Advance Auto Parts Inc 10-K for FY2024
Advance Auto Parts Inc (AAP)
10-K
2025-02-26
For: 2024-12-28
View Original
Added on
April 10, 2026
About this 10-K
Advance Auto Parts Inc filed this 10-K on February 26, 2025, covering the fiscal year ended December 28, 2024 (FY2024).
Headline figures
Fiscal year ended December 28, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.09B
- down 1.2% from $9.21B a year earlier
- Net loss
- $335.79M
- compared with net income of $29.74M a year earlier
- Diluted EPS
- -$5.61
- compared with $0.50 a year earlier
As discussed in Note 1. Nature of Operations and Basis of Presentation, during the year ended December 30, 2023, the Company identified errors in its consolidated financial statements. A summary of the corrections, inclusive of adjustments discovered in the periods presented below are as follows (tables may not foot or cross foot due to rounding):
| Condensed Consolidated Statement of Operations | |||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||
| Year Ended | |||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||||||||||||||||
| Cost of sales | $ | 6,192,622 | $ | 29,865 | $ | 6,222,487 | $ | 1,306,483 | $ | 4,916,004 | |||||||||||||||||||
| Gross profit | 4,962,100 | (29,865) | 4,932,235 | 699,365 | 4,232,870 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 4,247,949 | 14,033 | 4,261,982 | 553,730 | 3,708,252 | ||||||||||||||||||||||||
| Operating income | 714,151 | (43,898) | 670,253 | 145,635 | 524,618 | ||||||||||||||||||||||||
| Other (expense) income, net | (6,996) | (427) | (7,423) | (1,247) | (6,176) | ||||||||||||||||||||||||
| Total other, net | (65,464) | (427) | (65,891) | (1,466) | (64,425) | ||||||||||||||||||||||||
| Income before provision for income taxes | 648,687 | (44,325) | 604,362 | 144,169 | 460,193 | ||||||||||||||||||||||||
| Provision for income taxes | 146,815 | (6,855) | 139,960 | 40,303 | 99,657 | ||||||||||||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | $ | 103,866 | $ | 360,536 | |||||||||||||||||||
| Basic earnings per share | $ | 8.32 | $ | (0.62) | $ | 7.70 | $ | 1.73 | $ | 5.97 | |||||||||||||||||||
| Diluted earnings per common share | $ | 8.27 | $ | (0.62) | $ | 7.65 | $ | 1.71 | $ | 5.94 | |||||||||||||||||||
| Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Year Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | |||||||||||
| Currency translation adjustments | (22,330) | 4,880 | (17,450) | ||||||||||||||
| Total other comprehensive loss | (22,516) | 4,880 | (17,636) | ||||||||||||||
| Comprehensive income | $ | 479,356 | $ | (32,590) | $ | 446,766 | |||||||||||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | |||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||
| Fifty-Two Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (22,627) | $ | 4,605,791 | $ | 3,128,291 | |||||||||||||||||
| Net income | — | 501,872 | 501,872 | ||||||||||||||||||||
| Total other comprehensive loss | (22,516) | — | (22,516) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | (45,143) | $ | 4,744,624 | $ | 2,678,281 | |||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (4,432) | $ | (42,067) | $ | (46,499) | |||||||||||||||||
| Net Income | — | (37,470) | (37,470) | ||||||||||||||||||||
Total other comprehensive loss | 4,880 | — | 4,880 | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | 448 | $ | (79,537) | $ | (79,089) | |||||||||||||||||
| As Corrected | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (27,059) | $ | 4,563,724 | $ | 3,081,792 | |||||||||||||||||
| Net income | — | 464,402 | 464,402 | ||||||||||||||||||||
| Total other comprehensive loss | (17,636) | — | (17,636) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | (44,695) | $ | 4,665,087 | $ | 2,599,192 | |||||||||||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||||||||||||
| Fifty-Two Weeks Ended December 31, 2022 | |||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | $ | 103,866 | $ | 360,536 | |||||||||||||||||||
| Provision for deferred income taxes | 6,338 | 10,190 | 16,528 | (6,283) | 22,811 | ||||||||||||||||||||||||
| Net change in: | |||||||||||||||||||||||||||||
| Receivables, net | 81,254 | (14,107) | 67,147 | 39,727 | 27,420 | ||||||||||||||||||||||||
| Inventories, net | (272,253) | 42,610 | (229,643) | (158,674) | (70,969) | ||||||||||||||||||||||||
| Accounts payable | 212,568 | 15,206 | 227,774 | 108,440 | 119,334 | ||||||||||||||||||||||||
| Accrued expenses | (165,643) | (2,080) | (167,723) | (9,091) | (158,632) | ||||||||||||||||||||||||
| Net cash provided by operating activities | 722,222 | 14,349 | 736,571 | 113,933 | 622,638 | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash | (9,216) | 552 | (8,664) | ||||||||||||||||||||||||||
| Net decrease in cash and cash equivalents | (332,146) | 14,901 | (317,245) | ||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 601,428 | (13,378) | 588,050 | ||||||||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 269,282 | $ | 1,523 | $ | 270,805 | $ | 50,671 | $ | 220,134 | |||||||||||||||||||
| Condensed Consolidated Statement of Operations | |||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||
| Year Ended | |||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||||||||||||||||
| Cost of sales | $ | 6,192,622 | $ | 29,865 | $ | 6,222,487 | $ | 1,306,483 | $ | 4,916,004 | |||||||||||||||||||
| Gross profit | 4,962,100 | (29,865) | 4,932,235 | 699,365 | 4,232,870 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 4,247,949 | 14,033 | 4,261,982 | 553,730 | 3,708,252 | ||||||||||||||||||||||||
| Operating income | 714,151 | (43,898) | 670,253 | 145,635 | 524,618 | ||||||||||||||||||||||||
| Other (expense) income, net | (6,996) | (427) | (7,423) | (1,247) | (6,176) | ||||||||||||||||||||||||
| Total other, net | (65,464) | (427) | (65,891) | (1,466) | (64,425) | ||||||||||||||||||||||||
| Income before provision for income taxes | 648,687 | (44,325) | 604,362 | 144,169 | 460,193 | ||||||||||||||||||||||||
| Provision for income taxes | 146,815 | (6,855) | 139,960 | 40,303 | 99,657 | ||||||||||||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | $ | 103,866 | $ | 360,536 | |||||||||||||||||||
| Basic earnings per share | $ | 8.32 | $ | (0.62) | $ | 7.70 | $ | 1.73 | $ | 5.97 | |||||||||||||||||||
| Diluted earnings per common share | $ | 8.27 | $ | (0.62) | $ | 7.65 | $ | 1.71 | $ | 5.94 | |||||||||||||||||||
| Condensed Consolidated Statement of Comprehensive Income | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Year Ended | |||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | |||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | |||||||||||
| Currency translation adjustments | (22,330) | 4,880 | (17,450) | ||||||||||||||
| Total other comprehensive loss | (22,516) | 4,880 | (17,636) | ||||||||||||||
| Comprehensive income | $ | 479,356 | $ | (32,590) | $ | 446,766 | |||||||||||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity | |||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders' Equity | |||||||||||||||||||||
| Fifty-Two Weeks As Previously Reported | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (22,627) | $ | 4,605,791 | $ | 3,128,291 | |||||||||||||||||
| Net income | — | 501,872 | 501,872 | ||||||||||||||||||||
| Total other comprehensive loss | (22,516) | — | (22,516) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | (45,143) | $ | 4,744,624 | $ | 2,678,281 | |||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (4,432) | $ | (42,067) | $ | (46,499) | |||||||||||||||||
| Net Income | — | (37,470) | (37,470) | ||||||||||||||||||||
Total other comprehensive loss | 4,880 | — | 4,880 | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | 448 | $ | (79,537) | $ | (79,089) | |||||||||||||||||
| As Corrected | |||||||||||||||||||||||
| Balance at January 1, 2022 | $ | (27,059) | $ | 4,563,724 | $ | 3,081,792 | |||||||||||||||||
| Net income | — | 464,402 | 464,402 | ||||||||||||||||||||
| Total other comprehensive loss | (17,636) | — | (17,636) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | (44,695) | $ | 4,665,087 | $ | 2,599,192 | |||||||||||||||||
| Condensed Consolidated Statement of Cash Flows | |||||||||||||||||||||||||||||
| Fifty-Two Weeks Ended December 31, 2022 | |||||||||||||||||||||||||||||
| As Previously Reported | Adjustments | As Corrected | Discontinued Operations | As Corrected, after Discontinued Operations | |||||||||||||||||||||||||
| Net income | $ | 501,872 | $ | (37,470) | $ | 464,402 | $ | 103,866 | $ | 360,536 | |||||||||||||||||||
| Provision for deferred income taxes | 6,338 | 10,190 | 16,528 | (6,283) | 22,811 | ||||||||||||||||||||||||
| Net change in: | |||||||||||||||||||||||||||||
| Receivables, net | 81,254 | (14,107) | 67,147 | 39,727 | 27,420 | ||||||||||||||||||||||||
| Inventories, net | (272,253) | 42,610 | (229,643) | (158,674) | (70,969) | ||||||||||||||||||||||||
| Accounts payable | 212,568 | 15,206 | 227,774 | 108,440 | 119,334 | ||||||||||||||||||||||||
| Accrued expenses | (165,643) | (2,080) | (167,723) | (9,091) | (158,632) | ||||||||||||||||||||||||
| Net cash provided by operating activities | 722,222 | 14,349 | 736,571 | 113,933 | 622,638 | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash | (9,216) | 552 | (8,664) | ||||||||||||||||||||||||||
| Net decrease in cash and cash equivalents | (332,146) | 14,901 | (317,245) | ||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 601,428 | (13,378) | 588,050 | ||||||||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 269,282 | $ | 1,523 | $ | 270,805 | $ | 50,671 | $ | 220,134 | |||||||||||||||||||
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
________________________________________________
For the fiscal year ended December 28 , 2024
For the transition period from ________ to ________.
Commission file number 001-16797
________________________
(Exact name of registrant as specified in its charter)
________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(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 | ||||||||||||
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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.
| ☒ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 the last business day of the registrant’s most recently completed second fiscal quarter, July 13, 2024, the aggregate market value of common stock held by non-affiliates of the registrant was $2,350,271,465 , based on the last sales price on July 13, 2024, as reported by the New York Stock Exchange.
As of February 21, 2025, the number of shares of the registrant’s common stock outstanding was 59,792,946 shares.
Documents Incorporated by Reference:
| TABLE OF CONTENTS | |||||||||||
Page | |||||||||||
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,” “target,” “will,” or similar language. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about the Company’s strategic initiatives, restructuring and asset optimization plans, financial objectives, operational plans and objectives, statements about the sale of the Company’s Worldpac business, including statements regarding the benefits of the sale and use of proceeds therefrom, statements regarding expectations for economic conditions, future business and financial performance, as well as statements regarding underlying assumptions related thereto. Forward-looking statements reflect the Company’s views based on historical results, current information and assumptions related to future developments. Except as may be required by law, the Company undertakes 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, the Company’s ability to hire, train and retain qualified employees, the timing and implementation of strategic initiatives, risks associated with the Company’s restructuring and asset optimization plans, deterioration of general macroeconomic conditions, geopolitical factors including increased tariffs and trade restrictions, the highly competitive nature of the industry, demand for the Company’s products and services, risks relating to the impairment of assets, including intangible assets such as goodwill, access to financing on favorable terms, complexities in the Company’s inventory and supply chain and challenges with transforming and growing its business. Please refer to “Item 1A. Risk Factors” 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
Item 1. Business.
Unless the context otherwise requires, the “Company,” “Advance,” and similar terms refer to Advance Auto Parts, Inc., its subsidiaries and their respective operations on a consolidated basis. The Company’s fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31st each year. The Company’s previous three fiscal years ended on December 28, 2024 (“2024”), December 30, 2023 (“2023”) and December 31, 2022 (“2022”) and each included fifty-two weeks of operations.
Overview
Advance Auto Parts, Inc. and its subsidiaries is a leading automotive aftermarket parts provider in North America, serving both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers, as well as independently-owned operators. The Company’s stores offer a broad selection of brand names, original equipment manufacturer (“OEM”) and owned brand automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. As of December 28, 2024, the Company operated 4,788 stores primarily under the trade names “Advance Auto Parts” and “Carquest.”
The Company was founded in 1929 as Advance Stores Company, Incorporated, and operated as a retailer of general merchandise until the 1980s. During the 1980s, the Company began targeting the sale of automotive parts and accessories to DIY customers. The Company initiated the professional delivery program in 1996 and has served professional customers since 2000. The Company has grown significantly as a result of strategic acquisitions, new store openings and comparable store sales growth. Advance Auto Parts, Inc., a Delaware corporation, was incorporated in 2001 in conjunction with the acquisition of Discount Auto Parts, Inc. In 2014, the Company acquired General Parts International, Inc. (“GPI”), a privately-held company that was a leading distributor and supplier of original equipment and aftermarket automotive replacement products for professional markets operating under the Carquest and Worldpac trade names.
