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ADVANCE AUTO PARTS INC - Quarter Report: 2019 October (Form 10-Q)

Table of Contents

 
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 5, 2019

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
________________________

aaplogocolornotaga391a01.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)
(I.R.S. Employer Identification No.)

2635 East Millbrook Road, Raleigh, North Carolina 27604
(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 class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, $0.0001 par value
 
AAP
 
New York Stock Exchange
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (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 8, 2019, the number of shares of the registrant’s common stock outstanding was 69,259,396 shares.
 



Table of Contents

 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

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)
 
October 5, 2019
 
December 29, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
573,726

 
$
896,527

Receivables, net
721,342

 
624,972

Inventories
4,391,093

 
4,362,547

Other current assets
140,487

 
198,408

Total current assets
5,826,648

 
6,082,454

Property and equipment, net of accumulated depreciation of $2,008,278 and $1,918,502
1,389,089

 
1,368,985

Operating lease right-of-use assets
2,335,732

 

Goodwill
991,375

 
990,237

Intangible assets, net
514,512

 
550,593

Other assets
49,446

 
48,379

 
$
11,106,802

 
$
9,040,648

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
3,402,538

 
$
3,172,790

Accrued expenses
579,074

 
623,141

Other current liabilities
482,301

 
90,019

Total current liabilities
4,463,913

 
3,885,950

Long-term debt
747,136

 
1,045,720

Noncurrent operating lease liabilities
1,997,721

 

Deferred income taxes
318,309

 
318,353

Other long-term liabilities
124,781

 
239,812

Commitments and contingencies


 


Stockholders’ equity:
 

 
 

Preferred stock, nonvoting, $0.0001 par value

 

Common stock, voting, $0.0001 par value
8

 
8

Additional paid-in capital
725,031

 
694,797

Treasury stock, at cost
(912,335
)
 
(425,954
)
Accumulated other comprehensive loss
(38,862
)
 
(44,193
)
Retained earnings
3,681,100

 
3,326,155

Total stockholders’ equity
3,454,942

 
3,550,813

 
$
11,106,802

 
$
9,040,648




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

1

Table of Contents

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Net Sales
$
2,312,106

 
$
2,274,982

 
$
7,596,389

 
$
7,475,482

Cost of sales, including purchasing and warehousing costs
1,300,180

 
1,268,055

 
4,270,412

 
4,184,713

Gross profit
1,011,926

 
1,006,927

 
3,325,977

 
3,290,769

Selling, general and administrative expenses
839,598

 
852,686

 
2,774,936

 
2,770,747

Operating income
172,328

 
154,241

 
551,041

 
520,022

Other, net:
 
 
 
 
 
 
 
Interest expense
(8,443
)
 
(13,076
)
 
(32,062
)
 
(43,613
)
Other (expense) income, net
(3,145
)
 
5,755

 
(1,272
)
 
8,998

Total other, net
(11,588
)
 
(7,321
)
 
(33,334
)
 
(34,615
)
Income before provision for income taxes
160,740

 
146,920

 
517,707

 
485,407

Provision for income taxes
37,071

 
31,077

 
126,718

 
115,002

Net income
$
123,669

 
$
115,843

 
$
390,989

 
$
370,405

 
 
 
 
 
 
 
 
Basic earnings per common share
$
1.76

 
$
1.57

 
$
5.48

 
$
5.01

Weighted average common shares outstanding
70,381

 
73,888

 
71,351

 
73,974

Diluted earnings per common share
$
1.75

 
$
1.56

 
$
5.46

 
$
4.99

Weighted average common shares outstanding
70,664

 
74,190

 
71,643

 
74,212



Condensed Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Net income
$
123,669

 
$
115,843

 
$
390,989

 
$
370,405

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Changes in net unrecognized other postretirement costs, net of tax of $32, $24, $40 and $80
(92
)
 
(69
)
 
(66
)
 
(227
)
Currency translation adjustments
(5,289
)
 
3,900

 
5,397

 
(6,902
)
Total other comprehensive (loss) income
(5,381
)
 
3,831

 
5,331

 
(7,129
)
Comprehensive income
$
118,288

 
$
119,674

 
$
396,320

 
$
363,276




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

2

Table of Contents

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 5, 2019
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Balance, July 13, 2019
71,697

 
$
8

 
$
715,747

 
$
(572,592
)
 
$
(33,481
)
 
$
3,561,620

 
$
3,671,302

Net income

 

 

 

 

 
123,669

 
123,669

Total other comprehensive income

 

 

 

 
(5,381
)
 

 
(5,381
)
Tax withholdings related to the exercise of stock appreciation rights

 

 
(39
)
 

 

 

 
(39
)
Restricted stock units and deferred stock units vested
22

 
 
 

 

 

 

 

Share-based compensation

 

 
8,613

 

 

 

 
8,613

Stock issued under employee stock purchase plan
5

 

 
710

 

 

 

 
710

Repurchases of common stock
(2,449
)
 

 

 
(339,743
)
 

 

 
(339,743
)
Cash dividends declared ($0.06 per common share)

 

 

 

 

 
(4,189
)
 
(4,189
)
Balance, October 5, 2019
69,275

 
$
8

 
$
725,031

 
$
(912,335
)
 
$
(38,862
)
 
$
3,681,100

 
$
3,454,942

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Weeks Ended October 6, 2018
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Balance, July 14, 2018
74,081

 
$
8

 
$
678,416

 
$
(150,257
)
 
$
(35,914
)
 
$
3,165,697

 
$
3,657,950

Net income

 

 

 

 

 
115,843

 
115,843

Total other comprehensive income

 

 

 

 
3,831

 

 
3,831

Issuance of shares upon the exercise of stock appreciation rights
3

 

 

 

 

 

 

Tax withholdings related to the exercise of stock appreciation rights

 

 
(186
)
 

 

 

 
(186
)
Restricted stock units and deferred stock units vested
16

 

 

 

 

 

 

Share-based compensation

 
 
 
6,852

 

 

 

 
6,852

Stock issued under employee stock purchase plan
4

 

 
593

 

 

 

 
593

Repurchases of common stock
(726
)
 

 

 
(120,825
)
 

 

 
(120,825
)
Cash dividends declared ($0.06 per common share)

 

 

 

 

 
(4,422
)
 
(4,422
)
Balance, October 6, 2018
73,378

 
$
8

 
$
685,675

 
$
(271,082
)
 
$
(32,083
)
 
$
3,277,118

 
$
3,659,636



3

Table of Contents

 
Forty Weeks Ended October 5, 2019
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 29, 2018
72,460

 
$
8

 
$
694,797

 
$
(425,954
)
 
$
(44,193
)
 
$
3,326,155

 
$
3,550,813

Net income

 

 

 

 

