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 23, 2022
OR
o ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number 001-16797
________________________
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________
|
| | | | |
Delaware | 54-2049910 |
(State or other jurisdiction of incorporation or organization) | 54-2049910
(I.R.S. Employer Identification No.) |
5008 Airport4200 Six Forks Road, Roanoke, Virginia 24012Raleigh, North Carolina 27609
(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 class | | Trading symbol | | Name of each exchange on which registered |
Common Stock, $0.0001 par value | | AAP | | New 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 20, 2022, 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 60,639,825 shares.
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,” “guidance,” “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, including with respect to labor shortages or disruptions and the impact on our ability to complete store openings, deterioration of general macroeconomic conditions, 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 (“SEC”), as updated by our subsequent filings with the SEC, 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.
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
(Inin thousands, except per share data) (Unaudited) | | | | | | | | | | | |
Assets | April 23, 2022 | | January 1, 2022 |
Current assets: | | | |
Cash and cash equivalents | $ | 138,733 | | | $ | 601,428 | |
Receivables, net | 957,799 | | | 782,785 | |
Inventories | 4,778,849 | | | 4,659,018 | |
Other current assets | 182,399 | | | 232,245 | |
Total current assets | 6,057,780 | | | 6,275,476 | |
Property and equipment, net of accumulated depreciation of $2,471,936 and $2,403,567 | 1,567,986 | | | 1,528,311 | |
Operating lease right-of-use assets | 2,687,581 | | | 2,671,810 | |
Goodwill | 993,820 | | | 993,744 | |
Other intangible assets, net | 642,120 | | | 651,217 | |
Other assets | 53,194 | | | 73,651 | |
Total assets | $ | 12,002,481 | | | $ | 12,194,209 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 3,942,388 | | | $ | 3,922,007 | |
Accrued expenses | 617,793 | | | 777,051 | |
Other current liabilities | 492,393 | | | 481,249 | |
Total current liabilities | 5,052,574 | | | 5,180,307 | |
Long-term debt | 1,187,170 | | | 1,034,320 | |
Noncurrent operating lease liabilities | 2,330,532 | | | 2,337,651 | |
Deferred income taxes | 420,336 | | | 410,606 | |
Other long-term liabilities | 102,189 | | | 103,034 | |
Total liabilities | 9,092,801 | | | 9,065,918 | |
| | | |
Commitments and contingencies | 0 | | 0 |
| | | |
Stockholders’ equity: | | | |
Preferred stock, nonvoting, $0.0001 par value | — | | | — | |
Common stock, voting, $0.0001 par value | 8 | | | 8 | |
Additional paid-in capital | 862,451 | | | 845,407 | |
Treasury stock, at cost | (2,564,757) | | | (2,300,288) | |
Accumulated other comprehensive loss | (41,065) | | | (22,627) | |
Retained earnings | 4,653,043 | | | 4,605,791 | |
Total stockholders’ equity | 2,909,680 | | | 3,128,291 | |
Total liabilities and stockholders’ equity | $ | 12,002,481 | | | $ | 12,194,209 | |
|
| | | | | | | | |
| October 7, 2017 | | December 31, 2016 | |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | $ | 363,302 |
| | $ | 135,178 |
| |
Receivables, net | 679,359 |
| | 641,252 |
| |
Inventories | 4,219,321 |
| | 4,325,868 |
| |
Other current assets | 105,970 |
| | 70,466 |
| |
Total current assets | 5,367,952 |
| | 5,172,764 |
| |
Property and equipment, net of accumulated depreciation of $1,755,749 and $1,660,648 | 1,418,486 |
| | 1,446,340 |
| |
Goodwill | 994,408 |
| | 990,877 |
| |
Intangible assets, net | 608,520 |
| | 640,903 |
| |
Other assets, net | 78,858 |
| | 64,149 |
| |
| $ | 8,468,224 |
| | $ | 8,315,033 |
| |
Liabilities and Stockholders’ Equity | |
| | |
| |
Current liabilities: | |
| | |
| |
Accounts payable | 2,921,653 |
| | 3,086,177 |
| |
Accrued expenses | 572,360 |
| | 554,397 |
| |
Other current liabilities | 43,396 |
| | 35,472 |
| |
Total current liabilities | 3,537,409 |
| | 3,676,046 |
| |
Long-term debt | 1,044,008 |
| | 1,042,949 |
| |
Deferred income taxes | 429,194 |
| | 454,282 |
| |
Other long-term liabilities | 226,826 |
| | 225,564 |
| |
Commitments and contingencies |
|
| |
|
| |
Stockholders’ equity: | |
| | |
| |
Preferred stock, nonvoting, $0.0001 par value | — |
| | — |
| |
Common stock, voting, $0.0001 par value | 8 |
| | 8 |
| |
Additional paid-in capital | 656,718 |
| | 631,052 |
| |
Treasury stock, at cost | (141,482 | ) | | (138,102 | ) | |
Accumulated other comprehensive loss | (24,503 | ) | | (39,701 | ) | |
Retained earnings | 2,740,046 |
| | 2,462,935 |
| |
Total stockholders’ equity | 3,230,787 |
| | 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.
