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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form________________________
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 October 7, 2017April 24, 2021
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
________________________


aaplogocolornotaga15.jpgaap-20210424_g1.jpg
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________


Delaware
54-2049910
(State or other jurisdiction of
incorporation or organization)
   54-2049910
(I.R.S. Employer
Identification No.)

5008 Airport2635 East Millbrook Road, Roanoke, Virginia 24012Raleigh, North Carolina 27604
(Address of Principal Executive Offices)
(Zipprincipal executive offices) (Zip Code)
 
(540) 362-4911
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Stock, $0.0001 par valueAAPNew York Stock Exchange
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).


Indicate by check mark whether the registrant: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 or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 November 10, 2017,May 28, 2021, the registrant had outstanding 73,898,043number of shares of Common Stock, par value $0.0001 per share (the only class ofthe registrant’s common stock of the registrant outstanding).
outstanding was 65,438,870 shares.




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PageFINANCIAL INFORMATION
PART I.
Item 1. 
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NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identifiable by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “should,” “strategy,” “will,” or similar language. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, and future business and financial performance, as well as statements regarding underlying assumptions related thereto. Forward-looking statements reflect our views based on historical results, current information and assumptions related to future developments. Except as may be required by law, we undertake no obligation to update any forward-looking statements made herein. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. They include, among others, factors related to the timing and implementation of strategic initiatives, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current global pandemic. Please refer to “Item 1A. Risk Factors.” of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.
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PART I.  FINANCIAL INFORMATION
 
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
ADVANCE AUTO PARTS, INC. AND SUBSIDIARIESITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data) (Unaudited)

 April 24, 2021January 2, 2021
Assets
Current assets:  
Cash and cash equivalents$880,233 $834,992 
Receivables, net804,826 749,999 
Inventories4,476,656 4,538,199 
Other current assets149,003 146,811 
Total current assets6,310,718 6,270,001 
Property and equipment, net of accumulated depreciation of $2,255,213 and $2,189,1651,463,990 1,462,602 
Operating lease right-of-use assets2,378,964 2,379,987 
Goodwill994,530 993,590 
Intangible assets, net672,455 681,127 
Other assets47,831 52,329 
 $11,868,488 $11,839,636 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$3,737,853 $3,640,639 
Accrued expenses603,327 606,804 
Other current liabilities451,243 496,472 
Total current liabilities4,792,423 4,743,915 
Long-term debt1,033,369 1,032,984 
Non-current operating lease liabilities2,035,785 2,014,499 
Deferred income taxes357,343 342,445 
Other long-term liabilities148,001 146,281 
Commitments and contingencies00
Stockholders’ equity:  
Preferred stock, nonvoting, $0.0001 par value0 0 
Common stock, voting, $0.0001 par value8 8 
Additional paid-in capital799,934 783,709 
Treasury stock, at cost(1,577,727)(1,394,080)
Accumulated other comprehensive loss(21,466)(26,759)
Retained earnings4,300,818 4,196,634 
Total stockholders’ equity3,501,567 3,559,512 
 $11,868,488 $11,839,636 

 October 7,
2017		 December 31,
2016		 
Assets    
Current assets:    
Cash and cash equivalents$363,302
 $135,178
 
Receivables, net679,359
 641,252
 
Inventories4,219,321
 4,325,868
 
Other current assets105,970
 70,466
 
Total current assets5,367,952
 5,172,764
 
Property and equipment, net of accumulated depreciation of $1,755,749 and $1,660,6481,418,486
 1,446,340
 
Goodwill994,408
 990,877
 
Intangible assets, net608,520
 640,903
 
Other assets, net78,858
 64,149
 
 $8,468,224
 $8,315,033
 
Liabilities and Stockholders’ Equity 
  
 
Current liabilities: 
  
 
Accounts payable2,921,653
 3,086,177
 
Accrued expenses572,360
 554,397
 
Other current liabilities43,396
 35,472
 
Total current liabilities3,537,409
 3,676,046
 
Long-term debt1,044,008
 1,042,949
 
Deferred income taxes429,194
 454,282
 
Other long-term liabilities226,826
 225,564
 
Commitments and contingencies

 

 
Stockholders’ equity: 
  
 
Preferred stock, nonvoting, $0.0001 par value—
 —
 
Common stock, voting, $0.0001 par value8
 8
 
Additional paid-in capital656,718
 631,052
 
Treasury stock, at cost(141,482) (138,102) 
Accumulated other comprehensive loss(24,503) (39,701) 
Retained earnings2,740,046
 2,462,935
 
Total stockholders’ equity3,230,787
 2,916,192
 
 $8,468,224
 $8,315,033
 




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
(In thousands, except per share data) (Unaudited)
 Sixteen Weeks Ended
April 24, 2021April 18, 2020
Net sales$3,330,370 $2,697,882 
Cost of sales, including purchasing and warehousing costs
1,845,444 1,525,149 
Gross profit1,484,926 1,172,733 
Selling, general and administrative expenses1,232,797 1,094,308 
Operating income252,129 78,425 
Other, net:
Interest expense(11,191)(12,243)
Other income (expense), net4,836 (5,989)
Total other, net(6,355)(18,232)
Income before provision for income taxes245,774 60,193 
Provision for income taxes59,844 16,605 
Net income$185,930 $43,588 
Basic earnings per common share$2.83 $0.63 
Weighted average common shares outstanding65,688 69,181 
Diluted earnings per common share$2.81 $0.63 
Weighted average common shares outstanding66,102 69,392 

 Twelve Week Periods Ended Forty Week Periods Ended
 October 7,
2017		 October 8,
2016		 October 7,
2017		 October 8,
2016
Net sales$2,182,233
 $2,248,855
 $7,336,798
 $7,484,788
Cost of sales, including purchasing and warehousing costs
1,234,525
 1,260,650
 4,125,318
 4,136,437
Gross profit947,708
 988,205
 3,211,480
 3,348,351
Selling, general and administrative expenses791,139
 794,437
 2,728,420
 2,666,900
Operating income156,569
 193,768
 483,060
 681,451
Other, net: 
  
    
Interest expense(13,314) (13,581) (45,665) (46,545)
Other income (expense), net745
 (2,349) 8,727
 7,018
Total other, net(12,569) (15,930) (36,938) (39,527)
Income before provision for income taxes144,000
 177,838
 446,122
 641,924
Provision for income taxes48,004
 63,994
 155,117
 244,667
Net income$95,996
 $113,844
 $291,005
 $397,257
        
Basic earnings per share$1.30
 $1.54
 $3.94
 $5.38
Weighted average shares outstanding73,866
 73,638
 73,827
 73,524
        
Diluted earnings per share$1.30
 $1.53
 $3.93
 $5.36
Weighted average shares outstanding - assuming dilution74,106
 73,860
 74,097
 73,847
        
Dividends declared per share$0.06
 $0.06
 $0.18
 $0.18



Condensed Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
 Sixteen Weeks Ended
April 24, 2021April 18, 2020
Net income$185,930 $43,588 
Other comprehensive income (loss):
Changes in net unrecognized other postretirement (costs) benefits, net of tax of $19 and $23(54)66 
Currency translation adjustments5,347 (17,032)
Total other comprehensive income (loss)5,293 (16,966)
Comprehensive income$191,223 $26,622 
 Twelve Week Periods Ended Forty Week Periods Ended
 October 7,
2017		 October 8,
2016		 October 7,
2017		 October 8,
2016
Net income$95,996
 $113,844
 $291,005
 $397,257
Other comprehensive income (loss):       
Changes in net unrecognized other postretirement benefit costs, net of tax of $41, $88, $137 and $295(63) (136) (211) (455)
Currency translation adjustments2,225
 (4,939) 15,409
 7,018
Total other comprehensive income (loss)2,162
 (5,075) 15,198
 6,563
Comprehensive income$98,158
 $108,769
 $306,203
 $403,820








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

3
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 Forty Week Periods Ended
 October 7, 2017 October 8, 2016
Cash flows from operating activities:   
Net income$291,005
 $397,257
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization192,753
 199,262
Share-based compensation28,156
 11,664
Loss on property and equipment, net4,692
 4,602
(Benefit) provision for deferred income taxes(25,712) 21,130
Other, net2,262
 (2,657)
Net change in:   
Receivables, net(35,760) (87,488)
Inventories116,957
 (175,678)
Accounts payable(170,227) (9,222)
Accrued expenses36,564
 84,897
Other assets and liabilities(39,685) (16,735)
Net cash provided by operating activities401,005
 427,032
Cash flows from investing activities: 
  
Purchases of property and equipment(160,960) (204,213)
Proceeds from sales of property and equipment6,120
 1,483
Other, net20
 (2,672)
Net cash used in investing activities(154,820) (205,402)
Cash flows from financing activities: 
  
Increase in bank overdrafts4,676
 8,765
Borrowings under credit facilities534,400
 686,100
Payments on credit facilities(534,400) (846,100)
Dividends paid(17,828) (17,734)
Proceeds from the issuance of common stock3,142
 3,438
Tax withholdings related to the exercise of stock appreciation rights(6,414) (15,764)
Repurchase of common stock(3,380) (12,300)
Other, net(2,095) (323)
Net cash used in financing activities(21,899) (193,918)
Effect of exchange rate changes on cash3,838
 1,000
Net increase in cash and cash equivalents228,124
 28,712
Cash and cash equivalents, beginning of period
135,178
 90,782
Cash and cash equivalents, end of period
$363,302
 $119,494
    
Non-cash transactions:   
Accrued purchases of property and equipment$7,860
 $20,300
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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except per share data) (Unaudited)
Sixteen Weeks Ended April 24, 2021
 Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
 SharesAmount
Balance, January 2, 202166,361 $8 $783,709 $(1,394,080)$(26,759)$4,196,634 $3,559,512 
Net income— — — — — 185,930 185,930 
Total other comprehensive income— — — — 5,293 — 5,293 
Restricted stock units and deferred stock units vested227 — — — — — 0 
Share-based compensation— — 16,260 — — — 16,260 
Stock issued under employee stock purchase plan13 — 0 — — — 0 
Repurchases of common stock(1,162)— — (183,647)— — (183,647)
Cash dividends declared ($1.00 per common share)— — — — — (81,746)(81,746)
Other— — (35)— — — (35)
Balance, April 24, 202165,439 $8 $799,934 $(1,577,727)$(21,466)$4,300,818 $3,501,567 
Sixteen Weeks Ended April 18, 2020
 Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
 SharesAmount
Balance, December 28, 201969,232 $8 $735,183 $(924,389)$(34,569)$3,772,848 $3,549,081 
Net income— — — — — 43,588 43,588 
Total other comprehensive loss— — — — (16,966)— (16,966)
Restricted stock units and deferred stock units vested137 — — — — — 0 
Share-based compensation— — 13,809 — — — 13,809 
Stock issued under employee stock purchase plan9 — 735 — — — 735 
Repurchases of common stock(277)— — (35,761)— — (35,761)
Cash dividends declared ($0.25 per common share)— — — — — (17,453)(17,453)
Other0 — (4)— — — (4)
Balance, April 18, 202069,101 $8 $749,723 $(960,150)$(51,535)$3,798,983 $3,537,029 