On November 1, 2024, the Company completed the sale of the Worldpac business for net proceeds of approximately $1.47 billion after transaction costs and excluding the impact of taxes. The transaction reflects a strategic shift in the Company’s business with increased focus on the Advance blended-box model. Refer to Note 20. Discontinued Operations of the notes to the Consolidated Financial Statements included herein for further details.
On November 13, 2024, the Company’s Board of Directors approved a restructuring and asset optimization plan (“2024 Restructuring Plan”) designed to improve the Company’s profitability and growth potential and streamline its operations. This plan is supplemental to other ongoing initiatives to simplify the Company's business and improve profitable growth and entails, among other items, certain store and independent location closures as well as headcount reductions and organizational design changes to align the Company’s workforce to the expected needs of the Company's business. The Company is also pursuing efficiencies in procurement, pricing and professional and outside services, in addition to operational efficiencies. Refer to Note 3. Restructuring of the notes to the Consolidated Financial Statements included herein for further details.
Stores
During 2024, 42 stores were opened and 40 were closed, resulting in a total of 4,788 stores as of December 28, 2024 compared with a total of 4,786 stores as of December 30, 2023. On November 14, 2024, the Company announced the 2024 Restructuring Plan, which includes the reduction of approximately 500 stores, approximately 200 independent locations and four distribution centers by mid-2025.
The Company serves its professional and DIY customers through a variety of channels ranging from traditional “brick and mortar” store locations to self-service e-commerce sites. The Company believes it is better able to meet its customers’ needs by operating under two trade names, which are as follows:
Advance Auto Parts — The Company’s 4,507 stores, inclusive of 316 hubs, as of December 28, 2024, are generally located in freestanding buildings with a focus on both professional and DIY customers. The average size of an Advance Auto Parts location (including stores, hubs and market hubs) is approximately 8,000 square feet. These stores carry a wide variety of products serving aftermarket auto part needs for both domestic and import vehicles with product offerings of approximately 23,600 stock keeping units (“SKUs”), consisting of a custom mix of products based on each store’s market. Supplementing the Company’s stores’ inventory on-hand, less common SKUs are also available on a same-day or next-day basis from any of the larger hub stores or market hub locations.
2
Carquest — The Company’s 281 stores as of December 28, 2024, including 149 stores in Canada, are generally located in freestanding buildings with a primary focus on professional customers, but also serve DIY customers. The average size of a Carquest store is approximately 7,500 square feet. These stores carry a wide variety of products serving the aftermarket auto part needs for both domestic and import vehicles with a product offering of approximately 16,400 SKUs. As of December 28, 2024, 934 independently-owned stores operated under the Carquest name.
Store Development
The key factors used in selecting sites and market locations in which the Company operates include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. As of December 28, 2024, 4,639 stores were located across 48 U.S. states and two U.S. territories, and 149 stores were located across six Canadian provinces.
The Company serves the stores primarily from its executive office in Raleigh, NC.
Company Products
The following table shows some of the types of products that the Company sells by major category:
| Parts & Batteries | Accessories & Chemicals | Engine Maintenance | ||||||
| Batteries and battery accessories | Air conditioning chemicals and accessories | Air filters | ||||||
| Belts and hoses | Air fresheners | Fuel and oil additives | ||||||
| Brakes and brake pads | Antifreeze and washer fluid | Fuel filters | ||||||
| Chassis parts | Electrical wire and fuses | Grease and lubricants | ||||||
| Climate control parts | Electronics | Motor oil | ||||||
| Clutches and drive shafts | Floor mats, seat covers and interior accessories | Oil filters | ||||||
| Engines and engine parts | Hand and specialty tools | Part cleaners and treatments | ||||||
| Exhaust systems and parts | Lighting | Transmission fluid | ||||||
| Hub assemblies | Performance parts | |||||||
| Ignition components and wire | Sealants, adhesives and compounds | |||||||
| Radiators and cooling parts | Tire repair accessories | |||||||
| Starters and alternators | Vent shades, mirrors and exterior accessories | |||||||
| Steering and alignment parts | Washes, waxes and cleaning supplies | |||||||
| Wiper blades | ||||||||
The Company provides customers with quality products that are often offered at a good, better or best recommendation differentiated by price and quality. The Company accepts customer returns for many new, core and warranty products. Customer returns have historically been immaterial.
Customers
The Company’s professional customers primarily consist of customers for whom the Company delivers products to their places of business, including garages, service stations and auto dealerships. The Company’s professional sales represented approximately 50% of sales in 2024, 2023 and 2022. The Company also serves 934 independently-owned Carquest stores with shipments directly from distribution centers. DIY customers are primarily served through the Company’s stores, but can also order online to pick up merchandise at a nearby store or have their purchases shipped directly to them. Except where prohibited, the Company also provides a variety of services at its stores free of charge to customers, including:
•Battery and wiper installation;
•Check engine light scanning;
•Electrical system testing, including batteries, starters and alternators;
•Oil and battery recycling; and
•Loaner tool programs.
3
The Company also serves customers online at www.AdvanceAutoParts.com or on the Advance Mobile App. Professional customers can conveniently place their orders electronically, including through MyAdvance.com, by phone or in-store, and the Company delivers products to their places of business.
Supply Chain
The Company’s supply chain consists of a network of distribution centers, hubs and stores that enable the Company to provide same-day or next-day availability to customers. As of December 28, 2024, the Company operated 28 distribution centers, ranging in size from approximately 70,000 to 943,000 square feet with total square footage of approximately 8.5 million, including one distribution center dedicated to reclamations. In 2024, the Company converted eight distribution centers to market hubs, closed four distribution centers as a result of the 2024 Restructuring Plan and closed one distribution center as part of the normal course of business. Additionally, nine distribution centers were sold as part of the Worldpac transaction.
Merchandise, Marketing and Advertising
In 2024, the Company purchased merchandise from over 634 vendors. The Company’s purchasing strategy involves negotiating agreements with vendors to purchase merchandise over a specified period of time along with other provisions, including pricing, rebates, volume and payment terms.
The Company aims to carry a broad selection of high quality and reputable brand name automotive parts and accessories that the Company believes will appeal to professional customers and also generate DIY customer traffic. Some of the Company’s brands include Bosch®, Castrol®, Dayco®, Denso®, Fram®, Gates®, Meguiar’sTM, Mobil 1TM, Moog®, Monroe®, NGK®, Prestone®, Purolator®, Trico® and Wagner®. In addition to these branded products, the Company stocks a wide selection of high-quality owned brand products with a goal of appealing to value-conscious customers. These categories of merchandise include batteries, brakes, chassis, ride control, engine management, filtration, chemicals and other parts under various owned brand names such as Carquest®, DieHard®, Driveworks® and Wearever®. For the DieHard® brand, the Company owns the right to sell batteries and to extend the DieHard® brand into other automotive and vehicular categories. The Company granted the seller an exclusive royalty-free, perpetual license to develop, market and sell DieHard® branded products in certain non-automotive categories.
The Company’s marketing and advertising programs are designed to drive brand awareness, consideration by consumers and omnichannel traffic by position in the aftermarket auto parts category. The Company strives to exceed its customers’ expectations end-to-end through a comprehensive online and in-store pick up experience, extensive parts assortment, quality brands, experienced parts professionals, professional programs that are designed to build loyalty with customers and the DIY customer loyalty program.
Seasonality
The Company’s business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. In addition, the Company’s business can be affected by weather conditions. While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot or cold weather tends to cause automotive parts to fail at an accelerated rate which can lead to enhanced sales. The fourth quarter is generally the most volatile as weather and spending trade-offs typically influence the professional and DIY sales.
Human Capital
As of December 28, 2024, the Company employed approximately 33,200 full-time team members and 29,600 part-time team members. The Company’s workforce consisted of 87.4% of team members employed in store-level operations, 8.9% in distribution and 3.7% in corporate offices. As of December 28, 2024, approximately 1.5% of team members were represented by labor unions.
Additional information about the Company’s human capital resources can be found in the Corporate Sustainability and Social Report, which is available on the Company’s website. The Corporate Sustainability and Social Report is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated by reference into any of the Company’s other filings with the Securities and Exchange Commission (“SEC”).
4
Intellectual Property
The Company owns a number of trade names, service marks and trademarks, including “Advance Auto Parts®,” “Advance Same Day®,” “Carquest®,” “CARQUEST Technical Institute®,” “DieHard®,” “DriverSide®,” “MotoLogic®,” “MotoShop® and “TECH-NET Professional Auto Service®”, for use in connection with the automotive parts business. In addition, the Company owns and has registered a number of trademarks for the owned brands. The Company believes that these trade names, service marks and trademarks are important to the merchandising strategy. The Company does not know of any infringing uses that would materially affect the use of these trade names and trademarks and will actively defend and enforce them.
Competition
The Company operates in both the professional and DIY markets of the automotive aftermarket industry. The Company’s primary competitors are (i) both national and regional chains of automotive parts stores, including AutoZone, Inc., NAPA, O’Reilly Automotive, Inc., The Pep Boys-Manny, Moe & Jack and Auto Plus (formerly Uni-Select USA, Inc.), (ii) internet-based retailers, (iii) discount stores and mass merchandisers that carry automotive products, (iv) wholesalers or jobbers stores, including those associated with national parts distributors or associations, (v) independently-owned stores and (vi) automobile dealers that supply parts. The Company believes that chains of automotive parts stores that, like the Company, have multiple locations in one or more markets, have competitive advantages in customer service, marketing, inventory selection, purchasing and distribution compared with independent retailers and jobbers that are not part of a chain or associated with other retailers or jobbers. The principal methods of competition in the business include brand recognition, customer service, product offerings, availability, quality, service with speed, price and store location.
Environmental and Other Regulatory Matters
The Company is subject to various federal, state and local laws and governmental regulations relating to the operation of the business, including those governing collection, transportation and recycling of automotive lead-acid batteries, used motor oil and other recyclable items and ownership and operation of real property. The Company sells products containing hazardous materials as part of the business. In addition, customers may bring automotive lead-acid batteries, used motor oil or other recyclable items onto the properties. The Company currently provides collection and recycling programs for used lead-acid batteries, used oil and other recyclable items at a majority of the stores as a service to its customers. Pursuant to agreements with third-party vendors, lead-acid batteries, used motor oil and other recyclable items are collected by team members, deposited onto pallets or into vendor supplied containers and stored by the Company until collected by the third-party vendors for recycling or proper disposal. The terms of the contracts with third-party vendors require that they are in compliance with all applicable laws and regulations. The Company’s third-party vendors who arrange for the removal, disposal, treatment or other handling of hazardous or toxic substances may be liable for the costs of removal or remediation at any affected disposal, treatment or other site affected by such substances. Based on the Company’s experience, the Company does not believe that there are any material environmental costs associated with the current business practice of accepting lead-acid batteries, used oil and other recyclable items as these costs are borne by the respective third-party vendors.
The Company owns and leases real property. Under various environmental laws and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. These laws often impose joint and several liability and may be imposed without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous or toxic substances. Other environmental laws and common law principles also could be used to impose liability for releases of hazardous materials into the environment or work place, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. From time to time, the Company receives notices from the U.S. Environmental Protection Agency and state environmental authorities indicating that there may be contamination on properties that the Company owns, leases or operates or may have owned, leased or operated in the past or on adjacent properties for which the Company may be responsible. Compliance with these laws and regulations and clean-up of released hazardous substances have not had a material impact on operations to date.
The Company is also subject to numerous regulations including those related to labor and employment, discrimination, anti-bribery/anti-corruption, false claims, product quality and safety standards, data privacy, taxes, workplace safety, consumer protection and trade compliance. Compliance with any such laws and regulations has not had a material adverse effect on the operations to date. For more information, see the following disclosures in “Part I. Item 1A. Risk Factors” in this report.
5
Available Information
The Company’s internet address is www.AdvanceAutoParts.com. The Company’s website and the information contained therein or linked thereto are not part of this Annual Report on Form 10-K for 2024. The Company makes available free of charge through the Investor Relations website located at ir.advanceautoparts.com, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after the Company electronically files such materials with, or furnishes them to the SEC. The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at www.sec.gov.
6
Item 1A. Risk Factors.
One should consider carefully the risks and uncertainties described below together with the other information included in this Annual Report on Form 10-K, including without limitation, the Company’s consolidated financial statements and related notes thereto and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies. The occurrence of any of the following risks could materially adversely affect the Company’s business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of the Company’s common stock.
Risks Related to the Company’s Operations and Strategy
If we are unable to successfully implement our business strategy, our business, financial condition, results of operations and cash flows could be adversely affected.
