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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form________________________
FORM 10-Q



(Mark One)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 7, 20178, 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
________________________


aaplogocolornotaga15.jpgaap-20221008_g1.jpg
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________

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

5008 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 classTrading symbolName of each exchange on which registered
Common Stock, $0.0001 par valueAAPNew York Stock Exchange
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).


Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐


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


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


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒


As of November 10, 2017,14, 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 59,253,716 shares.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identifiable by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “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, expectations for economic conditions and recovery 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.
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PART I. FINANCIAL INFORMATION
 
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
ADVANCE AUTO PARTS, INC. AND SUBSIDIARIESITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Inin thousands, except per share data) (Unaudited)
AssetsOctober 8, 2022January 1, 2022
Current assets:  
Cash and cash equivalents$191,204 $601,428 
Receivables, net845,667 782,785 
Inventories4,926,579 4,659,018 
Other current assets199,069 232,245 
Total current assets6,162,519 6,275,476 
Property and equipment, net of accumulated depreciation of $2,534,559 and $2,403,5671,663,939 1,528,311 
Operating lease right-of-use assets2,625,638 2,671,810 
Goodwill989,946 993,744 
Other intangible assets, net625,673 651,217 
Other assets64,364 73,651 
Total assets$12,132,079 $12,194,209 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$4,097,412 $3,922,007 
Accrued expenses681,216 777,051 
Current portion of long-term debt185,000 — 
Other current liabilities479,273 481,249 
Total current liabilities5,442,901 5,180,307 
Long-term debt1,187,916 1,034,320 
Noncurrent operating lease liabilities2,251,560 2,337,651 
Deferred income taxes433,717 410,606 
Other long-term liabilities99,910 103,034 
Total liabilities9,416,004 9,065,918 
Commitments and contingencies
Stockholders’ equity:  
Preferred stock, nonvoting, $0.0001 par value— — 
Common stock, voting, $0.0001 par value8 8 
Additional paid-in capital886,438 845,407 
Treasury stock, at cost(2,842,896)(2,300,288)
Accumulated other comprehensive loss(54,298)(22,627)
Retained earnings4,726,823 4,605,791 
Total stockholders’ equity2,716,075 3,128,291 
Total liabilities and stockholders’ equity$12,132,079 $12,194,209 

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

 

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




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

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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Inin thousands, except per share data) (Unaudited)
 Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Net sales$2,641,341 $2,621,229 $8,680,977 $8,601,014 
Cost of sales, including purchasing and warehousing costs
1,461,490 1,438,775 4,808,888 4,744,383 
Gross profit1,179,851 1,182,454 3,872,089 3,856,631 
Selling, general and administrative expenses1,002,653 953,256 3,289,940 3,130,376 
Operating income177,198 229,198 582,149 726,255 
Other, net:
Interest expense(12,039)(8,587)(35,114)(28,085)
Loss on early redemption of senior unsecured notes— — (7,408)— 
Other (expense) income, net(17,741)1,810 (18,314)7,790 
Total other, net(29,780)(6,777)(60,836)(20,295)
Income before provision for income taxes147,418 222,421 521,313 705,960 
Provision for income taxes36,436 52,608 126,137 171,521 
Net income$110,982 $169,813 $395,176 $534,439 
Basic earnings per common share$1.85 $2.70 $6.52 $8.28 
Weighted-average common shares outstanding60,053 62,854 60,656 64,555 
Diluted earnings per common share$1.84 $2.68 $6.47 $8.22 
Weighted-average common shares outstanding60,384 63,348 61,045 65,008 

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



Condensed Consolidated Statements of Comprehensive Income
(Inin thousands) (Unaudited)
 Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Net income$110,982 $169,813 $395,176 $534,439 
Other comprehensive (loss) income:
Changes in net unrecognized other postretirement costs, net of tax of $25, $25, $41 and $69(70)(70)(116)(194)
Currency translation adjustments(33,439)1,527 (31,555)5,127 
Total other comprehensive (loss) income(33,509)1,457 (31,671)4,933 
Comprehensive income$77,473 $171,270 $363,505 $539,372 
 Twelve Week Periods Ended Forty Week Periods Ended
 October 7,
2017		 October 8,
2016		 October 7,
2017		 October 8,
2016
Net income$95,996
 $113,844
 $291,005
 $397,257
Other comprehensive income (loss):       
Changes in net unrecognized other postretirement benefit costs, net of tax of $41, $88, $137 and $295(63) (136) (211) (455)
Currency translation adjustments2,225
 (4,939) 15,409
 7,018
Total other comprehensive income (loss)2,162
 (5,075) 15,198
 6,563
Comprehensive income$98,158
 $108,769
 $306,203
 $403,820







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

3
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 Forty Week Periods Ended
 October 7, 2017 October 8, 2016
Cash flows from operating activities:   
Net income$291,005
 $397,257
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization192,753
 199,262
Share-based compensation28,156
 11,664
Loss on property and equipment, net4,692
 4,602
(Benefit) provision for deferred income taxes(25,712) 21,130
Other, net2,262
 (2,657)
Net change in:   
Receivables, net(35,760) (87,488)
Inventories116,957
 (175,678)
Accounts payable(170,227) (9,222)
Accrued expenses36,564
 84,897
Other assets and liabilities(39,685) (16,735)
Net cash provided by operating activities401,005
 427,032
Cash flows from investing activities: 
  