 
390,989

 
390,989

Cumulative effect of accounting change from adoption of ASU 2016-02, net of tax

 

 

 

 

 
(23,165
)
 
(23,165
)
Total other comprehensive income

 

 

 

 
5,331

 

 
5,331

Issuance of shares upon the exercise of stock appreciation rights
2

 

 

 

 

 

 

Tax withholdings related to the exercise of stock appreciation rights

 

 
(162
)
 

 

 

 
(162
)
Restricted stock units and deferred stock units vested
167

 

 

 

 

 

 

Share-based compensation

 

 
28,038

 

 

 

 
28,038

Stock issued under employee stock purchase plan
16

 

 
2,358

 

 

 

 
2,358

Repurchases of common stock
(3,370
)
 

 

 
(486,381
)
 

 

 
(486,381
)
Cash dividends declared ($0.18 per common share)

 

 

 

 

 
(12,879
)
 
(12,879
)
Balance, October 5, 2019
69,275

 
$
8

 
$
725,031

 
$
(912,335
)
 
$
(38,862
)
 
$
3,681,100

 
$
3,454,942

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forty Weeks Ended October 6, 2018
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 30, 2017
73,936

 
$
8

 
$
664,646

 
$
(144,600
)
 
$
(24,954
)
 
$
2,920,096

 
$
3,415,196

Net income

 

 

 

 

 
370,405

 
370,405

Total other comprehensive loss

 

 

 

 
(7,129
)
 

 
(7,129
)
Issuance of shares upon the exercise of stock appreciation rights
8

 

 

 

 

 

 

Tax withholdings related to the exercise of stock appreciation rights

 

 
(490
)
 

 

 

 
(490
)
Restricted stock units and deferred stock units vested
179

 

 

 

 

 

 

Share-based compensation

 
 
 
19,265

 

 

 

 
19,265

Stock issued under employee stock purchase plan
29

 

 
2,290

 

 

 

 
2,290

Repurchases of common stock
(774
)
 

 

 
(126,482
)
 

 

 
(126,482
)
Cash dividends declared ($0.18 per common share)

 

 

 

 

 
(13,383
)
 
(13,383
)
Other

 

 
(36
)
 

 

 

 
(36
)
Balance, October 6, 2018
73,378

 
$
8

 
$
685,675

 
$
(271,082
)
 
$
(32,083
)
 
$
3,277,118

 
$
3,659,636




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


4

Table of Contents

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 
Forty Weeks Ended
 
October 5, 2019
 
October 6, 2018
Cash flows from operating activities:
 
 
 
Net income
$
390,989

 
$
370,405

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
179,565

 
183,584

Share-based compensation
28,038

 
19,265

Loss and impairment of long-lived assets
4,413

 
6,267

Provision for deferred income taxes
7,653

 
17,029

Other
12,084

 
1,686

Net change in:
 
 
 
Receivables, net
(95,280
)
 
(93,595
)
Inventories
(24,985
)
 
(22,862
)
Accounts payable
227,822

 
131,572

Accrued expenses
(29,672
)
 
122,779

Other assets and liabilities, net
7,919

 
(54,627
)
Net cash provided by operating activities
708,546

 
681,503

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(169,224
)
 
(105,132
)
Proceeds from sales of property and equipment
8,714

 
1,450

Net cash used in investing activities
(160,510
)
 
(103,682
)
Cash flows from financing activities:
 

 
 

Decrease in bank overdrafts
(59,351
)
 
(11,973
)
Redemption of senior unsecured notes
(310,047
)
 

Dividends paid
(17,185
)
 
(17,819
)
Proceeds from the issuance of common stock
2,358

 
2,290

Tax withholdings related to the exercise of stock appreciation rights
(162
)
 
(490
)
Repurchases of common stock
(486,381
)
 
(126,482
)
Other, net
(96
)
 
814

Net cash used in financing activities
(870,864
)
 
(153,660
)
Effect of exchange rate changes on cash
27

 
(1,092
)
Net (decrease) increase in cash and cash equivalents
(322,801
)
 
423,069

Cash and cash equivalents, beginning of period
896,527

 
546,937

Cash and cash equivalents, end of period
$
573,726

 
$
970,006

 
 
 
 
Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
$
30,331

 
$
11,066




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

5

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



1.
Nature of Operations and Basis of Presentation:

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 consolidated financial statements have been prepared by us and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiary, Advance Stores Company, Incorporated (“Advance Stores”), and its subsidiaries (collectively referred to as “Advance,” “we,” “us” or “our”).

As of October 5, 2019, we operated a total of 4,891 stores and 152 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 5, 2019, we served 1,260 independently owned Carquest branded stores across the same geographic locations served by our stores and branches in addition to Mexico, the Bahamas, Turks and Caicos and the British Virgin Islands.

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 guidance. 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 2018 as filed with the SEC on February 19, 2019.

During the sixteen weeks ended April 20, 2019, we made an out-of-period correction, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.

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 consist of twelve weeks.

2.
Significant Accounting Policies:

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Percentage of Net sales, by product group:
 
 
 
 
 
 
 
Parts and batteries
68
%
 
67
%
 
67
%
 
66
%
Accessories and chemicals
20

 
19

 
21

 
20

Engine maintenance
11

 
13

 
11

 
13

Other
1

 
1

 
1

 
1

Total
100
%
 
100
%
 
100
%
 
100
%


We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the condensed consolidated balance sheets as of October 5, 2019 and December 29, 2018.

Recently Issued Accounting Pronouncements

We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), as of December 30, 2018, using the alternative transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Using the alternative transition method, we applied the transition requirements at the effective date of ASU 2016-02 with the impact of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the first quarter of 2019. Consequently, the comparative periods presented continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840.

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



We elected the package of practical expedients permitted under the transition guidance within the new standard. In addition, as a practical expedient relating to our facility and vehicle leases, we elected not to separate lease components from nonlease components.

The adoption of ASU 2016-02 resulted in the recording of lease assets and lease liabilities of $2.4 billion as of December 30, 2018. At the date of adoption, there was a difference between the operating lease right-of-use assets and lease liabilities recorded that included an adjustment to retained earnings, net of a $7.9 million deferred tax impact, which primarily resulted from the impairment of operating lease right-of-use assets. For the forty weeks ended October 5, 2019, the adoption of the new standard did not have a material impact on our condensed consolidated statements of operations and condensed consolidated statements of cash flows as substantially all of our leases remained operating in nature.

3.
Inventories

Inventories are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 89% of inventories as of October 5, 2019 and December 29, 2018. 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 5, 2019 and prior years. We recorded an increase to Cost of sales of $33.8 million for the twelve weeks ended October 5, 2019, a reduction to Cost of sales of $22.0 million for the twelve weeks ended October 6, 2018, an increase to Cost of sales of $76.7 million for the forty weeks ended October 5, 2019 and a reduction to Cost of sales of $54.3 million for the forty weeks ended October 6, 2018 to state inventories at LIFO.

