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) In July 2012, the FASB issued ASU No.2012-02 “Intangible-Goodwill and Other – Testing Indefinite-Lived Intangible Assets for Impairment.
” ASU 2012-02 modifies the requirement to test intangible assets that are not subject to amortization based on events or changes in circumstances that might indicate that the asset is impaired now requiring the test only if it is more likely than not that the asset is impaired.
Furthermore, ASU 2012-02 provides entities the option of performing a qualitative assessment to determine if it is more likely than not that the fair value of an intangible asset is less than the carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.
ASU 2012-02 is effective for fiscal years beginning after September 15, 2012 and early adoption is permitted.
The adoption of ASU 2012-02 had no impact on the Company’s consolidated financial condition, results of operations or cash flows.3.
Inventories, net: Merchandise Inventory The Company used the LIFO method of accounting for approximately 95% of inventories at both December 28, 2013 and December 29, 2012.
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 2013 and prior years.
The Company recorded a reduction to cost of sales of $5,572 and $24,087 in Fiscal 2013 and Fiscal 2012, 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 merchandise strategies and realization of supply chain efficiencies.
In Fiscal 2011, the Company recorded an increase to cost of sales of $24,708 due to an increase in supply chain costs and inflationary pressures affecting certain product categories.
Product Cores The remaining inventories are comprised of product cores, the non-consumable portion of certain parts and batteries, which are valued under the first-in, first-out (“FIFO”) method.
Product cores are included as part of the Company’s merchandise costs and are either passed on to the customer or returned to the vendor.
Because product cores are not subject to frequent cost changes like the Company’s other merchandise inventory, there is no material difference when applying either the LIFO or FIFO valuation method.
Inventory Overhead Costs Purchasing and warehousing costs included in inventory as of December 28, 2013 and December 29, 2012, were $161,519 and $134,258, respectively.
Inventory Balance and Inventory Reserves Inventory balances at the end of Fiscal 2013 and 2012 were as follows:
## Table 0 ##
Inventory quantities are tracked through a perpetual inventory system.
The Company completes physical inventories and other targeted inventory counts in its store locations to ensure the accuracy of the perpetual inventory quantities of both merchandise and core inventory in these locations.
In its distribution centers and PDQ?
s, the Company uses a cycle counting program to ensure the accuracy of the perpetual inventory quantities of both merchandise and product core inventory.
Reserves for estimated shrink are established based on the results of physical inventories conducted by the Company with the assistance of an independent third party in substantially all of the Company’s stores over the course of the year, other targeted inventory counts in its stores, results from recent cycle counts in its distribution facilities and historical and current loss trends.
In the third quarter of 2010, we amended our definition of adjusted operating income to exclude the net impact of embedded derivatives related to our living benefit features and related hedge positions as well as market value changes of derivatives used in our capital hedge program.
Adjusted operating income for all periods presented has been revised to conform with the amended definition.
See “—Consolidated Results of Operations—Segment Measures” for additional information.
See “—Net impact of embedded derivatives related to our living benefit features and related hedge positions” below for a discussion of the results of these living benefit features and related hedge positions and see “—Capital hedge program” below for a discussion of the results of the capital hedge program included in Individual Annuities results.
Adjusted Operating Income 2010 to 2009 Annual Comparison.
Adjusted operating income increased $289 million, from $757 million in 2009 to $1,046 million in 2010.
The increase in adjusted operating income was primarily due to an increase in fee income, net of higher distribution costs, driven by higher average variable annuity asset balances invested in separate accounts due to positive net flows and net market appreciation.
Partially offsetting the increase in adjusted operating income was a $31 million lower benefit related to adjustments to the reserves for the guaranteed minimum death and income benefit features of our variable annuity products and to our estimate of total gross profits used as a basis for amortizing deferred policy acquisition and other costs.
As shown in the following table, adjusted operating income for 2010 included $348 million of benefits from these adjustments, compared to $379 million of benefits included in 2009.
This variance is discussed in more detail below.
## Table 1 ##
(1) Amounts reflect (charges) or benefits for (increases) or decreases, respectively, in the amortization of deferred policy acquisition costs, or DAC, and other costs.