Purchases of property and equipment(160,960) (204,213)
Proceeds from sales of property and equipment6,120
 1,483
Other, net20
 (2,672)
Net cash used in investing activities(154,820) (205,402)
Cash flows from financing activities: 
  
Increase in bank overdrafts4,676
 8,765
Borrowings under credit facilities534,400
 686,100
Payments on credit facilities(534,400) (846,100)
Dividends paid(17,828) (17,734)
Proceeds from the issuance of common stock3,142
 3,438
Tax withholdings related to the exercise of stock appreciation rights(6,414) (15,764)
Repurchase of common stock(3,380) (12,300)
Other, net(2,095) (323)
Net cash used in financing activities(21,899) (193,918)
Effect of exchange rate changes on cash3,838
 1,000
Net increase in cash and cash equivalents228,124
 28,712
Cash and cash equivalents, beginning of period
135,178
 90,782
Cash and cash equivalents, end of period
$363,302
 $119,494
    
Non-cash transactions:   
Accrued purchases of property and equipment$7,860
 $20,300
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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except per share data) (Unaudited)
Twelve Weeks Ended October 8, 2022
Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at July 16, 202260,118 $8 $875,500 $(2,766,457)$(20,789)$4,706,547 $2,794,809 
Net income— — — — — 110,982 110,982 
Total other comprehensive loss— — — — (33,509)— (33,509)
Issuance of shares upon the exercise of stock options1 — 142 — — — 142 
Restricted stock units and deferred stock units vested22 — — — — — — 
Share-based compensation— — 10,946 — — — 10,946 
Stock issued under employee stock purchase plan7 — 1,050 — — — 1,050 
Repurchases of common stock(452)— — (76,439)— — (76,439)
Cash dividends declared ($1.50 per common share)— — — — — (90,706)(90,706)
Other— — (1,200)— — — (1,200)
Balance at October 8, 202259,696 $8 $886,438 $(2,842,896)$(54,298)$4,726,823 $2,716,075 
Twelve Weeks Ended October 9, 2021
Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at July 17, 202163,499 $8 $818,126 $(1,973,371)$(23,283)$4,480,085 $3,301,565 
Net income— — — — — 169,813 169,813 
Total other comprehensive income— — — — 1,457 — 1,457 
Restricted stock units and deferred stock units vested29 — — — — — — 
Share-based compensation— — 16,040 — — — 16,040 
Stock issued under employee stock purchase plan4 — 868 — — — 868 
Repurchases of common stock(1,119)— — (230,213)— — (230,213)
Cash dividends declared ($1.00 per common share)— — — — — (62,994)(62,994)
Other— — (1)— — — (1)
Balance at October 9, 202162,413 $8 $835,033 $(2,203,584)$(21,826)$4,586,904 $3,196,535 


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

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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except per share data) (Unaudited)
Forty Weeks Ended October 8, 2022
 Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
 SharesAmount
Balance at January 1, 202262,009 $8 $845,407 $(2,300,288)$(22,627)$4,605,791 $3,128,291 
Net income— — — — — 395,176 395,176 
Total other comprehensive loss— — — — (31,671)— (31,671)
Issuance of shares upon the exercise of stock options3 — 496 — — — 496 
Restricted stock units and deferred stock units vested281 — — — — — — 
Share-based compensation— — 40,291 — — — 40,291 
Stock issued under employee stock purchase plan25 — 3,144 — — — 3,144 
Repurchases of common stock(2,622)— — (542,608)— — (542,608)
Cash dividends declared ($4.50 per common share)— — — — — (274,144)(274,144)
Other— — (2,900)— — — (2,900)
Balance at October 8, 202259,696 $8 $886,438 $(2,842,896)$(54,298)$4,726,823 $2,716,075 
Forty Weeks Ended October 9, 2021
 Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
 SharesAmount
Balance at January 2, 202166,361 $8 $783,709 $(1,394,080)$(26,759)$4,196,634 $3,559,512 
Net income— — — — — 534,439 534,439 
Total other comprehensive income— — — — 4,933 — 4,933 
Restricted stock units and deferred stock units vested277 — — — — — — 
Share-based compensation— — 49,631 — — — 49,631 
Stock issued under employee stock purchase plan23 — 1,737 — — — 1,737 
Repurchases of common stock(4,285)— — (809,504)— — (809,504)
Cash dividends declared ($2.25 per common share)— — — — — (144,169)(144,169)
Other37 — (44)— — — (44)
Balance at October 9, 202162,413 $8 $835,033 $(2,203,584)$(21,826)$4,586,904 $3,196,535 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
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Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
 Forty Weeks Ended
October 8, 2022October 9, 2021
Cash flows from operating activities:  
Net income$395,176 $534,439 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization215,224 194,737 
Share-based compensation40,291 49,631 
Loss and impairment of long-lived assets2,858 7,570 
Loss on early redemption of senior unsecured notes7,408 — 
Provision for deferred income taxes24,144 32,425 
Other, net2,064 1,388 
Net change in:
Receivables, net(66,902)(180,605)
Inventories(284,271)90,993 
Accounts payable187,331 108,393 
Accrued expenses(34,046)137,395 
Other assets and liabilities, net(6,183)(51,430)
Net cash provided by operating activities483,094 924,936 
Cash flows from investing activities:  
Purchases of property and equipment(333,639)(190,983)
Proceeds from sales of property and equipment1,821 2,102 
Net cash used in investing activities(331,818)(188,881)
Cash flows from financing activities:  
Borrowings under credit facilities1,123,000 — 
Payments on credit facilities(938,000)— 
Borrowings on senior unsecured notes348,618 — 
Payments on senior unsecured notes(201,081)— 
Dividends paid(336,230)(160,925)
Repurchases of common stock(542,608)(809,504)
Other, net463 1,691 
Net cash used in financing activities(545,838)(968,738)
Effect of exchange rate changes on cash(15,662)2,336 
Net decrease in cash and cash equivalents(410,224)(230,347)
Cash and cash equivalents, beginning of period
601,428 834,992 
Cash and cash equivalents, end of period
$191,204 $604,645 
Non-cash transactions:
Accrued purchases of property and equipment$13,126 $8,632 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
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Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)(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 Company8, 2022, we operated a total of 5,0744,747 stores and 129 distribution313 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 October 8, 2022, we served 1,335 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:
Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Percentage of Sales:
Parts and Batteries67 %68 %66 %66 %
Accessories and Chemicals20 19 20 21 
Engine Maintenance12 12 13 12 
Other1 1 1 1 
Total100 %100 %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%90.8% of inventories atas of October 7, 20178, 2022 and December 31, 2016.89.8% of inventories as of January 1, 2022. Under the LIFO method, the Company’s costour Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in 2017the forty weeks ended October 8, 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$67.5 million and $48.7$29.4 million for the twelve weeks ended October 8, 2022 and October 9, 2021 and an increase to Cost of sales of $240.8 million and $71.6 million for the forty weeks ended October 7, 20178, 2022 and October 8, 2016.9, 2021 to state inventories at LIFO.