An actual valuation of inventory under the LIFO method is performed by us at the end of each year based on the inventory levels and 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:
(in thousands)
October 5, 2019
 
December 29, 2018
Inventories at first in, first out (“FIFO”)
$
4,224,869

 
$
4,119,617

Adjustments to state inventories at LIFO
166,224

 
242,930

Inventories at LIFO
$
4,391,093

 
$
4,362,547



4.
Exit Activities

As of December 29, 2018, and in accordance with ASC 420, Exit or Disposal Cost Obligations, the closed facility lease obligation, which comprised of sublease assets and lease liabilities for closed facilities, was $42.3 million recorded in connection with the initiatives and liabilities associated with facility closures that occurred as part of our normal market evaluation process as described in our 2018 Form 10-K. As a result of our transition to ASU 2016-02, our lease liabilities for closed facilities are included within the lease liability recorded in Other current liabilities and Noncurrent operating lease liabilities, and the operating lease right-of-use assets recorded upon transition was recorded net of the previously recorded closed facility lease obligation.

5.
Intangible Assets

Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $7.3 million and $9.4 million for the twelve weeks ended October 5, 2019 and October 6, 2018 and $24.4 million and $31.3 million for the forty weeks ended October 5, 2019 and October 6, 2018.


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


6.
Receivables, net

Receivables consist of the following:
(in thousands)
October 5, 2019
 
December 29, 2018
Trade
$
487,210

 
$
397,909

Vendor
238,441

 
228,024

Other
10,593

 
17,081

Total receivables
736,244

 
643,014

Less: allowance for doubtful accounts
(14,902
)
 
(18,042
)
Receivables, net
$
721,342

 
$
624,972



7.
Long-term Debt and Fair Value of Financial Instruments

Long-term debt consists of the following:
(in thousands)
October 5, 2019
 
December 29, 2018
Total long-term debt
$
747,136

 
$
1,045,930

Less: current portion of long-term debt

 
(210
)
Long-term debt, excluding current portion
$
747,136

 
$
1,045,720

 
 
 
 
Fair value of long-term debt
$
801,000

 
$
1,074,000



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. We believe the carrying value of our other long-term debt approximates fair value. The carrying amounts of our cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.

Bank Debt

As of October 5, 2019 and December 29, 2018, we had no outstanding borrowings under the unsecured revolving credit facility (the “2017 Credit Agreement”) and borrowing availability was $1.0 billion and $998.0 million. Under the 2017 Credit Agreement, we had no letters of credit and $2.0 million of letters of credit outstanding as of October 5, 2019 and December 29, 2018.

In connection with our bilateral credit facility, we had outstanding letters of credit of $113.1 million and $100.5 million as of October 5, 2019 and December 29, 2018, which generally have a term of one year or less and primarily serve as collateral for our self-insurance policies. We were in compliance with all financial covenants required by our debt arrangements as of October 5, 2019.

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



Senior Unsecured Notes

On February 28, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 5.75% senior unsecured notes that were issued in April 2010 at 99.587% of the principal amount (the “2020 Notes”). During the sixteen weeks ended April 20, 2019, we incurred charges relating to a make-whole provision and debt issuance costs of $10.1 million and $0.7 million resulting from the early redemption of our 2020 Notes, which are included in Other (expense) income, net in the accompanying condensed consolidated statements of operations.

Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are our customers totaling $27.6 million and $24.3 million as of October 5, 2019 and December 29, 2018. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements is $58.5 million and $53.9 million as of October 5, 2019 and December 29, 2018. We believe that the likelihood of performance under these guarantees is remote.

8.
Leases

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

Operating lease liabilities consist of the following:
(in thousands)
October 5, 2019
Total operating lease liabilities
$
2,441,221

Less: Current portion of operating lease liabilities
(443,500
)
Noncurrent operating lease liabilities
$
1,997,721



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

Total lease cost is included in Cost of sales and selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
 
Twelve Weeks Ended
 
Forty Weeks Ended
(in thousands)
October 5, 2019
 
October 5, 2019
Operating lease cost
$
121,057

 
$
405,868

Variable lease cost
36,808

 
119,354

Total lease cost
$
157,865

 
$
525,222




9

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


The future maturity of lease liabilities are as follows:
(in thousands)
October 5, 2019
Remainder of 2019
$
93,573

2020
564,627

2021
469,282

2022
375,141

2023
332,882

Thereafter
1,011,831

Total lease payments
2,847,336

Less: Imputed interest
(406,115
)
Total operating lease liabilities
$
2,441,221



Operating lease payments include $147.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $142.7 million of legally binding minimum lease payments for leases signed, but not yet commenced.

The weighted-average remaining lease term and weighted-average discount rate for our operating leases are 7.13 years and 4.1% as of October 5, 2019. 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
(in thousands)
October 5, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
417,262

Right-of-use assets obtained in exchange for lease obligations:


Operating leases
$
270,440



As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments due under non-cancelable operating leases were as follows:
 
December 29, 2018
(in thousands)
 
2019
$
520,541

2020
481,812

2021
416,895

2022
349,470

2023
270,116

Thereafter
837,441

 
$
2,876,275




10

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


9.
Warranty Liabilities

The following table presents changes in our warranty reserves:
 
Forty Weeks Ended
 
Fifty-Two Weeks Ended
(in thousands)
October 5, 2019
 
December 29, 2018
Warranty reserve, beginning of period
$
45,280

 
$
49,024

Additions to warranty reserves
28,788

 
43,200

Reduction and utilization of reserve
(32,624
)
 
(46,944
)
Warranty reserve, end of period
$
41,444

 
$
45,280


  
10.
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. On August 7, 2019, our Board of Directors authorized a $400.0 million share repurchase program to replace the previous $600.0 million share repurchase program that was authorized by our Board of Directors in August 2018, which had $49.1 million remaining at the time of its replacement.

During the twelve and forty weeks ended October 5, 2019, we repurchased 2.4 million and 3.3 million shares of our common stock under the share repurchase program. The shares repurchased during the twelve and forty weeks ended October 5, 2019 were at an aggregate cost of $338.6 million and $476.7 million, or an average price of $138.71 and $144.03 per share. During the twelve and forty weeks ended October 6, 2018, we repurchased 0.7 million shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. As of October 5, 2019, we had $201.4 million remaining under our share repurchase program that was authorized by our Board of Directors on August 7, 2019.

On November 8, 2019, our Board of Directors authorized $700.0 million as an addition to the existing share repurchase program.