(2) Amounts reflect (charges) or benefits for reserve (increases) or decreases, respectively, related to the guaranteed minimum death and income benefit, or GMDB / GMIB, features of our variable annuity products.
The $103 million of benefits for 2010 relating to the quarterly market performance adjustments shown in the table above are attributable to changes to our estimate of total gross profits to reflect actual fund performance.
The following table shows the actual quarterly rate of return on variable annuity account values for the four quarters of 2010 compared to our previously expected quarterly rate of return used in our estimate of total gross profits.
## Table 2 ##
Actual returns exceeded our expected returns for 2010 which increased our estimates of total gross profits and decreased our estimate of future expected claims costs associated with the guaranteed minimum death and income benefit features of our variable annuity products, by establishing a new, higher starting point for the variable annuity account values used in estimating those items for future periods.
The expected rates of return in 2010 for some contract groups were based upon our maximum future rate of return under the reversion to the mean approach, as discussed below.
The overall increase in our estimate of total gross profits and decrease in our estimate of future expected claims costs results in a lower required rate of amortization and lower required reserve provisions, which are applied to all prior periods.
The resulting cumulative adjustment to prior amortization and reserve provisions was a $103 million benefit for 2010 as shown in the table above.
The $331 million of benefits for 2009 relating to the quarterly market performance adjustments is attributable to a similar impact on gross profits of market value increases in the underlying assets associated with our variable annuity products, reflecting financial market conditions during the period.
The benefit in 2009 is higher than that in 2010 due to a greater difference in 2009 between the actual rates of return and the expected rates of return, which are detailed further below.
Also, the $54 million decrease in amortization of deferred policy acquisition and other costs in 2009 is net of a $73 million charge to impair the entire remaining balance of valuation of business acquired, or VOBA, related to the variable annuity contracts acquired from Allstate in the second quarter of 2006.
The additional charge was required in the first quarter of 2009, as the declines in estimated future gross profits related to market performance caused the present value of estimated gross profits for these contracts to fall below zero.
Since the VOBA balance was completely amortized for these contracts, it cannot be reestablished for market value appreciation in subsequent periods.
As discussed and shown in the table above, results for both periods also include the impact of the annual reviews of the assumptions used in the reserves for the guaranteed minimum death and income benefit features of our variable annuity products and in our estimate of total gross profits used as a basis for amortizing deferred policy acquisition and other costs.2010 included $177 million of benefits from these annual reviews, primarily related to reductions in lapse rate assumptions and more favorable assumptions relating to fee income.2009 included $49 million of charges from these annual reviews, primarily related to reductions in the future rate of return assumptions applied to the underlying assets associated with our variable annuity products.
Partially offsetting the impact of the updated future rate of return assumptions for 2009 were benefits related to the impact of lower mortality and higher investment spread assumptions.
As mentioned above, we derive our near-term future rate of return assumptions using a reversion to the mean approach, a common industry practice.
Under this approach, we consider actual returns over a period of time and initially adjust future projected returns over a four year period so that the assets are projected to grow at the long-term expected rate of return for the entire period.
The near-term future
As of December 31, 2010, our consolidated direct exposure to the sovereign and local government debt of Portugal, Ireland, Italy, Greece and Spain was in aggregate approximately $423 million, based on amortized cost, substantially all within the Financial Services Businesses and primarily representing Italian government securities owned by Prudential’s Italian insurance operations.
As of December 31, 2010, our consolidated direct investment exposure in Turkey, United Arab Emirates, Israel, Saudi Arabia, Bahrain, Qatar, Kuwait, and Tunisia was in aggregate approximately $450 million, based on amortized cost, primarily within the Financial Services Businesses, and included approximately $120 million representing investment exposure in Israel.
We had no direct investment exposure in Egypt as of December 31, 2010.
Fixed Maturity Securities by Contractual Maturity Date The following table sets forth the breakdown of the amortized cost of our fixed maturity securities portfolio in total by contractual maturity as of December 31, 2010.
## Table 3 ##
Fixed Maturity Securities and Unrealized Gains and Losses by Industry Category The following table sets forth the composition of the portion of our fixed maturity securities portfolio by industry category attributable to the Financial Services Businesses as of the dates indicated and the associated gross unrealized gains and losses.