The Company undertook a comprehensive strategic and operational review to improve its performance of its business and create long-term value. This review resulted in, among other things, narrowed business priorities and initiatives aimed at improving core performance in key areas. The Company is currently making and expects to continue to make significant investments to improve its business. If the Company is unable to implement initiatives efficiently and effectively, the Company’s business, financial condition, results of operations and cash flows could be adversely affected. The Company could also be adversely affected if it has not appropriately prioritized and balanced its initiatives or if the Company is unable to effectively manage change throughout the organization. Implementing strategic initiatives could disrupt or reduce the efficiency of the Company’s operations and may not provide the anticipated benefits, or may provide them on a delayed schedule or at a higher cost. These risks increase when significant changes are undertaken and when multiple projects with interdependencies and shared human resources are pursued simultaneously.
Restructuring our operations is a significant undertaking and introduces risk to the continuity and results of the Company's operations.
In November 2024, the Company announced a plan to restructure its operations to improve profitability and growth potential and streamline the Company's operations. This plan is supplemental to other ongoing initiatives to simplify the Company's business and improve profitable growth and entails, among other items, certain store and independent location closures as well as headcount reductions and organizational design changes to align the Company’s workforce to the expected needs of the Company's business. The Company is also pursuing efficiencies in procurement, pricing and professional and outside services, in addition to operational efficiencies. These measures are subject to known and unknown risks and uncertainties, including whether the Company has targeted the appropriate areas for its cost-saving efforts and at the appropriate scale, the Company's ability to successfully execute the restructuring plan and achieve the cost-savings anticipated while minimally disrupting our operations and whether, if required in the future, the Company will be able to appropriately target any additional areas for its cost-saving efforts.
The Company expects to incur restructuring charges and undertake other exit-related activities as a result of such initiatives. For example, execution of the Company’s plan is expected to result in the termination of certain leases, leading to exits of certain properties over time and the incurrence of expenses, including but not limited to impairment charges and contingent obligations, which could be material. The terms, scope and timing of any additional changes to our lease obligations, as well as any other effects on our landlord relationships or reputation with other real estate owners, are uncertain. As a result of the restructuring plan, the Company currently expects to incur approximately $875 million to $960 million in total charges, which is estimated to include $275 million to $310 million of cash charges and $600 million to $650 million of non-cash charges, primarily as a result of closure sites and the reduction in workforce. The Company’s expectations for charges to be incurred and cash to be expended in connection with the restructuring activities are based on a number of assumptions, and the Company may experience unanticipated consequences, such as higher than anticipated lease termination and facility closure costs, asset impairment or other unforeseen expenses related to the restructuring.
Implementing any restructuring plan, including the one the Company has outlined, presents potential risks that may impair our ability to achieve or sustain anticipated cost reductions or operational improvements. These risks include the potential for management distraction from ongoing business activities, requirement of capital investment that could otherwise be used for the operation and growth of the Company’s existing business, inadequate support of important business functions due to staffing changes and other cost reduction efforts, delays or inability to achieve targeted efficiencies as a result of economic, competitive or other factors, failure to maintain adequate controls and procedures while executing our restructuring plans, disruptions to important business relationships, and damage to our reputation and brand. Additionally, as a result of restructuring initiatives, the Company may experience a loss of continuity and accumulated knowledge or increased employee attrition and difficulty attracting and retaining highly skilled employees, which may, among other things, slow the progress of
7
our turnaround initiatives or impair the Company’s ability to maintain and enhance the Company’s internal controls and procedures.
The implementation of the Company’s restructuring efforts, including the potential reduction of the Company’s facilities and workforce, may not improve our operational and cost structure or result in greater efficiency of the Company’s organization; and the Company may not be able to support sustainable profitable growth following the Company’s restructuring actions. Failure to achieve or sustain the expected cost reductions and other benefits related to these restructuring initiatives could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.
We are exposed to risks associated with potential divestitures, which may impact our ability to fully realize the anticipated benefits of those transactions.
The Company recently sold its Worldpac business. Divestitures are complex transactions involving inherent risks, including the potential for distractions of management from the core remaining business of the Company and the occurrence of events that may impact our ability to fully realize the anticipated benefits of the divestitures. Transactions of this nature carry risks associated to variation from expectations, including with respect to provision of transition services and post-closing claims for liability.
If we are unable to adequately design, implement, operate and maintain various information and technology systems, our ability to conduct business could be negatively impacted.
The Company is dependent on information and technology systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results. The company is in the process of designing, implementing and updating various systems. These initiatives will require significant investment of human and financial resources, and the Company may experience significant delays, increased costs and other difficulties with these projects. Deficiencies in the design or implementation or maintenance of these systems could lead to inaccuracy of data and disruption to the Company’s business operations. In addition, the Company is utilizing data analytics and piloting the use of advance technological applications to support various business initiatives. Any inability on our part to properly capture or interpret data may impair our ability to successfully execute our business plans.
The efficacy of the Company’s supply chain is important to its business operations and ability to grow the Company’s business, and if the Company is unable to maintain adequate supply chain capacity or improve supply chain efficiency, it could adversely affect its business, financial condition and results of operations and cash flows.
The Company’s store inventories are primarily replenished by shipments from its network of distribution centers. The Company’s strategy to improve supply chain efficiency includes developing a network of market hubs to create economies of scale and enhance service levels for our customers. If the Company is unable to maintain adequate capacity in its supply chain network, or improve the efficiency of its supply chain, through the implementation of its market hub strategy or otherwise, the Company may experience higher inventory costs, lower availability, slower delivery speed and ultimately a lower ability to meet consumer product needs and channel preferences. The Company plans to further invest in its distribution center infrastructure to help ensure safety, reliability and efficiency across its operations, which will require capital investments. The Company is also working to improve product lifecycle management and address slower-moving inventory in its network. The Company’s investments in supply chain may not provide the anticipated benefits, and experiencing sub-optimal inventory levels, inventory availability or increases in its costs could adversely affect its business, financial condition, results of operations and cash flows.
An unstable global economic and geopolitical landscape increases uncertainty about key areas of doing business internationally and may have a negative impact on our business.
The United States has recently enacted and proposed to enact significant new tariffs. Additionally, the current administration has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, enforcement priorities, sanctions, treaties and tariffs. Some of the Company’s merchandise is imported from various countries, including Canada, China and Mexico, and newly proposed tariffs and any additional tariffs on products sourced from these or other countries could materially increase our costs. There continues to exist significant uncertainty about the future economic and political relationship between the U.S. and other countries. These developments, or the perception that any of them could occur, may have a material effect on global economic conditions, the stability of global financial markets or global trade, which may in turn impact product cost, disrupt supply chains or otherwise negatively impact our business, financial condition and results of operation.
8
The Company’s reliance on suppliers, including freight carriers and other third parties in the Company’s global supply chain, subjects it to various risks and uncertainties which could adversely affect its financial results.
The Company sources the products it sells from a wide variety of domestic and international suppliers, and places significant reliance upon various third parties to transport, store and distribute those products to the Company’s distribution centers, stores and customers. The Company’s financial results depend on it securing acceptable terms with its suppliers for, among other things, the price of merchandise the Company purchases from them, funding for various forms of promotional programs, payment terms and provisions covering returns and factory warranties. To varying degrees, the Company’s suppliers may be able to leverage their competitive advantages - for example, their scale, financial strength, the strength of their brand with customers, their own stores or online channels or their relationships with other retailers - to the Company’s commercial disadvantage. Generally, the Company’s ability to negotiate favorable terms with its suppliers is more difficult with suppliers for whom the Company purchases represent a smaller proportion of their total revenues, consequently impacting the Company’s profitability from such vendor relationships. If the Company encounters any of these issues with its suppliers, its business, financial condition, results of operations and cash flows could be adversely impacted.
In addition, the Company’s suppliers, including those within its global supply chain, are impacted by global conditions that in turn may impact the Company’s ability to source merchandise at competitive prices or timely supply product at levels adequate to meet consumer demand. For example, disruptions to the global supply chain resulting from lack of carrier capacity, labor shortages, geopolitical unrest, changes in foreign trade policies, port congestion and/or closures, amongst other factors, may negatively impact costs, inventory availability and operating results. If suppliers increase prices charged to the Company for products, including transportation and distribution, as a result of these or other factors such as tariffs, heightened trade compliance and sanctions enforcement, inflation or the cost of participating in vendor financing programs, it may negatively impact the Company’s results. If the Company experiences transitions or changeover with any of its significant vendors, or if its vendors experience financial difficulties or are otherwise unable to deliver merchandise to the Company on a timely basis, or at all, the Company could have product shortages in its stores that could adversely affect customers’ perceptions of the Company and cause the Company to lose customers and sales.
If the Company is unable to keep its desired existing store locations or open new locations in desirable places on favorable terms, it could adversely affect its business, financial condition, results of operations and cash flows.
The Company began undertaking a restructuring and asset optimization plan in late 2024, whereby it targeted closing approximately 500 stores and 200 independent locations during 2025. However, it does intend to continue to open new stores in attractive markets as it improves its business. There is uncertainty about the profitability of newly opened locations, including whether newly opened stores will harm the profitability or comparable store sales of existing locations. The profitability of newly opened and existing locations’ will depend on the competition the Company faces as well as its ability to properly stock, market and price the products desired by customers in their markets. The actual number and format of any new locations to be opened and the success of the Company’s strategy will depend on a number of factors, including, among other things:
•the availability of desirable locations;
•the negotiation of acceptable lease or purchase terms for new locations;
•the availability of financial resources, including access to capital at cost-effective interest rates;
•the Company’s ability to expand its online offerings and sales; and
•the Company’s ability to manage the expansion and to hire, train and retain qualified team members.
The Company competes with other retailers and businesses for suitable locations for its stores. Local land use and zoning regulations, environmental regulations and other regulatory requirements may impact its ability to find suitable locations and influence the cost of constructing, renovating and operating its stores. In addition, real estate, zoning, construction and other delays may adversely affect store openings and renovations and increase the Company’s costs. Further, changing local demographics at existing store locations may adversely affect revenue and profitability levels at those stores. The early termination or expiration of leases at existing store locations may adversely affect the Company if the renewal terms of those leases are unacceptable to it and the Company is forced to close or relocate stores. If the Company determines to close or relocate a store subject to a lease, the Company may remain obligated under the applicable lease for the balance of the lease term. In addition to potentially incurring costs related to lease obligations, the Company may also incur employee-related severance or other facility closure costs for stores that are closed or relocated.
9
Omnichannel growth in the Company’s business is complex and if the Company is unable to successfully maintain a relevant omnichannel experience for its customers, its sales and results of operations could be adversely impacted.
Omnichannel and e-commerce retail are competitive and evolving environments. Operating an e-commerce platform is a complex undertaking and exposes the Company to risks and difficulties frequently experienced by internet-based businesses, including risks related to the Company’s ability to attract and retain customers on a cost-effective basis and its ability to operate, support, expand and develop its internet operations, website, mobile applications and software and other related operational systems.
Enhancing the customer experience through omnichannel programs such as buy-online-pickup-in-store, new or expanded delivery options, the ability to shop through a mobile application or other similar programs depends in part on the effectiveness of the Company’s inventory management processes and systems, the effectiveness of its merchandising strategy and mix, its supply chain and distribution capabilities, and the timing and effectiveness of its marketing activities, particularly its promotions. Website or catalog downtime and other technology disruptions in its omnichannel business, including interruptions due to cyber-related issues, aging informational technology infrastructure or natural disasters, as well as supply and distribution delays and other related issues may negatively affect the Company’s operations. If the Company is not able to successfully operate or improve its e-commerce platform and omnichannel business, the Company may not be able to provide a relevant shopping experience or improve customer traffic, sales or margins, and the Company’s reputation, operations, financial condition, results of operations and cash flows could be materially adversely affected.
The Company depends on the services of many qualified executives and other team members, whom the Company may not be able to attract, develop and retain.
The Company’s success, to a significant extent, depends on the continued engagement, services and experience of its executives and other team members. The Company’s ability to attract, develop and retain an adequate number of qualified team members depends on factors such as employee morale, the Company’s reputation, competition from other employers, availability of qualified personnel, its ability to offer competitive compensation and benefit packages and its ability to maintain a safe working environment. Failure to recruit or retain qualified team members may impact the Company’s ability to serve its customers, increase its costs and impair its efficiency and ability to pursue growth opportunities. Additionally, turnover in executive or other key positions can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, impair the Company’s ability to execute, distract other team members from their key areas of focus or otherwise negatively impact the Company’s business and results. If the Company is unable to attract and retain personnel with expertise in the required areas, there may be disruptions in its financial processes and reporting, or higher likelihood of control deficiencies or future material weaknesses in internal control over financial reporting.