11.
Earnings per Share

The computation of basic and diluted earnings per share are as follows:  
 
Twelve Weeks Ended
 
Forty Weeks Ended
(in thousands, except per share data)
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Numerator
 
 
 
 
 
 
 
Net income applicable to common shares
$
123,669


$
115,843

 
$
390,989

 
$
370,405

Denominator
 
 
 
 
 

 
 
Basic weighted average common shares
70,381

 
73,888

 
71,351

 
73,974

Dilutive impact of share-based awards
283

 
302

 
292

 
238

Diluted weighted average common shares (1)
70,664

 
74,190

 
71,643

 
74,212

 
 
 
 
 
 

 
 
Basic earnings per common share
$
1.76

 
$
1.57

 
$
5.48

 
$
5.01

Diluted earnings per common share
$
1.75

 
$
1.56

 
$
5.46

 
$
4.99



(1) 
For the twelve and forty weeks ended October 5, 2019, 175 thousand and 115 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the twelve and forty weeks ended October 6, 2018, these anti-dilutive RSUs were insignificant.


11

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


12.
Share-Based Compensation

During the forty weeks ended October 5, 2019, we granted 254 thousand time-based RSUs, 55 thousand performance-based RSUs and 28 thousand market-based RSUs. The general terms of the time-based, performance-based and market-based RSUs are similar to awards previously granted by us.

The weighted average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 5, 2019 were $156.71, $159.80 and $165.70 per share. 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. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.

Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 5, 2019 was $1.7 million and $6.7 million. Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 6, 2018 was $1.7 million and $4.7 million. As of October 5, 2019, there was $69.0 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.

13.
Condensed Consolidating Financial Statements

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

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 Advance. Investments in subsidiaries of Advance 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.


12

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


Condensed Consolidating Balance Sheet
As of October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
467,692

 
$
106,034

 
$

 
$
573,726

Receivables, net

 
674,524

 
46,818

 

 
721,342

Inventories

 
4,209,180

 
181,913

 

 
4,391,093

Other current assets
3,284

 
135,308

 
3,789

 
(1,894
)
 
140,487

Total current assets
3,284

 
5,486,704

 
338,554

 
(1,894
)
 
5,826,648

Property and equipment, net of accumulated depreciation
60

 
1,380,941

 
8,088

 

 
1,389,089

Operating lease right-of-use assets

 
2,294,661

 
41,071

 

 
2,335,732

Goodwill

 
943,361

 
48,014

 

 
991,375

Intangible assets, net

 
475,356

 
39,156

 

 
514,512

Other assets, net
1,748

 
48,856

 
589

 
(1,747
)
 
49,446

Investment in subsidiaries
4,338,807

 
571,883

 

 
(4,910,690
)
 

Intercompany note receivable
749,318

 

 

 
(749,318
)
 

Due from intercompany, net

 
536,674

 
354,465

 
(891,139
)
 

 
$
5,093,217

 
$
11,738,436

 
$
829,937

 
$
(6,554,788
)
 
$
11,106,802

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
3,205,362

 
$
197,176

 
$

 
$
3,402,538

Accrued expenses

 
561,495

 
19,473

 
(1,894
)
 
579,074

Other current liabilities

 
455,746

 
26,555

 

 
482,301

Total current liabilities

 
4,222,603

 
243,204

 
(1,894
)
 
4,463,913

Long-term debt
747,136

 

 

 

 
747,136

Noncurrent operating lease liabilities

 
1,966,016

 
31,705

 

 
1,997,721

Deferred income taxes

 
303,886

 
16,170

 
(1,747
)
 
318,309

Other long-term liabilities

 
157,806

 
(33,025
)
 

 
124,781

Intercompany note payable

 
749,318

 

 
(749,318
)
 

Due to intercompany, net
891,139

 

 

 
(891,139
)
 

Commitments and contingencies

 

 

 

 

Stockholders' equity
3,454,942

 
4,338,807

 
571,883

 
(4,910,690
)
 
3,454,942

 
$
5,093,217

 
$
11,738,436

 
$
829,937

 
$
(6,554,788
)
 
$
11,106,802




13

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


Condensed Consolidating Balance Sheet
As of December 29, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
785,605

 
$
110,922

 
$

 
$
896,527

Receivables, net

 
590,269

 
34,703

 

 
624,972

Inventories

 
4,182,973

 
179,574

 

 
4,362,547

Other current assets
3,103

 
191,318

 
3,987

 

 
198,408

Total current assets
3,103

 
5,750,165

 
329,186

 

 
6,082,454

Property and equipment, net of accumulated depreciation
77

 
1,359,980

 
8,928

 

 
1,368,985

Goodwill

 
943,364

 
46,873

 

 
990,237

Intangible assets, net

 
510,586

 
40,007

 

 
550,593

Other assets, net
2,408

 
47,815

 
564

 
(2,408
)
 
48,379

Investment in subsidiaries
3,945,862

 
474,772

 

 
(4,420,634
)
 

Intercompany note receivable
1,048,993

 

 

 
(1,048,993
)
 

Due from intercompany, net

 
102,886

 
297,580

 
(400,466
)
 

 
$
5,000,443

 
$
9,189,568

 
$
723,138

 
$
(5,872,501
)
 
$
9,040,648

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
2,954,632

 
$
218,158

 
$

 
$
3,172,790

Accrued expenses
3,444

 
603,460

 
16,237

 

 
623,141

Other current liabilities

 
91,994

 
(1,975
)
 

 
90,019

Total current liabilities
3,444

 
3,650,086

 
232,420

 

 
3,885,950

Long-term debt
1,045,720

 

 

 

 
1,045,720

Deferred income taxes

 
306,127

 
14,634

 
(2,408
)
 
318,353

Other long-term liabilities

 
238,500

 
1,312

 

 
239,812

Intercompany note payable

 
1,048,993

 

 
(1,048,993
)
 

Due to intercompany, net
400,466

 

 

 
(400,466
)
 

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Stockholders' equity
3,550,813

 
3,945,862

 
474,772

 
(4,420,634
)
 
3,550,813

 
$
5,000,443

 
$
9,189,568

 
$
723,138

 
$
(5,872,501
)
 
$
9,040,648




14

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


Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
2,223,257

 
$
168,679

 
$
(79,830
)
 
$
2,312,106

Cost of sales, including purchasing and warehousing costs

 
1,248,730

 
79,451

 
(28,001
)
 
1,300,180

Gross profit

 
974,527

 
89,228

 
(51,829
)
 
1,011,926

Selling, general and administrative expenses
5,808

 
869,018

 
24,403

 
(59,631
)
 
839,598

Operating (loss) income
(5,808
)
 
105,509

 
64,825

 
7,802

 
172,328

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(7,951
)
 
(492
)
 

 

 
(8,443
)
Other income (expense) income, net
14,017

 
(3,619
)
 
(5,741
)
 
(7,802
)
 
