10-Q 1 aap-20231007.htm 10-Q aap-20231007
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
________________________________________________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 7, 2023
☐ 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
_______________________________
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ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware54-2049910
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4200 Six Forks Road, Raleigh, North Carolina 27609
(Address of principal 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 (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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 13, 2023, the number of shares of the registrant’s common stock outstanding was 59,501,990 shares.

TABLE OF CONTENTS
   
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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, including cost reduction initiatives, our intended sale of the Worldpac and Carquest Canada portions of our business, operational plans and objectives, expectations for economic conditions 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 company’s leadership transitions, our ability to complete the planned divestitures of Worldpac and Carquest Canada, our ability to hire, train and retain qualified employees, the timing and implementation of strategic initiatives, deterioration of general macroeconomic conditions, geopolitical conflicts, the highly competitive nature of our industry, demand for our products and services, access to financing on favorable terms, complexities in our inventory and supply chain and challenges with transforming and growing our business. Except as may be required by law, we undertake no obligation to update any forward-looking statements made herein. 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.
1
PART I. FINANCIAL INFORMATION
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data) (Unaudited)
AssetsOctober 7, 2023December 31, 2022
Current assets:  
Cash and cash equivalents$317,528 $269,282 
Receivables, net868,305 698,613 
Inventories, net4,949,382 4,911,053 
Other current assets185,249 163,695 
Total current assets6,320,464 6,042,643 
Property and equipment, net of accumulated depreciation of $2,797,496 and $2,590,382
1,663,080 1,690,139 
Operating lease right-of-use assets2,600,946 2,607,690 
Goodwill989,934 990,471 
Other intangible assets, net598,699 620,901 
Other assets75,809 62,429 
Total assets$12,248,932 $12,014,273 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$3,943,019 $4,136,415 
Accrued expenses714,317 641,099 
Current portion of long-term debt— 185,000 
Other current liabilities478,603 427,480 
Total current liabilities5,135,939 5,389,994 
Long-term debt1,785,717 1,188,283 
Noncurrent operating lease liabilities2,209,899 2,278,318 
Deferred income taxes382,840 415,997 
Other long-term liabilities87,669 87,214 
Total liabilities9,602,064 9,359,806 
Stockholders’ equity:  
Preferred stock, nonvoting, $0.0001 par value
— — 
Common stock, voting, $0.0001 par value (59,482 shares and 59,264 shares outstanding at October 7, 2023 and December 31, 2022, respectively)
8 8 
Additional paid-in capital937,040 897,560 
Treasury stock, at cost(2,933,005)(2,918,768)
Accumulated other comprehensive loss(47,599)(45,143)
Retained earnings4,690,424 4,720,810 
Total stockholders’ equity2,646,868 2,654,467 
Total liabilities and stockholders’ equity$12,248,932 $12,014,273 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
2
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data) (Unaudited)
 Twelve Weeks EndedForty Weeks Ended
October 7, 2023October 8, 2022October 7, 2023October 8, 2022
Net sales$2,719,079 $2,641,341 $8,822,738 $8,680,977 
Cost of sales, including purchasing and warehousing costs
1,732,420 1,462,094 5,220,200 4,821,037 
Gross profit986,659 1,179,247 3,602,538 3,859,940 
Selling, general and administrative expenses1,030,355 1,008,226 3,407,445 3,301,959 
Operating (loss) income
(43,696)171,021 195,093 557,981 
Other, net:
Interest expense(19,407)(12,039)(69,993)(35,114)
Loss on early redemption of senior unsecured notes— — — (7,408)
Other expense, net(1,216)(5,054)(206)(5,282)
Total other, net(20,623)(17,093)(70,199)(47,804)
(Loss) Income before provision for income taxes
(64,319)153,928 124,894 510,177 
Provision for income taxes(15,686)38,047 34,649 123,383 
Net (loss) income$(48,633)$115,881 $90,245 $386,794 
Basic (loss) earnings per common share
$(0.82)$1.93 $1.52 $6.38 
Weighted-average common shares outstanding59,474 60,053 59,411 60,656 
Diluted (loss) earnings per common share
$(0.82)$1.92 $1.51 $6.34 
Weighted-average common shares outstanding59,630 60,384 59,588 61,045 

Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands) (Unaudited)
 Twelve Weeks EndedForty Weeks Ended
October 7, 2023October 8, 2022October 7, 2023October 8, 2022
Net (loss) income$(48,633)$115,881 $90,245 $386,794 
Other comprehensive loss:
Changes in net unrecognized other postretirement benefits, net of tax (benefit) expense of $(13), $25, $43 and $41
(38)(70)121 (116)
Currency translation adjustments(10,737)(13,625)(2,577)(20,864)
Total other comprehensive loss
(10,775)(13,695)(2,456)(20,980)
Comprehensive (loss) income$(59,408)$102,186 $87,789 $365,814 

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 Changes in Stockholders’ Equity
(in thousands, except per share data) (Unaudited)
Twelve Weeks Ended October 7, 2023
Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at July 15, 202359,457 $8 $925,411 $(2,932,576)$(36,824)$4,754,220 $2,710,239 
Net loss— — — — — (48,633)(48,633)
Total other comprehensive loss
— — — — (10,775)— (10,775)
Restricted stock units and deferred stock units vested18 — — — — — — 
Share-based compensation— — 10,582 — — — 10,582 
Stock issued under employee stock purchase plan14 — 1,047 — — — 1,047 
Repurchases of common stock(7)— — (429)— — (429)
Cash dividends declared ($0.25 per common share)
— — — — — (15,163)(15,163)
Balance at October 7, 202359,482 $8 $937,040 $(2,933,005)$(47,599)$4,690,424 $2,646,868 
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 $(2,766,457)$(34,239)$4,698,756 $2,773,568 
Net income— — — — — 115,881 115,881 
Total other comprehensive loss— — — — (13,695)— (13,695)
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 $(2,842,896)$(47,934)$4,723,931 $2,719,547 


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

4
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 7, 2023
Common StockAdditional
Paid-in Capital		Treasury Stock, at CostAccumulated Other
Comprehensive Loss		Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at December 31, 202259,264 $8 $897,560 $(2,918,768)$(45,143)$4,720,810 $2,654,467 
Net income— — — — — 90,245 90,245 
Total other comprehensive loss
— — — — (2,456)— (2,456)
Issuance of shares upon the exercise of stock options— — — — — — — 
Restricted stock units and deferred stock units vested294 — — — — — 
Share-based compensation— — 37,435 — — — 37,435 
Stock issued under employee stock purchase plan32 — 3,045 — — — 3,045 
Repurchases of common stock(108)— — (14,237)— — (14,237)
Cash dividends declared ($2.00 per common share)
— — — — — (120,631)(120,631)
Other— — (1,000)— — — (1,000)
Balance at October 7, 202359,482 $8 $937,040 $(2,933,005)$(47,599)$4,690,424 $2,646,868 
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 $(2,300,288)$(26,954)$4,611,281 $3,129,454 
Net income— — — — — 386,794 386,794 
Total other comprehensive loss— — — — (20,980)— (20,980)
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 $(2,842,896)$(47,934)$4,723,931 $2,719,547 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
5
Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
 Forty Weeks Ended
October 7, 2023October 8, 2022
Cash flows from operating activities:  
Net income$90,245 $386,794 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization234,976 215,224 
Share-based compensation37,435 40,291 
Loss and impairment of long-lived assets1,886 2,858 
Loss on early redemption of senior unsecured notes — 7,408 
Provision for deferred income taxes(33,059)24,144 
Other, net1,499 2,064 
Net change in:
Receivables, net(170,371)(89,304)
Inventories, net(41,025)(249,729)
Accounts payable(191,871)177,103 
Accrued expenses145,704 (27,576)
Other assets and liabilities, net(45,015)(6,183)
Net cash provided by operating activities30,404 483,094 
Cash flows from investing activities:  
Purchases of property and equipment(187,201)(333,639)
Proceeds from sales of property and equipment2,001 1,821 
Net cash used in investing activities(185,200)(331,818)
Cash flows from financing activities:  
Borrowings under credit facilities4,805,000 1,123,000 
Payments on credit facilities(4,990,000)(938,000)
Borrowings on senior unsecured notes599,571 348,618 
Payments on senior unsecured notes— (201,081)
Dividends paid(194,322)(336,230)
Repurchases of common stock(14,237)(542,608)
Other, net(1,028)463 
Net cash provided by (used in) financing activities204,984 (545,838)
Effect of exchange rate changes on cash(1,942)(15,662)
Net increase (decrease) in cash and cash equivalents48,246 (410,224)
Cash and cash equivalents, beginning of period
269,282 601,428 
Cash and cash equivalents, end of period
$317,528 $191,204 
Non-cash transactions:
Accrued purchases of property and equipment$9,434 $13,126 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
6
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)