The Company operates in a competitive labor market and has been investing in key roles in its frontline organization, and there is a risk that increases in compensation could have an adverse effect on the Company’s profitability. Additionally, government regulated increases to employee hourly wage rates, along with the Company’s ability to implement corresponding adjustments within its labor model and wage rates, could have a negative impact on its profitability. Approximately 1.5% of the Company’s team members are represented by unions. If these team members, or if non-union team members, were to engage in a strike, work stoppage, or other slowdown, or if the terms and conditions in labor agreements were renegotiated, the Company could experience a disruption in its operations and higher ongoing labor costs.
The Company has established policies and procedures to help maintain the privacy and security of its customers, suppliers, and team members, as well as the security and functioning of its technology (business information, computer systems, website and other online offerings). In the event of a security breach or other cyber security event, the Company could experience adverse operational effects or interruptions and/or become subject to legal or regulatory proceedings, any of which could result in substantial costs and damage to its reputation in the marketplace. To date the Company is not aware that it has experienced a material cyber security incident.
The nature of the Company’s business requires it to receive, retain and transmit certain personal information (PI) about its customers, suppliers and team members. Some of this PI is managed by or shared with third-party service providers. The Company uses contractual provisions and certain third-party risk management processes to protect such PI and other confidential information and to help ensure that technology functions remain operational.
Despite these efforts, a compromise of the Company’s data security systems or those of businesses it interacts is possible. This could result in information being obtained by unauthorized persons, adverse operational effects, interruptions or other failures that could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. The Company develops, maintains and updates processes and systems to help reduce the likelihood of an occurrence.
10
Information Security controls are costly and require constant, ongoing attention as technologies change, privacy and information security regulations change, and efforts to overcome security measures by bad actors continue to become ever more sophisticated. The Company leverages a risk-based approach to selecting controls to reduce the likelihood of a failure.
The cost of complying with stricter and more numerous, complex state data privacy laws (such as the California Consumer Privacy Act), data collection and information security laws and standards is also significant to the Company. Such laws and standards increase the Company’s responsibility and liability in relation to personal data that it processes, and the Company may be required to put in place additional mechanisms ensuring compliance with privacy laws and regulations.
Additionally, since the Company does not control its third-party service providers and its ability to monitor their data security is limited, the Company cannot ensure the security measures they take will be sufficient to protect the Company’s data.
Despite the Company’s efforts, its security measures may be breached due to a cyber attack, computer malware viruses, exploitation of hardware and software vulnerabilities, team member error, malfeasance, fraudulent inducement (including so-called “social engineering” attacks and “phishing” scams) or other acts.
The Company maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover losses in any particular situation.
Any breach, damage to or interference with the Company’s equipment, its network, third-party providers, or unauthorized access could result in significant operational difficulties including legal and financial exposure and damage to the Company’s reputation that could potentially have an adverse effect on its business.
If the Company is unable to successfully integrate future acquisitions into its existing operations or implement joint ventures or other strategic relationships, it could adversely affect the Company’s business, financial condition, results of operations and cash flows.
The Company may continue to make strategic acquisitions and enter into strategic relationships as an element of its strategy. Acquisitions, joint ventures and other strategic relationships involve certain risks that could cause the Company’s growth and profitability to differ from its expectations. The success of these acquisitions and relationships depends on a number of factors, including but not limited to:
•the Company’s ability to continue to identify and acquire suitable targets or strategic partners, or to acquire additional companies or enter into strategic relationships, at favorable prices and/or with favorable terms;
•the Company’s ability to obtain the full benefits envisioned by strategic transactions or relationships;
•the risk that management’s attention may be distracted;
•the Company’s ability to attract and retain key personnel;
•the Company’s ability to successfully integrate the operations and systems of the acquired companies, and to achieve the strategic, operational, financial or other anticipated synergies of the acquisition or other transaction or relationship;
•the performance of the Company’s strategic partners;
•significant transaction or integration costs that may not be offset by the synergies or other benefits achieved in the near term or at all;
•additional operational risks, such as those associated with doing business internationally or expanding operations into new territories, geographies or channels, that may become applicable to the Company; and
•loss contingencies that the Company may assume or become subject to, whether known or unknown, of acquired companies, which could relate to past, present or future facts, events, circumstances or occurrences.
11
The Company is dependent on its suppliers to supply it with products that comply with safety and quality standards at competitive prices.
The Company is dependent on its vendors continuing to supply it with quality products on payment terms that are favorable to the Company. The current geopolitical environment, including tariffs, customs and trade and economic sanctions, may require us to change our supply chain or to source products from different regions, which could come with risks. If the Company’s merchandise offerings do not meet its customers’ expectations regarding safety, innovation and quality, the Company could experience lost sales, increased costs and exposure to legal and reputational risk. The Company’s suppliers are subject to applicable product safety laws, and the Company is dependent on them to ensure that the products the Company buys comply with all safety and quality standards. The Company also has established standards for product safety and quality and workplace standards that it requires all its suppliers to meet. The Company does not condone human trafficking, forced labor, child labor, harassment or abuse of any kind, and it expects its suppliers to operate within these same principles and legal requirements. The Company’s ability to find qualified suppliers who can supply products in a timely and efficient manner that meet the Company’s standards, timeline and other needs can be challenging. Events that give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement action and private litigation and result in costly product recalls and other liabilities. Suppliers may also fail to invest adequately in design, production or distribution facilities, may reduce their customer incentives, advertising and promotional activities or change their pricing policies. To the extent the Company’s suppliers are subject to additional government regulation of their product design and/or manufacturing processes, or the imposition of new tariffs, the cost of the merchandise the Company purchases may rise. In addition, negative customer perceptions regarding the safety or quality of the products the Company sells could cause its customers to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for the Company to regain the confidence of the Company’s customers.
Because the Company is involved in litigation from time to time, and is subject to numerous laws and governmental regulations, the Company could incur substantial judgments, fines, legal fees and other costs.
The Company is sometimes the subject of complaints or litigation, which may include class action litigation from customers, team members or others for various actions. From time to time, the company is involved in litigation involving claims related to, among other things, breach of contract, tortious conduct, employment, discrimination, breach of laws or regulations (including The Americans With Disabilities Act), payment of wages, exposure to asbestos or potentially hazardous products, real estate and product defects. The damages sought against the Company in some of these litigation proceedings are substantial. Although the company maintains liability insurance for some litigation claims, if one or more of the claims were to greatly exceed the Company’s insurance coverage limits or if the Company’s insurance policies do not cover a claim, this could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. For instance, the company is subject to a potential securities class action regarding past public disclosures (See Item 3. Legal Proceedings of this Annual Report on Form 10-K) and to numerous lawsuits alleging injury as a result of exposure to asbestos-containing products (see Note 14. Contingencies, of the Notes to the Consolidated Financial Statements included herein).
The Company is subject to numerous federal, state and local laws and governmental regulations relating to, among other things, environmental protection, product quality and safety standards, weights and measures, building and zoning requirements, labor and employment, discrimination, anti-bribery/anti-corruption, false claims, data privacy, income taxes and trade sanctions and compliance. Compliance with existing and future laws and regulations could increase the cost of doing business and adversely affect the Company’s results of operations. If the company fails to comply with existing or future laws or regulations, the Company may be subject to governmental or judicial fines or sanctions while incurring substantial legal fees and costs as well as reputational risk. In addition, the Company’s capital and operating expenses could increase due to remediation measures that may be required if the Company is found to be noncompliant with any existing or future laws or regulations.
Business interruptions may negatively impact the Company’s store hours, operability of our computer systems and the availability and cost of merchandise, which may adversely impact our sales and profitability.
Hurricanes, tornadoes, earthquakes, wildfires or other natural disasters, war or acts of terrorism, civil or geopolitical unrest, public health issues, epidemics or pandemics or the threat of any of these incidents or others, may have a negative impact on the Company’s ability to obtain merchandise to sell in the Company’s stores, result in certain of stores being closed for an extended period of time, negatively affect the lives of the Company’s customers or team members, or otherwise negatively impact the Company’s operations. Some of the Company’s merchandise is imported from other countries. If imported goods become difficult or impossible to import into the United States due to business interruption (including regulation of exporting or importing), and if the company cannot obtain such merchandise from other sources at similar costs and without an adverse delay, sales and profit margins may be negatively affected.
12
In the event that commercial transportation, including the global shipping industry, is curtailed or substantially delayed, the business may be adversely impacted due to difficulty receiving merchandise from the Company’s suppliers and/or transporting it to the Company’s stores.
Terrorist attacks, warfare, geopolitical instability, or uncertainty or insurrection involving any oil producing country could result in an abrupt increase in the price of crude oil, gasoline and diesel fuel. Such price increases would increase the cost of doing business for the Company and the Company’s suppliers, and also negatively impact customers’ disposable income, causing an adverse impact on the Company’s business, sales, profit margins and results of operations.
The Company has extensive reliance on computer systems and the systems of business partners to manage data or inventory, process transactions and report results. These systems are subject to damage or interruption due to various reasons such as power outages, telecommunication failures, computer viruses, security breaches, malicious cyber attacks and catastrophic events or occasional system breakdowns related to ordinary use or wear and tear. If computer systems of the Company or its business partners fail, the company may experience loss of critical data and interruptions or delays in the Company’s ability to process transactions and manage inventory. Any significant business interruptions may make it difficult or impossible to continue operations, and any disaster recovery or crisis management plans the Company may employ may not suffice in any particular situation to avoid a significant adverse impact to the business, financial condition and results of operations.
Risks Related to the Company’s Industry and the Business Environment
If overall demand for the products that the Company sells declines, the Company’s business, financial condition, results of operations and cash flows will suffer. Decreased demand could also negatively impact the Company’s stock price.
Overall demand for products the Company sells depends on many factors and may decrease due to any number of reasons, including:
•a decrease in the total number of vehicles on the road or in the number of annual miles driven or significant increase in the use of ride sharing services, because fewer vehicles means less maintenance and repairs, and lower vehicle mileage, which decreases the need for maintenance and repair;
•the economy, because as consumers reduce their discretionary spending by deferring vehicle maintenance or repair, sales may decline and as new car purchases increase, the number of cars requiring maintenance and repair may decrease;
•the weather, because milder weather conditions may lower the failure rates of automobile parts while extended periods of rain and winter precipitation may cause the Company’s customers to defer elective maintenance and repair of their vehicles; additionally, overall climate changes could create greater variability in weather events, which may result in greater volatility for the Company’s business, or lead to other significant weather conditions that could impact the Company’s business;
•the average duration of vehicle manufacturer warranties and average age of vehicles driven, because newer cars typically require fewer repairs and will be repaired by the manufacturers’ dealer networks using dealer parts pursuant to warranties (which have gradually increased in duration and/or mileage expiration over the recent past), while vehicles that are seven years old and older are generally no longer covered under manufacturers’ warranties and tend to need more maintenance and repair;
•an increase in internet-based retailers, because potentially favorable prices and ease of use of purchasing parts via other websites on the internet may decrease the need for customers to visit and purchase their aftermarket parts from the Company’s physical stores and may cause fewer customers to order aftermarket parts on the Company’s website;
•technological advances, including the rate of adoption of electric vehicles, hybrid vehicles, ride sharing services, alternative modes of transportation, autonomously driven vehicles and future legislation related thereto, and the increase in the quality of vehicles manufactured, because vehicles that need less frequent maintenance or have lower part failure rates will require less frequent repairs using aftermarket parts and, in the case of electric and hybrid vehicles, do not require or require less frequent oil changes; and
•the refusal of vehicle manufacturers to make available diagnostic, repair and maintenance information to the automotive aftermarket industry that the Company’s professional and DIY customers require to diagnose, repair and maintain their vehicles, because this may force consumers to have a majority of diagnostic work, repairs and maintenance performed by the vehicle manufacturers’ dealer networks.
13
The Company may be adversely affected by legal, regulatory or market responses regarding technological adaptation in the automotive industry.
Policy makers in the U.S. may enact legislative or regulatory proposals that would impose mandatory requirements on greenhouse gas emissions and encourage more rapid adoption of vehicles that minimize emissions. Such laws, if enacted, are likely to impact the Company’s business in a number of ways. For example, significant increases in fuel economy requirements, new federal or state restrictions on emissions of carbon dioxide or new federal or state incentive programs that may be imposed on vehicles and automobile fuels could adversely affect annual miles driven, purchases of used vehicles that are likely to have a higher need for maintenance and repair, or the relevancy of the products the Company sells to new vehicles coming into production. The Company may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that minimize emissions. Additionally, compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by the Company or its suppliers. The Company’s inability to appropriately respond to such changes, adapt the Company’s business to meet evolving demands or innovate to remain competitive could adversely impact the Company’s business, financial condition, results of operations or cash flows.
If the Company is unable to compete successfully against other companies in the automotive aftermarket industry, the Company may lose customers and market share and the Company’s revenues may decline.