(3,145
)
Total other, net
6,066

 
(4,111
)
 
(5,741
)
 
(7,802
)
 
(11,588
)
Income before provision for income taxes
258

 
101,398

 
59,084

 

 
160,740

Provision for income taxes
698

 
34,438

 
1,935

 

 
37,071

(Loss) income before equity in earnings of subsidiaries
(440
)
 
66,960

 
57,149

 

 
123,669

Equity in earnings of subsidiaries
124,109

 
57,149

 

 
(181,258
)
 

Net income
$
123,669

 
$
124,109

 
$
57,149

 
$
(181,258
)
 
$
123,669


Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended October 6, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
2,190,822

 
$
115,675

 
$
(31,515
)
 
$
2,274,982

Cost of sales, including purchasing and warehousing costs

 
1,220,367

 
79,203

 
(31,515
)
 
1,268,055

Gross profit

 
970,455

 
36,472

 

 
1,006,927

Selling, general and administrative expenses
4,631

 
837,047

 
22,812

 
(11,804
)
 
852,686

Operating (loss) income
(4,631
)
 
133,408

 
13,660

 
11,804

 
154,241

Other, net:
 
 
 
 
 
 
 
 
 
Interest (expense) income
(12,059
)
 
(1,018
)
 
1

 

 
(13,076
)
Other income (expense) income, net
16,759

 
(564
)
 
1,364

 
(11,804
)
 
5,755

Total other, net
4,700

 
(1,582
)
 
1,365

 
(11,804
)
 
(7,321
)
Income before provision for income taxes
69

 
131,826

 
15,025

 

 
146,920

Provision for income taxes
229

 
27,624

 
3,224

 

 
31,077

(Loss) income before equity in earnings of subsidiaries
(160
)
 
104,202

 
11,801

 

 
115,843

Equity in earnings of subsidiaries
116,003

 
11,801

 

 
(133,031
)
 

Net income
$
115,843

 
$
116,003

 
$
11,801

 
$
(127,804
)
 
$
115,843






15

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


Condensed Consolidating Statement of Operations
For the Forty Weeks Ended October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
7,310,012

 
$
442,936

 
$
(156,559
)
 
$
7,596,389

Cost of sales, including purchasing and warehousing costs

 
4,116,052

 
259,090

 
(104,730
)
 
4,270,412

Gross profit

 
3,193,960

 
183,846

 
(51,829
)
 
3,325,977

Selling, general and administrative expenses
23,778

 
2,764,102

 
78,490

 
(91,434
)
 
2,774,936

Operating (loss) income
(23,778
)
 
429,858

 
105,356

 
39,605

 
551,041

Other, net:

 

 

 

 


Interest expense
(29,415
)
 
(2,425
)
 
(222
)
 

 
(32,062
)
Other income (expense), net
54,292

 
(14,206
)
 
(1,753
)
 
(39,605
)
 
(1,272
)
Total other, net
24,877

 
(16,631
)
 
(1,975
)
 
(39,605
)
 
(33,334
)
Income before provision for income taxes
1,099

 
413,227

 
103,381

 

 
517,707

Provision for income taxes
2,420

 
112,240

 
12,058

 

 
126,718

(Loss) income before equity in earnings of subsidiaries
(1,321
)
 
300,987

 
91,323

 

 
390,989

Equity in earnings of subsidiaries
392,310

 
91,323

 

 
(483,633
)
 

Net income
$
390,989

 
$
392,310

 
$
91,323

 
$
(483,633
)
 
$
390,989



Condensed Consolidating Statement of Operations
For the Forty Weeks Ended October 6, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
7,197,953

 
$
405,864

 
$
(128,335
)
 
$
7,475,482

Cost of sales, including purchasing and warehousing costs

 
4,035,319

 
277,729

 
(128,335
)
 
4,184,713

Gross profit

 
3,162,634

 
128,135

 

 
3,290,769

Selling, general and administrative expenses
14,290

 
2,719,172

 
76,634

 
(39,349
)
 
2,770,747

Operating (loss) income
(14,290
)
 
443,462

 
51,501

 
39,349

 
520,022

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(40,194
)
 
(3,419
)
 

 

 
(43,613
)
Other income (expense), net
55,007

 
(4,766
)
 
(1,894
)
 
(39,349
)
 
8,998

Total other, net
14,813

 
(8,185
)
 
(1,894
)
 
(39,349
)
 
(34,615
)
Income before provision for income taxes
523

 
435,277

 
49,607

 

 
485,407

Provision for income taxes
1,287

 
103,589

 
10,126

 

 
115,002

(Loss) income before equity in earnings of subsidiaries
(764
)
 
331,688

 
39,481

 

 
370,405

Equity in earnings of subsidiaries
371,169

 
39,481

 

 
(410,650
)
 

Net income
$
370,405

 
$
371,169

 
$
39,481

 
$
(410,650
)
 
$
370,405



16

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




Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
123,669

 
$
124,109

 
$
57,149

 
$
(181,258
)
 
$
123,669

Other comprehensive loss
(5,381
)
 
(5,381
)
 
(5,289
)
 
10,670

 
(5,381
)
Comprehensive income
$
118,288

 
$
118,728

 
$
51,860

 
$
(170,588
)
 
$
118,288



Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended October 6, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
115,843

 
$
116,003

 
$
11,801

 
$
(127,804
)
 
$
115,843

Other comprehensive income
3,831

 
3,831

 
3,900

 
(7,731
)
 
3,831

Comprehensive income
$
119,674

 
$
119,834

 
$
15,701

 
$
(135,535
)
 
$
119,674


Condensed Consolidating Statement of Comprehensive Income
For the Forty Weeks Ended October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
390,989

 
$
392,310

 
$
91,323

 
$
(483,633
)
 
$
390,989

Other comprehensive income
5,331

 
5,331

 
5,397

 
(10,728
)
 
5,331

Comprehensive income
$
396,320

 
$
397,641

 
$
96,720

 
$
(494,361
)

$
396,320



Condensed Consolidating Statement of Comprehensive Income
For the Forty Weeks Ended October 6, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
370,405

 
$
371,169

 
$
39,481

 
$
(410,650
)
 
$
370,405

Other comprehensive loss
(7,129
)
 
(7,129
)
 
(6,902
)
 
14,031

 
(7,129
)
Comprehensive income
$
363,276

 
$
364,040

 
$
32,579

 
$
(396,619
)
 
$
363,276




17

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


Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended October 5, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$

 
$
715,513

 
$
(6,967
)
 
$

 
$
708,546

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(168,710
)
 
(514
)
 

 
(169,224
)
Proceeds from sales of property and equipment

 
8,713

 
1

 

 
8,714

Net cash used in investing activities

 
(159,997
)
 
(513
)
 

 
(160,510
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
(Decrease) increase in bank overdrafts