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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 carrying 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:
October 8, 2022January 1, 2022
Inventories at first in, first out (“FIFO”)$5,134,220 $4,625,900 
Adjustments to state inventories at LIFO(207,641)33,118 
Inventories at LIFO$4,926,579 $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 LIFO212,353
 205,838
Inventories at LIFO$4,219,321
 $4,325,868



3. Exit Activities

Integration of Carquest stores

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

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

2017 Field and Support Center Restructuring

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

Total Exit Liabilities

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


4.    Intangible Assets


The Company’sOur definite-lived intangible assets include customer relationships favorable leases and non-compete agreements. Amortization expense was $10.7$7.0 million and $11.3$7.2 million for the twelve weeks ended October 7, 20178, 2022 and October 8, 20169, 2021 and $36.3$23.6 million and $37.1$24.1 million for the forty weeks ended October 7, 20178, 2022 and October 8, 2016.9, 2021.


5.    Receivables, net


Receivables, consistnet, consisted of the following:
October 8, 2022January 1, 2022
Trade$659,373 $506,725 
Vendor193,019 201,933 
Other (1)
13,820 84,289 
Total receivables866,212 792,947 
Less: allowance for credit losses(20,545)(10,162)
Receivables, net$845,667 $782,785 

(1) The decrease in Other receivables as of October 8, 2022 was primarily attributable to the release of the settlement in the second quarter of 2022 for the amount of $49.3 million, which was related to the securities class action litigation and was fully paid by our insurance carriers upon final court approval on June 13, 2022.

8
(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
Table of Contents

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)

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


Long-term debt consists of the following:
October 8, 2022January 1, 2022
4.50% Senior Unsecured Notes due December 1, 2023$— $193,220 
1.75% Senior Unsecured Notes due October 1, 2027346,816 346,382 
3.90% Senior Unsecured Notes due April 15, 2030495,427 494,718 
3.50% Senior Unsecured Notes due March 15, 2032345,673 — 
Revolver credit facility185,000 — 
$1,372,916 $1,034,320 
Less: Current portion of long-term debt(185,000)— 
Long-term debt, excluding the current portion$1,187,916 $1,034,320 
Fair value of long-term debt$998,000 $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.


Bank Debt


On January 31, 2017, the Company entered into a new credit agreement which provides aAs of October 8, 2022, we had $185.0 million of outstanding borrowings, $1.0 billion of borrowing availability and no letters of credit outstanding under our unsecured revolving credit facility (the “2017 Credit“Credit Agreement”) with Advance Stores, as Borrower, the lenders party thereto, and Bank 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 of letters of credit with a sublimit of $200.0 million. The Company may request that 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 extensions of the termination date prior to the first or second anniversary of the closing date.

. As of October 7, 2017, the CompanyJanuary 1, 2022, we had no outstanding borrowings, under the revolver and$1.2 billion of borrowing availability was $576.1 million based on applicable covenant restrictions under the Company’s leverage ratio. As of October 7, 2017, the Company hadand no letters of credit outstanding under our Credit Agreement.