The sale of automotive parts, accessories and maintenance items is highly competitive and influenced by a number of factors, including name recognition, location, price, quality, product availability and customer service. The Company competes in both the professional and DIY categories of the automotive aftermarket industry, primarily with: (i) national and regional chains of automotive parts stores, (ii) internet-based retailers, (iii) discount stores and mass merchandisers that carry automotive products, (iv) wholesalers or jobbers stores, including those associated with national parts distributors or associations, (v) independently owned stores and (vi) automobile dealers that supply parts. These competitors and the level of competition vary by market. Some of the Company’s competitors may possess advantages over the Company in certain markets the Company shares, including with respect to the level of marketing activities, number of stores, store locations, store layouts, operating histories, name recognition, established customer bases, vendor relationships, distribution network, product availability, employee staffing, prices and product warranties. Internet-based retailers may possess cost advantages over the Company due to lower overhead costs, time and travel savings and ability to price competitively. In order to compete favorably, the Company may need to increase availability, change inventory assortment, increase delivery speeds, incur higher shipping costs or lower prices, any of which could adversely impact the Company’s financial results. Consolidation among the Company’s competitors could enhance their market share and financial position, provide them with the ability to achieve better purchasing terms and allow them to provide more competitive prices to customers for whom the Company competes.
In addition, the Company’s reputation is critical to the Company’s continued success. Customers are increasingly shopping, reading reviews and comparing products and prices online. If the Company fails to maintain high standards for, or receive negative publicity (whether through social media or traditional media channels) relating to, product safety and quality, as well as the Company’s integrity and reputation, the Company could lose customers due to competition. The products the Company sells are both third-party vendor brands and the Company’s owned brands. If the perceived quality or value of the brands the Company sells declines in the perception of its customers, the Company’s results of operations could be negatively affected.
Competition may require the Company to reduce its prices below the Company’s normal selling prices or increase the Company’s promotional spending, which could lower the Company’s revenue and profitability. Competitive disadvantages may also prevent the Company from introducing new product lines, require the Company to discontinue current product offerings, or change some of the Company’s current operating strategies. If the Company does not have the resources, expertise and consistent execution, or otherwise fail to develop successful strategies, to address these potential competitive disadvantages, the Company may lose customers and market share, the Company’s revenues and profit margins may decline and the Company may be less profitable or potentially unprofitable.
The Company’s inventory and ability to meet customer expectations may be adversely impacted by factors out of the Company’s control.
For the portion of the Company’s inventory manufactured and/or sourced outside the United States, geopolitical changes, changes in trade regulations or tariff rates, currency fluctuations, work stoppages, labor strikes, unionizing activity, port delays, shipping disruptions, civil unrest, natural disasters, pandemics and other factors beyond the Company’s control may increase the cost of items the Company purchases, lead to lengthy delays in acquiring products or create shortages that could have a material adverse effect on the Company’s sales and profitability. In addition, unanticipated changes in consumer preferences or any unforeseen hurdles in meeting the Company’s customers’ needs for automotive products (particularly parts availability) in a timely manner could undermine the Company’s business strategy.
14
Deterioration of general macroeconomic conditions, including unemployment, inflation or deflation, rising consumer debt levels, and/or high fuel and energy costs, could have a negative impact on the Company’s business, financial condition, results of operations and cash flows due to impacts on the Company’s suppliers, customers and operating results.
The Company’s business depends on developing and maintaining close relationships with the Company’s suppliers and on the Company’s suppliers’ ability and willingness to sell quality products to the Company at favorable prices and terms. Many factors outside the Company’s control may harm these relationships and the ability or willingness of these suppliers to sell the Company products on favorable terms. Such factors include a general decline in the economy and economic conditions and prolonged recessionary conditions. These events could negatively affect the Company’s suppliers’ operations and make it difficult for them to obtain the credit lines or loans necessary to finance their operations in the short-term or long-term and meet the Company’s product requirements. Financial or operational difficulties that some of the Company’s suppliers may face could also increase the cost of the products the Company purchases from them or the Company’s ability to source products from them. The Company might not be able to pass its increased costs on to its customers. If the Company’s suppliers fail to develop new products, the Company may not be able to meet the demands of the Company’s customers and results of operations could be negatively affected.
In addition, the trend towards consolidation among automotive parts suppliers as well as the off-shoring of manufacturing capacity to foreign countries may disrupt or end the Company’s relationship with certain suppliers, and could lead to less competition and result in higher prices. The Company could also be negatively impacted by suppliers who might experience bankruptcies, work stoppages, labor strikes, changes in foreign or domestic trade policies, changes in tariff rates or other interruptions to or difficulties in the manufacture or supply of the products we purchase from them.
Deterioration in macroeconomic conditions or an increase in fuel costs or proposed or additional tariffs may have a negative impact on the Company’s customers’ net worth, financial resources, disposable income or willingness or ability to pay for accessories, maintenance or repairs for their vehicles, resulting in lower sales. An increase in fuel costs may also reduce the overall number of miles driven by the Company’s customers, resulting in fewer parts failures and a reduced need for elective maintenance.
Rising energy prices also directly impact the Company’s operating and product costs, including the Company’s store, supply chain, professional delivery, utility and product acquisition costs.
Risks Related to the Company’s Common Stock and Financial Condition
The Company’s level of indebtedness, a downgrade in the Company’s credit ratings or a deterioration in global credit markets could limit the cash flow available for operations and could adversely affect the Company’s ability to service its debt or obtain additional financing.
The Company’s level of indebtedness could restrict the Company’s operations and make it more difficult for it to satisfy its debt obligations. For example, the Company’s level of indebtedness could, among other things:
•affect the Company’s liquidity by limiting the Company’s ability to obtain additional financing for working capital;
•limit the Company’s ability to obtain financing for capital expenditures and acquisitions or make any available financing more costly;
•require the Company to dedicate all or a substantial portion of the Company’s cash flow to service the Company’s debt, which would reduce funds available for other business purposes, such as capital expenditures, dividends or acquisitions;
•limit the Company’s flexibility in planning for or reacting to changes in the markets in which the Company competes;
•place the Company at a competitive disadvantage relative to the Company’s competitors who may have less indebtedness;
•render the Company more vulnerable to general adverse economic and industry conditions; and
•make it more difficult for the Company to satisfy the Company’s financial obligations.
The indentures governing the Company’s senior unsecured notes and credit agreement governing the Company’s credit facilities contain financial and other restrictive covenants. The Company’s failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of its debt, including such notes.
15
In addition, the Company’s overall credit rating may be negatively impacted by the Company’s performance, deteriorating and uncertain credit markets or other factors that may or may not be within the Company’s control. The interest rates on the Company’s revolving credit facility are linked directly to the Company’s credit ratings and the interest rates on future debt the Company issues or incurs likely would be affected by the Company’s credit ratings in effect at the time such debt is issued or incurred. Accordingly, negative impact on the Company’s credit ratings may result in higher interest rates and interest expense on any borrowings under the Company’s revolving credit facility and less favorable terms on the Company’s other operating and financing arrangements, including additional debt the Company may issue or incur in the future. In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to the Company’s vendors based on the Company’s credit rating, which could result in increased working capital requirements. Furthermore, the Company’s revolving credit facility contemplates securitization of the facility in the event of further downgrade in credit ratings. Securitization of the Company’s assets may make it more difficult for the Company to access financing on favorable terms.
Conditions and events in the global credit market could have a material adverse effect on the Company’s access to short- and long-term borrowings to finance the Company’s operations and the terms and cost of that debt. It is possible that one or more of the banks that provide the Company with financing under its revolving credit facility may fail to honor the terms of the Company’s existing credit facility or be financially unable to provide the unused credit as a result of significant deterioration in such bank’s financial condition. An inability to obtain sufficient financing at cost-effective rates could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The market price of the Company’s common stock may be volatile and could expose us to securities class action litigation.
The stock market and the price of the Company’s common stock may be subject to wide fluctuations based upon general economic and market conditions in addition to the Company’s public perception and performance. Downturns in the stock market may cause the price of the Company’s common stock to decline. The market price of the Company’s stock may also be affected by the Company’s ability to meet analysts’ expectations or financial guidance that the Company provides to the investment community. Inability to accurately forecast the Company’s operational and financial performance could increase volatility in the Company’s stock. Failure to meet expectations set by the Company or its analysts, even slightly, could have an adverse effect on the price of the Company’s common stock. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of the Company’s attention and resources, which could have an adverse effect on the Company’s business. For example, a potential securities class action regarding past public disclosures and a related derivative shareholder litigation suit have been filed against the Company following a period of significant decline in the Company’s stock price (See Item 3. Legal Proceedings of this Annual Report on Form 10-K).
The amount and frequency of the Company’s share repurchases and dividend payments may fluctuate.
The amount, timing and execution of the Company’s share repurchase program may fluctuate based on the Company’s priorities for the use of cash for other purposes such as operational spending, capital spending, acquisitions or repayment or repurchase of debt. Changes in operational results, cash flows, tax laws and the Company’s share price could also impact the Company’s share repurchase program and other capital activities. The Company’s revolving credit facility contains restrictions on the Company’s ability to increase its dividend to shareholders and generally prohibits open market repurchases of the Company’s stock. Additionally, decisions to return capital to stockholders, including through the Company’s repurchase program or the issuance of dividends on the Company’s common stock, remain subject to determination of the Company’s Board of Directors that any such activity is in the best interests of the Company’s stockholders and is in compliance with all applicable laws and contractual obligations.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
16
The Company evaluates risks associated with use of third-party providers through a lifecycle-based approach, conducting risk-based due diligence before engagement, using contractual provisions to apportion risk, and for certain third-party providers, engaging in architectural review and validation at the beginning of engagement. The Company uses third parties to assist with penetration testing, simulated attacks and survey and other threat intelligence reporting on third parties, as well as review and enhancement of associated response processes.
The Company’s cyber risk mitigation plan is reviewed on a bimonthly cadence with a cross-functional Cyber Steering Committee, the managerial governing body that regularly reviews the top cyber risks and receives reports on progress on key cyber initiatives. The Company’s CISO leads the Cyber Steering Committee, which also includes individuals with experience identifying and managing enterprise risks, including the Company’s President and Chief Executive Officer, Executive Vice President, Chief Financial Officer, Executive Vice President, General Counsel and Corporate Secretary and Vice President, Chief Audit Executive, as well as individuals with technical expertise in information technology, data governance and cyber matters and/or experience in managing cyber incident responses, including the Company’s Executive Vice President, Chief Technology Officer, Vice President, Information Technology Operations and Senior Vice President, Deputy General Counsel and Chief Compliance Officer.
The Internal Audit function assesses cyber security risks and audits components of cyber security on an annual basis. At least every three years, the Company uses an external party to evaluate the maturity of the program against the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework.
Item 2. Properties.
The following table summarizes the location, ownership status and total square footage of space utilized for distribution centers, principal corporate office and retail stores as of December 28, 2024:
Square Footage (in thousands) | ||||||||||||||||||||
| Location | Leased | Owned | ||||||||||||||||||
| Distribution centers | 28 locations in 22 U.S. states and three Canadian provinces | 3,929 | 4,591 | |||||||||||||||||
Executive office | Raleigh NC | 245 | — | |||||||||||||||||
| Stores | 4,639 stores in 48 U.S. states and two U.S. territories and 149 stores in six Canadian provinces | 31,637 | 6,276 | |||||||||||||||||
Item 3. Legal Proceedings.
Refer to discussion in Note 14. Contingencies, of the Notes to the Consolidated Financial Statements included herein for information relating to legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is listed on the New York Stock Exchange under the symbol “AAP.”
As of February 21, 2025, there were 1,112 holders of record of common stock, which does not include the number of beneficial owners whose shares were represented by security position listings.
The following table sets forth information with respect to repurchases of the Company’s common stock for the fourth quarter ended December 28, 2024:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value that May Yet Be Purchased Under the Programs (in thousands) (2) | ||||||||||||||||||||||
| October 6, 2024 to November 2, 2024 | — | $ | — | — | $ | 947,339 | ||||||||||||||||||||
| November 3, 2024 to November 30, 2024 | 18,062 | $ | 38.13 | — | $ | 947,339 | ||||||||||||||||||||
| December 1, 2024 to December 28, 2024 | 4,615 | $ | 43.66 | — | $ | 947,339 | ||||||||||||||||||||
| Total | 22,677 | $ | 39.26 | — | ||||||||||||||||||||||
(1)All repurchases reported in this table relate to the withholding of shares upon the vesting of restricted stock units to settle income tax liabilities (“net settlement”). 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 $0.9 million, or an average price of $39.26 per share, during the twelve weeks ended December 28, 2024.
(2)On February 8, 2022, the Board of Directors authorized an additional $1 billion to the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by the Board of Directors. Amendment No. 5 to the Company’s 2021 Credit Agreement currently generally prohibits open market share repurchases.