 
(61,916
)
 
2,565

 

 
(59,351
)
Redemption of senior unsecured notes

 
(310,047
)
 

 

 
(310,047
)
Dividends paid

 
(17,185
)
 

 

 
(17,185
)
Proceeds from the issuance of common stock

 
2,358

 

 

 
2,358

Tax withholdings related to the exercise of stock appreciation rights

 
(162
)
 

 

 
(162
)
Repurchases of common stock

 
(486,381
)
 

 

 
(486,381
)
Other, net

 
(96
)
 

 

 
(96
)
Net cash (used in) provided by financing activities

 
(873,429
)
 
2,565

 

 
(870,864
)
Effect of exchange rate changes on cash

 

 
27

 

 
27

Net decrease in cash and cash equivalents

 
(317,913
)
 
(4,888
)
 

 
(322,801
)
Cash and cash equivalents, beginning of period

 
785,605

 
110,922

 

 
896,527

Cash and cash equivalents, end of period
$

 
$
467,692

 
$
106,034

 
$

 
$
573,726




18

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


Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended October 6, 2018
(In thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by operating activities
$

 
$
656,847

 
$
24,656

 
$

 
$
681,503

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(104,065
)
 
(1,067
)
 

 
(105,132
)
Proceeds from sales of property and equipment

 
1,406

 
44

 

 
1,450

Net cash used in investing activities

 
(102,659
)
 
(1,023
)
 

 
(103,682
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Decrease in bank overdrafts

 
(8,513
)
 
(3,460
)
 

 
(11,973
)
Dividends paid

 
(17,819
)
 

 

 
(17,819
)
Proceeds from the issuance of common stock

 
2,290

 

 

 
2,290

Tax withholdings related to the exercise of stock appreciation rights

 
(490
)
 

 

 
(490
)
Repurchases of common stock

 
(126,482
)
 

 

 
(126,482
)
Other, net
(23
)
 
814

 

 
23

 
814

Net cash used in financing activities
(23
)
 
(150,200
)
 
(3,460
)
 
23

 
(153,660
)
Effect of exchange rate changes on cash

 

 
(1,092
)
 

 
(1,092
)
Net (decrease) increase in cash and cash equivalents
(23
)
 
403,988

 
19,081

 
23

 
423,069

Cash and cash equivalents, beginning of period
23

 
482,620

 
64,317

 
(23
)
 
546,937

Cash and cash equivalents, end of period
$

 
$
886,608

 
$
83,398

 
$

 
$
970,006




19

Table of Contents

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 Annual Report on Form 10-K for the year ended December 29, 2018 (filed with the SEC on February 19, 2019), which we refer to as our 2018 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 the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. 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. These 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 judgment, estimates, assumptions and projections. Forward-looking statements reflect current views about our plans, strategies and prospects, which are based on information currently available as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Please refer to the risk factors discussed in "Item 1a. Risk Factors" in the Company's most recent Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q and other filings made by the Company with the SEC, for additional factors that could materially affect the Company’s actual results. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements.

Management Overview

Net sales increased 1.6% in the third quarter of 2019 as compared to the same period of prior year, primarily driven by an increase in comparable store sales, as well as improvement in our independent Carquest network and the opening of additional branches. We experienced our strongest sales growth in our Midwest, Appalachian, Carolinas and Central regions, as well as increased sales in several product categories.

We generated diluted earnings per share (“diluted EPS”) of $1.75 during our third quarter of 2019 compared to $1.56 for the comparable period of 2018. When adjusted for the following non-operational items, our adjusted diluted earnings per share (“Adjusted EPS”) for the twelve weeks ended October 5, 2019 and October 6, 2018 were $2.10 and $1.89.
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Transformation expenses
$
0.28

 
$
0.30

 
$
0.63

 
$
0.70

GPI integration and store closure and consolidation expenses

 
0.02

 

 
0.05

GPI amortization of acquired intangible assets
0.07

 
0.09

 
0.21

 
0.30

Other adjustments

 

 
0.25

 

Impact of the U.S. Tax Cuts and Jobs Act

 
(0.08
)
 

 
(0.08
)

Note: The amounts for the forty weeks ended October 5, 2019 and October 6, 2018 may not calculate due to rounding.

Refer to “Reconciliation of Non-GAAP Financial Measures” for further details of our comparable adjustments and the usefulness of such measures to investors.


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Table of Contents

Summary of Third Quarter Financial Results

A high-level summary of our financial results for the third quarter of 2019 includes:
 
Net sales during the third quarter of 2019 were $2.3 billion, an increase of 1.6% as compared to the third quarter of 2018, primarily driven by an increase in comparable store sales of 1.2%.
Gross profit margin for the third quarter of 2019 was 43.8%, a decrease of 49 basis points as compared to the third quarter of 2018. This decrease was primarily driven by the impact of the launch of our enhanced loyalty program initiatives during the third quarter of 2019. These decreases were partially offset by improvements in operational productivity relating to our ability to leverage our supply chain.
Selling, general and administrative expenses (“SG&A”) for the third quarter of 2019 were 36.3% of Net sales, a decrease of 117 basis points as compared to the third quarter of 2018. This decrease was primarily due to our lower incident rate and claims that we attribute to continued focus on employee safety and by improvements in labor-related and occupancy costs. These improvements were partially offset by our investment in information technology (“IT”) projects.

Business and Risks Update

We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both Professional and “do-it-yourself” (“DIY”) customers. To achieve these improvements, we have undertaken planned strategic initiatives to help build a foundation for long-term success across the organization, which include:

Development of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach. This technology is a first step in moving from a supply-driven to a demand-driven assortment.
Continued movement towards optimizing our footprint by market to drive share, repurposing our in-market store and asset base and optimizing our distribution centers.
Progress in the development of a more efficient end-to-end supply chain to deliver our broad assortment.
Enhancement of our DIY omni-channel business, including our eCommerce performance and continued success of the roll-out of our partnership with Walmart.com.
Continued roll-out of our new Speed Perks 2.0 program to improve customer loyalty and traffic.
Launched a new program that focuses on our fleet safety by educating our drivers of various safety issues.
Continued focus on branch openings in 2019 to drive Professional growth while investing in online and digital to drive DIY improvements.

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. During the forty weeks ended October 5, 2019, there were no changes to the factors discussed in our 2018 Form 10-K. For a complete discussion of these factors, refer to the 2018 Form 10-K.

Stores and Branches

Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the forty weeks ended October 5, 2019, 16 stores and branches were opened and 82 were closed or consolidated, resulting in a total of 5,043 stores and branches as of October 5, 2019, compared to a total of 5,109 stores and branches as of December 29, 2018.