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
(In thousands) (Unaudited)
 Sixteen Weeks Ended
April 24, 2021April 18, 2020
Cash flows from operating activities:  
Net income$185,930 $43,588 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization77,253 78,579 
Share-based compensation16,260 13,809 
Loss and impairment of long-lived assets4,732 981 
Provision for deferred income taxes14,660 146 
Other, net543 434 
Net change in:
Receivables, net(53,982)59,303 
Inventories63,883 (104,899)
Accounts payable96,094 (112,459)
Accrued expenses(50,949)(1,824)
Other assets and liabilities, net(24,492)33,250 
Net cash provided by operating activities329,932 10,908 
Cash flows from investing activities:  
Purchases of property and equipment(70,884)(82,973)
Purchase of an indefinite-lived intangible asset0 (230)
Proceeds from sales of property and equipment590 71 
Net cash used in investing activities(70,294)(83,132)
Cash flows from financing activities:  
Proceeds from borrowing on revolving credit facility0 500,000 
Proceeds from issuances of senior unsecured notes, net0 498,240 
Dividends paid(33,146)(21,593)
Proceeds from the issuance of common stock0 735 
Repurchases of common stock(183,647)(35,761)
Other, net104 (4,763)
Net cash (used in) provided by financing activities(216,689)936,858 
Effect of exchange rate changes on cash2,292 (3,461)
Net increase in cash and cash equivalents45,241 861,173 
Cash and cash equivalents, beginning of period
834,992 418,665 
Cash and cash equivalents, end of period
$880,233 $1,279,838 
Non-cash transactions:
Accrued purchases of property and equipment$3,505 $25,080 


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
Notes to the Condensed Consolidated Financial Statements
(Unaudited)






1.    DescriptionNature of BusinessOperations and Basis of Presentation


Advance Auto Parts, Inc. and subsidiaries is a leading automotive aftermarket parts provider in North America, serving both “do-it-for-me”, or Professional,professional installers (“Professional”) and “do-it-yourself”, or DIY (“DIY”) customers. The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Companyus and include the accounts of Advance Auto Parts, Inc. (“Advance”), its wholly owned subsidiary,subsidiaries, Advance Stores Company, Incorporated (“Advance Stores”) and Neuse River Insurance Company, Inc., and itstheir subsidiaries (collectively referred to as “Advance”, “we”,“Advance,” “we,” “us”, or “our” or “the Company”).


As of October 7, 2017, the CompanyApril 24, 2021, we operated a total of 5,0744,793 stores and 129 distribution178 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. The Company’sIn addition, as of April 24, 2021, we served 1,285 independently owned Carquest branded stores across the same geographic locations served by our stores and branches in addition to Mexico and various Caribbean islands. Our stores operate primarily under the trade names “Advance Auto Parts,” “Carquest” and “Autopart International,” and our distribution branches operate under the “Worldpac” trade name. In addition, as of October 7, 2017, the Company served approximately 1,250 independently-owned Carquest branded stores (“independent stores”) across the same geographic locations served by the Company’s stores in addition to Mexico, the Bahamas, Turks and Caicos, the British Virgin Islands and the Pacific Islands.


The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments consisting 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,(“GAAP”) have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting guidance.principles. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’sour Annual Report on Form 10-K for 20162020 as filed with the SEC on February 28, 2017.22, 2021.


The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full fiscal year. TheOur first quarter of each of the Company’s fiscal yearsyear contains sixteen weeks. The Company’sOur remaining three quarters consist of twelve weeks.


Segment and Related Information

Effective in the third quarter of 2017, the Company realigned its three geographic divisions, which included the operations of the stores operating under the Advance Auto Parts, Carquest and Autopart International trade names, into two US geographic divisions. As a result of this realignment and change in the operating structure of its Carquest Independent and Carquest Canada businesses, the Company has increased its number of operating segments from four to five. As a result, goodwill was reassigned to the affected reporting units using a relative fair value approach. The Company continues to aggregate its operating segments into one reportable segment.

Recently Adopted 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. The Company adopted ASU 2016-09 in the first quarter of 2017 and recorded a cumulative effect reduction to beginning retained earnings of $490 thousand related to the Company’s election to record forfeitures as they occur. In addition, the Company elected to retrospectively adopt the provision regarding the presentation of excess tax benefits in the statement of cash flows, which resulted in an increase in our net cash provided by operating activities and a decrease in our net cash provided by financing activities of $17.6 million for the forty weeks ended October 8, 2016. The provision requiring the inclusion of excess tax benefits (deficits) as a component of the provision for income taxes in the consolidated results of operations is being applied prospectively. The Company recorded excess tax benefits of $4.5 million as a reduction in Provision for income taxes during the forty weeks ended October 7, 2017. The impact of excess tax benefits was immaterial during the twelve weeks ended October 7, 2017.


Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require lessees to recognize lease assets and lease liabilities for all leases, including those leases previously classified as operating leases under current GAAP. The ASU is effective for annual periods beginning after December 15, 2018 with early adoption permitted. From a balance sheet perspective, the Company expects adoption of the new standard to have a material effect on its Total assets and Total liabilities as a result of recording the required right of use asset and associated lease liability. However, the Company has not completed its analysis and is unable to quantify the impact at this time. Currently, the Company does not expect adoption of ASU 2016-02 to have a material impact on its consolidated statements of operations as the majority of its leases will remain operating in nature. As such, the expense recognition will be similar to previously required straight-line expense treatment. The Company is also in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard in 2019.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606).” This ASU, along with subsequent ASU’s issued to clarify certain provisions of ASU 2014-09, 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. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company plans to adopt the new standard effective December 31, 2017 and will apply the modified retrospective method. The Company has analyzed the impact of ASU 2014-09, as amended, on its revenue contracts, comparing the Company’s current accounting policies and practices to the requirements of the new standard and identified differences that would result from applying the new standard to its contracts. The Company has determined the adoption of the new standard will not have a material impact on its consolidated financial condition, results of operations or cash flows. Additionally, the Company does not anticipate any significant changes to business processes, controls or systems as a result of adopting the new standard.

2.    Significant Accounting Policies

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:
Sixteen Weeks Ended
April 24, 2021April 18, 2020
Percentage of Net sales, by product group:
Parts and batteries66 %66 %
Accessories and chemicals21 21 
Engine maintenance12 12 
Other1 1 
Total100 %100 %


3.    Inventories


Inventories are stated at the lower of cost or market. The CompanyWe used the LIFOlast in, first out (“LIFO”) method of accounting for approximately 88% and 89% of inventories at October 7, 2017as of April 24, 2021 and December 31, 2016.January 2, 2021. Under the LIFO method, the Company’s costour Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in 2017the sixteen weeks ended April 24, 2021 and prior years. As a result of changes in the LIFO reserve, the CompanyWe recorded a reductionan increase to costCost of sales of $6.5$3.1 million and $48.7$8.8 million for the fortysixteen weeks ended October 7, 2017April 24, 2021 and October 8, 2016.April 18, 2020 to state inventories at LIFO.


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Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

An actual valuation of inventory under the LIFO method is performed by the Companyus 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’sour estimates of expected year-end inventory levels and costs.costs at the end of the year.


Inventory balances were as follows:
(in thousands)April 24, 2021January 2, 2021
Inventories at first in, first out (“FIFO”)$4,324,383 $4,382,779 
Adjustments to state inventories at LIFO152,273 155,420 
Inventories at LIFO$4,476,656 $4,538,199 
(in thousands)October 7,
2017		 December 31, 2016
Inventories at FIFO$4,006,968
 $4,120,030
Adjustments to state inventories at LIFO212,353
 205,838
Inventories at LIFO$4,219,321
 $4,325,868



3. Exit Activities

Integration of Carquest stores

The Company is in the process of a multi-year integration, which includes the consolidation and conversion of its Carquest stores acquired with General Parts International, Inc. (“GPI”) on January 2, 2014. As of October 7, 2017, 345 Carquest stores acquired with GPI had been consolidated into existing Advance Auto Parts stores and 414 stores had been converted to the Advance Auto Parts format. During the twelve weeks ended October 7, 2017, a total of three Carquest stores were consolidated and 37 Carquest stores were converted. During the forty weeks ended October 7, 2017, a total of 12 Carquest stores were consolidated and 132 Carquest stores were converted. We expect to consolidate or convert the remaining U.S. Carquest stores over the next few years. As of October 7, 2017, the Company had 463 stores still operating under the Carquest name.

The Company incurred $2.2 million of exit costs related to the consolidations during the twelve weeks ended October 8, 2016, primarily related to closed store lease obligations. Exit costs were immaterial during the twelve weeks ended October 7, 2017. The Company incurred $1.0 million and $17.6 million of exit costs related to the consolidations during the forty weeks ended October 7, 2017 and October 8, 2016 primarily related to closed store lease obligations. These costs are included in Selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

2017 Field and Support Center Restructuring

In June 2017, the Company restructured its field organization and streamlined its operating structure. The restructuring activity was substantially complete as of October 7, 2017 and resulted in the recognition of $7.7 million of expenses related to severance. These costs are included in Selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Total Exit Liabilities

The Company’s total exit liabilities include liabilities recorded in connection with the consolidation of Carquest stores and restructuring activities described above, along with liabilities associated with facility closures that have occurred as part of our normal market evaluation process. Cash payments on the closed facility lease obligations are expected to be made through 2028 and the remaining severance payments are expected to be made in 2017. Of the Company’s total exit liabilities as of October 7, 2017, $21.8 million is included in Other long-term liabilities and the remainder is included in Accrued expenses in the accompanying condensed consolidated balance sheets. A summary of the Company’s exit liabilities are presented in the following table:
(in thousands) Closed Facility Lease Obligations Severance Total
Balance, December 31, 2016 $44,265
 $959
 $45,224
Reserves established 5,098
 7,715
 12,813
Change in estimates 177
 (156) 21
Cash payments (14,723) (5,739) (20,462)
Balance, October 7, 2017 $34,817
 $2,779
 $37,596
       
Balance, January 2, 2016 $42,490
 $6,255
 $48,745
Reserves established 23,252
 988
 24,240
Change in estimates (3,073) (410) (3,483)
Cash payments (18,404) (5,874) (24,278)
Balance, December 31, 2016 $44,265
 $959
 $45,224


4.    Intangible Assets


The Company’sOur definite-lived intangible assets include customer relationships favorable leases and non-compete agreements. Amortization expense was $10.7 million and $11.3$9.7 million for the twelvesixteen weeks ended October 7, 2017April 24, 2021 and October 8, 2016 and $36.3 million and $37.1 million for the forty weeks ended October 7, 2017 and October 8, 2016.April 18, 2020.


5.    Receivables, net


Receivables consist of the following:
(in thousands)April 24, 2021January 2, 2021
Trade$539,584 $449,403 
Vendor249,976 278,180 
Other25,414 34,345 
Total receivables814,974 761,928 
Less: Allowance for doubtful accounts(10,148)(11,929)
Receivables, net$804,826 $749,999 
(in thousands) October 7,
2017		 December 31, 2016
Trade $444,561
 $407,301
Vendor 244,322
 239,770
Other 13,690
 23,345
Total receivables 702,573
 670,416
Less: Allowance for doubtful accounts (23,214) (29,164)
Receivables, net $679,359
 $641,252


6.    Long-term Debt and Fair Value of Financial Instruments


Long-term debt consists of the following:
(in thousands)April 24, 2021January 2, 2021
4.50% Senior Unsecured Notes due December 1, 2023$193,060 $192,990 
1.75% Senior Unsecured Notes due October 1, 2027345,992 345,854 
3.90% Senior Unsecured Notes due April 15, 2030494,317 494,140 
Total long-term debt$1,033,369 $1,032,984 
Fair value of long-term debt$1,106,000 $1,145,000 
(in thousands)October 7,
2017		 December 31,
2016
Total long-term debt$1,044,358
 $1,043,255
Less: Current portion of long-term debt (included in Other current liabilities)(350) (306)
Long-term debt, excluding current portion$1,044,008
 $1,042,949
    
Fair value of long-term debt$1,129,000
 $1,118,000


Fair Value of Financial Assets and Liabilities


The fair value of the Company’sour senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The Company believes the carrying value of its other long-term debt approximates fair value. The carrying amounts of the Company’sour cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.