1.    Nature of Operations 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 professional installers (“professional”) and “do-it-yourself” (“DIY”) customers. The accompanying condensed consolidated financial statements have been prepared by us and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiaries, Advance Stores Company, Incorporated (“Advance Stores”) and Neuse River Insurance Company, Inc., and their subsidiaries (collectively referred to as “Advance,” “we,” “us” or “our”).

As of October 7, 2023, we operated a total of 4,785 stores and 320 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 7, 2023, we served 1,307 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” and “Carquest” and our branches operate under the “Worldpac” and “Autopart International” trade names.

Basis of Presentation

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting principles. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for 2022 as filed with the SEC on February 28, 2023.

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 year. Our first quarter of the year contains sixteen weeks. Our remaining three quarters each consist of twelve weeks.

Immaterial Restatement of Prior Period Financial Statements

As previously disclosed in our quarterly report on Form 10-Q for the period ended April 22, 2023, we identified an out of period charge of $17.3 million, which related to Selling, general and administrative (“SG&A”) expenses incurred in prior years but not previously expensed and was corrected by recognizing the charge in the sixteen weeks ended April 22, 2023. In connection with the preparation of our financial statements for the third quarter of 2023, we identified additional errors impacting Cost of sales. These errors reduced Cost of sales in periods prior to fiscal year 2023 by $10.2 million and primarily related to product returns and vendor credits. We assessed the materiality of the errors, including the presentation on prior period consolidated financial statements, on a qualitative and quantitative basis in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections. Based on this assessment, we concluded that these errors and the related impacts did not result in a material misstatement of our previously issued consolidated financial statements as of and for the fiscal year ended December 31, 2022 and our previously issued unaudited condensed consolidated interim financial statements as of and for the twelve and forty weeks ended October 8, 2022, the sixteen weeks ended April 22, 2023 and the twelve and twenty-eight weeks ended July 15, 2023. However, correcting the cumulative effect of these errors in the twelve and forty weeks ended October 7, 2023 would have had a significant effect on the results of operations for such periods.
7
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)

Therefore, we have corrected the relevant prior periods Condensed Consolidated Financial Statements and related footnotes for these and other immaterial errors for comparative purposes. We will also correct previously reported financial information for such immaterial errors in future filings, as applicable.

A summary of the corrections to the impacted financial statement line items from our previously issued financial statements are presented in Note 12. Immaterial Misstatement of Prior Period Financial Statements.

2.    Significant Accounting Policies

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:
Twelve Weeks EndedForty Weeks Ended
October 7, 2023October 8, 2022October 7, 2023October 8, 2022
Percentage of Sales:
Parts and Batteries67 %67 %66 %66 %
Accessories and Chemicals19 20 20 20 
Engine Maintenance13 12 13 13 
Other1 1 1 1 
Total100 %100 %100 %100 %

Recently Issued Accounting Pronouncements - Adopted

Supplier Finance Programs

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”), which requires a buyer in a supplier finance program to disclose sufficient information about the program, enabling users of the financial statements to understand the nature of the program and activity and changes during the period. ASU 2022-04 was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement on rollforward information, which is effective for fiscal years beginning after December 15, 2023. During the first quarter 2023, we adopted ASU 2022-04, which did not have a material impact on our consolidated financial position, results of operations and cash flows. Refer to Note 11. Supplier Finance Programs for further details.