As of $99.7October 8, 2022 and January 1, 2022, we had $90.2 million and $92.0 million of bilateral letters of credit issued separately from the Credit Agreement, none of which were drawn upon. These bilateral letters of credit 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 respect to a maximum leverage ratio and a minimum coverage ratio. The 2017 Credit Agreement also provides for customary events of default, including non-payment defaults, covenant defaults and cross-defaults of Advance Stores’ other material indebtedness. The Company was in compliance with its financial covenants with respect to the 2017 Credit Agreementrequired by our debt arrangements as of October 7, 2017.8, 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 cash 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 debt issuance costs of $30.5 million and $1.4 million. On April 4, 2022, we redeemed the remaining $193.2 million principal amount of our outstanding 2023 Notes with the net proceeds from the issuance of the 3.50% senior unsecured notes due March 15, 2032 (the “2032 Notes”). In connection with this early redemption, we incurred charges related to the make-whole provision and debt issuance costs of $7.0 million and $0.4 million.

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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)
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 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 Company totaling $25.7ours. These loans totaled $66.5 million and $31.7 million as of October 7, 2017. These loans8, 2022 and January 1, 2022 and 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 $62.0was $143.9 million and $86.9 million as of October 7, 2017. The Company believes8, 2022 and January 1, 2022. We believe that the likelihood of performance under these guarantees is remote.


7.    Leases

Substantially all of our leases are for facilities and vehicles. The initial term for facilities is typically five 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 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:
October 8, 2022January 1, 2022
Total operating lease liabilities$2,713,940 $2,802,772 
Less: Current portion of operating lease liabilities(462,380)(465,121)
Noncurrent operating lease liabilities$2,251,560 $2,337,651 

The current portion of operating lease liabilities is included in Other current liabilities in the accompanying Condensed Consolidated Balance Sheets.

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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)

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 was comprised of the following:
Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Operating lease cost$130,108 $124,084 $433,147 $410,253 
Variable lease cost40,910 35,144 136,183 112,864 
Total lease cost$171,018 $159,228 $569,330 $523,117 

The future maturity of lease liabilities as of October 8, 2022 were as follows:

Remainder of 2022$71,651 
2023564,385 
2024504,295 
2025470,989 
2026360,570 
Thereafter1,085,608 
Total lease payments3,057,498 
Less: Imputed interest(343,558)
Total operating lease liabilities$2,713,940 

As of October 8, 2022, our operating lease liabilities included $54.0 million related to options to extend lease terms that are reasonably certain of being exercised and excluded $100.0 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 7.0 years and 3.3% as of October 8, 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.

Other information relating to our lease liabilities is as follows:
Forty Weeks Ended
October 8, 2022October 9, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$478,658 $418,596 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$343,950 $460,351 

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.



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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)

During the twelve weeks ended October 8, 2022 and October 9, 2021, we repurchased 0.4 million and 1.1 million shares of our common stock under our share repurchase program at an aggregate cost of $75.0 million and $228.3 million, or an average price of $168.93 and $205.65 per share. During the forty weeks ended October 8, 2022 and October 9, 2021, we repurchased 2.5 million and 4.2 million shares of our common stock under our share repurchase program at an aggregate cost of $523.2 million and $791.7 million, or an average price of $207.50 and $189.43 per share. We had $1.0 billion remaining under our share repurchase program as of October 8, 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:
 Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Numerator
Net income applicable to common shares$110,982 $169,813 $395,176 $534,439 
Denominator
Basic weighted-average common shares60,053 62,854 60,656 64,555 
Dilutive impact of share-based awards331 494 389 453 
Diluted weighted-average common shares (1)
60,384 63,348 61,045 65,008 
Basic earnings per common share$1.85 $2.70 $6.52 $8.28 
Diluted earnings per common share$1.84 $2.68 $6.47 $8.22 
 Twelve Weeks Ended Forty Weeks Ended
(in thousands, except per share data)October 7,
2017		 October 8,
2016		 October 7,
2017		 October 8,
2016
Numerator       
Net income$95,996
 $113,844
 $291,005
 $397,257
Denominator     
  
Basic weighted average shares73,866
 73,638
 73,827
 73,524
Dilutive impact of share-based awards240
 222
 270
 323
Diluted weighted average shares74,106
 73,860
 74,097
 73,847
  
  
    
Basic earnings per share$1.30
 $1.54
 $3.94
 $5.38
  
  
    
Diluted earnings per share$1.30
 $1.53
 $3.93
 $5.36



8. Share-Based Compensation

During(1)For the forty week periodtwelve weeks ended October 7, 2017, the Company granted 2288, 2022, 163 thousand time-based restricted stock units (“RSUs”), 51 were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the twelve weeks ended October 9, 2021, there were no RSUs that were anti-dilutive. For the forty weeks ended October 8, 2022 and October 9, 2021, 122 thousand performance-basedand 11 thousand RSUs were excluded from the diluted calculation as their inclusion would have been anti-dilutive.

10.    Share-Based Compensation

During the forty weeks ended October 8, 2022, we granted 188 thousand time-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 general terms of the Company. The market-based RSUs will vest based onstock options are similar to awards previously granted by us. We record compensation expense for the Company’s relative total shareholder return among a designated groupgrant date fair value of peer companies during a three-year period and will be subject to a one-year holding period after vesting.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 periodweeks ended October 7, 20178, 2022 were $97.34, $151.35$201.89 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 fair value of each market-based RSU was determined using a Monte Carlo simulation model.