7
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Bank Debt


OnAs of April 24, 2021 and January 31, 2017, the Company entered into a new credit agreement which provides a2, 2021, we had 0 outstanding borrowings, $1.0 billion of borrowing availability and 0 letters of credit outstanding under our unsecured revolving credit facility (the “2017 Credit“Credit Agreement”) with Advance Stores, as Borrower, the lenders party thereto,.

As of April 24, 2021 and BankJanuary 2, 2021, we had $100.0 million of America, N.A., as the administrative agent. This new revolver under the 2017 Credit Agreement replaced the revolver under the 2013 Credit Agreement. The 2017 Credit Agreement provides for the issuance ofbilateral letters of credit with a sublimit of $200.0 million. The Company may request thatissued separately from the total revolving commitment be increased by an amount not exceeding $250.0 million during the term of the 2017 Credit Agreement. Voluntary prepayments and voluntary reductions of the revolving loan balance, if any, are permitted in whole or in part, at the Company’s option, in minimum principal amounts as specified in the 2017 Credit Agreement. The 2017 Credit Agreement, terminates in January 2022; however, the Company may request one or two one-year extensionsnone of the termination date prior to the first or second anniversary of the closing date.

As of October 7, 2017, the Company had no outstanding borrowings under the revolver and borrowing availability was $576.1 million based on applicable covenant restrictions under the Company’s leverage ratio. As of October 7, 2017, the Company hadwhich were drawn upon. These bilateral letters of credit outstanding of $99.7 million, which generally have a term of one year or less and primarily serve as collateral for the Company’sour self-insurance policies.



The interest rates on outstanding amounts, if any, on the revolving facility under the 2017 Credit Agreement will be based, at the Company’s option, on an adjusted LIBOR, plus a margin, or an alternate base rate, plus a margin. After an initial interest period, the Company may elect to convert a particular borrowing to a different type. The initial margins per annum for the revolving loan are 1.10% for the adjusted LIBOR and 0.10% for alternate base rate borrowings. A facility fee of 0.15% per annum will be charged on the total revolving facility commitment, payable quarterlyWe were in arrears. Under the terms of the 2017 Credit Agreement, the interest rate spread, facility fee and commitment fee will be based on the Company’s credit rating. The interest rate spread ranges from 1.00% to 1.85% for adjusted LIBOR borrowings and 0.00% to 0.85% for alternate base rate borrowings.

The 2017 Credit Agreement contains customary covenants restricting the ability of: (a) Advance Stores and its subsidiaries to, among other things, (i) create, incur or assume additional debt (only with respect to subsidiaries of Advance Stores), (ii) incur liens, (iii) guarantee obligations, and (iv) change the nature of its business conducted by itself and its subsidiaries; (b) Advance, Advance Stores and their subsidiaries to, among other things (i) enter into certain hedging arrangements, (ii) enter into restrictive agreements limiting their ability to incur liens on any of their property or assets, pay distributions, repay loans, or guarantee indebtedness of their subsidiaries; and (c) Advance, among other things, to change the holding company status of Advance. Advance Stores is required to complycompliance with financial covenants required by our debt arrangements as of April 24, 2021.

Senior Unsecured Notes

Our 4.50% senior unsecured notes due December 1, 2023 (the “2023 Notes”) were issued in December 2013 at 99.69% of the principal amount of $450.0 million. 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.

On April 16, 2020, we issued $500.0 million aggregate principal amount of senior unsecured notes (the “Original Notes”). The Original Notes were issued at 99.65% of the principal amount of $500.0 million, are due April 15, 2030 and bear interest at 3.90% per year payable semi-annually in arrears on April 15 and October 15 of each year.

On July 28, 2020, we completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500.0 million, which were not registered under the Securities Act of 1933, as amended (the “Securities Act”), were exchanged for a like principal amount of 3.90% senior unsecured notes due 2030 (the “Exchange Notes” or “2030 Notes”), which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except that the Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration rights agreement provisions applicable to the Original Notes.

On September 29, 2020, we issued $350.0 million aggregate principal amount of senior unsecured notes (the “2027 Notes”). The 2027 Notes were issued at 99.67% of the principal amount of $350.0 million, are due October 1, 2027 and bear interest at 1.75% per year payable semi-annually in arrears on April 1 and October 1 of each year. In connection with respectthe 2027 Notes offering, we incurred $2.9 million of debt issuance costs. Our 2023 Notes, 2027 Notes and 2030 Notes are collectively referred to herein as our “senior unsecured notes.”

Pursuant to a maximum leverage ratiocash tender offer that was completed on September 29, 2020, we repurchased $256.3 million of our 2023 Notes with the net proceeds from the 2027 Notes. In connection with this tender offer, we incurred charges relating to tender premiums and a minimum coverage ratio. The 2017 Credit Agreement also provides for customary eventsdebt issuance costs of default, including non-payment defaults, covenant defaults$30.5 million and cross-defaults of Advance Stores’ other material indebtedness. The Company was in compliance with its financial covenants with respect to the 2017 Credit Agreement as of October 7, 2017.$1.4 million.


Debt Guarantees


The Company isWe are a guarantor of loans made by banks to various independently owned Carquest brandedCarquest-branded stores that are our customers of the Company totaling $25.7$73.7 million and $23.6 million as of October 7, 2017.April 24, 2021 and January 2, 2021. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements is $62.0$61.9 million and $57.5 million as of October 7, 2017. The Company believesApril 24, 2021 and January 2, 2021. We believe that the likelihood of performance under these guarantees is remote.


7. Leases

Substantially all of our leases are for facilities and vehicles. The initial term for facilities is typically 5 years to 10 years, with renewal options at 5 year intervals, with the exercise of lease renewal options at our sole discretion. Our vehicle and equipment leases are typically 3 years to 5 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

8
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Operating lease liabilities consist of the following:
(in thousands)April 24, 2021January 2, 2021
Total operating lease liabilities$2,460,951 $2,477,087 
Less: Current portion of operating lease liabilities(425,166)(462,588)
Noncurrent operating lease liabilities$2,035,785 $2,014,499 

The current portion of operating lease liabilities is included in Other current liabilities in the accompanying condensed consolidated balance sheets.

Total lease cost is included in Cost of sales and Selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
Sixteen Weeks Ended
(in thousands)April 24, 2021April 18, 2020
Operating lease cost$161,984 $161,805 
Variable lease cost43,525 43,537 
Total lease cost$205,509 $205,342 

The future maturity of lease liabilities are as follows:
(in thousands)April 24, 2021
Remainder of 2021$367,689 
2022474,071 
2023436,532 
2024361,383 
2025315,001 
Thereafter852,365 
Total lease payments2,807,041 
Less: Imputed interest(346,090)
Total operating lease liabilities$2,460,951 

As of April 24, 2021, our operating lease payments include $95.2 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $79.3 million of legally binding minimum lease payments for leases signed, but not yet commenced.

The weighted-average remaining lease term and weighted-average discount rate for our operating leases are 7.0 years and 3.4% as of April 24, 2021. We calculated the weighted-average discount rates using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.

9
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Other information relating to our lease liabilities is as follows:
Sixteen Weeks Ended
(in thousands)April 24, 2021April 18, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$185,083 $167,273 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$118,448 $85,491 

8.    Warranty Liabilities

The following table presents changes in our warranty reserves:
Sixteen Weeks EndedFifty-Three Weeks Ended
(in thousands)April 24, 2021January 2, 2021
Warranty reserve, beginning of period$14,120 $36,820 
Additions to warranty reserves2,724 14,907 
Reduction and utilization of reserve(9,525)(37,607)
Warranty reserve, end of period$7,319 $14,120 
9.    Share Repurchase Program

On April 19, 2021, our Board of Directors authorized an additional $1.0 billion to our current share repurchase program. This authorization was incremental to the $700.0 million that was authorized previously by our Board of Directors in November 2019. Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time.

During the sixteen weeks ended April 24, 2021, we repurchased 1.1 million shares of our common stock at an aggregate cost of $170.4 million, or an average price of $157.84 per share, in connection with our share repurchase program. During the sixteen weeks ended April 18, 2020, we purchased 0.2 million shares of our common stock under the share repurchase program at an aggregate cost of $29.0 million, or an average price of $128.36 per share. We had $1.3 billion remaining under our share repurchase program as of April 24, 2021.

10
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

10.    Earnings per Share


Diluted earnings per share are calculated by including the effect of dilutive securities. Share-based awards to purchase approximately 176 thousand and 22 thousand shares of common stock during the twelve week periods ended October 7, 2017 and October 8, 2016 were not included in the calculation of diluted earnings per share because they were anti-dilutive. Share-based awards to purchase approximately 142 thousand and 22 thousand shares of common stock during the forty week periods ended October 7, 2017 and October 8, 2016 were not included in the calculation of diluted earnings per share because they were anti-dilutive.

The following table illustrates the computationcomputations of basic and diluted earnings per share:share are as follows:
 Sixteen Weeks Ended
(in thousands, except per share data)April 24, 2021April 18, 2020
Numerator
Net income applicable to common shares$185,930 $43,588 
Denominator
Basic weighted average common shares65,688 69,181 
Dilutive impact of share-based awards414 211 
Diluted weighted average common shares (1)
66,102 69,392 
Basic earnings per common share$2.83 $0.63 
Diluted earnings per common share$2.81 $0.63 
 Twelve Weeks Ended Forty Weeks Ended
(in thousands, except per share data)October 7,
2017		 October 8,
2016		 October 7,
2017		 October 8,
2016
Numerator       
Net income$95,996
 $113,844
 $291,005
 $397,257
Denominator     
  
Basic weighted average shares73,866
 73,638
 73,827
 73,524
Dilutive impact of share-based awards240
 222
 270
 323
Diluted weighted average shares74,106
 73,860
 74,097
 73,847
  
  
    
Basic earnings per share$1.30
 $1.54
 $3.94
 $5.38
  
  
    
Diluted earnings per share$1.30
 $1.53
 $3.93
 $5.36



8. Share-Based Compensation

During(1)For the forty week periodsixteen weeks ended October 7, 2017, the Company granted 228April 24, 2021 and April 18, 2020, 43 thousand time-based and 271 thousand restricted stock units (“RSUs”), 51 were excluded from the diluted calculation as their inclusion would have been anti-dilutive.

11.    Share-Based Compensation

During the sixteen weeks ended April 24, 2021, we granted 174 thousand performance-basedtime-based RSUs, 63 thousand market-based RSUs and 25124 thousand market-based RSUs.stock options. The general terms of the time-based and performance-basedmarket-based RSUs are similar to awards previously granted by us. We grant options to purchase common stock to certain employees under our 2014 Long-Term Incentive Plan. The options are granted at an exercise price equal to the Company. The market-based RSUs will vest basedclosing market price of the Advance's common stock on the Company’s relative total shareholder return among a designated groupdate of peer companies during a three-year periodthe grant, expire after 10 years and will be subject to a one-year holding period after vesting.vest one-third annually over three years. We record compensation expense for the grant date fair value of the option awards evenly over the vesting period.


The weighted average fair values of the time-based performance-based and market-based RSUs granted during the forty week periodsixteen weeks ended October 7, 2017April 24, 2021 were $97.34, $151.35$175.45 and $111.65$204.97 per share. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of the Company’sour stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.