18
Stock Price Performance
The following graph shows a comparison of the cumulative total return on the Company’s common stock, the Standard & Poor’s (“S&P”) 500 Index and the S&P’s Retail Index. The graph assumes that the value of an investment in the Company’s common stock was $100.00 on December 28, 2019, and that any dividends have been reinvested. The comparison in the graph below is based solely on historical data and is not intended to forecast the possible future performance of the Company’s common stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
ADVANCE AUTO PARTS, INC., S&P 500 INDEX
AND S&P RETAIL INDEX
| Company/Index | December 28, 2019 | January 2, 2021 | January 1, 2022 | December 31, 2022 | December 30, 2023 | December 28, 2024 | ||||||||||||||||||||||||||||||||
| Advance Auto Parts | $ | 100.00 | $ | 100.24 | $ | 155.04 | $ | 98.45 | $ | 40.70 | $ | 29.34 | ||||||||||||||||||||||||||
| S&P 500 Index | $ | 100.00 | $ | 118.08 | $ | 151.98 | $ | 124.46 | $ | 157.17 | $ | 199.46 | ||||||||||||||||||||||||||
| S&P Retail Index | $ | 100.00 | $ | 145.42 | $ | 173.50 | $ | 114.02 | $ | 162.36 | $ | 219.96 | ||||||||||||||||||||||||||
19
Item 6. Selected Quarterly Financial Data.
The following table sets forth the Company’s selected quarterly financial data. This data should be read along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and the related notes included elsewhere in this report.
On August 22, 2024, the Company entered into a definitive purchase agreement to sell Worldpac for $1.5 billion, with customary purchase price adjustments for working capital and other items. The Company’s sale of Worldpac was progress towards the changing landscape of the business with increased focus on the Advance blended-box model. The transaction closed on November 1, 2024. Net proceeds from the transaction after paying transaction fees and excluding the impact of taxes was approximately $1.47 billion. This was a strategic shift in the Company’s business, and as such, beginning in third quarter of 2024, Worldpac was presented as discontinued operations in the Company’s Consolidated Financial Statements. As a result, the Company has recast its quarterly results for 2024 and 2023.
For the year ended December 28, 2024, the decline in operating results was primarily due to inventory-related charges attributable to liquidation sales as a result of store closures and streamlining inventory assortment resulting from the Board-approved restructuring and asset optimization plan (“2024 Restructuring Plan”). Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included herein for further details.
| For the quarters ended | ||||||||||||||||||||||||||
| (in thousands, except per share data) | December 28, 2024 | October 5, 2024 | July 13, 2024 | April 20, 2024 | ||||||||||||||||||||||
| Net sales | $ | 1,996,025 | $ | 2,147,991 | $ | 2,177,836 | $ | 2,772,475 | ||||||||||||||||||
| Gross profit | 347,117 | 907,898 | 949,465 | 1,204,041 | ||||||||||||||||||||||
| Net (loss) income from continuing operations | (609,531) | (25,363) | 30,506 | 17,433 | ||||||||||||||||||||||
| Net income from discontinued operations | 194,754 | 19,349 | 14,485 | 22,579 | ||||||||||||||||||||||
| Net (loss) income | $ | (414,777) | $ | (6,014) | $ | 44,991 | $ | 40,012 | ||||||||||||||||||
| Basic (loss) earnings per common share from continuing operations | $ | (10.20) | $ | (0.42) | $ | 0.51 | $ | 0.29 | ||||||||||||||||||
| Basic earnings per common share from discontinued operations | 3.26 | 0.32 | 0.24 | 0.38 | ||||||||||||||||||||||
| Basic (loss) earnings per share | $ | (6.94) | $ | (0.10) | $ | 0.75 | $ | 0.67 | ||||||||||||||||||
| Diluted (loss) earnings per common share from continuing operations | $ | (10.16) | $ | (0.42) | $ | 0.51 | $ | 0.29 | ||||||||||||||||||
| Diluted earnings per common share from discontinued operations | 3.24 | 0.32 | 0.24 | 0.38 | ||||||||||||||||||||||
| Diluted (loss) earnings per share | $ | (6.92) | $ | (0.10) | $ | 0.75 | $ | 0.67 | ||||||||||||||||||
20
| For the quarters ended | ||||||||||||||||||||||||||
| (in thousands, except per share data) | December 30, 2023 | October 7, 2023 | July 15, 2023 | April 22, 2023 | ||||||||||||||||||||||
| Net sales | $ | 2,014,405 | $ | 2,218,205 | $ | 2,190,407 | $ | 2,786,058 | ||||||||||||||||||
| Gross profit | 819,629 | 817,567 | 969,795 | 1,253,118 | ||||||||||||||||||||||
| Net (loss) income from continuing operations | (35,190) | (74,186) | 55,838 | 23,514 | ||||||||||||||||||||||
| Net income from discontinued operations | 62 | 12,149 | 22,739 | 24,809 | ||||||||||||||||||||||
| Net (loss) income | $ | (35,128) | $ | (62,037) | $ | 78,577 | $ | 48,323 | ||||||||||||||||||
| Basic (loss) earnings per common share from continuing operations | $ | (0.59) | $ | (1.25) | $ | 0.94 | $ | 0.40 | ||||||||||||||||||
| Basic earnings per common share from discontinued operations | — | 0.20 | 0.38 | 0.41 | ||||||||||||||||||||||
| Basic (loss) earnings per share | $ | (0.59) | $ | (1.05) | $ | 1.32 | $ | 0.81 | ||||||||||||||||||
| Diluted (loss) earnings per common share from continuing operations | $ | (0.59) | $ | (1.24) | $ | 0.94 | $ | 0.39 | ||||||||||||||||||
| Diluted earnings per common share from discontinued operations | — | 0.20 | 0.38 | 0.42 | ||||||||||||||||||||||
| Diluted (loss) earnings per share | $ | (0.59) | $ | (1.04) | $ | 1.32 | $ | 0.81 | ||||||||||||||||||
Note: Quarterly balances presented may not add up to the totals disclosed on the Consolidated Statements of Operations due to rounding.
Item 7. 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 Company’s consolidated historical financial statements and the notes to those statements that appear elsewhere in this report. The Company’s discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as the Company’s plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the section titled “Part 1. Item 1A. Risk Factors” elsewhere in this report. The discussion of the Company’s financial condition and changes in the Company’s results of operations, liquidity and capital resources for the fiscal year ended December 30, 2023 (“2023”) compared with the fiscal year ended December 31, 2022 (“2022”) has been omitted from this Form 10-K, but are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for 2023, filed with the Securities and Exchange Commission (“SEC”) on March 12, 2024, and the amended Annual Report on Form 10-K/A filed with the SEC on May 30, 2024 (collectively the “2023 Form 10-K”). Amounts are presented in thousands, except per share data, unless otherwise stated.
Management Overview
On August 22, 2024, the Company entered into a definitive purchase agreement to sell Worldpac, and on November 1, 2024, the Company completed the sale. As a result, Worldpac was presented as discontinued operations beginning in the third quarter of 2024. Unless otherwise noted, the discussion below relates to the Company’s continuing operations.
A high-level summary of the Company’s financial results and other highlights from 2024 includes:
•Net sales from continuing operations during 2024 were $9.1 billion, a decrease of 1.2% compared with 2023, driven by a decrease in price and volume partially offset by a favorable product mix. Comparable store sales declined 0.7%.
•Gross profit margin from continuing operations for 2024 was 37.5% of net sales, a decrease of 444 basis points compared with 2023, primarily due to inventory-related charges attributable to the location closures and streamlining product assortment resulting from the Board-approved restructuring and asset optimization plan (“2024 Restructuring Plan”).
•Operating loss from continuing operations for 2024 was $713.3 million, a decrease of $752.2 million from 2023. As a percentage of net sales, operating loss was 7.8%, a decrease of 827 basis points compared with 2023. This decrease was primarily attributable to gross margin decline and the impairment of long-lived assets due to the 2024 Restructuring Plan.
•Cash flows provided by operating activities from continuing operations was $140.5 million during 2024, a decrease of 0.9% compared with 2023, primarily attributable to an increase in net working capital offset by lower net income and provision for deferred income taxes compared with 2023 prior year.
•Diluted earnings per share (“Diluted EPS”) from continuing operations was a loss of $9.80 during 2024 compared with a loss of $0.50 in 2023.
21
Refer to “Results of Operations” and “Liquidity and Capital Resources” for further details on the Company’s results.
Business and Risk Update
The Company continues to make progress on the various elements of its business plan, which is focused on improving the customer experience, margin expansion, and driving consistent execution for both professional and DIY customers. To achieve these improvements, the Company has undertaken planned strategic actions to help build a foundation for long-term success across the organization, which include:
•The completion of the sale of Worldpac with net proceeds of approximately $1.47 billion after transaction costs and excluding the impacts of taxes;
•Completing an assessment of the productivity of all assets, including company-owned stores and Carquest Independents, to achieve merchandising excellence;
•The 2024 Restructuring Plan designed to improve the Company’s profitability and growth potential and streamline its operations;
•Reducing costs to remain competitive while reinvesting in the frontline;
•Making organizational changes to position the Company for success; and
•Consolidating the Company’s supply chain.
On November 13, 2024, the Company’s Board of Directors approved the 2024 Restructuring Plan which is designed to improve the Company’s profitability and growth potential and streamline its operations. This plan is supplemental to other ongoing initiatives to simplify the Company's business and improve profitable growth and entails, among other items, certain store and independent location closures, streamlining product assortment and headcount reductions and organizational design changes to align the Company’s workforce to the expected needs of the Company's business. The Company is also pursuing efficiencies in procurement, pricing and professional and outside services, in addition to operational efficiencies. Refer to Liquidity and Capital Resources and Note 3. Restructuring for further details.
Industry Update
Operating within the automotive aftermarket industry, the Company is influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. In addition to the “Business and Risk Update” section included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, these factors include, but are not limited to:
•Inflationary pressures, including logistics and labor
•Global supply chain disruptions
•Cost of fuel
•Miles driven
•Unemployment rates
•Interest rates
•Consumer confidence and purchasing power
•Competition
•Changes in new car sales
•Economic and geopolitical uncertainty
•Increased foreign currency exchange volatility
While these factors tend to fluctuate, the Company remains confident in the long-term growth prospects for the automotive parts industry.
22
Results of Operations
The following table sets forth certain of the Company’s operating data from continuing operations expressed as a percentage of net sales for the periods indicated.
| Year Ended | 2024 vs. 2023 $ Change | Basis Points | 2023 vs. 2022 $ Change | Basis Points | ||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 9,094.3 | 100.0 | % | $ | 9,209.1 | 100.0 | % | $ | 9,148.9 | 100.0 | % | $ | (114.8) | — | $ | 60.2 | — | ||||||||||||||||||||||||||||||||
Cost of sales(1) | 5,685.8 | 62.5 | 5,349.0 | 58.1 | 4,916.0 | 53.7 | 336.8 | 443.7 | 433.0 | 435.0 | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 3,408.5 | 37.5 | 3,860.1 | 41.9 | 4,232.9 | 46.3 | (451.6) | (443.7) | (372.8) | (435.0) | ||||||||||||||||||||||||||||||||||||||||
| SG&A exclusive of restructuring and related expenses | 3,812.9 | 41.9 | 3,805.2 | 41.3 | 3,708.3 | 40.5 | 7.7 | 60.6 | 96.9 | 78.8 | ||||||||||||||||||||||||||||||||||||||||
Restructuring and related expenses | 308.9 | 3.4 | 16.0 | 0.2 | — | — | 292.9 | 322.3 | 16.0 | 17.4 | ||||||||||||||||||||||||||||||||||||||||
| SG&A | 4,121.8 | 45.3 | 3,821.2 | 41.5 | 3,708.3 | 40.5 | 300.6 | 382.9 | 113.0 | 96.2 | ||||||||||||||||||||||||||||||||||||||||
Operating (loss) income | (713.3) | (7.8) | 38.9 | 0.4 | 524.6 | 5.7 | (752.2) | (826.6) | (485.8) | (531.2) | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | (81.0) | (0.9) | (88.0) | (1.0) | (50.8) | (0.6) | 7.0 | 6.4 | (37.1) | (40.0) | ||||||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | — | — | — | — | (7.4) | (0.1) | — | — | 7.4 | 8.1 | ||||||||||||||||||||||||||||||||||||||||
Other income (expense), net | 26.2 | 0.3 | 1.9 | 0.0 | (6.2) | (0.1) | 24.3 | 26.8 | 8.1 | 8.8 | ||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | (181.1) | (2.0) | (17.2) | (0.2) | 99.7 | 1.1 | (163.9) | (180.6) | (116.8) | (127.6) | ||||||||||||||||||||||||||||||||||||||||
Net (loss) income from continuing operations | $ | (587.0) | (6.5) | % | $ | (30.0) | (0.3) | % | $ | 360.5 | 3.9 | % | $ | (557.0) | (612.8) | $ | (390.6) | (426.7) | ||||||||||||||||||||||||||||||||
Note: Table amounts may not foot due to rounding.