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Inin thousands, except per share data) (Unaudited) | | | | | | | | | | | | | | | |
| Sixteen Weeks Ended | | |
| April 23, 2022 | | April 24, 2021 | | | | |
Net sales | $ | 3,374,210 | | | $ | 3,330,370 | | | | | |
Cost of sales, including purchasing and warehousing costs | 1,867,690 | | | 1,845,444 | | | | | |
Gross profit | 1,506,520 | | | 1,484,926 | | | | | |
Selling, general and administrative expenses | 1,303,250 | | | 1,232,797 | | | | | |
Operating income | 203,270 | | | 252,129 | | | | | |
Other, net: | | | | | | | |
Interest expense | (12,868) | | | (11,191) | | | | | |
Loss on early redemptions of senior unsecured notes | (7,408) | | | — | | | | | |
Other income, net | 136 | | | 4,836 | | | | | |
Total other, net | (20,140) | | | (6,355) | | | | | |
Income before provision for income taxes | 183,130 | | | 245,774 | | | | | |
Provision for income taxes | 43,339 | | | 59,844 | | | | | |
Net income | $ | 139,791 | | | $ | 185,930 | | | | | |
| | | | | | | |
Basic earnings per common share | $ | 2.28 | | | $ | 2.83 | | | | | |
Weighted-average common shares outstanding | 61,261 | | | 65,688 | | | | | |
Diluted earnings per common share | $ | 2.26 | | | $ | 2.81 | | | | | |
Weighted-average common shares outstanding | 61,732 | | | 66,102 | | | | | |
|
| | | | | | | | | | | | | | | |
| 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 profit | 947,708 |
| | 988,205 |
| | 3,211,480 |
| | 3,348,351 |
|
Selling, general and administrative expenses | 791,139 |
| | 794,437 |
| | 2,728,420 |
| | 2,666,900 |
|
Operating income | 156,569 |
| | 193,768 |
| | 483,060 |
| | 681,451 |
|
Other, net: | |
| | |
| | | | |
Interest expense | (13,314 | ) | | (13,581 | ) | | (45,665 | ) | | (46,545 | ) |
Other income (expense), net | 745 |
| | (2,349 | ) | | 8,727 |
| | 7,018 |
|
Total other, net | (12,569 | ) | | (15,930 | ) | | (36,938 | ) | | (39,527 | ) |
Income before provision for income taxes | 144,000 |
| | 177,838 |
| | 446,122 |
| | 641,924 |
|
Provision for income taxes | 48,004 |
| | 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 outstanding | 73,866 |
| | 73,638 |
| | 73,827 |
| | 73,524 |
|
| | | | | | | |
Diluted earnings per share | $ | 1.30 |
| | $ | 1.53 |
| | $ | 3.93 |
| | $ | 5.36 |
|
Weighted average shares outstanding - assuming dilution | 74,106 |
| | 73,860 |
| | 74,097 |
| | 73,847 |
|
| | | | | | | |
Dividends declared per share | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.18 |
| | $ | 0.18 |
|
Condensed Consolidated Statements of Comprehensive Income
(Inin thousands) (Unaudited)
| | | | | | | | | | | | | | | |
| | | Sixteen Weeks Ended |
| | | | | April 23, 2022 | | April 24, 2021 |
Net income | | | | | $ | 139,791 | | | $ | 185,930 | |
Other comprehensive (loss) income: | | | | | | | |
Changes in net unrecognized other postretirement benefit (costs), net of tax of $9 and $19 | | | | | 24 | | | (54) | |
Currency translation adjustments | | | | | (18,462) | | | 5,347 | |
Total other comprehensive (loss) income | | | | | (18,438) | | | 5,293 | |
Comprehensive income | | | | | $ | 121,353 | | | $ | 191,223 | |
|
| | | | | | | | | | | | | | | |
| 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 adjustments | 2,225 |
| | (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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 23, 2022 |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | |
Balance at January 1, 2022 | 62,009 | | | $ | 8 | | | $ | 845,407 | | | $ | (2,300,288) | | | $ | (22,627) | | | $ | 4,605,791 | | | $ | 3,128,291 | |
Net income | — | | | — | | | — | | | — | | | — | | | 139,791 | | | 139,791 | |
Total other comprehensive loss | — | | | — | | | — | | | — | | | (18,438) | | | — | | | (18,438) | |
Issuance of shares upon the exercise of stock options | 1 | | | — | | | 233 | | | — | | | — | | | — | | | 233 | |
Restricted stock units and deferred stock units vested | 234 | | | — | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | — | | | — | | | 16,978 | | | — | | | — | | | — | | | 16,978 | |
Stock issued under employee stock purchase plan | 10 | | | — | | | 933 | | | — | | | — | | | — | | | 933 | |
Repurchases of common stock | (1,156) | | | — | | | — | | | (264,469) | | | — | | | — | | | (264,469) | |
Cash dividends declared ($1.50 per common share) | — | | | — | | | — | | | — | | | — | | | (92,539) | | | (92,539) | |
Other | — | | | — | | | (1,100) | | | — | | | — | | | — | | | (1,100) | |
Balance at April 23, 2022 | 61,098 | | | $ | 8 | | | $ | 862,451 | | | $ | (2,564,757) | | | $ | (41,065) | | | $ | 4,653,043 | | | $ | 2,909,680 | |
| | | | | | | | | | | | | |
| Sixteen Weeks Ended April 24, 2021 |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock, at Cost | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | |
Balance at January 2, 2021 | 66,361 | | | $ | 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 vested | 227 | | | — | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation | — | | | — | | | 16,260 | | | — | | | — | | | — | | | 16,260 | |
Stock issued under employee stock purchase plan | 13 | | | — | | | — | | | — | | | — | | | — | | | — | |
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 at April 24, 2021 | 65,439 | | | $ | 8 | | | $ | 799,934 | | | $ | (1,577,727) | | | $ | (21,466) | | | $ | 4,300,818 | | | $ | 3,501,567 | |
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. |
| | | | | | | |
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 amortization | 192,753 |
| | 199,262 |
|
Share-based compensation | 28,156 |
| | 11,664 |
|
Loss on property and equipment, net | 4,692 |
| | 4,602 |
|
(Benefit) provision for deferred income taxes | (25,712 | ) | | 21,130 |
|
Other, net | 2,262 |
| | (2,657 | ) |
Net change in: | | | |
Receivables, net | (35,760 | ) | | (87,488 | ) |
Inventories | 116,957 |
| | (175,678 | ) |
Accounts payable | (170,227 | ) | | (9,222 | ) |
Accrued expenses | 36,564 |
| | 84,897 |
|
Other assets and liabilities | (39,685 | ) | | (16,735 | ) |
Net cash provided by operating activities | 401,005 |
| | 427,032 |
|
Cash flows from investing activities: | |
| | |
|
Purchases of property and equipment | (160,960 | ) | | (204,213 | ) |
Proceeds from sales of property and equipment | 6,120 |
| | 1,483 |
|
Other, net | 20 |
| | (2,672 | ) |
Net cash used in investing activities | (154,820 | ) | | (205,402 | ) |
Cash flows from financing activities: | |
| | |
|
Increase in bank overdrafts | 4,676 |
| | 8,765 |
|
Borrowings under credit facilities | 534,400 |
| | 686,100 |
|
Payments on credit facilities | (534,400 | ) | | (846,100 | ) |
Dividends paid | (17,828 | ) | | (17,734 | ) |
Proceeds from the issuance of common stock | 3,142 |
| | 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 cash | 3,838 |
| | 1,000 |
|
Net increase in cash and cash equivalents | 228,124 |
| | 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 |
|
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited) | | | | | | | | | | | |
| Sixteen Weeks Ended |
| April 23, 2022 | | April 24, 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 139,791 | | | $ | 185,930 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 85,581 | | | 77,253 | |
Share-based compensation | 16,978 | | | 16,260 | |
Loss and impairment of long-lived assets | 1,237 | | | 4,732 | |
Loss on early redemptions of senior unsecured notes | 7,408 | | | — | |
Provision for deferred income taxes | 9,681 | | | 14,660 | |
Other, net | 1,020 | | | 543 | |
Net change in: | | | |
Receivables, net | (174,895) | | | (53,982) | |
Inventories | (119,550) | | | 63,883 | |
Accounts payable | 20,225 | | | 96,094 | |
Accrued expenses | (98,978) | | | (50,949) | |
Other assets and liabilities, net | 56,562 | | | (24,492) | |
Net cash (used in) provided by operating activities | (54,940) | | | 329,932 | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (114,854) | | | (70,884) | |
| | | |
Proceeds from sales of property and equipment | 828 | | | 590 | |
Net cash used in investing activities | (114,026) | | | (70,294) | |
Cash flows from financing activities: | | | |
Borrowings under credit facilities | 275,000 | | | — | |
Payments on credit facilities | (275,000) | | | — | |
Borrowings on senior unsecured notes | 348,618 | | | — | |
Payments on senior unsecured notes | (201,081) | | | — | |
Dividends paid | (154,796) | | | (33,146) | |
| | | |
Repurchases of common stock | (264,469) | | | (183,647) | |
Other, net | (2,007) | | | 104 | |
Net cash used in financing activities | (273,735) | | | (216,689) | |
Effect of exchange rate changes on cash | (19,994) | | | 2,292 | |
Net (decrease) increase in cash and cash equivalents | (462,695) | | | 45,241 | |
Cash and cash equivalents, beginning of period | 601,428 | | | 834,992 | |
Cash and cash equivalents, end of period | $ | 138,733 | | | $ | 880,233 | |
| | | |
| | | |
| | | |
| | | |
Non-cash transactions: | | | |
Accrued purchases of property and equipment | $ | 15,272 | | | $ | 3,505 | |
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
1. DescriptionNature of BusinessOperations and Basis of Presentation
Description of Business
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 23, 2022, we operated a total of 5,0744,687 stores and 129 distribution311 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 23, 2022, we served 1,318 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,”Parts” and “Carquest” and “Autopart International,” and our distribution branches operate under the “Worldpac” and “Autopart International” 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.names.