Totaltotal 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 period ended October 7, 2017 and the related income tax benefit recognized 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 periodweeks ended October 7, 2017 and the related income tax benefit recognized8, 2022 was $10.5$9.9 million. As of October 7, 2017,8, 2022, there was $47.5$76.0 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted averageweighted-average period of 1.71.5 years.

9. Warranty Liabilities

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

10. Condensed Consolidating Financial Statements


Certain 100% wholly owned domestic subsidiariesTable of Advance, including its Material Subsidiaries (as defined in the 2017 Credit Agreement) serve as guarantors of Advance’s senior unsecured notes (“Guarantor Subsidiaries”). The subsidiary guarantees related to Advance’s senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of Advance to obtain funds from its Guarantor Subsidiaries. Certain of Advance’s wholly owned subsidiaries, including all of its foreign subsidiaries, do not serve as guarantors of Advance’s senior unsecured notes (“Non-Guarantor Subsidiaries”).

Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, and cash flows of (i) Advance, (ii) the Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries, and (iv) the eliminations necessary to arrive at consolidated information for the Company. Investments in subsidiaries of the Company are presented under the equity method. The statement of operations eliminations relate primarily to the sale of inventory from a Non-Guarantor Subsidiary to a Guarantor Subsidiary. The balance sheet eliminations relate primarily to the elimination of intercompany receivables and payables and subsidiary investment accounts.


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


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


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

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


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

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


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

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


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


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


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



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


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

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


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


The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our 2016Annual Report on Form 10-K for the year ended January 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 0.8% in the third quarter of 2022 compared with the same period in the prior year, primarily driven by improvements in strategic pricing and growth in new store openings. Comparable store sales decreased 0.7% for the quarter primarily due to owned brand penetration. Category growth was led by batteries, fluids and chemicals and brakes.

We generated dilutedDiluted earnings per share (“Diluted EPS”) of $1.30$1.84 during our twelve weeks ended October 7, 2017 (or the third quarter of 2017)2022, inclusive of foreign currency impact of $0.20 per diluted share, compared to $1.53with $2.68 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”), a non-GAAP measure, for the twelve weeks ended October 8, 2022 and October 9, 2021 was $1.43 during the third quarter of 2017 compared to $1.73 during the comparable period of 2016:$2.84 and $3.21.

  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
 $—
Twelve Weeks EndedForty Weeks Ended
October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Last-in, first-out (“LIFO”) impacts$0.83 $0.35 $2.96 $0.82 
Transformation expenses0.09 0.10 0.37 0.64 
General Parts International, Inc. (“GPI”) amortization of acquired intangible assets0.08 0.08 0.26 0.25 
Other Income adjustments— — 0.09 — 
Total adjustments, net of tax$1.00 $0.53 $3.68 $1.71 


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 third quarter of 2017 is included below:2022 includes:
 
Total•Net sales during the third quarter of 2017 were $2,182.2 million, a decrease2022 was $2.64 billion, an increase of 3.0% as0.8% compared towith the third quarter of 2016, which was primarily comprised of a comparable store sales decline of 3.4% partially offset2021, driven by improvements in strategic pricing and growth in new stores.store openings. Comparable store sales decreased 0.7% primarily driven by an increase in owned brand penetration.
Operating income•Gross profit margin for the third quarter of 20172022 was $156.6 million,44.7% of Net sales, a decrease of $37.2 million as44 basis points compared towith the third quarter of 2016. As a percentage2021. Gross profit margin was negatively impacted by inflationary product costs, including the impact of total sales, operating income was 7.2%, a decrease of 144 basis points as comparedLIFO related expenses, unfavorable channel mix and supply chain headwinds due to the third quarter of 2016.inflation in labor and transportation costs. These costs were partially offset by improvements in strategic pricing and owned brand expansion.
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•Selling, General & Administrative (“SG&A”) expenses for the third quarter of 2017, a decrease2022 were 38.0% of 6.1% asNet sales, an increase of 159 basis points compared towith the third quarter of 2016,2021. This increase was primarily due to a reductiondriven by inflation in accounts payablestore labor, medical and lower net income partially offset by decrease in inventory levels.fuel costs.


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
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•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:
Fuel
•Inflationary pressures, including logistics and labor
•Global supply chain disruptions
•Rising fuel costs
•Miles driven
•Unemployment rates
•Consumer confidence and purchasing power
•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•Increased foreign currency exchange volatility

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 maintenance and improvements in new car quality

While these factors tend to fluctuate, we remain confident inreal estate. During 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 spring 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 hot 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 customers in a similar fashion through four different store brands. The table below sets forth detail of our store and branch development activity for the twelve and forty weeks ended October 7, 2017, including the consolidation 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, 2022, 115 stores and 35branches were opened and 27 were closed or consolidated, resulting in a total of our stores.5,060 stores and branches compared with a total of 4,972 stores and branches as of January 1, 2022.