(1) Cost of sales includes $431.5 million of inventory-related charges attributable to the location closures and streamlining product assortment resulting from the 2024 Restructuring Plan.
Net Sales
Net sales for 2024 were $9.1 billion, a decline of $114.7 million, or 1.2%, compared with 2023. Net sales was negatively impacted by strategic pricing investments coupled with volume decline, partially offset by favorable product mix. Comparable store sales declined 0.7%. Category growth was led by batteries, filters and engine management.
The Company calculates comparable store sales based on the change in store sales starting once a location has been open for approximately one year and by including e-commerce sales and excluding sales fulfilled by distribution centers to independently owned Carquest locations. Acquired stores are included in the Company’s comparable store sales one year after acquisition. The Company includes sales from relocated stores in comparable store sales from the original date of opening. Closed stores and stores in process of closing under the 2024 Restructuring Plan are not included in the comparable store sales calculation. Comparable store sales is intended only as supplemental information and is not a substitute for Net sales presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Gross Profit
Gross profit in 2024 was $3.41 billion, or 37.5% of net sales, compared with $3.86 billion, or 41.9% of net sales in 2023, a decrease of 444 basis points. Gross profit as a percentage of net sales declined primarily due to $431.5 million of inventory-related charges attributable to the location closures and streamlining product assortment associated with the 2024 Restructuring Plan and liquidation sales at closing stores and distribution center locations.
23
Selling, General and Administrative Expenses, Exclusive of Restructuring and Related Expenses
Selling, general and administrative (“SG&A”) expenses, exclusive of restructuring expenses for 2024 was $3.81 billion, or 41.9% of net sales, compared with $3.81 billion, or 41.3% of Net sales for 2023, an increase of 61 basis points. The increase in SG&A expense as a percentage of net sales was primarily driven by higher labor-related costs attributable to wage-investments in frontline team members and occupancy costs partially offset by a decline in marketing expenses.
Restructuring and Related Expenses
Restructuring and related expenses for 2024 was $308.9 million, or 3.4% of net sales. These expenses represent costs primarily attributable to the 2024 Restructuring Plan and included $204.2 million of long-lived asset impairment and accelerated amortization and depreciation charges, $19.7 million of distribution network optimization, $24.7 million of incremental reserves of the collectibility of receivables resulting from contract terminations with independents, $15.2 million severance and other labor related expenses and third party professional fees. Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included for additional detail.
Interest Expense
Interest expense for 2024 was $81.0 million, a decrease of $7.0 million compared with 2023. This decrease was attributable to an increase in interest income due to higher investment balances compared with the prior year. Refer to Note 7. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details.
Provision for Income Taxes
The Company’s Provision for income taxes for 2024 was a benefit of $181.1 million compared with a benefit of $17.2 million for 2023, an increase of $164.0 million primarily due to a decrease in taxable income. The Company’s effective tax rate was 23.6% for 2024 and 36.4% for 2023. In 2024. The tax rate decreased compared with prior year primarily due to a tax benefit resulting from a discrete charge related to share-based compensation, the expiration of statute of limitations for certain tax years in multiple states as well as enhanced utilization of tax credits in the current year.
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 GAAP. Non-GAAP financial measures, including Adjusted Net income, Adjusted EPS, Adjusted SG&A Margin, and Adjusted Operating Income, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing operating performance, financial position or cash flows.
The Company has presented these non-GAAP financial measures as the Company believes that the presentation of the financial results that exclude (1) transformation expenses under the Company’s turnaround plans, inclusive of the Worldpac divestiture (2) other significant expenses and (3) nonrecurring tax expense are useful and indicative of the Company's base operations because the expenses vary from period to period in terms of size, nature and significance. These measures assist in comparing the Company’s current operating results with past periods and with the operational performance of other companies in the industry. The disclosure of these measures allows investors to evaluate the Company’s 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 the Company has determined are not normal, recurring cash operating expenses necessary to operate the Company’s business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures.
Transformation Expenses — Expenses incurred in connection with the Company's turnaround plans and specific transformative activities related to asset optimization that the Company does not view to be normal cash operating expenses. These expenses primarily include:
•Restructuring and other related expenses — Expenses relating to strategic initiatives, including severance expense, retention bonuses offered to store-level employees to help facilitate the closing of stores, incremental reserves related to the collectibility of receivables resulting from contract terminations with certain independents associated with the 2024 Restructuring Plan and third-party professionals assisting in the development and execution of the strategic initiatives.
24
•Inventory write-down — Expenses relating to the incremental write-down of inventory to net realizable value due to liquidation sales and streamlining inventory assortment due to store and distribution center closures associated with the 2024 Restructuring Plan.
•Impairment and write-down of long-lived assets - Expenses relating to the impairment of operating lease ROU assets and property and equipment, incremental depreciation as a result of accelerating long-lived assets over a shorter useful life, and incremental lease abandonment expenses as a result of accelerating ROU asset amortization for leases the Company expects to exit before the end of the contractual term, net of gains on lease terminations, in connection with the 2024 Restructuring Plan and Other Restructuring Plan.
•Distribution network optimization — Expenses primarily relating to the conversion of the stores and distribution centers to market hubs, including temporary labor, incremental depreciation as a result of accelerating long-lived assets over a shorter useful life, nonrecurring professional service fees and team member severance.
Other Expenses — Expenses incurred by the Company that are not viewed as normal cash operating expenses and vary from period to period in terms of size, nature, and significance. These expenses primarily include:
•Other professional service fees — Expenses relating to nonrecurring services rendered by third-party vendors engaged to perform a strategic business review, including the Company’s transformation initiatives.
•Worldpac post transaction-related expenses — Expenses primarily relating to non-recurring separation activities provided by third-party professionals subsequent to the sale of Worldpac.
•Executive turnover — Expenses associated with the hiring search for leadership positions and compensation.
•Material weakness remediation — Incremental expenses associated with the remediation of the Company’s previously-disclosed material weaknesses in internal control over financial reporting.
•Cybersecurity incident— Expenses related to the response and remediation of a cybersecurity incident.
Nonrecurring Tax Expense — Income tax incurred by the Company from the book to tax basis difference in the Worldpac Canada stock directly resulting from the sale of Worldpac.
The following table includes a reconciliation of this information to the most comparable GAAP measures:
25
Year Ended | ||||||||||||||||||||
| Classification | December 28, 2024 | December 30, 2023 | ||||||||||||||||||
Net loss from continuing operations (GAAP) | $ | (586,955) | $ | (30,024) | ||||||||||||||||
| Cost of sales adjustments: | ||||||||||||||||||||
| Transformation expenses: | ||||||||||||||||||||
| Inventory write-down | Restructuring | 431,529 | — | |||||||||||||||||
| Selling, general and administrative adjustments: | ||||||||||||||||||||
| Transformation expenses: | ||||||||||||||||||||
Restructuring and other related expenses (1) | Restructuring | 60,682 | 7,835 | |||||||||||||||||
Impairment and write-down of long-lived assets (2) | Restructuring | 204,156 | — | |||||||||||||||||
Distribution network optimization (3) | Restructuring | 19,713 | — | |||||||||||||||||
Other expenses: | ||||||||||||||||||||
Other professional service fees | Restructuring | 15,533 | — | |||||||||||||||||
| Worldpac post transaction-related expenses | Restructuring | 7,258 | — | |||||||||||||||||
| Executive turnover | Restructuring | 1,561 | 8,152 | |||||||||||||||||
| Material weakness remediation | Non-restructuring | 4,579 | 1,438 | |||||||||||||||||
| Cybersecurity incident | Non-restructuring | 3,491 | — | |||||||||||||||||
| Other income adjustments: | ||||||||||||||||||||
| TSA services | (2,537) | — | ||||||||||||||||||
Provision for income taxes on adjustments (4) | (186,491) | (4,356) | ||||||||||||||||||
Nonrecurring tax expense (5) | 10,000 | — | ||||||||||||||||||
Adjusted net loss (Non-GAAP) | $ | (17,481) | $ | (16,955) | ||||||||||||||||
Diluted loss per share from continuing operations (GAAP) | $ | (9.80) | $ | (0.50) | ||||||||||||||||
| Adjustments, net of tax | 9.51 | 0.22 | ||||||||||||||||||
| Adjusted EPS (Non-GAAP) | $ | (0.29) | $ | (0.28) | ||||||||||||||||
(1) Restructuring and other related expenses included transactional expenses due to incremental receivable reserves resulting from contract terminations with certain independents as part of the 2024 Restructuring Plan of $24.7 million, severance and other labor related costs of $15.2 million as part of the 2024 Restructuring Plan, and nonrecurring services rendered by third-party vendors assisting with the 2024 Restructuring Plan of $20.8 million.
(2) During the fifty-two weeks ended December 28, 2024, the Company recorded impairment charges for ROU assets and property and equipment of $171.4 million and incremental accelerated depreciation and amortization for property and equipment and ROU assets of $32.7 million.
(3) Distribution network optimization includes incremental depreciation as a result of accelerating long-lived assets over a shorter useful life of $5.0 million.
(4) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.
(4) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.
(5) Income tax incurred by the Company from the book to tax basis difference in the Worldpac Canada stock directly resulting from the sale of Worldpac.
Liquidity and Capital Resources
Overview
The Company’s primary cash requirements necessary to maintain the Company’s current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives and other operational priorities, including payment of interest on the Company’s long-term debt. Historically, the Company has also used available funds to repay borrowings under the Company’s credit facility, to periodically repurchase shares of the Company’s common stock under the share repurchase program, to pay the Company’s quarterly cash dividend and for acquisitions. The Company also anticipates using cash in connection with its restructuring and asset optimization plan. The Company’s future uses of cash may differ, including with respect to the weight the Company places on the preservation of cash and liquidity, degree of investment in the Company’s business and other capital allocation priorities.
26
Typically, the Company has funded its cash requirements primarily through cash generated from operations, supplemented by borrowings under the Company’s credit facilities and note offerings as needed. Funds generated from the Company’s expected results of operations, available cash and cash equivalents and available borrowings under its credit facility will be sufficient to fund its obligations for the next year. The Company also believes such funds, cash and available borrowings, together with our ability to generate cash through credit facilities and notes offerings as needed, will be sufficient to fund our obligations long-term. Cash requirements for obligations next year and beyond are discussed in the “Contractual and Off Balance Sheet Obligations” section below.
On August 22, 2024, the Company entered into a definitive purchase agreement to sell its Worldpac business for $1.5 billion, with customary adjustments for working capital and other items, as well as provision of letters of credit in an aggregate amount of up to $200 million for up to 12 months following the closing of the transaction, which letter of credit exposure will reduce to zero no later than 24 months after the closing, to support supply chain financing for the buyer. The transaction closed on November 1, 2024. Net proceeds from the transaction after paying expenses and excluding the impact of taxes were approximately $1.47 billion. The Company intends to use net proceeds from the transaction for general corporate purposes, which may include the provision of additional working capital, funding internal operational improvement initiatives and repayment or refinancing of outstanding indebtedness. The Company believes funds generated from its expected results of operations, available cash and cash equivalents, net proceeds from the Worldpac sale and available borrowings under credit facilities and note offerings as needed will be sufficient to fund its obligations for the next twelve months and beyond.
On November 13, 2024, the Company’s Board of Directors approved the 2024 Restructuring Plan which is designed to improve the Company’s profitability and growth potential and streamline its operations. This plan anticipates closure of approximately 500 stores, approximately 200 independent locations and four distribution centers by mid-2025, as well as headcount reductions. As a result of the 2024 Restructuring Plan, the Company incurred $680.8 million of restructuring expenses in 2024. The Company estimates that it will incur additional expenses of approximately $225.0 million to $275.0 million including $200.0 million to $250.0 million of cash expenses primarily composed of lease termination and other exit expenses and professional services, by the end of fiscal year 2025.
As further described in Note 18. Supplier Finance Programs, the Company maintains certain supplier finance programs. Bank participation and company utilization of those programs may vary based on a number of factors. If bank participation is insufficient to cover planned utilization, the Company may experience shorter payable terms for inventory than anticipated, which could impact its capital resources and capital allocation decisions.
Share Repurchase Program
In August 2019, the Company’s Board of Directors approved a share repurchase program. Under the program, the Company was able to periodically repurchase shares of common stock at market prices through open market purchases effected through a broker dealer and in privately negotiated transactions. The Board of Directors was able to increase or otherwise modify, renew, suspend or terminate the share repurchase program without prior notice. On February 8, 2022, the Company’s Board of Directors authorized an additional $1.0 billion toward the Company’s share repurchase program, an increase to the $1.7 billion that had previously been authorized under the program. However, on November 13, 2024, the Company entered into Amendment No. 5 to the 2021 Credit Agreement (as defined below), which generally prohibits open market share repurchases.