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 20162021 as filed with the SEC on February 28, 2017.15, 2022.
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 each 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 23, 2022 | | April 24, 2021 |
Percentage of Sales, by Product Group: | | | | | | | |
Parts and Batteries | | | | | 66 | % | | 66 | % |
Accessories and Chemicals | | | | | 20 | | | 21 | |
Engine Maintenance | | | | | 13 | | | 12 | |
Other | | | | | 1 | | | 1 | |
Total | | | | | 100 | % | | 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%90.3% of inventories at October 7, 2017as of April 23, 2022 and December 31, 2016.89.8% of inventories as of January 1, 2022. Under the LIFO method, the Company’sour 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 23, 2022 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$81.5 million and $48.7$3.1 million for the fortysixteen weeks ended October 7, 2017April 23, 2022 and October 8, 2016.April 24, 2021 to state inventories at LIFO.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(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:
| | | | | | | | | | | |
| April 23, 2022 | | January 1, 2022 |
Inventories at first in, first out (“FIFO”) | $ | 4,827,206 | | | $ | 4,625,900 | |
Adjustments to state inventories at LIFO | (48,357) | | | 33,118 | |
Inventories at LIFO | $ | 4,778,849 | | | $ | 4,659,018 | |
|
| | | | | | | |
(in thousands) | October 7, 2017 | | December 31, 2016 |
Inventories at FIFO | $ | 4,006,968 |
| | $ | 4,120,030 |
|
Adjustments to state inventories at LIFO | 212,353 |
| | 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$9.5 million and $11.3$9.7 million for the twelvesixteen weeks ended October 7, 2017April 23, 2022 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 24, 2021.
5. Receivables, net
Receivables, consistnet, consisted of the following:
| | | | | | | | | | | |
| April 23, 2022 | | January 1, 2022 |
Trade | $ | 652,625 | | | $ | 506,725 | |
Vendor | 224,216 | | | 201,933 | |
Other | 93,138 | | | 84,289 | |
Total receivables | 969,979 | | | 792,947 | |
Less: allowance for credit losses | (12,180) | | | (10,162) | |
Receivables, net | $ | 957,799 | | | $ | 782,785 | |
|
| | | | | | | | |
(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:
| | | | | | | | | | | |
| April 23, 2022 | | January 1, 2022 |
4.50% Senior Unsecured Notes due December 1, 2023 | $ | — | | | $ | 193,220 | |
1.75% Senior Unsecured Notes due October 1, 2027 | 346,556 | | | 346,382 | |
3.90% Senior Unsecured Notes due April 15, 2030 | 495,157 | | | 494,718 | |
3.50% Senior Unsecured Notes due March 15, 2032 | 345,457 | | | — | |
Total long-term debt | $ | 1,187,170 | | | $ | 1,034,320 | |
Fair value of long-term debt | $ | 1,104,000 | | | $ | 1,092,000 | |
|
| | | | | | | |
(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’s cashour Cash and cash equivalents, receivables, accountsReceivables, net, Accounts payable and accruedAccrued expenses approximate their fair values due to the relatively short-term nature of these instruments.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Bank Debt
OnAs of April 23, 2022 and January 31, 2017, the Company entered into a new1, 2022, we had no outstanding borrowings, $1.2 billion of borrowing availability and no letters of credit agreement which provides a $1.0 billionoutstanding under our unsecured revolving credit facility (the “2017 Credit“Credit Agreement”) with Advance Stores, as Borrower, the lenders party thereto,.
As of April 23, 2022 and BankJanuary 1, 2022, we had $90.2 million and $92.0 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 with respectrequired by our debt arrangements as of April 23, 2022.
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, payable semi-annually in arrears on June 1 and December 1, at a rate of 4.50% per year. Pursuant to a maximum leverage ratiocash tender offer that was completed on September 29, 2020, we repurchased $256.3 million of the 2023 Notes with the net proceeds from the 2027 Notes. In connection with this tender offer, we incurred charges related 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$1.4 million. On April 4, 2022, we redeemed the remaining $193.2 million principal amount of Advance Stores’ other material indebtedness. The Company was in complianceour outstanding 2023 Notes with its financial covenantsthe net proceeds from the issuance of the 3.50% senior unsecured notes due March 15, 2032 (the “2032 Notes”). In connection with respectthis early redemption, we incurred charges related to the 2017 Credit Agreementmake-whole provision and debt issuance costs of $7.0 million and $0.4 million.
Our 3.90% senior unsecured notes due April 15, 2030 (the “Original Notes”) were issued April 16, 2020, at 99.65% of the principal amount of $500.0 million, and were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The Original Notes bear interest, payable semi-annually in arrears on April 15 and October 15, at a rate of 3.90% per year. On July 28, 2020, we completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500.0 million were exchanged for a like principal amount (the “Exchange Notes” or “2030 Notes”), and which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except 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.
Our 1.75% senior unsecured notes due October 7, 2017.1, 2027 (the “2027 Notes”) were issued September 29, 2020, at 99.67% of the principal amount of $350.0 million. The 2027 Notes bear interest, payable semi-annually in arrears on April 1 and October 1, at a rate of 1.75% per year. In connection with the 2027 Notes offering, we incurred $2.9 million of debt issuance costs.
Our 2032 Notes were issued March 4, 2022, at 99.61% of the principal amount of $350.0 million. The 2032 Notes bear interest, payable semi-annually in arrears on March 15 and September 15, at a rate of 3.50% per year. In connection with the 2032 Notes offering, we incurred $3.2 million of debt issuance costs.
We may redeem some or all of the 2032 Notes at any time or from time to time, prior to December 15, 2031, at the redemption price described in the related indenture for the 2032 Notes (the “Indenture”). In addition, in the event of a change of control triggering event, as defined in the Indenture, we will be required to offer to repurchase the 2032 Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. Currently, the 2032 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.