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Table of Contents

Results of Operations

The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated:
 
Twelve Weeks Ended
 
$ Increase/(Decrease)
 
Basis Points
(in millions)
October 5, 2019
 
October 6, 2018
 
 
Net sales
$
2,312.1

 
100.0
 %
 
$
2,275.0

 
100.0
 %
 
$
37.1

 

Cost of sales
1,300.2

 
56.2

 
1,268.1

 
55.7

 
32.1

 
49

Gross profit
1,011.9

 
43.8

 
1,006.9

 
44.3

 
5.0

 
(49
)
SG&A
839.6

 
36.3

 
852.7

 
37.5

 
(13.1
)
 
(117
)
Operating income
172.3

 
7.5

 
154.2

 
6.8

 
18.1

 
67

Interest expense
(8.4
)
 
(0.4
)
 
(13.1
)
 
(0.6
)
 
4.7

 
21

Other (expense) income, net
(3.1
)
 
(0.1
)
 
5.8

 
0.3

 
(8.9
)
 
(39
)
Provision for income taxes
37.1

 
1.6

 
31.1

 
1.4

 
6.0

 
24

Net income
$
123.7

 
5.3
 %
 
$
115.8

 
5.1
 %
 
$
7.9

 
26


 
Forty Weeks Ended
 
$ Increase/(Decrease)
 
Basis Points
(in millions)
October 5, 2019
 
October 6, 2018
 
 
Net sales
$
7,596.4

 
100.0
 %
 
$
7,475.5

 
100.0
 %
 
$
120.9

 

Cost of sales
4,270.4

 
56.2

 
4,184.7

 
56.0

 
85.7

 
24

Gross profit
3,326.0

 
43.8

 
3,290.8

 
44.0

 
35.2

 
(24
)
SG&A
2,774.9

 
36.5

 
2,770.7

 
37.1

 
4.2

 
53

Operating income
551.0

 
7.3

 
520.0

 
7.0

 
31.0

 
30

Interest expense
(32.1
)
 
(0.4
)
 
(43.6
)
 
(0.6
)
 
11.5

 
16

Other (expense) income, net
(1.3
)
 
0.0

 
9.0

 
0.1

 
(10.3
)
 
(14
)
Provision for income taxes
126.7

 
1.7

 
115.0

 
1.5

 
11.7

 
13

Net income
$
391.0

 
5.1
 %
 
$
370.4

 
5.0
 %
 
$
20.6

 
19

Note: Table amounts may not foot due to rounding.

Net Sales

Net sales increased 1.6% during the third quarter of 2019 compared to the same period of 2018, primarily driven by an increase in comparable store sales of 1.2% due to delivery of Net sales growth across all product categories, with the strongest growth in parts and batteries and accessories and chemicals. 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. Additionally, we saw growth in Net sales due to improvement in our independent Carquest network and the opening of additional branches.

For the forty weeks ended October 5, 2019, Net sales increased 1.6% compared to the same period of 2018, primarily driven by a 1.4% increase in comparable stores sales due to improved performance of certain product categories, specifically parts and batteries and accessories and chemicals. These improvements were partially offset by a decline in engine maintenance related products.



22

Table of Contents


Gross Profit

The increase in gross profit for the twelve weeks ended October 5, 2019 was primarily driven by improvements in operational productivity relating to our ability to leverage our supply chain. These improvements were partially offset by the impact of the launch of our enhanced loyalty program initiatives during the third quarter of 2019.

The increase in gross profit for the forty weeks ended October 5, 2019 was primarily driven by an increase in comparable store sales and continued improvements in inventory management. These improvements were partially offset by factors discussed above. In addition, we made an out-of-period correction in the sixteen weeks ended April 20, 2019, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.

Selling, general and administrative expenses

The decrease in SG&A for the twelve weeks ended October 5, 2019 was primarily driven by expense reductions due to our lower incident rate and claims that we attribute to continued focus on employee safety and by improvements in labor-related and occupancy costs. These improvements were partially offset by our investment in IT projects.

The increase in SG&A for the forty weeks ended October 5, 2019 was primarily driven by our investment in IT projects, increases in minimum wages and planned merit increases. These increases were partially offset by factors discussed above.

23

Table of Contents

Reconciliation of Non-GAAP Financial Measures

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial measures not derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Non-GAAP financial measures 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. We have presented these non-GAAP financial measures as we believe that the presentation of our financial results that exclude (1) transformation expenses under our strategic business plan; (2) non-operational expenses associated with the integration of General Parts International, Inc. (“GPI”) and store closure and consolidation; (3) non-cash charges related to the acquired GPI intangible assets; (4) other non-recurring adjustments; and (5) nonrecurring impact of the U.S. Tax Cuts and Jobs Act (the “Act”), is 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 is useful to investors as a supplement to the GAAP measures.

Transformation Expenses—We expect to recognize a significant amount of transformation expenses over the next several years as we transition from integration of our Advance Auto Parts/Carquest businesses to a plan that involves a more holistic and integrated transformation of the entire Company, including Worldpac and Autopart International. These expenses will include, but not be limited to, restructuring costs, store closure costs and third-party professional services and other significant costs to integrate and streamline our operating structure across the enterprise. We are focused on several areas throughout Advance, such as supply chain and information technology.

GPI Integration and Store Closure and Consolidation Expenses— Our multi-year plan to integrate the operations of GPI that we acquired in 2014 with AAP substantially ended in 2018. Due to the size of this acquisition, we considered these expenses to be outside of our base business. We believed providing additional information in the form of non-GAAP measures that excluded these costs was beneficial to the users of our financial statements in evaluating the operating performance of our base business and our sustainability once the integration was complete. In addition to integration expenses, we incurred store closure and consolidation expenses that consisted of expenses associated with our plans to convert and consolidate the Carquest stores acquired from GPI. While periodic store closures are common, these closures represented a significant program outside of our typical market evaluation process. We believe it was useful to provide additional non-GAAP measures that excluded these costs to provide investors greater comparability of our base business and core operating performance.

U.S. Tax Reform— On December 22, 2017, the Act was signed into law. The Act amends the Internal Revenue Code of 1986 by, among other things, permanently lowering the corporate tax rate to 21% from the existing maximum rate of 35%, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified a change in estimate, in accordance with Staff Accounting Bulletin No. 118, to amounts previously estimated for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings foreign subsidiaries.