 AAP AI CARQUEST WP Total
July 15, 20174,381
 186
 506
 131
 5,204
New10
 —
 1
 —
 11
Closed(2) (1) (4) (2) (9)
Consolidated (1)
—
 —
 (3) —
 (3)
Converted (2)
37
 —
 (37) —
 —
October 7, 20174,426
 185
 463
 129
 5,203
          
December 31, 20164,273
 181
 608
 127
 5,189
New31
 5
 7
 4
 47
Closed(7) (1) (8) (2) (18)
Consolidated (1)
(3) —
 (12) —
 (15)
Converted (2)
132
 —
 (132) —
 —
October 7, 20174,426
 185
 463
 129
 5,203
(1) Consolidated stores include Carquest stores whose operations were consolidated into existing AAP locations as a result of the planned integration of Carquest.
(2) Converted stores include Carquest stores that were re-branded as an AAP store as a result of the planned integration of Carquest.


Results of Operations

Twelve Weeks Ended$ Favorable/ (Unfavorable)Basis Points
($ in millions)October 8, 2022October 9, 2021
Net sales$2,641.3 100.0 %$2,621.2 100.0 %$20.1 — 
Cost of sales1,461.5 55.3 1,438.8 54.9 (22.7)(44)
Gross profit1,179.8 44.7 1,182.5 45.1 (2.6)(44)
SG&A1,002.7 38.0 953.3 36.4 (49.4)(159)
Operating income177.2 6.7 229.2 8.7 (52.0)(204)
Interest expense(12.0)(0.5)(8.6)(0.3)(3.4)(13)
Other (expense) income, net(17.8)(0.7)1.8 0.1 (19.6)(74)
Provision for income taxes36.4 1.4 52.6 2.0 16.2 63 
Net income$111.0 4.2 %$169.8 6.5 %$(58.8)(228)
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.

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Forty Weeks Ended$ Favorable/ (Unfavorable)Basis Points
($ in millions)October 8, 2022October 9, 2021
Net sales$8,681.0 100.0 %$8,601.0 100.0 %$80.0 — 
Cost of sales4,808.9 55.4 4,744.4 55.2 (64.5)(23)
Gross profit3,872.1 44.6 3,856.6 44.8 15.5 (23)
SG&A3,289.9 37.9 3,130.4 36.4 (159.5)(150)
Operating income582.2 6.7 726.3 8.4 (144.0)(173)
Interest expense(35.1)(0.4)(28.1)(0.3)(7.0)— 
Loss on early redemption of senior unsecured notes(7.4)(0.1)— — (7.4)— 
Other (expense) income, net(18.3)(0.2)7.8 0.1 (26.1)(30)
Provision for income taxes126.1 1.5 171.5 2.0 45.4 54 
Net income$395.2 4.6 %$534.4 6.2 %$(139.1)(149)

Note: Table amounts may not foot due to rounding.

Net Sales


Sales decreased 3.0% duringNet sales for the third quarter of 2017twelve weeks ended October 8, 2022 increased 0.8% compared towith the same period of 2016in 2021, driven by decreased performanceimprovements in comparablestrategic pricing and growth in new store sales.openings. Comparable store sales were down 3.4%decreased 0.7% for the quarter as a result of macroeconomic pressures ontwelve weeks ended October 8, 2022 compared with the automotive aftermarket industry; short-term disruptions following our transformation actions taken in the second and third quarters; and softness in our cooling partstwelve weeks ended October 9, 2021, primarily driven by owned brand penetration. Category growth was led by batteries, fluids and chemicals categoryand brakes.

Net 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.

Forfor the forty weeks ended October 7, 2017, comparable stores8, 2022 increased 0.9% compared with the same period in 2021, driven by improvements in strategic pricing and growth in new store openings, partially offset by softness in our DIY omnichannel. Comparable store sales declined 2.0% drivenslightly for the forty weeks ended October 8, 2022 compared with the forty weeks ended October 9, 2021. Category growth was led by the factors discussed abovefluids and an increase in winter-related demand in late 2016 that pulled sales out of the first quarter of 2017.chemicals as well as batteries.


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


Gross Profit


The decrease in the grossGross profit rate for the twelve weeks ended October 7, 20178, 2022 was driven$1.18 billion, or 44.7% of Net sales, compared with $1.18 billion, or 45.1% of Net sales, for the twelve weeks ended October 9, 2021. During the twelve weeks ended October 8, 2022,

Gross profit margin was negatively impacted by an increase ininflationary product costs, including the impact of LIFO related expenses, unfavorable channel mix and supply chain headwinds due to increases in labor and transportation costs. These costs and higher shrink expense partiallywere primarily offset by favorable material cost performance.improvements in strategic pricing as well as owned brand expansion.

Similar factors drove our decrease in grossGross profit rate for the forty weeks ended October 7, 20178, 2022 was $3.87 billion, or 44.6% of Net sales, compared with $3.86 billion, or 44.8% of Net sales, for the forty weeks ended October 9, 2021. This decrease in additionGross profit as a percentage of Net sales was primarily due to inflationary product costs, including the negative impact of the planned inventory reduction. We have purchased inventory at higher costsLIFO related expenses and unfavorable channel mix, partially offset by strategic pricing, product mix and owned brand expansion.