Debt Guarantees
The Company isWe are a guarantor of loans made by banks to various independently owned Carquest brandedCarquest-branded stores that are customers of the Companyours totaling $25.7$44.5 million and $31.7 million as of October 7, 2017.April 23, 2022 and January 1, 2022. 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$105.8 million and $86.9 million as of October 7, 2017. The Company believesApril 23, 2022 and January 1, 2022. We believe that the likelihood of performance under these guarantees is remote.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
7. Leases
Substantially all of our leases are for facilities and vehicles. The initial term for facilities is typically five years to ten years, with renewal options at five-year intervals, with the exercise of lease renewal options at our sole discretion. Our vehicle and equipment leases are typically three years to six years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease liabilities consisted of the following:
| | | | | | | | | | | |
| April 23, 2022 | | January 1, 2022 |
Total operating lease liabilities | $ | 2,798,628 | | | $ | 2,802,772 | |
Less: Current portion of operating lease liabilities | (468,096) | | | (465,121) | |
Noncurrent operating lease liabilities | $ | 2,330,532 | | | $ | 2,337,651 | |
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 |
| | | | | April 23, 2022 | | April 24, 2021 |
Operating lease cost | | | | | $ | 173,035 | | | $ | 161,984 | |
Variable lease cost | | | | | 53,296 | | | 43,525 | |
Total lease cost | | | | | $ | 226,331 | | | $ | 205,509 | |
The future maturity of lease liabilities as of April 23, 2022 were as follows:
| | | | | | |
Remainder of 2022 | | $ | 355,398 | |
2023 | | 543,223 | |
2024 | | 471,972 | |
2025 | | 436,146 | |
2026 | | 330,471 | |
Thereafter | | 989,142 | |
Total lease payments | | 3,126,352 | |
Less: Imputed interest | | (327,724) | |
Total operating lease liabilities | | $ | 2,798,628 | |
As of April 23, 2022, our operating lease liabilities included $72.3 million related to options to extend lease terms that are reasonably certain of being exercised and excluded $89.1 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 were 7.1 years and 3.0% as of April 23, 2022. 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.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
Other information relating to our lease liabilities is as follows:
| | | | | | | | | | | |
| Sixteen Weeks Ended |
| April 23, 2022 | | April 24, 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 190,542 | | | $ | 185,083 | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 147,015 | | | $ | 118,448 | |
8. Share Repurchase Program
On February 8, 2022, our Board of Directors authorized an additional $1.0 billion to the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. 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 23, 2022, we repurchased 1.1 million shares of our common stock at an aggregate cost of $248.2 million, or an average price of $231.41 per share, in connection with our share repurchase program. 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. We had $1.3 billion remaining under our share repurchase program as of April 23, 2022.
9. 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 | | | | |
| April 23, 2022 | | April 24, 2021 | | | | | | | | |
Numerator | | | | | | | | | | | |
Net income applicable to common shares | $ | 139,791 | | | $ | 185,930 | | | | | | | | | |
Denominator | | | | | | | | | | | |
Basic weighted-average common shares | 61,261 | | | 65,688 | | | | | | | | | |
Dilutive impact of share-based awards | 471 | | | 414 | | | | | | | | | |
Diluted weighted-average common shares (1) | 61,732 | | | 66,102 | | | | | | | | | |
| | | | | | | | | | | |
Basic earnings per common share | $ | 2.28 | | | $ | 2.83 | | | | | | | | | |
Diluted earnings per common share | $ | 2.26 | | | $ | 2.81 | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| 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 shares | 73,866 |
| | 73,638 |
| | 73,827 |
| | 73,524 |
|
Dilutive impact of share-based awards | 240 |
| | 222 |
| | 270 |
| | 323 |
|
Diluted weighted average shares | 74,106 |
| | 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 23, 2022 and April 24, 2021, 21 thousand time-basedand 43 thousand restricted stock units (“RSUs”), 51 were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)
10. Share-Based Compensation
During the sixteen weeks ended April 23, 2022, we granted 157 thousand performance-basedtime-based RSUs, 58 thousand market-based RSUs and 25114 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 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 ten years and will be subject to a one-year holding periodvest one-third annually over three years after vesting.the date of grant. We record compensation expense for the grant date fair value of the option awards evenly over the vesting period.
The weighted averageweighted-average fair values of the time-based performance-based and market-based RSUs granted during the forty week periodsixteen weeks ended October 7, 2017April 23, 2022 were $97.34, $151.35$205.63 and $111.65$205.52 per share. The fair value of each market-based RSU was determined using a Monte Carlo simulation model. 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 weighted-average fair value of stock options granted during the sixteen weeks ended April 23, 2022 was $53.98 per share. The fair value was estimated on the date of each market-based RSU was determined using a Monte Carlo simulationgrant by applying the Black-Scholes option-pricing valuation model.
| | | | | |
| Sixteen Weeks Ended |
| April 23, 2022 |
Risk-free interest rate (1) | 1.9 | % |
Expected term (2) | 6 years |
Expected volatility (3) | 34.0 | % |
Expected dividend yield (4) | 2.6 | % |
(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 three month average stock price as of the grant date.
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 23, 2022 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$4.2 million. As of October 7, 2017,April 23, 2022, there was $47.5$101.5 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted averageweighted-average period of 1.7 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.