3.    Inventories, net

Inventories, net, are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 91.8% of inventories as of October 7, 2023 and 92.2% of inventories as of December 31, 2022. Under the LIFO method, our Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the forty weeks ended October 7, 2023 and prior years. As a result of changes in the LIFO reserve, we recorded a reduction to Cost of sales of $56.1 million for the twelve weeks ended October 7, 2023 and an increase to Cost of sales of $67.5 million for the twelve weeks ended October 8, 2022 to state inventories at LIFO. For the forty weeks ended October 7, 2023 and October 8, 2022, we recorded a reduction to Cost of Sales of $89.6 million and an increase to Cost of sales of $240.8 million to state inventories at LIFO.
8
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 at the end of each fiscal year based on inventory levels and carrying costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.

Inventory balances were as follows:
October 7, 2023December 31, 2022
Inventories at first in, first out (“FIFO”), net$5,138,450 $5,189,702 
Adjustments to state inventories at LIFO(189,068)(278,649)
Inventories at LIFO, net$4,949,382 $4,911,053 

During the twelve weeks ended October 7, 2023, we commenced a strategic and operational review of the business, which included the rationalization of product assortment and planned decisive actions. As a result, we made a change in our estimate of excess inventory reserves resulting in an increase to Cost of sales of approximately $119.0 million.

4.    Intangible Assets

Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $6.7 million and $7.0 million for the twelve weeks ended October 7, 2023 and October 8, 2022, respectively, and $22.7 million and $23.6 million for the forty weeks ended October 7, 2023 and October 8, 2022, respectively.

5.    Receivables, net

Receivables, net, consisted of the following:
October 7, 2023December 31, 2022
Trade$670,106 $576,548 
Vendor200,329 126,640 
Other14,762 10,638 
Total receivables885,197 713,826 
Less: allowance for credit losses(16,892)(15,213)
Receivables, net$868,305 $698,613 

9
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 7, 2023December 31, 2022
5.90% Senior Unsecured Notes due March 9, 2026
$298,198 $— 
1.75% Senior Unsecured Notes due October 1, 2027
347,383 346,947 
5.95% Senior Unsecured Notes due March 9, 2028
298,011 — 
3.90% Senior Unsecured Notes due April 15, 2030
496,014 495,562 
3.50% Senior Unsecured Notes due March 15, 2032
346,111 345,774 
Revolving credit facility
— 185,000 
$1,785,717 $1,373,283 
Less: Current portion of long-term debt— (185,000)
Long-term debt, excluding the current portion$1,785,717 $1,188,283 
Fair value of long-term debt$1,518,769 $1,021,396 

Fair Value of Financial Assets and Liabilities

The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The carrying amounts of our Cash and cash equivalents, Receivables, net, Accounts payable and Accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.

Bank Debt

On February 27, 2023, we entered into Amendment No. 1 (the “Amendment No. 1”) to the Credit Agreement dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “2021 Credit Agreement”). Amendment No. 1 extended the maturity date of the 2021 Credit Agreement by one year from November 9, 2026, to November 9, 2027 and replaced an adjusted LIBOR benchmark rate with a term secured overnight financing rate benchmark rate, as adjusted by an increase of ten basis points, plus the applicable margin under the 2021 Credit Agreement. Amendment No. 1 made no other material changes to the terms of the 2021 Credit Agreement. On August 21, 2023, we entered into Amendment No. 2 (“Amendment No. 2”) to the 2021 Credit Agreement in order to amend certain financial covenants related to the Consolidated Coverage Ratio (as defined therein). Pursuant to Amendment No. 2, we will not permit the Consolidated Coverage Ratio for each period of four fiscal quarters to be less than (a) 1.75 to 1.00 for quarters ending on October 7, 2023 and December 30, 2023, (b) 2.0 to 1.00 for quarters ending on April 20, 2024 through and including the quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for quarters ending after October 4, 2025. Amendment No. 2 made no other material changes to the terms of the 2021 Credit Agreement. On November 20, 2023, we entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement to further amend certain financial covenants related to the Consolidated Coverage Ratio. Refer to Note 14. Subsequent Event for further details.

