Advance Auto Parts 2013 Annual Report Download - page 64

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 28, 2013, December 29, 2012 and December 31, 2011
(in thousands, except per share data)
F-12
and cost of the respective product sold. To the extent vendors provide upfront allowances in lieu of accepting the obligation for
warranty claims and the allowance is in excess of the related warranty expense, the excess is recorded as a reduction to cost of
sales.
Revenue Recognition
The Company recognizes revenue at the time the sale is made, at which time the Company’s walk-in customers take
immediate possession of the merchandise or same-day delivery is made to the Company’s commercial delivery customers. For
e-commerce sales, revenue is recognized either at the time of pick-up at one of the Company’s store locations or at the time of
shipment depending on the customer’s order designation. Sales are recorded net of discounts, sales taxes and estimated
allowances. The Company estimates returns based on current sales levels and the Company’s historical return experience. The
Company’s reserve for sales returns and allowances was not material as of December 28, 2013 and December 29, 2012.
Share-Based Payments
The Company provides share-based compensation to its Team Members and board of directors. The Company is required
to exercise judgment and make estimates when determining the projected (i) fair value of each award granted and (ii) number
of awards expected to vest. The Company calculates the fair value of all share-based awards at the date of grant and uses the
straight-line method to amortize this fair value as compensation cost over the requisite service period.
Derivative Instruments and Hedging Activities
The Company’s accounting policy for derivative financial instruments is based on whether the instruments meet the criteria
for designation as cash flow or fair value hedges. The criteria for designating a derivative as a hedge include the assessment of
the instrument’s effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction and the
probability that the underlying transaction will occur. For derivatives with cash flow hedge designation, the Company reports
the after-tax gain or loss from the effective portion of the hedge as a component of Accumulated other income (loss) and
reclassifies it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same
income statement line item as the impact of the hedged transaction. For derivatives with fair value hedge accounting
designation, the Company would recognize gains or losses from the change in the fair value of these derivatives, as well as the
offsetting change in the fair value of the underlying hedged item, in earnings. The Company had no derivative instruments
outstanding as of December 28, 2013 and December 29, 2012.
Accumulated Other Comprehensive Income (Loss)
The purpose of reporting Accumulated other comprehensive income (loss) is to report a measure of all changes in equity of
an enterprise that result from transactions and other economic events of the period. The changes in accumulated other
comprehensive income refer to revenues, expenses, gains, and losses that are included in other comprehensive income but
excluded from net income.
The Company’s Accumulated other comprehensive income (loss) is comprised of the unamortized portion of the
previously recorded unrecognized gains or loss on interest rate swaps and forward treasury rate locks and the net unrealized
gain associated with the Company’s postretirement benefit plan.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations
accounted for under the purchase method. The Company tests goodwill and indefinite-lived intangible assets for impairment
annually as of the first day of the fiscal fourth quarter, or when indications of potential impairment exist. These indicators
would include a significant change in operating performance, the business climate, legal factors, competition, or a planned sale
or disposition of a significant portion of the business, among other factors.