|
| | | | | | | |
| 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 reserves | 39,777 |
| | 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
|
| | | | | | | | | | | | | | | | | | | |
(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 assets | 23 |
| | 5,083,595 |
| | 284,491 |
| | (157 | ) | | 5,367,952 |
|
Property and equipment, net of accumulated depreciation | 108 |
| | 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, net | 4,391 |
| | 78,248 |
| | 610 |
| | (4,391 | ) | | 78,858 |
|
Investment in subsidiaries | 3,330,214 |
| | 439,076 |
| | — |
| | (3,769,290 | ) | | — |
|
Intercompany note receivable | 1,048,636 |
| | — |
| | — |
| | (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 expenses | 3,026 |
| | 549,953 |
| | 19,515 |
| | (134 | ) | | 572,360 |
|
Other current liabilities | — |
| | 43,130 |
| | 289 |
| | (23 | ) | | 43,396 |
|
Total current liabilities | 3,026 |
| | 3,266,787 |
| | 267,753 |
| | (157 | ) | | 3,537,409 |
|
Long-term debt | 1,044,008 |
| | — |
| | — |
| | — |
| | 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, net | 105,551 |
| | 230,612 |
| | — |
| | (336,163 | ) | | — |
|
Commitments and contingencies |
| |
| |
| |
| |
|
| | | | | | | | | |
Stockholders' equity | 3,230,787 |
| | 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 assets | 22 |
| | 4,893,622 |
| | 279,214 |
| | (94 | ) | | 5,172,764 |
|
Property and equipment, net of accumulated depreciation | 128 |
| | 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, net | 4,634 |
| | 63,376 |
| | 773 |
| | (4,634 | ) | | 64,149 |
|
Investment in subsidiaries | 3,008,856 |
| | 375,420 |
| | — |
| | (3,384,276 | ) | | — |
|
Intercompany note receivable | 1,048,424 |
| | — |
| | — |
| | (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 expenses | 1,505 |
| | 526,652 |
| | 26,312 |
| | (72 | ) | | 554,397 |
|
Other current liabilities | — |
| | 32,508 |
| | 2,986 |
| | (22 | ) | | 35,472 |
|
Total current liabilities | 1,505 |
| | 3,373,097 |
| | 301,538 |
| | (94 | ) | | 3,676,046 |
|
Long-term debt | 1,042,949 |
| | — |
| | — |
| | — |
| | 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, net | 101,418 |
| | 214,691 |
| | — |
| | (316,109 | ) | | — |
|
Commitments and contingencies | | | | | | | | | |
| | | | | | | | | |
Stockholders' equity | 2,916,192 |
| | 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 expenses | 5,806 |
| | 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), net | 17,832 |
| | (4,665 | ) | | (803 | ) | | (11,619 | ) | | 745 |
|
Total other, net | 5,958 |
| | (6,066 | ) | | (842 | ) | | (11,619 | ) | | (12,569 | ) |
Income before provision for income taxes | 152 |
| | 129,554 |
| | 14,294 |
| | — |
| | 144,000 |
|
Provision for income taxes | (136 | ) | | 45,626 |
| | 2,514 |
| | — |
| | 48,004 |
|
Income before equity in earnings of subsidiaries | 288 |
| | 83,928 |
| | 11,780 |
| | — |
| | 95,996 |
|
Equity in earnings of subsidiaries | 95,708 |
| | 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 expenses | 6,665 |
| | 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), net | 18,809 |
| | (4,791 | ) | | (4,689 | ) | | (11,678 | ) | | (2,349 | ) |
Total other, net | 6,877 |
| | (6,460 | ) | | (4,669 | ) | | (11,678 | ) | | (15,930 | ) |
Income before provision for income taxes | 212 |
| | 169,744 |
| | 7,882 |
| | — |
| | 177,838 |
|
Provision for income taxes | 361 |
| | 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 subsidiaries | 113,993 |
| | 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 expenses | 25,973 |
| | 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), net | 67,183 |
| | (17,430 | ) | | (1,634 | ) | | (39,392 | ) | | 8,727 |
|
Total other, net | 26,943 |
| | (22,854 | ) | | (1,635 | ) | | (39,392 | ) | | (36,938 | ) |
Income before provision for income taxes | 970 |
| | 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 subsidiaries | 2,722 |
| | 240,429 |
| | 47,854 |
| | — |
| | 291,005 |
|
Equity in earnings of subsidiaries | 288,283 |
| | 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 expenses | 17,965 |
| | 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), net | 58,524 |
| | (6,315 | ) | | (1,881 | ) | | (43,310 | ) | | 7,018 |
|
Total other, net | 18,376 |
| | (12,772 | ) | | (1,821 | ) | | (43,310 | ) | | (39,527 | ) |
Income before provision for income taxes | 411 |
| | 583,713 |
| | 57,800 |
| | — |
| | 641,924 |
|
Provision for income taxes | 1,008 |
| | 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 subsidiaries | 397,854 |
| | 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 income | 2,162 |
| | 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 income | 15,198 |
| | 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 income | 6,563 |
| | 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, net | 1 |
| | (2,095 | ) | | — |
| | (1 | ) | | (2,095 | ) |
Net cash provided by (used in) financing activities | 1 |
| | (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 equivalents | 1 |
| | 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 equivalents | 14 |
| | 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 1, 2022 (filed with the SEC on February 15, 2022), which we refer to as our 2021 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 are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are usually identified by the use of words 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 statements to be covered by, and we claim the protection under, the safe harbor provisions for forward-looking statements contained 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.
Although we believe that our plans, intentions 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 to a variety of factors. Our business could also be affected by additional factors that are presently unknown to us 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, 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 price of our common stock and the resulting exposure to securities class action litigation;
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 1.3% in the first quarter of 2022 compared with the same period in the prior year, primarily driven by growing consumer demand, namely in our professional and independent businesses. Our regional strength in comparable store sales was led by the West and Canada, along with a strong recovery in Florida and the Mid-Atlantic. Category growth was led by motor oil, batteries and brakes.
We generated dilutedDiluted earnings per share (“Diluted EPS”) of $1.30$2.26 during our twelve weeks ended October 7, 2017 (or the thirdfirst quarter of 2017)2022 compared to $1.53with $2.81 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.
2021. When adjusted for non-operational items outlined in the following non-operational items,table, our adjustedAdjusted diluted earnings per share (“Adjusted EPS”) for the sixteen weeks ended April 23, 2022 and April 24, 2021 was $1.43 during the third quarter of 2017 compared to $1.73 during the comparable period of 2016:$3.57 and $3.34.
|
| | | | | | | | |
| | 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 23, 2022 | | April 24, 2021 | | | | | | | | |
Last-in, first-out (“LIFO”) impacts | $ | 0.99 | | | $ | 0.03 | | | | | | | | | |
Transformation expenses | 0.13 | | | 0.40 | | | | | | | | | |
General Parts International, Inc. (“GPI”) amortization of acquired intangible assets | 0.10 | | | 0.10 | | | | | | | | | |
Other adjustments | 0.09 | | | — | | | | | | | | | |
Total adjustments, net of tax | $ | 1.31 | | | $ | 0.53 | | | | | | | | | |
| | | | | | | | | | | |
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” Measures” for further detailsa definition and reconciliation of our comparable adjustmentsAdjusted EPS and the usefulness of suchother non-GAAP measures to investors.the most directly comparable financial measures calculated and presented in accordance with GAAP.
Summary of ThirdQuarter Financial Results
A high-level summary of our financial results for the thirdfirst quarter of 2017 is included below:2022 includes:
Total•Net sales during the thirdfirst quarter of 2017 were $2,182.2 million, a decrease2022 was $3.4 billion, an increase of 3.0% as1.3% compared towith the thirdfirst quarter of 2016, which2021, primarily driven by our professional and independent businesses. Comparable store sales increased 0.6%.
•Gross profit margin for the first quarter of 2022 was 44.6% of Net sales, flat compared with the first quarter of 2021. Gross profit was impacted favorably due to our ongoing category management initiatives, including strategic pricing and owned brand expansion. These were offset by LIFO expense, inflationary costs and unfavorable channel and product mix.
•SG&A expenses for the first quarter of 2022 was 38.6% of Net sales, an increase of 161 basis points compared with the first quarter of 2021. This unfavorable impact was primarily comprised of a comparabledriven by inflationary cost increases in store sales decline of 3.4%labor, fuel and delivery and start-up costs from new store openings compared with prior year, partially offset by growth in new stores.
Operating income for the third quarter of 2017 was $156.6 million, a decrease of $37.2 million as compared to the third quarter of 2016. As a percentage of total sales, operating income was 7.2%, a decrease of 144 basis points as compared to the third quarter of 2016.
Inventories as of October 7, 2017 decreased $106.5 million, or 2.5%, from inventories as of December 31, 2016. This decrease was driven by our inventory optimization efforts.