The weighted average fair values of stock options granted during the sixteen weeks ended April 24, 2021 was $47.19. The fair value was estimated on the date of grant by applying the Black-Scholes option-pricing valuation model. The following table presents the weighted average assumptions used in determining the fair value of options granted:

Sixteen Weeks Ended
April 24, 2021
Risk free interest rate (1)
1.02%
Expected life (2)
6 years
Expected volatility (3)
35.78%
Expected dividend yield (4)
2.48%
(1) The risk-free interest rate is based on the yield in effect at grant for zero-coupon U.S. Treasury notes with maturities equivalent to the expected term of the stock options.
(2) The expected term represents the period of time options granted are expected to be outstanding. As we do not have sufficient historical data, we utilized the simplified method provided by the SEC to calculate the expected term as the average of the contractual term and vesting period.
(3) Expected volatility is the measure of the amount by which the stock price has fluctuated or is expected to fluctuate. We utilized historical trends and the implied volatility of our publicly traded financial instruments in developing the volatility estimate for our stock options.
(4) The expected dividend yield is calculated based on our expected quarterly dividend and the 3 month average stock price as of the grant date.

11
Table of Contents
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Total income tax benefit related to share-based compensation expense included in the Company’s condensed consolidated statements of operations was $8.2 million for the twelve week periodsixteen weeks ended October 7, 2017 and the related income tax benefit recognizedApril 24, 2021 was $3.1 million. Total share-based compensation expense included in the Company’s condensed consolidated statements of operations was $28.2 million for the forty week period ended October 7, 2017 and the related income tax benefit recognized was $10.5$3.9 million. As of October 7, 2017,April 24, 2021, there was $47.5$94.5 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted average period of 1.71.8 years.

9. Warranty Liabilities

The following table presents changes in the Company’s warranty reserves, which are included in Accrued expenses in its condensed consolidated balance sheets.
12
 Forty Weeks Ended Fifty-Two Weeks Ended
(in thousands)October 7,
2017		 December 31, 2016
Warranty reserve, beginning of period$47,243
 $44,479
Additions to warranty reserves39,777
 46,903
Reserves utilized(37,516) (44,139)
Warranty reserve, end of period$49,504
 $47,243

10. Condensed Consolidating Financial Statements


Certain 100% wholly owned domestic subsidiariesTable of Advance, including its Material Subsidiaries (as defined in the 2017 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”).

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. Investments in subsidiaries of the Company are presented under the equity method. 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.


Condensed Consolidating Balance Sheets (Unaudited)
As of October 7, 2017
Contents
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets         
Current assets:         
Cash and cash equivalents$23
 $312,193
 $51,109
 $(23) $363,302
Receivables, net—
 635,964
 43,395
 —
 679,359
Inventories—
 4,030,391
 188,930
 —
 4,219,321
Other current assets—
 105,047
 1,057
 (134) 105,970
Total current assets23
 5,083,595
 284,491
 (157) 5,367,952
Property and equipment, net of accumulated depreciation108
 1,408,580
 9,798
 —
 1,418,486
Goodwill—
 943,358
 51,050
 —
 994,408
Intangible assets, net—
 561,921
 46,599
 —
 608,520
Other assets, net4,391
 78,248
 610
 (4,391) 78,858
Investment in subsidiaries3,330,214
 439,076
 —
 (3,769,290) —
Intercompany note receivable1,048,636
 —
 —
 (1,048,636) —
Due from intercompany, net—
 —
 336,163
 (336,163) —
 $4,383,372
 $8,514,778
 $728,711
 $(5,158,637) $8,468,224
Liabilities and Stockholders' Equity         
Current liabilities:         
Accounts payable$—
 $2,673,704
 $247,949
 $—
 $2,921,653
Accrued expenses3,026
 549,953
 19,515
 (134) 572,360
Other current liabilities—
 43,130
 289
 (23) 43,396
Total current liabilities3,026
 3,266,787
 267,753
 (157) 3,537,409
Long-term debt1,044,008
 —
 —
 —
 1,044,008
Deferred income taxes—
 413,787
 19,797
 (4,390) 429,194
Other long-term liabilities—
 224,741
 2,085
 —
 226,826
Intercompany note payable—
 1,048,636
 —
 (1,048,636) —
Due to intercompany, net105,551
 230,612
 —
 (336,163) —
Commitments and contingencies
 
 
 
 
          
Stockholders' equity3,230,787
 3,330,215
 439,076
 (3,769,291) 3,230,787
 $4,383,372
 $8,514,778
 $728,711
 $(5,158,637) $8,468,224


Condensed Consolidating Balance Sheets (Unaudited)
As of December 31, 2016
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets         
Current assets:         
Cash and cash equivalents$22
 $78,543
 $56,635
 $(22) $135,178
Receivables, net—
 619,229
 22,023
 —
 641,252
Inventories—
 4,126,465
 199,403
 —
 4,325,868
Other current assets—
 69,385
 1,153
 (72) 70,466
Total current assets22
 4,893,622
 279,214
 (94) 5,172,764
Property and equipment, net of accumulated depreciation128
 1,436,459
 9,753
 —
 1,446,340
Goodwill—
 943,359
 47,518
 —
 990,877
Intangible assets, net—
 595,596
 45,307
 —
 640,903
Other assets, net4,634
 63,376
 773
 (4,634) 64,149
Investment in subsidiaries3,008,856
 375,420
 —
 (3,384,276) —
Intercompany note receivable1,048,424
 —
 —
 (1,048,424) —
Due from intercompany, net—
 —
 316,109
 (316,109) —
 $4,062,064
 $8,307,832
 $698,674
 $(4,753,537) $8,315,033
Liabilities and Stockholders' Equity         
Current liabilities:         
Accounts payable$—
 $2,813,937
 $272,240
 $—
 $3,086,177
Accrued expenses1,505
 526,652
 26,312
 (72) 554,397
Other current liabilities—
 32,508
 2,986
 (22) 35,472
Total current liabilities1,505
 3,373,097
 301,538
 (94) 3,676,046
Long-term debt1,042,949
 —
 —
 —
 1,042,949
Deferred income taxes—
 439,283
 19,633
 (4,634) 454,282
Other long-term liabilities—
 223,481
 2,083
 —
 225,564
Intercompany note payable—
 1,048,424
 —
 (1,048,424) —
Due to intercompany, net101,418
 214,691
 —
 (316,109) —
Commitments and contingencies         
          
Stockholders' equity2,916,192
 3,008,856
 375,420
 (3,384,276) 2,916,192
 $4,062,064
 $8,307,832
 $698,674
 $(4,753,537) $8,315,033


Condensed Consolidating Statements of Operations (Unaudited)
For the Twelve Weeks ended October 7, 2017
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $2,098,475
 $122,495
 $(38,737) $2,182,233
Cost of sales, including purchasing and warehousing costs—
 1,185,654
 87,608
 (38,737) 1,234,525
Gross profit—
 912,821
 34,887
 —
 947,708
Selling, general and administrative expenses5,806
 777,201
 19,751
 (11,619) 791,139
Operating (loss) income(5,806) 135,620
 15,136
 11,619
 156,569
Other, net:         
Interest (expense) income(11,874) (1,401) (39) —
 (13,314)
Other income (expense), net17,832
 (4,665) (803) (11,619) 745
Total other, net5,958
 (6,066) (842) (11,619) (12,569)
Income before provision for income taxes152
 129,554
 14,294
 —
 144,000
Provision for income taxes(136) 45,626
 2,514
 —
 48,004
Income before equity in earnings of subsidiaries288
 83,928
 11,780
 —
 95,996
Equity in earnings of subsidiaries95,708
 11,781
 —
 (107,489) —
Net income$95,996
 $95,709
 $11,780
 $(107,489) $95,996

Condensed Consolidating Statements of Operations (Unaudited)
For the Twelve Weeks ended October 8, 2016
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $2,174,483
 $112,072
 $(37,700) $2,248,855
Cost of sales, including purchasing and warehousing costs—
 1,219,636
 78,714
 (37,700) 1,260,650
Gross profit—
 954,847
 33,358
 —
 988,205
Selling, general and administrative expenses6,665
 778,643
 20,807
 (11,678) 794,437
Operating (loss) income(6,665) 176,204
 12,551
 11,678
 193,768
Other, net:         
Interest (expense) income(11,932) (1,669) 20
 —
 (13,581)
Other income (expense), net18,809
 (4,791) (4,689) (11,678) (2,349)
Total other, net6,877
 (6,460) (4,669) (11,678) (15,930)
Income before provision for income taxes212
 169,744
 7,882
 —
 177,838
Provision for income taxes361
 62,252
 1,381
 —
 63,994
(Loss) income before equity in earnings of subsidiaries(149) 107,492
 6,501
 —
 113,844
Equity in earnings of subsidiaries113,993
 6,501
 —
 (120,494) —
Net income$113,844
 $113,993
 $6,501
 $(120,494) $113,844


Condensed Consolidating Statements of Operations (Unaudited)
For the Forty Weeks ended October 7, 2017
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $7,075,603
 $432,790
 $(171,595) $7,336,798
Cost of sales, including purchasing and warehousing costs—
 3,987,575
 309,338
 (171,595) 4,125,318
Gross profit—
 3,088,028
 123,452
 —
 3,211,480
Selling, general and administrative expenses25,973
 2,678,822
 63,017
 (39,392) 2,728,420
Operating (loss) income(25,973) 409,206
 60,435
 39,392
 483,060
Other, net:         
Interest (expense) income(40,240) (5,424) (1) —
 (45,665)
Other income (expense), net67,183
 (17,430) (1,634) (39,392) 8,727
Total other, net26,943
 (22,854) (1,635) (39,392) (36,938)
Income before provision for income taxes970
 386,352
 58,800
 —
 446,122
(Benefit) provision for income taxes(1,752) 145,923
 10,946
 —
 155,117
Income before equity in earnings of subsidiaries2,722
 240,429
 47,854
 —
 291,005
Equity in earnings of subsidiaries288,283
 47,855
 —
 (336,138) —
Net income$291,005
 $288,284
 $47,854
 $(336,138) $291,005

Condensed Consolidating Statements of Operations (Unaudited)
For the Forty Weeks ended October 8, 2016
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $7,240,681
 $432,170
 $(188,063) $7,484,788
Cost of sales, including purchasing and warehousing costs—
 4,023,979
 300,521
 (188,063) 4,136,437
Gross profit—
 3,216,702
 131,649
 —
 3,348,351
Selling, general and administrative expenses17,965
 2,620,217
 72,028
 (43,310) 2,666,900
Operating (loss) income(17,965) 596,485
 59,621
 43,310
 681,451
Other, net:         
Interest (expense) income(40,148) (6,457) 60
 —
 (46,545)
Other income (expense), net58,524
 (6,315) (1,881) (43,310) 7,018
Total other, net18,376
 (12,772) (1,821) (43,310) (39,527)
Income before provision for income taxes411
 583,713
 57,800
 —
 641,924
Provision for income taxes1,008
 231,664
 11,995
 —
 244,667
(Loss) income before equity in earnings of subsidiaries(597) 352,049
 45,805
 —
 397,257
Equity in earnings of subsidiaries397,854
 45,805
 —
 (443,659) —
Net income$397,257
 $397,854
 $45,805
 $(443,659) $397,257


Condensed Consolidating Statements of Comprehensive Income (Unaudited)
For the Twelve Weeks ended October 7, 2017

(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income$95,996
 $95,709
 $11,780
 $(107,489) $95,996
Other comprehensive income2,162
 2,162
 2,225
 (4,387) 2,162
Comprehensive income$98,158
 $97,871
 $14,005
 $(111,876) $98,158