Fixed Maturity Securities—Financial Services Businesses
## Table 4 ##

Tables referenced above, in order (Table 0 first):
<table><tr><td></td><td>December 28,2013</td><td>December 29,2012</td></tr><tr><td>Inventories at FIFO, net</td><td>$2,424,795</td><td>$2,182,419</td></tr><tr><td>Adjustments to state inventories at LIFO</td><td>131,762</td><td>126,190</td></tr><tr><td>Inventories at LIFO, net</td><td>$2,556,557</td><td>$2,308,609</td></tr></table>
<table><tr><td></td><td colspan="3"> Year ended December 31, 2010</td><td colspan="3">Year ended December 31, 2009</td></tr><tr><td></td><td> Amortization of DAC and Other Costs-1</td><td> Reserves for GMDB/ GMIB-2</td><td> Total</td><td>Amortization of DAC and Other Costs-1</td><td>Reserves for GMDB/ GMIB-2</td><td>Total</td></tr><tr><td></td><td colspan="6">(in millions)</td></tr><tr><td>Quarterly market performance adjustment</td><td>$36</td><td>$67</td><td>$103</td><td>$54</td><td>$277</td><td>$331</td></tr><tr><td>Annual review / assumption updates</td><td>165</td><td>12</td><td>177</td><td>-30</td><td>-19</td><td>-49</td></tr><tr><td>Quarterly adjustment for current period experience and other updates</td><td>23</td><td>45</td><td>68</td><td>63</td><td>34</td><td>97</td></tr><tr><td>Total</td><td>$224</td><td>$124</td><td>$348</td><td>$87</td><td>$292</td><td>$379</td></tr></table>
<table><tr><td></td><td>First Quarter 2010</td><td>Second Quarter 2010</td><td>Third Quarter 2010</td><td> Fourth Quarter 2010</td></tr><tr><td>Actual rate of return</td><td>3.4%</td><td>-5.2%</td><td>8.1%</td><td>6.0%</td></tr><tr><td>Expected rate of return</td><td>2.0%</td><td>1.9%</td><td>2.1%</td><td>1.9%</td></tr></table>
<table><tr><td rowspan="4"></td><td colspan="4"> December 31, 2010</td></tr><tr><td colspan="2">Financial Services Businesses</td><td colspan="2"> Closed Block Business</td></tr><tr><td>Amortized Cost</td><td> % of Total</td><td>Amortized Cost</td><td> % of Total</td></tr><tr><td></td><td colspan="2">($ in millions)</td><td></td></tr><tr><td>Corporate & government securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Maturing in 2011</td><td>$4,601</td><td>3.1%</td><td>$1,871</td><td>4.3%</td></tr><tr><td>Maturing in 2012</td><td>5,448</td><td>3.7</td><td>1,949</td><td>4.5</td></tr><tr><td>Maturing in 2013</td><td>7,530</td><td>5.1</td><td>2,375</td><td>5.5</td></tr><tr><td>Maturing in 2014</td><td>8,018</td><td>5.4</td><td>1,733</td><td>4.0</td></tr><tr><td>Maturing in 2015</td><td>7,099</td><td>4.8</td><td>1,809</td><td>4.1</td></tr><tr><td>Maturing in 2016</td><td>5,956</td><td>4.0</td><td>1,524</td><td>3.5</td></tr><tr><td>Maturing in 2017</td><td>6,754</td><td>4.6</td><td>1,625</td><td>3.7</td></tr><tr><td>Maturing in 2018</td><td>5,982</td><td>4.1</td><td>1,915</td><td>4.4</td></tr><tr><td>Maturing in 2019</td><td>5,429</td><td>3.7</td><td>1,726</td><td>4.0</td></tr><tr><td>Maturing in 2020</td><td>5,157</td><td>3.5</td><td>1,696</td><td>3.9</td></tr><tr><td>Maturing in 2021</td><td>3,146</td><td>2.1</td><td>21</td><td>0.1</td></tr><tr><td>Maturing in 2022 and beyond</td><td>57,880</td><td>39.3</td><td>14,766</td><td>33.9</td></tr><tr><td>Total corporate & government securities</td><td>123,000</td><td>83.4</td><td>33,010</td><td>75.9</td></tr><tr><td>Asset-backed securities</td><td>8,790</td><td>6.0</td><td>4,570</td><td>10.5</td></tr><tr><td>Commercial mortgage-backed securities</td><td>8,142</td><td>5.5</td><td>3,615</td><td>8.3</td></tr><tr><td>Residential mortgage-backed securities</td><td>7,504</td><td>5.1</td><td>2,311</td><td>5.3</td></tr><tr><td>Total fixed maturities</td><td>$147,436</td><td>100.0%</td><td>$43,506</td><td>100.0%</td></tr></table>