We generated operating cash flow of $401.0 million for the third quarter of 2017, a decrease of 6.1% as compared to the third quarter of 2016, primarily due to a reduction in accounts payable and lower net income partially offset byyear over year decrease in inventory levels.COVID-19 related expenses and incentive compensation.
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, margin expansion and driving consistent execution for both Professionalprofessional 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 iconic DieHard® brand.
•Progress in the early developmentimplementation of a more efficient end-to-end supply chain process to deliver our broad assortment.assortment and to help lessen the impact of external constraints.
Expanded use•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, 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 quarterindependent Carquest network.
•Continued negotiations with vendors on strategic sourcing and eventual launch of a mobile app.pricing to help mitigate inflationary pressures.
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 factorsindustry, and include but are not limited to:
•Inflationary pressures, including logistics and labor
•Global supply chain disruptions
•Fuel costs
•Unemployment rates
•Consumer confidence
•Competition
Reduction•Changes in new car sales in 2008 and 2009
•Miles driven
Increasing number of vehicles 11 years and older
•Economic and politicalgeopolitical uncertainty
Deferral
Stores and Branches
Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, competitive landscape and the cost of elective automotive maintenancereal estate. During the sixteen weeks ended April 23, 2022, 35 stores and improvements in new car quality
While these factors tend to fluctuate, we remain confident in the long-term growth prospects for the automotive parts industry.
Our business is somewhat seasonal in nature, with the highest sales usually occurring in the springbranches were opened 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 hotnine 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 store4,998 stores and branch development activity for the twelvebranches compared with a total of 4,972 stores and forty weeks ended October 7, 2017, including the consolidationbranches as of stores as part 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.January 1, 2022.
|
| | | | | | | | | | | | | | |
| AAP | | AI | | CARQUEST | | WP | | Total |
July 15, 2017 | 4,381 |
| | 186 |
| | 506 |
| | 131 |
| | 5,204 |
|
New | 10 |
| | — |
| | 1 |
| | — |
| | 11 |
|
Closed | (2 | ) | | (1 | ) | | (4 | ) | | (2 | ) | | (9 | ) |
Consolidated (1) | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Converted (2) | 37 |
| | — |
| | (37 | ) | | — |
| | — |
|
October 7, 2017 | 4,426 |
| | 185 |
| | 463 |
| | 129 |
| | 5,203 |
|
| | | | | | | | | |
December 31, 2016 | 4,273 |
| | 181 |
| | 608 |
| | 127 |
| | 5,189 |
|
New | 31 |
| | 5 |
| | 7 |
| | 4 |
| | 47 |
|
Closed | (7 | ) | | (1 | ) | | (8 | ) | | (2 | ) | | (18 | ) |
Consolidated (1) | (3 | ) | | — |
| | (12 | ) | | — |
| | (15 | ) |
Converted (2) | 132 |
| | — |
| | (132 | ) | | — |
| | — |
|
October 7, 2017 | 4,426 |
| | 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sixteen Weeks Ended | | $ Favorable/ (Unfavorable) | | Basis Points |
($ in millions) | April 23, 2022 | | April 24, 2021 | | |
Net sales | $ | 3,374.2 | | | 100.0 | % | | $ | 3,330.4 | | | 100.0 | % | | $ | 43.8 | | | — | |
Cost of sales | 1,867.7 | | | 55.4 | | | 1,845.4 | | | 55.4 | | | (22.3) | | | (6) | |
Gross profit | 1,506.5 | | | 44.6 | | | 1,484.9 | | | 44.6 | | | 21.5 | | | 6 | |
SG&A | 1,303.3 | | | 38.6 | | | 1,232.8 | | | 37.0 | | | (70.5) | | | (161) | |
Operating income | 203.3 | | | 6.0 | | | 252.1 | | | 7.6 | | | (49.0) | | | (155) | |
Interest expense | (12.9) | | | (0.4) | | | (11.2) | | | (0.3) | | | (1.7) | | | (5) | |
Loss on early redemptions of senior unsecured notes | (7.4) | | | (0.2) | | | 0.0 | | | — | | | (7.4) | | | (22) | |
Other income, net | 0.1 | | | 0.0 | | | 4.8 | | | 0.1 | | | (4.7) | | | (14) | |
Provision for income taxes | 43.3 | | | 1.3 | | | 59.8 | | | 1.8 | | | 16.5 | | | 51 | |
Net income | $ | 139.8 | | | 4.1 | % | | $ | 185.9 | | | 5.6 | % | | $ | (46.3) | | | (145) | |
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) |
($ in millions) | | October 7, 2017 | | October 8, 2016 | | |
Net sales | | $ | 7,336.8 |
| | 100.0 | % | | $ | 7,484.8 |
| | 100.0 | % | | $ | (148.0 | ) | | — |
|
Cost of sales | | 4,125.3 |
| | 56.2 |
| | 4,136.4 |
| | 55.3 |
| | (11.1 | ) | | 96 |
|
Gross profit | | 3,211.5 |
| | 43.8 |
| | 3,348.4 |
| | 44.7 |
| | (136.9 | ) | | (96 | ) |
SG&A expense | | 2,728.4 |
| | 37.2 |
| | 2,666.9 |
| | 35.6 |
| | 61.5 |
| | 156 |
|
Operating income | | 483.1 |
| | 6.6 |
| | 681.5 |
| | 9.1 |
| | (198.4 | ) | | (252 | ) |
Interest expense | | (45.7 | ) | | (0.6 | ) | | (46.5 | ) | | (0.6 | ) | | 0.8 |
| | — |
|
Other income, net | | 8.7 |
| | 0.1 |
| | 7.0 |
| | 0.1 |
| | 1.7 |
| | 3 |
|
Provision for income taxes | | 155.1 |
| | 2.1 |
| | 244.7 |
| | 3.3 |
| | (89.6 | ) | | (115 | ) |
Net income | | $ | 291.0 |
| | 4.0 | % | | $ | 397.3 |
| | 5.3 | % | | $ | (106.3 | ) | | (134 | ) |
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 23, 2022 increased 1.3% compared towith the same period of 2016in 2021, primarily driven by decreased performancegrowth in comparable store sales.our professional and independent businesses. Comparable store sales were down 3.4%increased 0.6% 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 fortysixteen weeks ended October 7, 2017, comparable stores sales declined 2.0% drivenApril 23, 2022 compared with the sixteen weeks ended April 24, 2021. Category growth was led by the factors discussed abovemotor oil, batteries and an increase in winter-related demand in late 2016 that pulled sales out of the first quarter of 2017.brakes.
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 decreaseGross profit for the sixteen weeks ended April 23, 2022 was $1.5 billion, or 44.6% of Net sales, and was flat compared with the sixteen weeks ended April 24, 2021. During the sixteen weeks ended April 23, 2022, improvements in strategic pricing and owned brand expansion were offset by LIFO expense, inflationary costs and unfavorable channel and product mix.