Condensed Consolidating Statements of Comprehensive Income (Unaudited)
For the Twelve Weeks ended October 8, 2016
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income$113,844
 $113,993
 $6,501
 $(120,494) $113,844
Other comprehensive loss(5,075) (5,075) (4,939) 10,014
 (5,075)
Comprehensive income$108,769
 $108,918
 $1,562
 $(110,480) $108,769


Condensed Consolidating Statements of Comprehensive Income (Unaudited)
For the Forty Weeks ended October 7, 2017
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income$291,005
 $288,284
 $47,854
 $(336,138) $291,005
Other comprehensive income15,198
 15,198
 15,409
 (30,607) 15,198
Comprehensive income$306,203
 $303,482
 $63,263
 $(366,745) $306,203


Condensed Consolidating Statements of Comprehensive Income (Unaudited)
For the Forty Weeks ended October 8, 2016
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income$397,257
 $397,854
 $45,805
 $(443,659) $397,257
Other comprehensive income6,563
 6,563
 7,018
 (13,581) 6,563
Comprehensive income$403,820
 $404,417
 $52,823
 $(457,240) $403,820



Condensed Consolidating Statements of Cash Flows (Unaudited)
For the Forty Weeks ended October 7, 2017
(in thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash provided by (used in) operating activities$—
 $406,032
 $(5,027) $—
 $401,005
          
Cash flows from investing activities:         
Purchases of property and equipment—
 (159,769) (1,191) —
 (160,960)
Proceeds from sales of property and equipment—
 6,108
 12
 —
 6,120
Other, net—
 480
 (460) —
 20
Net cash used in investing activities—
 (153,181) (1,639) —
 (154,820)
          
Cash flows from financing activities:         
(Decrease) increase in bank overdrafts—
 7,374
 (2,698) —
 4,676
Borrowings under credit facilities—
 534,400
 —
 —
 534,400
Payments on credit facilities—
 (534,400) —
 —
 (534,400)
Dividends paid—
 (17,828) —
 —
 (17,828)
Proceeds from the issuance of common stock—
 3,142
 —
 —
 3,142
Tax withholdings related to the exercise of stock appreciation rights—
 (6,414) —
 —
 (6,414)
Repurchase of common stock—
 (3,380) —
 —
 (3,380)
Other, net1
 (2,095) —
 (1) (2,095)
Net cash provided by (used in) financing activities1
 (19,201) (2,698) (1) (21,899)
          
Effect of exchange rate changes on cash—
 —
 3,838
 —
 3,838
          
Net increase (decrease) in cash and cash equivalents1
 233,650
 (5,526) (1) 228,124
Cash and cash equivalents, beginning of period
22
 78,543
 56,635
 (22) 135,178
Cash and cash equivalents, end of period
$23
 $312,193
 $51,109
 $(23) $363,302


Condensed Consolidating Statements of Cash Flows (Unaudited)
For the Forty Weeks ended October 8, 2016

(In thousands)Advance Auto Parts, Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash provided by operating activities$14
 $415,649
 $11,369
 $—
 $427,032
          
Cash flows from investing activities:         
Purchases of property and equipment—
 (202,382) (1,831) —
 (204,213)
Proceeds from sales of property and equipment—
 1,481
 2
 —
 1,483
Other, net—
 (2,672) —
 —
 (2,672)
Net cash used in investing activities—
 (203,573) (1,829) —
 (205,402)
          
Cash flows from financing activities:         
Increase in bank overdrafts—
 10,006
 (1,227) (14) 8,765
Borrowings under credit facilities—
 686,100
 —
 —
 686,100
Payments on credit facilities—
 (846,100) —
 —
 (846,100)
Dividends paid—
 (17,734) —
 —
 (17,734)
Proceeds from the issuance of common stock—
 3,438
 —
 —
 3,438
Tax withholdings related to the exercise of stock appreciation rights—
 (15,764) —
 —
 (15,764)
Repurchase of common stock—
 (12,300) —
 —
 (12,300)
Other, net—
 (323) —
 —
 (323)
Net cash used in financing activities—
 (192,677) (1,227) (14) (193,918)
          
Effect of exchange rate changes on cash—
 —
 1,000
 —
 1,000
          
Net increase in cash and cash equivalents14
 19,399
 9,313
 (14) 28,712
Cash and cash equivalents, beginning of period
8
 63,458
 27,324
 (8) 90,782
Cash and cash equivalents, end of period
$22
 $82,857
 $36,637
 $(22) $119,494


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our 2016Annual Report on Form 10-K for the year ended January 2, 2021 (filed with the SEC on February 22, 2021), which we refer to as our 2020 Form 10-K, and our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report.


Certain statements in this report
Impact of COVID-19 on Our Business

During the COVID-19 pandemic we are “forward-looking statements” withinprioritizing protecting the meaninghealth and safety of Section 27Aour Team Members and customers; working to drive financial performance by preserving our cash position, scrutinizing planned spending and prioritizing various initiatives; and working to help ensure that our team will emerge even stronger following the completion of the Securities Actpandemic. We have continued to take additional measures to help ensure the health and safety of 1933 (the “Securities Act”)our Team Members and Section 21Ecustomers, including the continuation of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are usually identified bycertain labor-related benefits for Team Members, social distancing practices, sanitation practices, the use of wordshealth check screenings and offering contactless delivery.

Government imposed restrictions and stay at home orders related to the pandemic occurred during our first quarter of 2020. These contributed to negative impacts to demand, primarily during the last six weeks of the sixteen weeks ended April 18, 2020. However, as the remainder of 2020 progressed, we experienced a significant improvement in demand, particularly in our DIY omnichannel business. This has continued in the first quarter of 2021, driven by external factors such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “projection,” “should,” “strategy,” “will,” or similar expressions. We intend for any forward-looking statementsa second round of government stimulus, consumers’ increased use of personal vehicles and other factors that may have contributed to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements containedan increase in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based upon assessments and assumptions of management in light of historical results and trends, current conditions and potential future developments that often involve judgments, estimates, assumptions and projections. Forward-looking statements reflect current views about our plans, strategies and prospects, which are based on information currently available.

AlthoughDIY automotive projects. In addition, we believe thatthe execution of prioritized internal initiatives, including our plans, intentionsnew marketing campaign and expectations as reflected in or suggested by any forward-looking statements are reasonable, we do not guarantee or give assurance that such plans, intentions or expectations will be achieved. Actual results may differ materially from our anticipated results described or implied in our forward-looking statements, and such differences may be due toproviding a variety of factors. Ourshopping choices for customers with our Advance Same Day® options, as well as improved store execution, all contributed to the improvement in demand. We have also continued to make progress on the development of our key supply chain initiatives, including cross-banner replenishment and our single warehouse management system.

Despite the increase in Net sales during the sixteen weeks ended April 24, 2021, the COVID-19 pandemic remains an evolving situation. We continue to actively monitor developments that may cause us to take further actions that alter our business could alsooperations as may be affectedrequired by additional factors that are presently unknown to usfederal, state or local authorities or that we currently believe to be immaterial to our business.

Listed below and discussed in our Annual Report on Form 10-K for the year ended December 31, 2016 (filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017), which we refer to as our 2016 Form 10-K,determine are some important risks, uncertainties and contingencies which could cause our actual results, performance or achievements to be materially different from any forward-looking statements made or implied in this report. These include, but are not limited to, the following:
a decrease in demand for our products;
competitive pricing and other competitive pressures;
our ability to implement our business strategy;
our ability to expand our business, including the location of available and suitable real estate for new store locations, the integration of any acquired businesses and the continued increase in supply chain capacity and efficiency;
our dependence on our suppliers to provide us with products that comply with safety and quality standards;
our ability to attract, develop and retain executives and other key employees, or Team Members;
the potential for fluctuations in the market pricebest interests of our common stockTeam Members, customers, suppliers and the resulting exposure to securities class action litigation;stockholders.
the risk that our level of indebtedness may limit our operating flexibility or otherwise strain our liquidity and financial condition;
deterioration in general macro-economic conditions, including unemployment, inflation or deflation, consumer debt levels, high fuel and energy costs, higher tax rates or uncertain credit markets;
regulatory and legal risks, including being named as a defendant in administrative investigations or litigation, and the incurrence of legal fees and costs, the payment of fines or the payment of sums to settle litigation or administrative investigations or proceedings;
a security breach or other cyber security incident;
business interruptions due to the occurrence of natural disasters, extended periods of unfavorable weather, computer system malfunction, wars or acts of terrorism; and
the impact of global climate change or legal and regulatory responses to such change.

We assume no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other risks described from time to time in our other reports and documents filed with the SEC and you should not place undue reliance on those statements.


Management Overview


Net sales increased 23.4% in the first quarter of 2021 as compared to the same period in the prior year, primarily driven by an increase in comparable store sales resulting from growth in our DIY omnichannel and Professional business. We experienced over 20% comparable store sales growth across every region, with the Midwest, Northeast and Southwest regions having the strongest growth. While all product categories showed solid performance, batteries were again one of the strongest.

We generated dilutedDiluted earnings per share (“Diluted EPS”) of $1.30$2.81 during our twelve weeks ended October 7, 2017 (or the thirdfirst quarter of 2017)2021 compared to $1.53$0.63 for the comparable period of 2016. Comparable store sales were down 3.4% in the third quarter of 2017. The lower than expected sales performance was driven by the following factors:

Macroeconomic pressures on the automotive aftermarket industry;
Short-term disruptions resulting from our transformation actions taken in the second and third quarters; and
Weather-related impacts in our Northeast, Mid-Atlantic, Midwest and North Central markets.

The softness in the industry over the last two quarters has resulted from higher gas prices and a significantly lower number of new cars sold during 2008 and 2009 that has created a temporary trough largely in the maintenance and repair window for those cars. Our analysis shows that short-term volatility is not unusual in the industry. We have completed a number of transformation actions over the last two quarters, including the restructuring and reduction in number of Advance Auto Parts (“AAP”) and Carquest US (“CQUS”) store regions, implementation of more pricing discipline in our stores and reduction in inventory. While we believe these actions are needed for the long term, there were some short-term disruption impacts during the third quarter. Despite stronger performance in our Western and Southern markets, we experienced softness in our cooling parts and chemicals category sales across many of other markets as a result of the milder summer weather. Partially offsetting the softness in our AAP/CQUS business was was the performance of certain aspects of our Professional and Canadian businesses, which grew their sales during the quarter.

As in the past several quarters, our operating profit margin reflects deliberate choices to invest in our business and improve productivity over the long term despite the sales softness. We believe these investments are necessary as we build a foundation for sustainable, long-term performance improvement.

2020. When adjusted for the following non-operational items included in the table below, our adjustedAdjusted diluted earnings per share (“Adjusted EPS”) was $1.43 duringfor the third quarter of 2017 compared to $1.73 during the comparable period of 2016:sixteen weeks ended April 24, 2021 and April 18, 2020 were $3.34 and $1.00.

  Q3 2017 Q3 2016
GPI integration and store consolidation costs $0.02
 $0.12
GPI amortization of acquired intangible assets $0.08
 $0.08
Transformation expenses $0.03
 $—
Sixteen Weeks Ended
April 24, 2021April 18, 2020
Transformation expenses$0.40 $0.19 
General Parts International, Inc. (“GPI”) amortization of acquired intangible assets0.10 0.09 
LIFO impacts0.03 0.09 


The GPI integration, store consolidation costs and amortization of acquired intangible assets relate to our acquisition of General Parts International, Inc. (“GPI”) in 2014. Beginning last quarter (second quarter of Fiscal 2017), we recognized transformation expenses which we expect to continue over the next several years as we transition from our integration of our AAP and CQUS businesses to a plan that involves a more holistic and integrated transformation of the entire company across all four banners, including Worldpac (“WP”) and Autopart International (“AI”). Refer to “Reconciliation of Non-GAAP Financial Measures” for further details of our comparable adjustments and the usefulness of such measures to investors.