As of October 7, 2023, we had no outstanding borrowings, $1.2 billion of borrowing availability and no letters of credit outstanding under the 2021 Credit Agreement. As of December 31, 2022, we had $185.0 million outstanding borrowings, $1.0 billion of borrowing availability and no letters of credit outstanding under the 2021 Credit Agreement.

10
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)

As of October 7, 2023 and December 31, 2022, we had $91.0 million and $90.2 million of bilateral letters of credit issued separately from the 2021 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 our self-insurance policies.

Senior Unsecured Notes
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 3.50% senior unsecured notes due 2032 (the “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.

Our 5.90% senior unsecured notes due March 9, 2026 (the “2026 Notes”) were issued March 9, 2023, at 99.94% of the principal amount of $300.0 million. The 2026 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.90% per year. In connection with the 2026 Notes offering, we incurred $1.6 million of debt issuance costs.

Our 5.95% senior unsecured notes due March 9, 2028 (the “2028 Notes”) were issued March 9, 2023, at 99.92% of the principal amount of $300.0 million. The 2028 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.95% per year. In connection with the 2028 Notes offering, we incurred $1.7 million of debt issuance costs.

We may redeem some or all of our 2026 Notes and 2028 Notes (the “Notes”) at any time, or from time to time, prior to March 9, 2026 in the case of our 2026 Notes, or February 9, 2028 in the case of our 2028 Notes, at the redemption price described in the related indenture for the Notes (the “Indenture”). In the event of a change of control triggering event, as defined in the Indenture, we will be required to offer the repurchase of the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. Currently, the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.

11
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)

Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are customers of ours. These loans totaled $104.8 million and $96.9 million as of October 7, 2023 and December 31, 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 was $210.4 million and $174.6 million as of October 7, 2023 and December 31, 2022.

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 typically at five-year intervals, and the exercise of lease renewal options at our sole discretion. Our vehicle and equipment lease terms are typically three to six years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease cost is included in Cost of sales and SG&A expenses 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 7, 2023October 8, 2022October 7, 2023October 8, 2022
Operating lease cost$133,871 $130,108 $438,461 $433,147 
Variable lease cost40,974 40,910 133,407 136,183 
Total lease cost$174,845 $171,018 $571,868 $569,330 

Other information relating to our lease liabilities is as follows:
Forty Weeks Ended
October 7, 2023October 8, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$444,391 $478,658 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$360,319 $343,950 

8.    Share Repurchase Program

Our Board of Directors had previously authorized a total aggregate of $2.7 billion for our share repurchase program. Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time.

During the twelve weeks ended and forty weeks ended October 7, 2023, we did not purchase any shares of our common stock under our share repurchase program. During the twelve weeks ended October 8, 2022, we repurchased 0.4 million shares at an aggregate cost of $75.0 million, or an average price of $168.93 per share. During the forty weeks ended October 8, 2022, we repurchased 2.5 million shares of our common stock under our share repurchase program at an aggregate cost of $523.2 million, or an average price of $207.50 per share. We had $947.3 million remaining under our share repurchase program as of October 7, 2023.
12
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)


9.    Earnings per Share

The computations of basic and diluted earnings per share were as follows:
 Twelve Weeks EndedForty Weeks Ended
October 7, 2023October 8, 2022October 7, 2023October 8, 2022
Numerator
Net (loss) income applicable to common shares
$(48,633)$115,881 $90,245 $386,794 
Denominator
Basic weighted-average common shares59,474 60,053 59,411 60,656 
Dilutive impact of share-based awards156 331 177 389 
Diluted weighted-average common shares (1)
59,630 60,384 59,588 61,045 
Basic (loss) earnings per common share
$(0.82)$1.93 $1.52 $6.38 
Diluted (loss) earnings per common share
$(0.82)$1.92 $1.51 $6.34 

(1)For the twelve weeks ended October 7, 2023 and October 8, 2022, 515 thousand and 163 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the forty weeks ended October 7, 2023 and October 8, 2022, 299 thousand and 122 thousand RSUs were excluded from the diluted calculation as their inclusion would have been anti-dilutive.