As a result of changes in our LIFO reserve, an expense of $67.5 million and $29.4 million were included in the past, which are reflectedtwelve weeks ended October 8, 2022 and October 9, 2021. An expense of $240.8 million and $71.6 million were included 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 improvementforty weeks ended October 8, 2022 and a continued negative impact to gross profit.October 9, 2021.


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Selling, General and Administrative Expenses

SG&A

The increase in the SG&A rate expenses for the twelve weeks ended October 7, 20178, 2022 were $1.0 billion, or 38.0% of Net sales, compared with $1.0 billion, or 36.4% of Net sales, for the twelve weeks ended October 9, 2021. The increase in SG&A as a percentage of Net sales for the twelve weeks ended was primarily driven by costs of customer-facing investments mainlyinflation in the areas of store labor, medical and incentives, advertising and other support costs to better serve the customer; higher insurance costs resulting from the hurricane damage; and higher medicalfuel costs. Partially offsetting these higher

SG&A expenses were lower GPI integration and store consolidation expenses, third-party fee reductions and improvements in utilities and maintenance and repair costs. The increase in SG&A for the forty weeks ended October 7, 20178, 2022 were $3.29 billion, or 37.9% of Net sales, compared with $3.13 billion, or 36.4% of Net sales, for the forty weeks ended October 9, 2021. For the forty weeks ended October 8, 2022, the increase was primarily driven by similar factors.inflation in store labor and fuel costs as well as costs related to new store openings. These costs were partially offset by a year over year decrease in incentive compensation and COVID-19 related expenses.


Loss on Early Redemption of Senior Unsecured Notes

During the forty weeks ended October 8, 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 4.50% senior unsecured notes due December 1, 2023 (“2023 Notes”).

Provision for Income Taxes


Our effectiveProvision for income tax rate was 33.3% and 36.0%taxes for the twelve weeks ended October 7, 20178, 2022 was $36.4 million, compared with $52.6 million for the twelve weeks ended October 9, 2021. Our effective tax rate was 24.7% and 23.7% for the twelve weeks ended October 8, 2022 and October 8, 2016.9, 2021. The decrease in the effective tax rate in the third quarter wasexpense primarily related to work opportunity tax credits. resulted from lower Income before provision for income taxes compared with prior year.

Our effectiveProvision for income tax rate was 34.8% and 38.1%taxes for the forty weeks ended October 7, 2017 and8, 2022 was $126.1 million, compared with $171.5 million for the forty weeks ended October 8, 2016. The decrease in the9, 2021. Our effective tax rate was primarily related to excess24.2% and 24.3% for the forty weeks ended October 8, 2022 and October 9, 2021. The decrease in tax benefitsexpense resulted from share-based payment awards of $4.5 million recognized as a result of the adoption of ASU 2016-09 in the first quarter of 2017 and a higher rate in 2016 due to the accrual of an estimated tax settlement of $7.7 million related to anlower Income before provision for income tax audit of GPI for time periodstaxes compared with prior to our acquisition of GPI. This settlement was largely recovered under the escrow for indemnification claims in our purchase agreement with GPI and we, therefore, recorded corresponding income of $6.7 million in Other Income, net.year.



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.
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•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:

Twelve Weeks EndedForty Weeks Ended
(in thousands, except per share data)October 8, 2022October 9, 2021October 8, 2022October 9, 2021
Net income (GAAP)$110,982 $169,813 $395,176 $534,439 
Cost of sales adjustments:
LIFO impacts67,491 29,410 240,758 71,599 
Transformation expenses— 143 2,572 2,611 
SG&A adjustments:
GPI amortization of acquired intangible assets6,308 6,341 21,065 21,246 
Transformation expenses:
Restructuring costs964 2,360 3,270 27,063 
Third-party professional services4,877 4,823 20,429 18,394 
Other significant costs1,155 1,492 4,231 7,406 
Other income adjustment (1)
— 36 7,408 — 
Provision for income taxes on adjustments (2)
(20,198)(11,151)(74,933)(37,080)
Adjusted net income (Non-GAAP)$171,579 $203,267 $619,976 $645,678 
Diluted earnings per share (GAAP)$1.84 $2.68 $6.47 $8.22 
Adjustments, net of tax1.00 0.53 3.68 1.71 
Adjusted EPS (Non-GAAP)$2.84 $3.21 $10.15 $9.93 

(1)During the forty weeks ended October 8, 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.

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

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

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

Liquidity and Capital Resources


Overview


Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, and funding of initiatives under our strategic business plan. In addition,plan and other operational priorities, 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 general global 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.


On March 4, 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 $1.0 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 equivalentsin privately negotiated transactions from time to time.