13
Table of Contents
Summary of ThirdFirstQuarter Financial Results


A high-level summary of our financial results for the thirdfirst quarter of 2017 is included below:2021 includes:
 
Total•Net sales during the thirdfirst quarter of 20172021 were $2,182.2 million, a decrease$3.3 billion, an increase of 3.0%23.4% as compared to the thirdfirst quarter of 2016, which was2020, primarily comprised of adriven by an increase in comparable store sales decline of 3.4% partially offset24.7%, led by growth in new stores.both our DIY omnichannel and Professional business.
Operating income•Gross profit margin for the thirdfirst quarter of 20172021 was $156.6 million, a decrease44.6% of $37.2 million as compared to the third quarterNet sales, an increase of 2016. As a percentage of total sales, operating income was 7.2%, a decrease of 144112 basis points as compared to the thirdfirst quarter of 2016.
Inventories as of October 7, 2017 decreased $106.5 million, or 2.5%, from inventories as of December 31, 2016.2020. This decreaseincrease was primarily driven by our inventory optimization efforts.an increase in net sales, as well as due to improvements in material costs, supply chain leverage, channel mix and favorable pricing actions. These improvements were slightly offset by unfavorable product mix and headwinds associated with shrink and defectives.
We generated operating cash flow of $401.0 million•SG&A expenses for the thirdfirst quarter of 2017,2021 were 37.0% of Net sales, a decreasefavorable impact of 6.1%354 basis points as compared to the thirdfirst quarter of 2016,2020. This favorable impact was driven by fixed cost leverage, primarily duerelated to a reduction in accounts payablepayroll, as well as lower insurance and lower net incomeclaims related expenses attributable to our continued focus on safety. The savings were partially offset by decreasean increase in inventory levels.field bonus, marketing investments and an increase in third-party and service contracts related to our information technology transformational plans.


Refer to “Results of Operations” and “Liquidity and Capital Resources” for further details of our income statement and cash flow results.

Business and Risks Update

We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both Professional and DIY customers. To achieve these improvements, we have undertaken planned transformation actionsstrategic initiatives to help build a foundation for long-term success across the entire company. These transformation actions initiated during the third quarterorganization, which include:
A continued roll-out of our common catalog across all four banners - Advance Auto Parts, Carquest, Worldpac and Autopart International. This expanded catalog leverages our enterprise-wide assortment to all of our customers and will be fully enabled through each banner’s point-of-sale system. This capability also provides the customer more flexibility in originating orders across banners.
Development•Continued development of a demand-based assortment, leveraging purchase and search history and look-ups from theour common catalog, versus our existing push-down supply approach. This technology is a first step in moving from a supply-driven
•Advancement towards optimizing our footprint by market, including consolidating our Worldpac and Autopart International businesses, to a demand-driven assortment.drive share, repurpose our in-market store and asset base and streamline our distribution network.
•Continued to make progressevolution of our marketing campaigns, which focus on our customers and how we serve them every day with care and speed and the launch of the iconic DieHard® brand.
•Progress in the early developmentimplementation of a more efficient end-to-end supply chain to deliver our broad assortment.
Expanded use•Ongoing enhancement of Telematics, a fleet managementAdvance Same Day® Curbside Pick Up, Advance Same Day Home Delivery and tracking platform, that is critical for real-time fleet managementour mobile application and accurate measuremente-commerce performance.
•Actively pursuing new store openings in 2021, including through lease acquisition opportunities as available and management of customer orderappropriate, in existing markets and delivery commitments.
Creation of new DIY omnichannel capabilities to reach our customers in the manner that is most desirable for them, including the launchmarkets, as well as expansion of our enhanced website during the third quarter and eventual launch of a mobile app.independent Carquest network.


Industry Update

Operating within the automotive aftermarket industry, we are influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. These factors include, but are not limited to:
Fuel costs
Unemployment rates
Consumer confidence
Competition
Reduction in new car sales in 2008 and 2009
Miles driven
Increasing number of vehicles 11 years and older
Economic and political uncertainty
Deferral of elective automotive maintenance and improvements in new car quality

While these factors tendRefer to fluctuate, we remain confident in the long-term growth prospects for the automotive parts industry.
Our business is somewhat seasonal in nature,our 2020 Form 10-K, as updated by our subsequent filings with the highest sales usually occurringSEC, and the “Impact of COVID-19 on Our Business” section included within this Form 10-Q for further discussion of these factors.

Stores and Branches

Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the springcost of real estate. During the sixteen weeks ended April 24, 2021, 9 stores and summer months. In addition, our business can be affected significantly by weather conditions. While usually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hotbranches were opened and 14 were closed or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate.

Store Development

We serve our Professional and DIY customersconsolidated, resulting in a similar fashion through four different store brands. The table below sets forth detailtotal of our store4,971 stores and branch development activity for the twelvebranches as of April 24, 2021, compared to a total of 4,976 stores and forty weeks ended October 7, 2017, including the consolidationbranches as of stores as partJanuary 2, 2021.

14
Table of our integration plans. In addition to the changes in our store counts detailed below, during the twelve and forty weeks ended October 7, 2017, we relocated 8 and 35 of our stores.Contents
 AAP AI CARQUEST WP Total
July 15, 20174,381
 186
 506
 131
 5,204
New10
 —
 1
 —
 11
Closed(2) (1) (4) (2) (9)
Consolidated (1)
—
 —
 (3) —
 (3)
Converted (2)
37
 —
 (37) —
 —
October 7, 20174,426
 185
 463
 129
 5,203
          
December 31, 20164,273
 181
 608
 127
 5,189
New31
 5
 7
 4
 47
Closed(7) (1) (8) (2) (18)
Consolidated (1)
(3) —
 (12) —
 (15)
Converted (2)
132
 —
 (132) —
 —
October 7, 20174,426
 185
 463
 129
 5,203
(1) Consolidated stores include Carquest stores whose operations were consolidated into existing AAP locations as a result of the planned integration of Carquest.
(2) Converted stores include Carquest stores that were re-branded as an AAP store as a result of the planned integration of Carquest.


Results of Operations


The following tables set forth certain of our operating data expressed as a percentage of net sales for the periods indicated.
  Twelve Week Periods Ended $ Increase/(Decrease) Basis point Increase/(Decrease)
($ in millions) October 7, 2017 October 8, 2016  
Net sales $2,182.2
 100.0 % $2,248.9
 100.0 % $(66.6) —
Cost of sales 1,234.5
 56.6
 1,260.7
 56.1
 (26.2) 51
Gross profit 947.7
 43.4
 988.2
 43.9
 (40.5) (51)
SG&A expense 791.1
 36.3
 794.4
 35.3
 (3.3) 93
Operating income 156.6
 7.2
 193.8
 8.6
 (37.2) (144)
Interest expense (13.3) (0.6) (13.6) (0.6) 0.3
 (1)
Other income, net 0.7
 0.0
 (2.3) (0.1) 3.0
 14
Provision for income taxes 48.0
 2.2
 64.0
 2.8
 (16.0) (65)
Net income $96.0
 4.4 % $113.8
 5.1 % $(17.8) (66)
 Forty Week Periods Ended $ Increase/(Decrease) Basis point Increase/(Decrease)Sixteen Weeks Ended$ Increase/(Decrease)Basis Points
($ in millions) October 7, 2017 October 8, 2016 ($ in millions)April 24, 2021April 18, 2020
Net sales $7,336.8
 100.0 % $7,484.8
 100.0 % $(148.0) —
Net sales$3,330.4 100.0 %$2,697.9 100.0 %$632.5 — 
Cost of sales 4,125.3
 56.2
 4,136.4
 55.3
 (11.1) 96
Cost of sales1,845.4 55.4 1,525.1 56.5 320.3 (112)
Gross profit 3,211.5
 43.8
 3,348.4
 44.7
 (136.9) (96)Gross profit1,484.9 44.6 1,172.7 43.5 312.2 112 
SG&A expense 2,728.4
 37.2
 2,666.9
 35.6
 61.5
 156
SG&ASG&A1,232.8 37.0 1,094.3 40.6 138.5 (354)
Operating income 483.1
 6.6
 681.5
 9.1
 (198.4) (252)Operating income252.1 7.6 78.4 2.9 173.7 466 
Interest expense (45.7) (0.6) (46.5) (0.6) 0.8
 —
Interest expense(11.2)(0.3)(12.2)(0.5)1.0 12 
Other income, net 8.7
 0.1
 7.0
 0.1
 1.7
 3
Other income (expense), netOther income (expense), net4.8 0.1 (6.0)(0.2)10.8 37 
Provision for income taxes 155.1
 2.1
 244.7
 3.3
 (89.6) (115)Provision for income taxes59.8 1.8 16.6 0.6 43.2 118 
Net income $291.0
 4.0 % $397.3
 5.3 % $(106.3) (134)Net income$185.9 5.6 %$43.6 1.6 %$142.3 397 
Note: Table amounts may not foot due to rounding.


Net Sales


Sales decreased 3.0% duringNet sales for the third quarter of 2017sixteen weeks ended April 24, 2021 increased 23.4% as compared to the same period of 20162020, primarily driven by decreased performancean increase in comparable store sales. Comparablesales resulting from growth in both our DIY omnichannel and Professional business. We experienced over 20% comparable store sales growth across every region, with the Midwest, Northeast and Southwest regions having the strongest growth. While all product categories showed solid performance, batteries were down 3.4% for the quarter as a result of macroeconomic pressures on the automotive aftermarket industry; short-term disruptions following our transformation actions taken in the second and third quarters; and softness in our cooling parts and chemicals category sales in our Northeast, Mid-Atlantic, Midwest and North Central markets. Partially offsetting the softness in our AAP/CQUS business was the performance of certain aspects of our Professional and Canadian businesses, which grew their sales during the quarter.

For the forty weeks ended October 7, 2017, comparable stores sales declined 2.0% driven by the factors discussed above and an increase in winter-related demand in late 2016 that pulled sales outagain one of the first quarter of 2017.strongest.


We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated stores in comparable store sales from the original date of opening.


Gross Profit


The decrease in the grossGross profit rate for the twelvesixteen weeks ended October 7, 2017April 24, 2021 was $1.5 billion, or 44.6%, of Net sales, as compared to $1.2 billion, or 43.5%, of Net sales for the sixteen weeks ended April 18, 2020. This increase in Gross profit as a percentage of Net sales was primarily driven by an increase in net sales, as well as due to improvements in material costs, supply chain costsleverage, channel mix and higherfavorable pricing actions. These improvements were slightly offset by unfavorable product mix and headwinds associated with shrink and defectives.

As a result of changes in our LIFO reserve, an expense of $3.1 million and $8.8 million was included in the sixteen weeks ended April 24, 2021 and April 18, 2020.

Selling, general and administrative expenses

SG&A expenses for the sixteen weeks ended April 24, 2021 were $1.2 billion, or 37.0% of Net sales, as compared to $1.1 billion, or 40.6% of Net sales, for the sixteen weeks ended April 18, 2020. This decrease in SG&A expenses as a percentage of Net sales was driven by fixed cost leverage, primarily related to payroll, as well as lower insurance and claims related expenses attributable to our continued focus on safety. The savings were partially offset by favorable material cost performance.an increase in field bonus, marketing investments and an increase in third-party and service contracts related to our information technology transformational plans.