10.    Share-Based Compensation

During the twelve weeks ended October 7, 2023, we granted 133 thousand time-based RSUs and 150 thousand stock options. During the forty weeks ended October 7, 2023, we granted 546 thousand time-based RSUs, 22 thousand performance-based RSUs, 73 thousand market-based RSUs and 298 thousand stock options. The general terms of the time-based and market-based RSUs are similar to awards previously granted by us. The performance-based RSUs granted may vest following a one-year period subject to the achievement of certain financial goals and employment service as specified in the grant agreement. We grant options to purchase common stock to certain employees under our 2023 Omnibus Incentive Compensation Plan, which recently replaced our 2014 Long-Term Incentive Plan (the “Prior Plan”). Options issued prior to June 2023 were granted under the Prior Plan. The general terms of the stock options will be similar to awards previously granted. We record compensation expense for the grant date fair value of the option awards evenly over the vesting period.

The weighted-average fair values of the time-based RSUs granted during the twelve weeks ended October 7, 2023 were $61.19 per share. The weighted-average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 7, 2023 were $95.09, $135.13 and $139.75 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 our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable.

13
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)

The weighted-average fair value of stock options granted during the twelve weeks ended October 7, 2023 was $23.49 per share. The weighted-average fair value of stock options granted during the forty weeks ended October 7, 2023 was $29.39 per share. The fair value was estimated on the date of grant by applying the Black-Scholes option-pricing valuation model.
Twelve Weeks EndedForty Weeks Ended
October 7, 2023October 7, 2023
Risk-free interest rate (1)
4.3 %4.1 -4.3 %
Expected term (2)
6 years6 years
Expected volatility (3)
41.4 %35.1 -41.4 %
Expected dividend yield (4)
1.5 %1.5 -4.1 %

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

The total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 7, 2023 was $2.6 million and $9.1 million, respectively. As of October 7, 2023, there was $83.1 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted-average period of 1.6 years.

11. Supplier Finance Programs

We maintain supply chain financing agreements with third-party financial institutions to provide our suppliers with enhanced receivables options. Through these agreements, our suppliers, at their sole discretion, may elect to sell their receivables due from us to the third-party financial institution at terms negotiated between the supplier and the third-party financial institution. We do not provide any guarantees to any third party in connection with these financing arrangements. Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted, and no assets are pledged under the agreements. All outstanding amounts due to third-party financial institutions related to suppliers participating in such financing arrangements are recorded within Accounts payable and represent obligations outstanding under these supplier finance programs for invoices that were confirmed as valid and owed to the third-party financial institutions in our Condensed Consolidated Balance Sheets. As of October 7, 2023 and December 31, 2022, $3.2 billion and $3.2 billion of our Accounts payable were to suppliers participating in these financing arrangements.

12. Immaterial Restatement of Prior Period Financial Statements

As discussed in Note 1, we identified errors in our consolidated financial statements. A summary of the corrections to the impacted financial statement line items in our previously issued Consolidated Balance Sheet, Consolidated Statement of Operations, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Stockholders’ Equity and Consolidated Statement of Cash Flows as of and for the year ended December 31, 2022 included in previously filed Annual Report on Form 10-K and Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Changes in Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for periods presented below, which were presented in previously filed Quarterly Reports on Form 10-Q, are as follows (tables may not foot due to rounding):

14
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)

Condensed Consolidated Balance Sheet
October 8, 2022
As Previously ReportedAdjustments
As Corrected
Assets
Receivables, net$845,667 $(2,795)$842,872 
Total current assets6,162,519 (2,795)6,159,724 
Total assets$12,132,079 $(2,795)$12,129,284 
Liabilities and Stockholders’ Equity
Accounts payable$4,097,412 $(16,579)$4,080,833 
Accrued expenses681,216 10,312 691,528 
Total current liabilities5,442,901 (6,267)5,436,634 
Total liabilities9,416,004 (6,267)9,409,737 
Accumulated other comprehensive loss(54,298)6,364 (47,934)
Retained earnings4,726,823 (2,892)4,723,931 
Total stockholders’ equity2,716,075 3,472 2,719,547 
Total liabilities and stockholders’ equity$12,132,079 $(2,795)$12,129,284 