24

Table of Contents

We have included a reconciliation of this information to the most comparable GAAP measures in the following table:
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
(in thousands, except per share data)
 
October 5, 2019
 
October 6, 2018
 
October 5, 2019
 
October 6, 2018
Net income (GAAP)
 
$
123,669

 
$
115,843

 
$
390,989

 
$
370,405

Cost of sales adjustments:
 
 
 
 
 
 
 
 
Transformation expenses
 
2,991

 
513

 
3,272

 
5,839

Other adjustment (1)
 

 

 
13,010

 

SG&A adjustments:
 
 
 
 
 
 
 
 
Transformation expenses
 
23,386

 
28,360

 
56,633

 
63,214

GPI integration and store closure and consolidation expenses
 

 
1,768

 

 
4,706

GPI amortization of acquired intangible assets
 
6,362

 
8,802

 
21,157

 
29,268

Other income adjustment (2)
 

 

 
10,756

 

Provision for income taxes on adjustments (3)
 
(8,185
)
 
(9,664
)
 
(26,207
)
 
(25,242
)
Impact of the Act
 

 
(5,665
)
 

 
(5,665
)
Adjusted net income (Non-GAAP)
 
$
148,223

 
$
139,957

 
$
469,610

 
$
442,525

 
 
 
 


 
 
 


Diluted earnings per share (GAAP)
 
$
1.75

 
$
1.56

 
$
5.46

 
$
4.99

Adjustments, net of tax
 
0.35

 
0.33

 
1.09

 
0.97

Adjusted EPS (Non-GAAP)
 
$
2.10

 
$
1.89

 
$
6.55

 
$
5.96


(1) 
During the sixteen weeks ended April 20, 2019, we made an out-of-period correction, which increased Cost of sales by $13.0 million, related to received not invoiced inventory.
(2) 
During the sixteen weeks ended April 20, 2019, we incurred charges relating to a make-whole provision and debt issuance costs of $10.1 million and $0.7 million resulting from the early redemption of our 2020 Notes. For further information, see Note 7, Long-term Debt and Fair Value of Financial Instruments, included in our condensed consolidated financial statements.
(3) 
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, we may use available funds for acquisitions, to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our stock repurchase program and for the payment of quarterly cash dividends. Historically, we have funded these 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 obligations for the next year.

Share Repurchase Program

On August 7, 2019, our Board of Directors authorized a $400.0 million share repurchase program to replace the previous $600.0 million share repurchase program that was authorized by our Board of Directors in August 2018, which had $49.1 million remaining at the time of its replacement.


25

Table of Contents

During the twelve and forty weeks ended October 5, 2019, we repurchased 2.4 million and 3.3 million shares of our common stock under the share repurchase program. The shares repurchased during the twelve and forty weeks ended October 5, 2019 were at an aggregate cost of $338.6 million and $476.7 million, or an average price of $138.71 and $144.03 per share. During the twelve and forty weeks ended October 6, 2018, we repurchased 0.7 million shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. As of October 5, 2019, we had $201.4 million remaining under our share repurchase program that was authorized by our Board of Directors on August 7, 2019.

On November 8, 2019, our Board of Directors authorized $700.0 million as an addition to the existing share repurchase program.

Analysis of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:
 
Forty Weeks Ended
(in thousands)
October 5, 2019
 
October 6, 2018
Cash flows provided by operating activities
$
708,546

 
$
681,503

Cash flows used in investing activities
(160,510
)
 
(103,682
)
Cash flows used in financing activities
(870,864
)
 
(153,660
)
Effect of exchange rate changes on cash
27

 
(1,092
)
Net (decrease) increase in Cash and cash equivalents
$
(322,801
)
 
$
423,069


Operating Activities

For the forty weeks ended October 5, 2019, net cash provided by operating activities increased by $27.0 million to $708.5 million compared to the comparable period of 2018. The net increase in operating cash flows compared to the prior year was primarily driven by an increase in net income and our focus on managing and improving our working capital.

Investing Activities

For the forty weeks ended October 5, 2019, net cash used in investing activities increased by $56.9 million to $160.5 million compared to the comparable period of 2018. Cash used in investing activities for the forty weeks ended October 5, 2019 consisted primarily of purchases of property and equipment, which was $64.1 million higher than the comparable period of 2018, primarily driven by investments made in supply chain, e-commerce and store improvements, as well as information technology as we remain focused on the complete back office integration throughout the enterprise.

Our primary capital requirements relate to the funding of our investments in our supply chain network, information technology and new store developments. In 2019, we anticipate that our capital expenditures related to such investments will range from $250 million to $300 million, but our future capital requirements may vary based on business conditions.

Financing Activities

For the forty weeks ended October 5, 2019, net cash used in financing activities was $870.9 million, an increase of $717.2 million as compared to the forty weeks ended October 6, 2018. This increase was primarily a result of returning cash to shareholders in the form of share repurchases and dividends, as well as on February 28, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 2020 Notes. We incurred charges relating to a make-whole provision and debt issuance costs of $10.1 million and $0.7 million resulting from the early redemption of our 2020 Notes.

Our Board of Directors has declared a $0.06 per share quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On November 8, 2019, our Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on January 3, 2020 to all common shareholders of record as of December 20, 2019.

26

Table of Contents

Long-Term Debt

As of October 5, 2019, we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by Standard & Poor’s and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may be limited. In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.

Critical Accounting Policies and Estimates

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

During the forty weeks ended October 5, 2019, there were no changes to the critical accounting policies discussed in our 2018 Form 10-K. For a complete discussion of our critical accounting policies, refer to the 2018 Form 10-K.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our exposure to market risk since December 29, 2018. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2018 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information 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 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 5, 2019. 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 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 (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended October 5, 2019 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 and directors in the United States District Court, District of Delaware. The plaintiff alleges that the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.  The case is still in its early stages, with a motion to dismiss pending before the court. We strongly dispute the allegations of the complaint and intend to defend the case vigorously. 


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 for the quarter ended October 5, 2019: 
 
 
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 14, 2019 to August 10, 2019
 
309,862

 
$
145.39

 
309,862

 
$
144,050

August 11, 2019 to September 7, 2019
 
2,139,514

 
137.74

 
2,131,329

 
201,443

September 8, 2019 to October 5, 2019
 
21

 
157.06

 

 
201,443

Total
 
2,449,397

 
$
138.70

 
2,441,191

 
$
201,443


(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 $1.1 million, or an average price of $138.63 per share, during the twelve weeks ended October 5, 2019.
(2) 
On August 7, 2019, our Board of Directors authorized a $400.0 million share repurchase program. This new authorization was announced on August 13, 2019 and replaced the previous $600.0 million share repurchase program that was authorized by our Board of Directors in August 2018.

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ITEM 6.
EXHIBITS 
 
 
Incorporated by Reference
Filed
Exhibit No.
Exhibit Description
Form
Exhibit
Filing Date
Herewith
10-Q
3.1
8/14/2018
 
10-Q
3.2
5/22/2018
 
 
 
 
X
 
 
 
X
 
 
 
X
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.
 
 
 
X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
X
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
X




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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 12, 2019
 
/s/ Andrew E. Page
 
 
Andrew E. Page
Senior Vice President, Controller and Chief Accounting Officer


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