Similar factors drove our decrease in gross profit rateProvision for income taxes

Our Provision for income taxes for the fortysixteen weeks ended October 7, 2017 in additionApril 24, 2021 was $59.8 million, as compared to the negative impact of the planned inventory reduction. We have purchased inventory at higher costs in the past, which are reflected in the balance sheet on a LIFO basis. In addition, certain supply chain costs associated with inventory have been capitalized. As we have reduced inventory during the year, these costs resulted in a negative impact to gross profit, which was more pronounced in the second quarter. As we continue to reduce inventory, we expect cash flow improvement and a continued negative impact to gross profit.

SG&A

The increase in the SG&A rate$16.6 million for the twelvesixteen weeks ended October 7, 2017 was primarily driven by costs of customer-facing investments mainly in the areas of store labor and incentives, advertising and other support costs to better serve the customer; higher insurance costs resulting from the hurricane damage; and higher medical costs. Partially offsetting these higher expenses were lower GPI integration and store consolidation expenses, third-party fee reductions and improvements in utilities and maintenance and repair costs. The increase in SG&A for the forty weeks ended October 7, 2017 was driven by similar factors.

Income Taxes

April 18, 2020. Our effective income tax rate was 33.3% and 36.0% for the twelve weeks ended October 7, 2017 and October 8, 2016. The decrease in the effective tax rate in the third quarter was primarily related to work opportunity tax credits. Our effective income tax rate was 34.8% and 38.1% for the forty weeks ended October 7, 2017 and October 8, 2016. The decrease in the effective tax rate was primarily related to excess tax benefits from share-based payment awards24.3% and 27.6% for the sixteen weeks ended April 24, 2021 and April 18, 2020.

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Table of $4.5 million recognized as a result of the adoption of ASU 2016-09 in the first quarter of 2017 and a higher rate in 2016 due to the accrual of an estimated tax settlement of $7.7 million related to an income tax audit of GPI for time periods prior to our acquisition of GPI. This settlement was largely recovered under the escrow for indemnification claims in our purchase agreement with GPI and we, therefore, recorded corresponding income of $6.7 million in Other Income, net.Contents


Reconciliation of Non-GAAP Financial Measures


“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial measures not derived in accordance with accounting principles generally accepted accounting principlesin the United States of America (“GAAP”). Non-GAAP financial measures, including Adjusted net income and Adjusted EPS, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, weWe have presented these non-GAAP financial measures as we believe that the presentation of our financial results that exclude (1) non-operational expenses associated with (i) the integration of GPI and (ii) store closure and consolidation costs;LIFO impacts; (2) non-cash charges related to the acquired GPI intangibles; and (3) transformation expenses under our strategic business plan isplan; (3) non-cash amortization related to the acquired GPI intangible assets; and (4) other non-recurring adjustments are useful and indicative of our base operations because the expenses vary from period to period in terms of size, nature and significance and/or relate to the integration of GPI and store closure and consolidation activity in excess of historical levels. These measures assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry. The disclosure of these measures allows investors to evaluate our performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses we have determined are not normal, recurring cash operating expenses necessary to operate our business and the rationale for why providing these measures areis useful to investors as a supplement to the GAAP measures.



GPI Integration ExpensesLIFO impacts—As disclosed Beginning the first quarter of 2021, to assist in comparing our current operating results with the operational performance of other companies in our filingsindustry, the impact of LIFO on our results of operations is a reconciling item to arrive at non-GAAP financial measures.

Transformation expenses — Costs incurred in connection with the SEC, we acquired GPI for $2.08 billionour business plan that focuses on January 2, 2014 and are in the midst of a multi-year integration planspecific transformative activities that relate to integrate the operations of GPI with AAP. This includes the integration and streamlining of product brands and assortments, supply chain and information technology. The integration is being completed in phases andour operating structure across the nature and timing of expenses will vary from quarter to quarter over several years. The integration of product brands and assortments was primarily completed in 2015 and our focus shifted to integrating the supply chain and information technology systems. Due to the size of the acquisition,enterprise, that we consider these expensesdo not view to be outside of our base business. Therefore, we believe providing additional information in the form of non-GAAP measures that exclude these costs is beneficial to the users of our financial statements in evaluating thenormal cash operating performance of our base business and our sustainability once the integration is completed.

Store Closure and Consolidation Expenses—Store closure and consolidationexpenses. These expenses consist of expenses associated with our plans to convert and consolidate the Carquest stores acquired from GPI. The conversion and consolidation of the Carquest stores is a multi-year process that began in 2014. As of October 7, 2017, 345 Carquest stores acquired from GPI had been consolidated into existing AAP stores and 414 stores had been converted to the AAP format. While periodic store closures are common, these closures represent a major program outside of our typical market evaluation process. We believe it is useful to provide additional non-GAAP measures that exclude these costs to provide investors greater comparability of our base business and core operating performance. We also continue to have store closures that occur as part of our normal market evaluation process and have not excluded the expenses associated with these store closures in computing our non-GAAP measures.

Transformation Expenses—We expect to recognize a significant amount of transformation expenses over the next several years as we transition from our integration of our AAP/CQUS businesses to a plan that involves a more holistic and integrated transformation of the entire company across all four banners, including WP and AI. Theses expenses will include, but not be limited to restructuringthe following:

•Restructuring costs third party- Costs primarily relating to the early termination of lease obligations, asset impairment charges, other facility closure costs and Team Member severance in connection with our voluntary retirement program and continued optimization of our organization.
•Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the development of various information technology and othersupply chain projects in connection with our enterprise integration initiatives.
•Other significant costs - Costs primarily relating to integrateaccelerated depreciation of various legacy information technology and streamlinesupply chain systems in connection with our enterprise integration initiatives and temporary off-site workspace for project teams who are primarily working on the development of specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise. We focused

GPI amortization of acquired intangible assets — As part of our initial transformation efforts on our AAP/CQUS field structure in the second quarteracquisition of GPI, we obtained various intangible assets, including customer relationships, non-compete contracts and are beginningfavorable lease agreements, which we expect to review other areas throughout the Company such as supply chain and information technology.be subject to amortization through 2025.


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We have included a reconciliation of this information to the most comparable GAAP measures in the following table.table:


Sixteen Weeks Ended
(in thousands, except per share data)April 24, 2021April 18, 2020
Net income (GAAP)$185,930 $43,588 
Cost of sales adjustments:
Transformation expenses:
LIFO impacts (1)
3,147 8,837 
Other significant costs2,303 1,253 
SG&A adjustments:
GPI amortization of acquired intangible assets8,547 8,443 
Transformation expenses:
Restructuring costs20,742 4,064 
Third-party professional services8,034 2,983 
Other significant costs3,883 9,160 
Other income adjustment(36)— 
Provision for income taxes on adjustments (2)
(11,655)(8,685)
Adjusted net income (Non-GAAP)$220,895 $69,643 
Diluted earnings per share (GAAP)$2.81 $0.63 
Adjustments, net of tax0.53 0.37 
Adjusted EPS (Non-GAAP)$3.34 $1.00 

(1)The sixteen weeks ended April 18, 2020 non-GAAP expenses have been adjusted for the $8.8 million LIFO reserve to be comparable with our 2021 presentation.
(2)The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

17
(in millions, except per share data) Twelve Week Periods Ended Forty Week Periods Ended
  October 7, 2017 October 8, 2016 October 7, 2017 October 8, 2016
Net income (GAAP) $96.0
 $113.8
 $291.0
 $397.3
SG&A adjustments:        
GPI integration and store consolidation costs 3.6
 14.4
 23.3
 62.7
GPI amortization of acquired intangible assets 9.1
 9.4
 30.5
 31.5
Transformation expenses 3.0
 —
 35.7
 —
Other income adjustment (a)
 —
 —
 (8.9) —
Provision for income taxes on adjustments (b)
 (5.9) (9.1) (30.7) (35.8)
Adjusted net income (Non-GAAP) $105.7
 $128.6
 $341.0
 $455.7
         
Diluted earnings per share (GAAP) $1.30
 $1.53
 $3.93
 $5.36
Adjustments, net of tax 0.13
 0.20
 0.67
 0.78
Adjusted EPS (Non-GAAP) $1.43
 $1.73
 $4.60
 $6.14

Note: Table amounts may not foot due to rounding.of Contents

(a)
The adjustment to Other income for the forty weeks ended October 7, 2017 relates to income recognized from an indemnification agreement associated with the acquisition of GPI.
(b)
The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

Liquidity and Capital Resources


Overview


Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, and funding of initiatives under our strategic business plan. In addition,plan and other operational priorities. Historically, we may usehave used available funds for acquisitions, to repay borrowings under our credit agreement,facility, to periodically repurchase shares of our common stock under our stock repurchase programsprogram, to pay our quarterly cash dividends and for acquisitions; however, given uncertainties related to the paymentCOVID-19 pandemic, our future uses of quarterly cash dividends. Historically,may differ if our relative priorities, including the weight we place on the preservation of cash and liquidity, change. Typically, we have funded theseour cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our primary obligations for the next year.


Our cash and cash equivalents and outstanding indebtednessShare Repurchase Program

On April 19, 2021, our Board of Directors authorized an additional $1.0 billion to our current share repurchase program. This authorization was incremental to the $700.0 million that was authorized previously by our Board of Directors in November 2019.

During the sixteen weeks ended April 24, 2021, we repurchased 1.1 million shares of our common stock at an aggregate cost of $170.4 million, or an average price of $157.84 per share, in connection with our share repurchase program. During the sixteen weeks ended April 18, 2020, we repurchased 0.2 million shares of our common stock under the share repurchase program at an aggregate cost of $29.0 million, or an average price of $128.36 per share. We had $1.3 billion remaining under our share repurchase program as of October 7, 2017 and December 31, 2016 are as follows:April 24, 2021.

(in millions)October 7, 2017 December 31, 2016
Cash and cash equivalents$363.3
 $135.2
Long-term debt, including current portion$1,044.4
 $1,043.3

Analysis of Cash Flows


A summary and analysis ofThe following table summarizes our cash flows is included below.from operating, investing and financing activities:
Sixteen Weeks Ended
(in thousands)April 24, 2021April 18, 2020
Cash flows provided by operating activities$329,932 $10,908 
Cash flows used in investing activities(70,294)(83,132)
Cash flows (used in) provided by financing activities(216,689)936,858 
Effect of exchange rate changes on cash2,292 (3,461)
Net increase in Cash and cash equivalents$45,241 $861,173 
 Forty Week Periods Ended
(in millions)October 7, 2017 October 8, 2016
Cash flows provided by operating activities$401.0
 $427.0
Cash flows used in investing activities(154.8) (205.4)
Cash flows used in financing activities(21.9) (193.9)
Effect of exchange rate changes on cash3.8
 1.0
Net increase in cash and cash equivalents$228.1
 $28.7


Operating Activities


For the fortysixteen weeks ended October 7, 2017,April 24, 2021, net cash provided by operating activities decreasedincreased by $26.0$319.0 million to $401.0$329.9 million compared to the comparablesame period of 2016.the prior year. The net decreaseincrease in operating cash flows provided by operating activities compared to the prior year was primarily driven by a reductionthe increased cash generated from operations and improvements in accountsworking capital. In the current year, working capital included an increase in cash provided by Accounts payable lower net income and the impact of deferred taxes. This wasInventories, partially offset by a decrease in inventory levelscash provided by Accrued expenses and the timing of tax payments.Receivables, net.