Condensed Consolidated Balance Sheet
December 31, 2022
As Previously ReportedAdjustments
As Corrected
Assets
Inventories, net$4,915,262 $(4,209)$4,911,053 
Total current assets6,046,852 (4,209)6,042,643 
Total assets$12,018,482 $(4,209)$12,014,273 
Liabilities and Stockholders’ Equity
Accounts payable$4,123,462 $12,953 $4,136,415 
Accrued expenses634,447 6,652 641,099 
Total current liabilities5,370,389 19,605 5,389,994 
Total liabilities9,340,201 19,605 9,359,806 
Retained earnings4,744,624 (23,814)4,720,810 
Total stockholders’ equity2,678,281 (23,814)2,654,467 
Total liabilities and stockholders’ equity$12,018,482 $(4,209)$12,014,273 
15
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)

Condensed Consolidated Balance Sheet
April 22, 2023
As Previously ReportedAdjustments
As Corrected
Liabilities and Stockholders’ Equity
Accounts payable$3,682,749 $15,995 $3,698,744 
Accrued expenses718,290 (3,970)714,320 
Total current liabilities4,983,455 12,025 4,995,480 
Total liabilities9,546,077 12,025 9,558,102 
Retained earnings4,697,697 (12,025)4,685,672 
Total stockholders’ equity$2,636,161 $(12,025)$2,624,136 

Condensed Consolidated Balance Sheet
July 15, 2023
As Previously ReportedAdjustments
As Corrected
Liabilities and Stockholders’ Equity
Accounts payable$3,780,215 $17,221 $3,797,436 
Accrued expenses685,191 (4,273)680,918 
Total current liabilities5,026,378 12,948 5,039,326 
Total liabilities9,581,189 12,948 9,594,137 
Retained earnings4,767,168 (12,948)4,754,220 
Total stockholders’ equity$2,723,187 $(12,948)$2,710,239 

16
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)

Condensed Consolidated Statements of Operations
October 8, 2022
Twelve Weeks EndedForty Weeks Ended
As Previously ReportedAdjustments
As Corrected
As Previously ReportedAdjustments
As Corrected
Cost of sales$1,461,490 $604 $1,462,094 $4,808,888 $12,149 $4,821,037 
Gross profit1,179,851 (604)1,179,247 3,872,089 (12,149)3,859,940 
Selling, general and administrative expenses1,002,653 5,573 1,008,226 3,289,940 12,019 3,301,959 
Operating income177,198 (6,177)171,021 582,149 (24,168)557,981 
Other (expense) income, net    (17,741)12,687 (5,054)(18,314)13,032 (5,282)
Total other, net    (29,780)12,687 (17,093)(60,836)13,032 (47,804)
Income before provision for income taxes147,418 6,510 153,928 521,313 (11,136)510,177 
Provision for income taxes36,436 1,611 38,047 126,137 (2,754)123,383 
Net income$110,982 $4,899 $115,881 $395,176 $(8,382)$386,794 
Basic earnings per share$1.85 $0.08 $1.93 $6.52 $(0.14)$6.38 
Basic weighted average shares60,053 — 60,053 60,656 — 60,656 
Diluted earnings per common share$1.84 $0.08 $1.92 $6.47 $(0.14)$6.34 
Diluted weighted average shares60,384 — 60,384 61,045 — 61,045 

Condensed Consolidated Statement of Operations
December 31, 2022
Year Ended
As Previously ReportedAdjustmentsAs Corrected
Cost of sales$6,192,622 $26,065 $6,218,687 
Gross profit4,962,100 (26,065)4,936,035 
Selling, general and administrative expenses4,247,949 12,444 4,260,393 
Operating income714,151 (38,509)675,642 
Other (expense) income, net    (6,996)(427)(7,423)
Total other, net    (65,464)(427)(65,891)
Income before provision for income taxes648,687 (38,936)609,751 
Provision for income taxes146,815 (9,635)137,180 
Net income$501,872 $(29,301)$472,571 
Basic earnings per share$8.32 $(0.49)$7.83 
Basic weighted average shares60,351 — 60,351 
Diluted earnings per common share$8.27 $(0.49)$7.78 
Diluted weighted average shares60,717 — 60,717 
17
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)