As a result of changes in our LIFO reserve, an expense of $81.5 million and $3.1 million were included in the gross profit ratesixteen weeks ended April 23, 2022 and April 24, 2021.
Selling, General and Administrative Expenses
SG&A expenses for the twelvesixteen weeks ended October 7, 2017 was driven by anApril 23, 2022 were $1.3 billion, or 38.6% of Net sales, compared with $1.2 billion, or 37.0% of Net sales, for the sixteen weeks ended April 24, 2021. This increase in supply chain costs and higher shrink expense partially offset by favorable material cost performance.
Similar factors drove our decrease in gross profit rate for the forty weeks ended October 7, 2017 in addition to the negative impactSG&A as a percentage 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 for the twelve weeks ended October 7, 2017Net sales was primarily driven by increased inflationary pressures in store labor as well as higher fuel and delivery expenses associated with the recovery of the professional business. Additionally, we incurred higher start-up costs from new store openings when compared with the prior year. These costs were partially offset by a year over year decrease in COVID-19 related expenses and incentive compensation.
Loss on Early Redemptions of Senior Unsecured Notes
During the sixteen weeks ended April 23, 2022, we incurred charges related to a make-whole provision and debt issuance costs of customer-facing investments mainly$7.0 million and $0.4 million in connection with the areasearly redemption 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&Aour senior unsecured notes due 2023.
Provision for the forty weeks ended October 7, 2017 was driven by similar factors.
Income Taxes
Our effectiveProvision for income tax rate was 33.3% and 36.0%taxes for the twelvesixteen weeks ended October 7, 2017 and October 8, 2016. The decrease in the effective tax rate in the third quarterApril 23, 2022 was primarily related to work opportunity tax credits. Our effective income tax rate was 34.8% and 38.1%$43.3 million, compared with $59.8 million for the fortysixteen weeks ended October 7, 2017 and October 8, 2016. The decrease in theApril 24, 2021. Our effective tax rate was primarily related to excess23.7% and 24.3% for the sixteen weeks ended April 23, 2022 and April 24, 2021. The decrease in tax benefitsexpense resulted from share-based payment awards of $4.5 million recognizedlower Income before provision for income taxes compared with prior year, as well asa result of the adoption of ASU 2016-09 in the first quarter of 2017 and a higher rate in 2016 duebenefit relating to the accrualvesting of an estimated tax settlementshare-based awards.
Reconciliation of Non-GAAP Financial Measures
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 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 of product brands and assortments, supply chain and information technology. The integration is being completed in phases and the nature and timingstreamlining 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, we consider these expenses 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 the operating performance of our base business and our sustainability once the integration is completed.
Store Closure and Consolidation Expenses—Store closure and consolidation 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, restructuring costs, third party professional services and other significant costs to integrate and streamline our operating structure across the enterprise. We focusedenterprise, that we do not view to be normal cash operating expenses. These expenses include, but are not limited to the following:
•Restructuring costs - 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 initial transformation efforts onvoluntary retirement program and continued optimization of our AAP/CQUS field structure inorganization.
•Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the second quarterdevelopment of various information technology and are beginning to review other areas throughout the Company such as supply chain projects in connection with our enterprise integration initiatives.
•Other significant costs - Costs primarily relating to accelerated depreciation of various legacy information technology and information technology.supply 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.
GPI Amortization of Acquired Intangible Assets — As part of our acquisition of GPI, we obtained various intangible assets, including customer relationships, non-compete contracts and favorable lease agreements, which we expect to be subject to amortization through 2025.
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 23, 2022 | | April 24, 2021 | | | | |
Net income (GAAP) | $ | 139,791 | | | $ | 185,930 | | | | | |
Cost of sales adjustments: | | | | | | | |
LIFO impacts | 81,475 | | | 3,147 | | | | | |
Transformation expenses: | | | | | | | |
Other significant costs | 56 | | | 2,303 | | | | | |
SG&A adjustments: | | | | | | | |
GPI amortization of acquired intangible assets | 8,439 | | | 8,547 | | | | | |
Transformation expenses: | | | | | | | |
Restructuring costs | 1,491 | | | 20,742 | | | | | |
Third-party professional services | 6,924 | | | 8,034 | | | | | |
Other significant costs | 1,979 | | | 3,883 | | | | | |
Other income adjustment (1) | 7,408 | | | (36) | | | | | |
Provision for income taxes on adjustments (2) | (26,943) | | | (11,655) | | | | | |
Adjusted net income (Non-GAAP) | $ | 220,620 | | | $ | 220,895 | | | | | |
| | | | | | | |
Diluted earnings per share (GAAP) | $ | 2.26 | | | $ | 2.81 | | | | | |
Adjustments, net of tax | 1.31 | | | 0.53 | | | | | |
Adjusted EPS (Non-GAAP) | $ | 3.57 | | | $ | 3.34 | | | | | |
(1)During the sixteen weeks ended April 23, 2022, we incurred charges related to a make-whole provision and debt issuance costs of $7.0 million and $0.4 million, in connection with the early redemption of our 2023 Notes.
(2)The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.
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| | | | | | | | | | | | | | | | |
(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 |
|
| |
(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, including payment of interest on our long-term debt. 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, in consideration of ongoing uncertainties related to COVID-19 and general macroeconomic conditions, our future uses of cash may differ if our relative priorities, including the paymentweight we place on the preservation of quarterly cash dividends. Historically,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.long term.
During the sixteen weeks ended April 24, 2022, we issued our 3.50% senior unsecured notes due 2032 (the “2032 Notes”). Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included herein for further details. Proceeds from our 2032 Notes were utilized to fund the early redemption of our 2023 Notes and supplement operational and capital expenditures.
Share Repurchase Program
On February 8, 2022, our Board of Directors authorized an additional $1 billion towards the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. Our cashshare repurchase program permits the repurchase of our common stock on the open market and cash equivalents and outstanding indebtednessin privately negotiated transactions from time to time.
During the sixteen weeks ended April 23, 2022, we repurchased 1.1 million shares of our common stock at an aggregate cost of $248.2 million, or an average price of $231.41 per share, in connection with our share repurchase program. 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. We had $1.3 billion remaining under our share repurchase program as of October 7, 2017 and December 31, 2016 are as follows:April 23, 2022.
|
| | | | | | | |
(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 23, 2022 | | April 24, 2021 |
Cash flows (used in) provided by operating activities | $ | (54,940) | | | $ | 329,932 | |
Cash flows used in investing activities | (114,026) | | | (70,294) | |
Cash flows used in financing activities | (273,735) | | | (216,689) | |
Effect of exchange rate changes on cash | (19,994) | | | 2,292 | |
Net (decrease) increase in cash and cash equivalents | $ | (462,695) | | | $ | 45,241 | |
|
| | | | | | | |
| 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 cash | 3.8 |
| | 1.0 |
|
Net increase in cash and cash equivalents | $ | 228.1 |
| | $ | 28.7 |
|
Operating Activities
For the fortysixteen weeks ended October 7, 2017, net cashApril 23, 2022, Cash flows provided by operating activities decreased by $26.0$384.9 million to $401.0$54.9 million of cash used in operating activities compared towith the comparablesame period of 2016.prior year. The net decrease in operating cash flows compared towith the prior year was primarily driven by a reductiondecrease in accounts payable, loweroverall working capital, primarily driven by an increase in cash used by Inventories, Receivables, net, income and the impact of deferred taxes. This was partially offset byAccrued expenses, as well as a decrease in inventory levels and the timingcash provided by Accounts payable.