During the twelve weeks ended October 8, 2022 and outstanding indebtednessOctober 9, 2021, we repurchased 0.4 million and 1.1 million shares of our common stock under our share repurchase program at an aggregate cost of $75.0 million and $228.3 million, or an average price of $168.93 and $205.65 per share. During the forty weeks ended October 8, 2022 and October 9, 2021, we repurchased 2.5 million and 4.2 million shares of our common stock under our share repurchase program. The shares repurchased in connection with our share repurchase program during the forty weeks ended October 8, 2022 and October 9, 2021 were at an aggregate cost of $523.2 million and $791.7 million, or an average price of $207.50 and $189.43 per share. We had $1.0 billion remaining under our share repurchase program as of October 7, 2017 and December 31, 2016 are as follows:8, 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:
Forty Weeks Ended
(in thousands)October 8, 2022October 9, 2021
Cash flows provided by operating activities$483,094 $924,936 
Cash flows used in investing activities(331,818)(188,881)
Cash flows used in financing activities(545,838)(968,738)
Effect of exchange rate changes on cash(15,662)2,336 
Net decrease in cash and cash equivalents$(410,224)$(230,347)
 Forty Week Periods Ended
(in millions)October 7, 2017 October 8, 2016
Cash flows provided by operating activities$401.0
 $427.0
Cash flows used in investing activities(154.8) (205.4)
Cash flows used in financing activities(21.9) (193.9)
Effect of exchange rate changes on cash3.8
 1.0
Net increase in cash and cash equivalents$228.1
 $28.7


Operating Activities


For the forty weeks ended October 7, 2017, net cash8, 2022, Cash flows provided by operating activities decreased by $26.0$441.8 million to $401.0$483.1 million compared towith the comparablesame period of 2016.prior year. The net decrease in operating cash flows compared to the prior year was primarily driven by a reduction in accounts payable, lower netNet income and the impact of deferred taxes. This was partially offset by a decrease in overall working capital compared with the same period of prior year. The decrease in working capital was primarily driven by an increase in cash used by Inventories, attributable to direct product cost increases driven by inflationary pressures and an increase of inventory levels and the timingon hand.

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Table of tax payments.Contents

Investing Activities


For the forty weeks ended October 7, 2017, net cash8, 2022, Cash flows used in investing activities decreasedincreased by $50.6$142.9 million to $154.8$331.8 million compared towith the comparablesame period of 2016.prior year. Cash used in investing activities for the forty weeks ended October 7, 20178, 2022 consisted primarily of purchases of property and equipment which was $43.3of $333.6 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.

Our primary capital requirements have been the funding of ourenterprise, as well as investments in leasehold improvements for 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.openings.


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 forty weeks ended October 7, 2017,8, 2022, Cash flows used in financing activities was $545.8 million, a decrease of $422.9 million compared with the same period of prior year. The net decrease in cash used in financing activities was $21.9 million,attributable to net proceeds received from the issuance of the 2032 Notes, a decrease in share repurchases of $172.0our common stock of $266.9 million as comparedand proceeds from net borrowings under our unsecured revolving credit facility of $185.0 million during the forty weeks ended October 8, 2016. This2022. The decrease in cash used was primarily a resultpartially offset by the early redemption of lower net repayments on our credit facility2023 Notes and an increase in dividends paid of $175.3 million during the current year.forty weeks ended October 8, 2022 compared with the forty weeks ended October 9, 2021.


Since 2006, ourOur 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 declared a quarterly dividendand will depend upon our results of $0.06 per share to be paid on January 5, 2018 to all common stockholdersoperations, cash flows, capital requirements and other factors deemed relevant by our Board of record as of December 22, 2017.Directors.


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.

For additional information, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.herein.


As of October 7, 2017,8, 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.


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During the forty weeks ended October 7, 2017,8, 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


There have been no significant changes in our exposure to market risk since December 31, 2016.January 1, 2022. Refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 20162021 Form 10-K.


ITEM 4.CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


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

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.8, 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, 20178, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
 

ITEM 1.LEGAL PROCEEDINGS

On February 6, 2018, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between November 14, 2016 and August 15, 2017, inclusive (the “Class Period”), was commenced against us and certain of our current and former officers in the U.S. District Court for the District of Delaware. The plaintiff 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 final approval from the court on June 13, 2022. The settlement amount of $49.3 million was fully paid by our insurance carriers.

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.

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 October 8, 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)
July 17, 2022 to August 13, 202225 $190.65 — $1,097,338 
August 14, 2022 to September 10, 2022451,942 $169.12 443,969 $1,022,339 
September 11, 2022 to October 08, 20227 $169.06 — $1,022,339 
Total451,974 $169.19 443,969 

(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 $1.5 million, or an average price of $183.67 per share, during the twelve weeks ended October 8, 2022.
(2)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.
21
(in thousands, except per share data) 
Total Number of Shares Purchased (1)
 
Average
Price Paid
per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (2)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 16, 2017 to August 12, 2017 —
 $—
 —
 $415,092
August 13, 2017 to September 9, 2017 750
 103.42
 —
 415,092
September 10, 2017 to October 7, 2017 —
 —
 —
 415,092
Total 750
 $103.42
 —
 $415,092

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

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

  Incorporated by Reference
Exhibit No.Exhibit DescriptionFormExhibitFiling Date
10-Q3.18/14/2018
10-Q3.28/18/2020
10-K22.12/15/2022
   
   
   
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1*Cover Page Interactive Data file (Embedded within Inline XBRL Documents and Included in Exhibit 101).



* Filed herewith

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

ADVANCE AUTO PARTS, INC.
Date: November 16, 2022ADVANCE AUTO PARTS, INC./s/ William J. Pellicciotti Jr.
November 14, 2017By:/s/ Jeffrey W. Shepherd
Jeffrey W. Shepherd
William J. Pellicciotti Jr.
Senior Vice President, Controller
and Chief Accounting Officer

S-123