<table><tr><td></td><td colspan="4"> December 31, 2010</td><td colspan="4"> December 31, 2009</td></tr><tr><td> Industry-1</td><td> Amortized Cost</td><td> Gross Unrealized Gains-2</td><td> Gross Unrealized Losses-2</td><td> Fair Value</td><td> Amortized Cost</td><td> Gross Unrealized Gains-2</td><td> Gross Unrealized Losses-2</td><td> Fair Value</td></tr><tr><td></td><td colspan="8"> (in millions)</td></tr><tr><td>Corporate securities:</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Manufacturing</td><td>$21,590</td><td>$1,538</td><td>$539</td><td>$22,589</td><td>$19,959</td><td>$1,007</td><td>$669</td><td>$20,297</td></tr><tr><td>Utilities</td><td>11,153</td><td>851</td><td>179</td><td>11,825</td><td>10,778</td><td>604</td><td>246</td><td>11,136</td></tr><tr><td>Finance</td><td>11,213</td><td>385</td><td>331</td><td>11,267</td><td>10,500</td><td>236</td><td>542</td><td>10,194</td></tr><tr><td>Services</td><td>10,170</td><td>612</td><td>333</td><td>10,449</td><td>8,841</td><td>380</td><td>459</td><td>8,762</td></tr><tr><td>Energy</td><td>5,356</td><td>364</td><td>168</td><td>5,552</td><td>4,749</td><td>263</td><td>186</td><td>4,826</td></tr><tr><td>Retail and Wholesale</td><td>4,110</td><td>214</td><td>138</td><td>4,186</td><td>3,405</td><td>144</td><td>144</td><td>3,405</td></tr><tr><td>Transportation</td><td>3,625</td><td>240</td><td>62</td><td>3,803</td><td>3,479</td><td>168</td><td>82</td><td>3,565</td></tr><tr><td>Other</td><td>1,359</td><td>62</td><td>62</td><td>1,359</td><td>959</td><td>16</td><td>77</td><td>898</td></tr><tr><td>Total corporate securities-3</td><td>68,576</td><td>4,266</td><td>1,812</td><td>71,030</td><td>62,670</td><td>2,818</td><td>2,405</td><td>63,083</td></tr><tr><td>Foreign government-3(4)</td><td>48,016</td><td>2,915</td><td>86</td><td>50,845</td><td>40,885</td><td>1,525</td><td>133</td><td>42,277</td></tr><tr><td>Residential mortgage-backed</td><td>7,504</td><td>397</td><td>51</td><td>7,850</td><td>9,547</td><td>345</td><td>88</td><td>9,804</td></tr><tr><td>Asset-backed securities-5</td><td>8,790</td><td>168</td><td>969</td><td>7,989</td><td>8,855</td><td>119</td><td>1,444</td><td>7,530</td></tr><tr><td>Commercial mortgage-backed</td><td>8,142</td><td>592</td><td>63</td><td>8,671</td><td>7,747</td><td>251</td><td>170</td><td>7,828</td></tr><tr><td>U.S. Government</td><td>4,807</td><td>464</td><td>67</td><td>5,204</td><td>4,389</td><td>313</td><td>122</td><td>4,580</td></tr><tr><td>State & Municipal-6</td><td>1,601</td><td>24</td><td>52</td><td>1,573</td><td>799</td><td>16</td><td>27</td><td>788</td></tr><tr><td>Total-7(8)</td><td>$147,436</td><td>$8,826</td><td>$3,100</td><td>$153,162</td><td>$134,892</td><td>$5,387</td><td>$4,389</td><td>$135,890</td></tr></table>

Question: Does the value of Manufacturing for Gross Unrealized Gains-2 in 2010 greater than that in 2009?
Answer: No