Investing Activities
For the fortysixteen weeks ended October 7, 2017, net cashApril 23, 2022, Cash flows used in investing activities decreasedincreased by $50.6$43.7 million to $154.8$114.0 million compared towith the comparablesame period of 2016.prior year. Cash used in investing activities for the fortysixteen weeks ended October 7, 2017April 23, 2022 consisted primarily of purchases of property and equipment which was $43.3of $114.9 million lower than the prior year primarily as a result of lowerattributable to investments in new stores and information technology as compared towe remain focused on a complete back office integration throughout the comparable period of 2016.enterprise and supply chain.
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 part on the number and timing 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.
Financing Activities
For the fortysixteen weeks ended October 7, 2017, netApril 23, 2022, Cash flows used in financing activities was $273.7 million, an increase of $57.0 million compared with the same period of prior year. The increase in cash used in financing activities was $21.9 million, a decrease of $172.0 million as compared the forty weeks ended October 8, 2016. This decreaseover prior year was primarily a result of lowerthe early redemption of our 2023 Notes during the sixteen weeks ended April 23, 2022. Additionally, dividends paid increased $121.7 million and share repurchases of our common stock increased $77.8 million during the sixteen weeks ended April 23, 2022 compared with the sixteen weeks ended April 24, 2021. The increase in cash used was partially offset by the net repayments on our credit facility inproceeds received from the current year.issuance of the 2032 Notes.
Since 2006, ourFrom April 24, 2022 through the date of issuance of the condensed consolidated financial statements, we borrowed $210.0 million and repaid $110.0 million under the Credit Agreement. As of the date of issuance, we had $100.0 million of borrowings outstanding under the Credit Agreement.
Our Board of Directors has declared quarterlya cash dividend every quarter since 2006. Any payments of dividends in the future will be at the discretion of $0.06 per share to stockholders of record. On November 7, 2017, our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On May 18, 2022, we declared a quarterlyregular cash dividend of $0.06$1.50 per share to be paid on January 5, 2018July 1, 2022 to all common stockholders of record as of December 22, 2017.June 17, 2022.
Long-Term Debt
On January 31, 2017,March 4, 2022, we entered into a new credit agreement that provides a $1.0 billion unsecured revolving credit facility. This new revolver underissued $350.0 million aggregate principal amount of our new credit agreement replaced2032 Notes. The 2032 Notes were issued at 99.61% of the revolver underprincipal amount of $350.0 million, are due March 15, 2032 and bear interest at 3.50% per year payable semi-annually in arrears on March 15 and September 15 of each year.
On April 3, 2022, we redeemed the remaining $193.2 million principal amount of our previous credit agreement entered into in 2013 and is further described in Note 6, Long-term Debt,outstanding 2023 Notes. In connection with this early redemption, we incurred charges related to the condensed consolidated financial statementsmake-whole provision and debt issuance costs of $7.0 million and $0.4 million.
As of October 7, 2017,April 23, 2022, 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 bothpositive and 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.
With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and unconditional guarantee, Advance Stores, a wholly owned subsidiary of the Issuer, serves as the guarantor (“Guarantor Subsidiary”). The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. Our captive insurance subsidiary, an insignificant wholly owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes.
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 23, 2022, there were no changes to the critical accounting policies discussed in our 20162021 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 20162021 Form 10-K.
Internet Address and Access to SEC Filings
Our Internet address is www.AdvanceAutoParts.com. We make available free of charge through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 as soon 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 statements 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.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
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 23, 2022. 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 23, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 alleged 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. On November 6, 2020, the court granted the plaintiff’s motion for class certification. On March 15, 2021, we moved for reconsideration of the order denying in part our motion to dismiss, and on October 15, 2021, we filed a motion for summary judgment, seeking full dismissal of the case. Following mediation, on November 5, 2021, the parties executed a confidential binding term sheet to settle all claims and on December 23, 2021, the parties executed a settlement agreement fully documenting their agreement. The settlement agreement received preliminary approval from the court on January 11, 2022 and remains subject to final court approval. The settlement amount of $49.3 million will be fully covered by our insurance carriers, and the settlement is subject to court approval.
ITEM 1A.RISK FACTORS
Please refer to “Item 1A. Risk Factors” found in our 2021 Form 10-K filed for the year ended January 1, 2022 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.
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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 23, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 2, 2022 to January 29, 2022 | | 646,647 | | | $ | 235.05 | | | 646,584 | | | $ | 1,393,552 | |
January 30, 2022 to February 26, 2022 | | 430,251 | | | $ | 225.67 | | | 425,922 | | | $ | 1,297,338 | |
February 27, 2022 to March 26, 2022 | | 77,970 | | | $ | 203.17 | | | — | | | $ | 1,297,338 | |
March 27, 2022 to April 23, 2022 | | 1,365 | | | $ | 202.68 | | | — | | | $ | 1,297,338 | |
Total | | 1,156,233 | | | $ | 229.37 | | | 1,072,506 | | | |
(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 $17.0 million, or an average price of $203.20 per share, during the sixteen weeks ended April 23, 2022.
(2)On February 8, 2022, our Board of Directors authorized an additional $1 billion to the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors.
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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.
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| | | | | |
| | Incorporated by Reference | Filed |
Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | Herewith |
| | 8-K | 3.1 | 5/31/2017 | |
| | 8-K | 3.2 | 5/31/2017 | |
| | | | | X |
| | | | | X |
| | | | | X |
101.INS | XBRL Instance Document | | | | |
101.SCH | XBRL Taxonomy Extension Schema Document | | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | | | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | | | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | | |
ITEM 6.EXHIBITS | | | | | | | | | | | | | | |
| | Incorporated by Reference |
Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date |
| | 10-Q | 3.1 | 8/14/2018 |
| | 10-Q | 3.2 | 8/18/2020 |
| Ninth Supplemental Indenture, dated as of March 4, 2022, among Advance Auto Parts, Inc., Advance Stores Company, Incorporated and Computershare Trust Company, N.A., as successor to Wells Fargo, National Association, as Trustee. | 8-K | 4.1 | 3/4/2022 |
| | 8-K | 4.2 | 3/4/2022 |
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| | 10-K | 22.1 | 2/15/2022 |
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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
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.
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| | ADVANCE AUTO PARTS, INC. |
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Date: May 24, 2022 | ADVANCE AUTO PARTS, INC. | /s/ William J. Pellicciotti Jr. |
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November 14, 2017 | By: | /s/ Jeffrey W. Shepherd |
| Jeffrey W. Shepherd
William J. Pellicciotti Jr. Senior Vice President, Controller and Chief Accounting Officer |