
598

Accounts payable
103

 
2,903,287

 
300,532

 
—

 
3,203,922

Accrued expenses
2,378

 
529,076

 
24,759

 
(3,050
)
 
553,163

Other current liabilities
—

 
36,270

 
3,532

 
(8
)
 
39,794

Total current liabilities
2,481

 
3,469,231

 
328,823

 
(3,058
)
 
3,797,477

Long-term debt
1,041,584

 
164,713

 
—

 
—

 
1,206,297

Deferred income taxes
—

 
425,094

 
18,332

 
(9,501
)
 
433,925

Other long-term liabilities
—

 
227,556

 
1,798

 
—

 
229,354

Intercompany note payable
—

 
1,048,161

 
—

 
(1,048,161
)
 
—

Due to intercompany, net
76,364

 
248,713

 
—

 
(325,077
)
 
—

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity
2,460,648

 
2,523,076

 
302,495

 
(2,825,571
)
 
2,460,648

 
$
3,581,077

 
$
8,106,544

 
$
651,448

 
$
(4,211,368
)
 
$
8,127,701







19
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Statements of Operations
For the Sixteen weeks ended April 23, 2016
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,892,386

 
$
188,975

 
$
(101,583
)
 
$
2,979,778

Cost of sales, including purchasing and warehousing costs
—

 
1,598,817

 
132,655

 
(101,583
)
 
1,629,889

Gross profit
—

 
1,293,569

 
56,320

 
—

 
1,349,889

Selling, general and administrative expenses
7,911

 
1,060,767

 
28,358

 
(18,146
)
 
1,078,890

Operating (loss) income
(7,911
)
 
232,802

 
27,962

 
18,146

 
270,999

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(16,143
)
 
(2,823
)
 
23

 
—

 
(18,943
)
Other income (expense), net
23,542

 
(6,276
)
 
4,003

 
(18,146
)
 
3,123

Total other, net
7,399

 
(9,099
)
 
4,026

 
(18,146
)
 
(15,820
)
Income before provision for income taxes
(512
)
 
223,703

 
31,988

 
—

 
255,179

(Benefit) provision for income taxes
(1,430
)
 
91,275

 
6,521

 
—

 
96,366

Income before equity in earnings of subsidiaries
918

 
132,428

 
25,467

 
—

 
158,813

Equity in earnings of subsidiaries
157,895

 
25,467

 
—

 
(183,362
)
 
—

Net income
$
158,813

 
$
157,895

 
$
25,467

 
$
(183,362
)
 
$
158,813


Condensed Consolidating Statements of Operations
For the Sixteen weeks ended April 25, 2015
 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,955,591

 
$
171,385

 
$
(88,743
)
 
$
3,038,233

Cost of sales, including purchasing and warehousing costs
—

 
1,610,362

 
122,690

 
(88,743
)
 
1,644,309

Gross profit
—

 
1,345,229

 
48,695

 
—

 
1,393,924

Selling, general and administrative expenses
4,728

 
1,115,813

 
29,123

 
(18,268
)
 
1,131,396

Operating (loss) income
(4,728
)
 
229,416

 
19,572

 
18,268

 
262,528

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(16,282
)
 
(5,582
)
 
87

 
—

 
(21,777
)
Other income (expense), net
21,012

 
(2,181
)
 
(2,471
)
 
(18,268
)
 
(1,908
)
Total other, net
4,730

 
(7,763
)
 
(2,384
)
 
(18,268
)
 
(23,685
)
Income before provision for income taxes
2

 
221,653

 
17,188

 
—

 
238,843

(Benefit) provision for income taxes
10

 
87,718

 
3,003

 
—

 
90,731

Income before equity in earnings of subsidiaries
(8
)
 
133,935

 
14,185

 
—

 
148,112

Equity in earnings of subsidiaries
148,120

 
14,185

 
—

 
(162,305
)
 
—

Net income
$
148,112

 
$
148,120

 
$
14,185

 
$
(162,305
)
 
$
148,112





20
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Statements of Comprehensive Income
For the Sixteen Weeks ended April 23, 2016

 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
158,813

 
$
157,895

 
$
25,467

 
$
(183,362
)
 
$
158,813

Other comprehensive income:
 
 
 
 
 
 
 
 
 
Changes in net unrecognized other postretirement benefit costs
—

 
(182
)
 
—

 
—

 
(182
)
Currency translation adjustments
—

 
—

 
16,425

 
—

 
16,425

Equity in other comprehensive income of subsidiaries
16,243

 
16,425

 
—

 
(32,668
)
 
—

Other comprehensive income
16,243

 
16,243

 
16,425

 
(32,668
)
 
16,243

Comprehensive income
$
175,056

 
$
174,138

 
$
41,892

 
$
(216,030
)
 
$
175,056


Condensed Consolidating Statements of Comprehensive Income
For the Sixteen Weeks ended April 25, 2015

 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
148,112

 
$
148,120

 
$
14,185

 
$
(162,305
)
 
$
148,112

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Changes in net unrecognized other postretirement benefit costs
—

 
(178
)
 
—

 
—

 
(178
)
Currency translation adjustments
—

 
—

 
(7,463
)
 
—

 
(7,463
)
Equity in other comprehensive loss of subsidiaries
(7,641
)
 
(7,463
)
 
—

 
15,104

 
—

Other comprehensive loss
(7,641
)
 
(7,641
)
 
(7,463
)
 
15,104

 
(7,641
)
Comprehensive income
$
140,471

 
$
140,479

 
$
6,722

 
$
(147,201
)
 
$
140,471








21
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Sixteen Week Periods Ended April 23, 2016 and April 25, 2015
(in thousands, except per share data)
(unaudited)


Condensed Consolidating Statements of Cash Flows
For the Sixteen weeks ended April 23, 2016

 
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
—

 
$
76,204

 
$
(903
)
 
$
—

 
$
75,301

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
—

 
(88,303
)
 
(835
)
 
—

 
(89,138
)
Proceeds from sales of property and equipment
—

 
1,226

 
1

 
—

 
1,227

Net cash used in investing activities
—

 
(87,077
)
 
(834
)
 
—

 
(87,911
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Increase in bank overdrafts
—

 
7,670