Condensed Consolidated Statement of Operations
April 22, 2023
Sixteen Weeks Ended
As Previously ReportedAdjustments
As Corrected
Cost of sales$1,946,931 $1,627 $1,948,558 
Gross profit1,470,663 (1,627)1,469,036 
Selling, general and administrative expenses1,380,664 (17,275)1,363,389 
Operating income89,999 15,648 105,647 
Income before provision for income taxes59,607 15,648 75,255 
Provision for income taxes16,956 3,859 20,815 
Net income$42,651 $11,789 $54,440 
Basic earnings per share$0.72 $0.20 $0.92 
Basic weighted average shares59,334 — 59,334 
Diluted earnings per common share$0.72 $0.19 $0.91 
Diluted weighted average shares59,544 — 59,544 

Condensed Consolidated Statements of Operations
July 15, 2023
Twelve Weeks EndedTwenty-Eight Weeks Ended
As Previously ReportedAdjustments
As Corrected
As Previously ReportedAdjustments
As Corrected
Cost of sales$1,537,997 $1,226 $1,539,223 $3,484,927 $2,853 $3,487,780 
Gross profit1,148,069 (1,226)1,146,843 2,618,732 (2,853)2,615,879 
Selling, general and administrative expenses1,013,701 — 1,013,701 2,394,365 (17,275)2,377,090 
Operating income134,368 (1,226)133,142 224,367 14,422 238,789 
Income before provision for income taxes115,183 (1,226)113,957 174,789 14,422 189,211 
Provision for income taxes29,821 (303)29,518 46,776 3,556 50,332 
Net income$85,362 $(923)$84,439 $128,013 $10,866 $138,879 
Basic earnings per share$1.44 $(0.02)$1.42 $2.16 $0.18 $2.34 
Basic weighted average shares59,451 — 59,451 59,384 — 59,384 
— — 
Diluted earnings per common share$1.43 $(0.02)$1.41 $2.15 $0.18 $2.33 
Diluted weighted average shares59,604 — 59,604 59,570 — 59,570 

18
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)

Condensed Consolidated Statements of Comprehensive Income
October 8, 2022
Twelve Weeks EndedForty Weeks Ended
As Previously ReportedAdjustments
As Corrected
As Previously ReportedAdjustments
As Corrected
Net income$110,982 $4,899 $115,881 $395,176 $(8,382)$386,794 
Currency translation adjustments
(33,439)19,814 (13,625)(31,555)10,691 (20,864)
Total other comprehensive loss
(33,509)19,814 (13,695)(31,671)10,691 (20,980)
Comprehensive income$77,473 $24,713 $102,186 $363,505 $2,309 $365,814 

Condensed Consolidated Statement of Comprehensive Income
December 31, 2022
Year Ended
As Previously ReportedAdjustments
As Corrected
Net income$501,872 $(29,301)$472,571 
Currency translation adjustments(22,330)4,327 (18,003)
Total other comprehensive loss(22,516)4,327 (18,189)
Comprehensive income$479,356 $(24,974)$454,382 

Condensed Consolidated Statement of Comprehensive Income
April 22, 2023
Sixteen Weeks Ended
As Previously ReportedAdjustmentsAs Corrected
Net income$42,651 $11,789 $54,440 
Comprehensive income$43,439 $11,789 $55,228 

Condensed Consolidated Statements of Comprehensive Income
July 15, 2023
Twelve Weeks EndedTwenty-Eight Weeks Ended
As Previously ReportedAdjustments
As Corrected
As Previously ReportedAdjustments
As Corrected
Net income$85,362 $(923)$84,439 $128,013 $10,866 $138,879 
Comprehensive income$92,893 $(923)$91,970 $136,332 $10,866 $147,198 


19
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)


Condensed Consolidated Statements of Changes in Stockholders’ Equity
Accumulated Other
Comprehensive Loss
Retained
Earnings		Total Stockholders' Equity
Twelve Weeks As Previously Reported
Balance at July 16, 2022$(20,789)$4,706,547 $2,794,809 
Net income— 110,982 110,982 
Total other comprehensive loss
(33,509)— (33,509)
Balance at October 8, 2022<