Investing Activities


For the fortysixteen weeks ended October 7, 2017,April 24, 2021, net cash used in investing activities decreased by $50.6$12.8 million to $154.8$70.3 million compared to the comparablesame period of 2016.the prior year. Cash used in investing activities for the fortysixteen weeks ended October 7, 2017April 24, 2021 consisted primarily of purchases of property and equipment, which was $43.3$12.1 million lower than the prior year primarilycomparable period of 2020. Investments in 2021 included supply chain and e-commerce, as a result of lower investments in new stores andwell as information technology as compared to the comparable period of 2016.

Our primary capital requirements have been the funding of our new store development (leased and owned locations), maintenance of existing stores, investments in supply chain and information technology and GPI integration expenditures. We lease approximately 84% of our stores.


Our future capital requirements will depend in large partwe remain focused on the number and timingcomplete back office integration throughout the enterprise.

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Table of new stores we open within a given year and initiatives under our strategic business plan. In 2017, we anticipate that our capital expenditures will be approximately $250.0 million but may vary with business conditions. These investments will primarily include new store development (leased and owned locations), investments in our existing stores, GPI integration expenditures for store consolidations and conversions, completion of new distribution centers and information technology initiatives. During the forty weeks ended October 7, 2017, we opened 43 stores and four WP branches compared to 48 stores and five branches during the comparable period of last year.Contents

Financing Activities


For the fortysixteen weeks ended October 7, 2017,April 24, 2021, net cash used in financing activities was $21.9$216.7 million, a decrease of $172.0 million$1.2 billion as compared to the fortysame period of the prior year. The net cash used in financing activities during the sixteen weeks ended October 8, 2016. This decreaseApril 24, 2021 was primarily athe result of lower net repayments onthe repurchase of $170.4 million of common stock under our credit facility inshare repurchase program and dividends paid of $33.1 million. The decrease compared to the current year.first quarter of 2020 was primarily due to the issuance of $500.0 million aggregate principal amount of senior unsecured notes and borrowing $500.0 million under the Credit Agreement during the sixteen weeks ended April 18, 2020.


Since 2006, ourOur Board of Directors has declared a quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of $0.06 per share to stockholdersour Board of record.Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On November 7, 2017,April 19, 2021, our Board of Directors declared a quarterlyregular cash dividend of $0.06$1.00 per share to be paid on January 5, 2018July 2, 2021 to all common stockholders of record as of December 22, 2017.June 18, 2021.


Long-Term Debt

On January 31, 2017, we entered into a new credit agreement that provides a $1.0 billion unsecured revolving credit facility. This new revolver under our new credit agreement replaced the revolver under our previous credit agreement entered into in 2013 and is further described in Note 6, Long-term Debt, to the condensed consolidated financial statements included in this Form 10-Q.


As of October 7, 2017,April 24, 2021, we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by Standard & Poor’s and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under the 2017 Credit Agreement is based on our credit ratings. Therefore, ifIf these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may become morebe limited. In addition, itdeclines could reduce the attractiveness of ourcertain vendor payment program, where certain ofprograms whereby third-party institutions finance arrangements to our vendors finance payment obligations from us with designated third-party financial institutions,based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.


For additional information on transactions entered into relating to Long-term debt during the sixteen weeks ended April 24, 2021, refer to Note 6, Long-term Debt and Fair Value of Financial Instrumentsof the Notes to the Condensed Consolidated Financial Statements included herein.

Critical Accounting Policies and Estimates


Our financial statements have been prepared in accordance with GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates.


During the fortysixteen weeks ended October 7, 2017,April 24, 2021, there were no changes to the critical accounting policies discussed in our 20162020 Form 10-K except for the change in our operating segments as discussed in Note 1, Description of Business and Basis of Presentation, to the condensed consolidated financial statements included in this Form 10-Q. As a result, goodwill was reassigned to the affected reporting units using a relative fair value approach.

10-K. For a complete discussion of our critical accounting policies, refer to the 20162020 Form 10-K.


Internet Address
Supplemental Guarantor Financial Information

The following is a description of the terms and Accessconditions of the guarantees with respect to SEC Filingsall senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and unconditional guarantee.


Our Internet address is www.AdvanceAutoParts.com. We make available freeCertain 100% wholly owned domestic subsidiaries of charge throughthe Issuer, including our Internet websiteMaterial Subsidiaries (as defined in the Credit Agreement) serve as guarantors (“Guarantor Subsidiaries”) of our annual reportssenior unsecured notes. The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on Form 10-K, quarterly reportsthe ability of the Issuer to obtain funds from its Guarantor Subsidiaries. Certain of our wholly owned subsidiaries, including all of our foreign subsidiaries and captive insurance subsidiary, do not serve as guarantors of our senior unsecured notes (“Non-Guarantor Subsidiaries”).

The following tables present summarized financial information for the Issuer and Guarantor Subsidiaries on Form 10-Q, current reports on Form 8-K, proxy statementsa combined basis after elimination of (i) intercompany transactions and amendments to those reports filed or furnished pursuant tobalances among the Securities Exchange ActIssuer and the Guarantor Subsidiaries and (ii) equity in earnings from and investments in any subsidiaries that are a Non-Guarantor Subsidiary.

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Summarized Financial Information


Balance Sheets
Issuer and Guarantor Subsidiaries
(in millions)April 24, 2021January 2, 2021
Assets
Current assets (1)
$5,820.2 $5,796.3 
Non-current assets (2)
5,375.7 5,395.4 
Liabilities
Current liabilities$4,462.6 $4,539.1 
Intercompany payables, net due to Non-Guarantor Subsidiaries298.3 290.7 
Other non-current liabilities3,437.2 3,401.7 
(1)Current assets includes $4,250.4 million and $4,318.6 million of Inventories as soonof April 24, 2021 and January 2, 2021.
(2)Non-current assets includes $1,577.3 million and $1,585.9 million of Goodwill and Intangible assets, net as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. The SEC maintains a website that contains reports, proxy statementsof April 24, 2021 and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website atwww.sec.gov.January 2, 2021.



Statements of Operations
Issuer and Guarantor Subsidiaries
Sixteen Weeks EndedFifty-Three Weeks Ended
(in millions)April 24, 2021January 2, 2021
Net sales$3,217.1 $9,735.8 
Gross profit1,434.6 4,335.1 
Operating income298.5 687.8 
Income before provision for income taxes290.0 598.0 
Net income221.5 453.4 


ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


There have been no significant changes in our exposure to market risk since December 31, 2016.January 2, 2021. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 20162020 Form 10-K.


ITEM 4.CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


Disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the override of controls. Therefore, even those systems determined to be effective can provide only “reasonable assurance” with respect to the reliability of financial reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of our internal controls may vary over time.

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Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of October 7, 2017 in accordance with Rule 13a-15(b) under the Exchange Act.April 24, 2021. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.effective to accomplish their objectives at the reasonable assurance level.


Changes in Internal Control Over Financial Reporting


There were no changes in our internal control over financial reporting that occurred during theour quarter ended October 7, 2017April 24, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION
 

ITEM 1.LEGAL PROCEEDINGS

On February 6, 2018, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between November 14, 2016 and August 15, 2017, inclusive (the “Class Period”), was commenced against us and certain of our current and former officers in the U.S. District Court for the District of Delaware. The plaintiff alleges that the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On February 7, 2020 the court granted in part and denied in part our motion to dismiss. The surviving claims are subject to discovery. On November 6, 2020 the court granted plaintiff’s motion for class certification. We strongly dispute the allegations of the complaint and will continue to defend the case vigorously. On March 15, 2021, we moved for reconsideration of the order denying in part our motion to dismiss. This motion is pending before the court. On February 17, 2021, a derivative complaint filed on April 29, 2020 in the U.S. District Court for the District of Delaware was dismissed with prejudice. A second derivative claim filed on August 13, 2020 in the Delaware Court of Chancery was voluntarily dismissed on March 30, 2021.

ITEM 1A.RISK FACTORS

Please refer to “Item 1A. Risk Factors.” found in our 2020 Form 10-K filed for the year ended January 2, 2021 for risks that, if they were to occur, could materially adversely affect our business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of our common stock.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth the information with respect to repurchases of our common stock:stock for the quarter ended April 24, 2021:
Total Number of Shares Purchased (1)
Average Price Paid per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
January 3, 2021 to January 30, 2021365,720 $158.40 365,685 $1,374,309 
January 31, 2021 to February 27, 2021602,737 156.14 596,642 $1,281,184 
February 28, 2021 to March 27, 2021190,324 165.16 117,073 $1,261,864 
March 28, 2021 to April 24, 2021932 184.38 — $1,261,864 
Total1,159,713 $158.36 1,079,400 $1,261,864 

(1)The aggregate cost of repurchasing shares in connection with the net settlement of shares issued as a result of the vesting of restricted stock units was $13.3 million, or an average price of $165.32 per share, during the sixteen weeks ended April 24, 2021.
(2)On April 19, 2021, our Board of Directors authorized a $1.0 billion share repurchase program. This new authorization was in addition to the $700.0 million share repurchase program that was authorized by our Board of Directors in November 2019.
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(in thousands, except per share data) 
Total Number of Shares Purchased (1)
 
Average
Price Paid
per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (2)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 16, 2017 to August 12, 2017 —
 $—
 —
 $415,092
August 13, 2017 to September 9, 2017 750
 103.42
 —
 415,092
September 10, 2017 to October 7, 2017 —
 —
 —
 415,092
Total 750
 $103.42
 —
 $415,092

(1)
We repurchased 750 shares of our common stock, at an aggregate cost of $0.1 million, or an average purchase price of $103.42 per share, in connection with the net settlement of shares issued as a result of the vesting of restricted stock units during the twelve weeks ended October 7, 2017.
(2)
Our $500 million stock repurchase program was authorized by our Board of Directors on May 14, 2012.

ITEM 6.
EXHIBITS
Table of Contents
  Incorporated by ReferenceFiled
Exhibit No.Exhibit DescriptionFormExhibitFiling DateHerewith
3.1
Restated Certificate of Incorporation of Advance Auto Parts, Inc. (“Advance Auto”) (as amended effective as of May 24, 2017).
8-K3.15/31/2017 
3.2
Amended and Restated Bylaws of Advance Auto, effective May 24, 2017.
8-K3.25/31/2017 
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   X
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   X
32.1
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   X
101.INSXBRL Instance Document    
101.SCHXBRL Taxonomy Extension Schema Document    
101.CALXBRL Taxonomy Extension Calculation Linkbase Document    
101.DEFXBRL Taxonomy Extension Definition Linkbase Document    
101.LABXBRL Taxonomy Extension Labels Linkbase Document    
101.PREXBRL Taxonomy Extension Presentation Linkbase Document    
ITEM 6.EXHIBITS





  Incorporated by Reference
Exhibit No.Exhibit DescriptionFormExhibitFiling Date
10-Q3.18/14/2018
10-Q3.28/18/2020
8-K4.14/29/2010
8-K10.456/03/2011
8-K4.512/21/2012
8-K4.64/19/2013
10-Q4.115/28/2014
8-K4.69/30/2020
   
   
   
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1 *Cover Page Interactive Data file (Embedded within Inline XBRL Documents and Included in Exhibit 101.)
  * Filed herewith
  ** Furnished herewith

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Table of Contents
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ADVANCE AUTO PARTS, INC.
Date: June 2, 2021ADVANCE AUTO PARTS, INC.
November 14, 2017By:/s/ Jeffrey W. Shepherd
Jeffrey
Jeff W. Shepherd
Senior
Executive Vice President, Controller
and Chief AccountingFinancial Officer


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