During 2024 and 2023, the Company did not purchase any shares of its common stock under the share repurchase program. The Company had $947.3 million remaining under the share repurchase program as of December 28, 2024. Refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further details on the Company’s share repurchase program.
Capital Expenditures
The Company’s primary capital requirements have been the funding of the Company’s investments in information technology and supply chain, e-commerce and maintenance of existing stores. The Company leases approximately 83% of the Company’s stores.
The Company’s capital expenditures were $180.8 million in 2024, a decrease of $44.9 million from 2023, related to the decrease of spend in information technology, fewer store openings and fewer marketing-related projects from 2023 to 2024.
The Company’s future capital requirements will depend in large part on the timing or number of the investments the Company makes in information technology and supply chain network initiatives and existing stores and new store development (leased and owned locations) within a given year. In 2025, the Company anticipates that the Company’s capital expenditures related to such investments will be approximately $300 million but may vary with business conditions.
27
Analysis of Cash Flows
The following table summarizes the Company’s cash flows from operating, investing and financing activities:
| Year Ended | |||||||||||||||||
| (in thousands) | December 28, 2024 | December 30, 2023 | December 31, 2022 | ||||||||||||||
Cash flows provided by operating activities from continuing operations | $ | 140,504 | $ | 141,788 | $ | 622,638 | |||||||||||
Cash flows (used in) provided by operating activities from discontinued operations | (55,871) | 145,587 | 113,933 | ||||||||||||||
Cash flows used in investing activities from continuing operations | (167,406) | (218,750) | (399,520) | ||||||||||||||
Cash flows provided by (used in) investing activities from discontinued operations | 1,522,160 | (16,739) | (24,928) | ||||||||||||||
| Cash flows (used in) provided by financing activities | (75,010) | 189,267 | (620,704) | ||||||||||||||
| Effect of exchange rate changes on cash | 1,569 | (8,487) | (8,664) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 1,365,946 | $ | 232,666 | $ | (317,245) | |||||||||||
Operating Activities
In 2024, cash flows provided by operating activities decreased $1.3 million to $140.5 million. The net decrease in cash flows provided by operating activities was primarily attributable to lower net income and provision for deferred income taxes offset by an increase in net working capital compared with 2023 prior year. Refer to “Results of Operations” for further details on the Company’s results.
Investing Activities
In 2024, cash flows used in investing activities decreased $51.3 million to $167.4 million compared with 2023. This decrease was attributable to fewer store openings, lower capital spend in information technology and marketing-related development projects.
Financing Activities
In 2024, cash flows used in financing activities increased by $264.3 million to $75.0 million compared with 2023. The net increase in cash used in financing activities was attributable to the issuances of senior unsecured notes in the prior year partially offset by a decrease in dividends paid in the current year compared with 2023.
The Company’s Board of Directors has declared a quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of the Company’s Board of Directors and will depend upon the Company’s results of operations, cash flows, capital requirements and other factors deemed relevant by the Company’s Board of Directors. In addition, Amendment No. 5 to the 2021 Credit Agreement prevents the Company from increasing its cash dividends.
Long-Term Debt
On March 9, 2023, the Company issued the 5.90% senior unsecured notes due 2026 (the “2026 Notes”) at 99.94% of the principal amount of $300.0 million and the 5.95% senior unsecured notes due 2028 (the “2028 Notes”) at 99.92% of the principal amount of $300.0 million. The 2026 Notes and 2028 Notes bear interest at a rate of 5.90% and 5.95%, respectively, and are payable semi-annually in arrears in March and September. Proceeds from the Company’s 2026 and 2028 Notes were utilized to make repayments on the Company’s revolving facility and supplement operational and capital expenditures.
For additional information on transactions entered into relating to long-term debt during the fifty-two weeks ended December 28, 2024, refer to Note 7. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein.
28
As of February 26, 2025, the Company had a credit rating from S&P of BB+ and from Moody’s Investor Service of Ba1. The current outlooks by S&P and Moody’s were negative and stable, respectively. The current pricing grid used to determine the Company’s borrowing rate under the Company’s revolving credit facility is based on the Company’s credit ratings. If the Company’s credit ratings decline, it would negatively impact the Company’s interest rate, and the Company’s access to additional financing on favorable terms may be limited. In addition, the Company’s current revolving credit facility would require securitization in the event of further decline in the Company’s credit rating from S&P. As previously disclosed, a decline in credit ratings or perceived creditworthiness, among other factors, may impact participation in supplier finance programs, which in turn could shorten payable terms, result in an increase in working capital requirements or otherwise negatively impact capital resources.
With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides a full and unconditional guarantee, Advance Stores, a wholly-owned subsidiary of the Issuer, serves as the guarantor (“Guarantor Subsidiary”). The subsidiary guarantees related to the Company’s senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. The Company’s captive insurance subsidiary, an insignificant wholly-owned subsidiary of the Issuer, does not serve as guarantor of the Company’s senior unsecured notes.
Contractual and Off Balance Sheet Obligations
The Company entered into operating leases for certain store locations, distribution centers, office spaces, equipment and vehicles. The Company’s property leases generally contain renewal and escalation clauses and other concessions. These provisions are considered in the Company’s calculation of the Company’s minimum lease payments that are recognized as expense on a straight-line basis over the applicable lease term. Any lease payments that are based upon an existing index or rate are included in the Company’s minimum lease payment calculations. As of December 28, 2024, the Company’s operating lease obligations were $2.4 billion. As of December 28, 2024, the Company’s long-term debt, consisting of senior unsecured notes with varying maturities through 2032, was $1.8 billion. Future interest payable related to long-term debt was $380.0 million as of December 28, 2024. As part of the Company’s normal operations, the Company enters into purchase commitments primarily for the purchase of goods or services that are enforceable, legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. As of December 28, 2024, the Company’s purchase commitments were $147.5 million.
On February 27, 2023, the Company entered into Amendment No. 1 (“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 (“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. Amendment No. 1 also 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, the Company 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), and on November 20, 2023, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement in order to further amend financial covenants related to the Consolidated Coverage Ratio. Pursuant to Amendment No. 2 and Amendment No. 3, the Company may not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.00 to 1.00 for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025. Amendment No. 2. and Amendment No. 3 made no other material changes to the terms of the 2021 Credit Agreement.
On February 26, 2024, the Company entered into Amendment No. 4 (“Amendment No. 4”) to the 2021 Credit Agreement to enable certain addbacks to the definition of Consolidated EBITDA contained therein for specific write-downs of inventory and vendor receivables. Amendment No. 4 also updated certain limitations on future incurrences of other indebtedness and liens, replacing the cap thereon of 10% of consolidated net tangible assets with $400 million, and eliminated the $250 million basket for accounts receivable securitization transactions. Amendment No. 4 made no other material changes to the terms of the 2021 Credit Agreement. In addition to the Company’s Consolidated Coverage Ratio requirement, the Company was required to maintain a maximum leverage ratio of 3.75 to 1.00. On November 13, 2024, the Company entered into Amendment No. 5 to the 2021 Credit Agreement. Amendment No. 5 (i) permits up to $575 million of certain restructuring charges to be added back to Consolidated EBITDAR (as defined therein), (ii) permits up to $800 million of unrestricted cash to be netted out of debt in the calculation of the Leverage Ratio (as defined therein), and (iii) reduced the minimum Consolidated Coverage Ratio (as defined therein) to 1.50 to 1.00 through July 12, 2025 and 1.75 to 1.00 thereafter. Amendment No. 5 also reduced the unsecured revolving credit facility under the 2021 Credit Agreement from $1.2 billion to $1.0 billion and amended the pricing on the loans thereunder in connection with changes in the Company’s credit ratings.
29
Amendment No. 5 also updated certain covenants and other limitations on the Company, including (i) expanding the scope of the covenant restricting the ability to create, incur or assume additional debt to cover Advance Auto Parts, Inc., (ii) restricting the Company’s rights to complete share repurchases and increase cash dividend amounts, (iii) requiring the Company to grant liens on deposit accounts, inventory and accounts receivables if credit ratings are downgraded below a minimum threshold, (iv) imposing an additional monthly minimum daily liquidity financial covenant of $750 million, (v) providing for the maturity date under the 2021 Credit Agreement to automatically spring forward to the extent necessary for the 2021 Credit Agreement to mature at least 91 days prior to any scheduled maturity date under any of the Company’s senior unsecured notes, (vi) prohibiting further extensions of the maturity date under the 2021 Credit Agreement beyond the existing maturity date, and (vii) eliminating certain baskets for additional indebtedness, liens, and asset sales.
On February 25, 2025, the Company entered into Amendment No. 6 (“Amendment No. 6”) to the 2021 Credit Agreement to, among other things, (i) expand the scope of domestic subsidiaries that would be required to grant security interests and guarantee the Company’s obligations under the 2021 Credit Agreement upon the occurrence of a Springing Lien Trigger Event (as defined therein) to include all of the Company’s subsidiaries other than the Company’s Insignificant Subsidiaries (as defined in Amendment No. 6), (ii) revise the definition of Consolidated Coverage Ratio to exclude up to $175 million of accelerated rent charges related to lease buyouts and to permit the minimum Consolidated Coverage Ratio to remain at 1.50 to 1.00 for one additional quarter before increasing to 1.75 to 1.00 on and after the fiscal quarter ending on January 3, 2026, (iii) revise the definition of Consolidated EBITDA to increase the threshold for Identified Restructuring Charges (as defined therein) from $575 million to $625 million, and (iv) expand the scope of the guaranteed obligations to include bank product obligations and cash management obligations.
The Company’s compliance with these covenants will depend upon achieving the Company’s financial targets including improvements in operating income. As of December 28, 2024, giving consideration to the amendments to the Company’s 2021 Credit Agreement through that date, the Company was in compliance with the financial covenants required thereby. The Company currently expects to be in compliance with these financial covenants for the next 12 months. However, risk of noncompliance increases if the Company’s financial performance worsens or the Company is required to increase borrowings to fund operations. If the Company is not in compliance with the financial covenants required by the 2021 Credit Agreement, and cannot timely secure an amendment or waiver thereof, the Company would be in default of the 2021 Credit Agreement and the Company’s outstanding senior unsecured notes, which would have a material adverse impact on the Company’s financial condition.
Critical Accounting Policies
The Company’s financial statements have been prepared in accordance with GAAP. The Company’s 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 the Company’s management. The Company’s estimates and judgments are based on currently available information, historical results and other assumptions the Company believes are reasonable. Actual results could differ materially from these estimates.
The preparation of the Company’s financial statements included the following significant estimates and exercise of judgment.
Vendor Incentives
The Company receives incentives in the form of reductions to amounts owed and/or payments from vendors related to volume rebates and other promotional considerations. Many of these incentives are under agreements with terms in excess of one year, while others are negotiated on an annual basis or less. Advertising allowances received as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred. Volume rebates and vendor promotional allowances that do not meet the requirements for offsetting in SG&A and that are earned based on inventory purchases are initially recorded as a reduction to inventory. These deferred amounts are recorded as a reduction to Cost of sales as the inventory is sold.
Vendor promotional allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred if the fair value of that benefit can be reasonably estimated. Certain of the Company’s vendor agreements contain purchase volume incentives that provide for increased funding when graduated purchase volumes are met. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected annual purchase volumes. Periodic assessments of the accruals are performed to determine the appropriateness of the estimate and are adjusted accordingly.
30
Amounts received or receivable from vendors that are not yet earned are reflected initially as a reduction to inventory, which subsequently is recorded to Cost of sales. The Company’s estimate of the portion of deferred revenue that will be realized within one year of the balance sheet date is included in Other current liabilities. Earned amounts that are receivable from vendors are included in Receivables, net, except for that portion expected to be received after one year, which is included in Other assets, net. The Company regularly reviews the receivables from vendors to ensure they are able to meet their obligations. Historically, the change in the Company’s reserve for receivables related to vendor funding has not been significant.
Self-Insurance Reserves
The Company’s self-insurance reserves consist of the estimated exposure for claims filed, claims incurred but not yet reported and projected future claims, and are established using actuarial methods followed in the insurance industry and the Company’s historical claims experience. Specific factors include, but are not limited to, assumptions about health care costs, the severity of accidents, the incidence of illness and the average size of claims. Generally, claims for automobile and general liability and workers’ compensation take several years to settle. The Company classifies the portion of the Company’s self-insurance reserves that is not expected to be settled within one year in Other long-term liabilities.
While the Company does not expect the amounts ultimately paid to differ significantly from the Company’s estimates, the Company’s self-insurance reserves and corresponding Cost of sales and SG&A could be affected if future claim experience differs significantly from historical trends and actuarial assumptions. A 10% change in the Company’s self-insurance liabilities at December 28, 2024 would result in a change in expense of approximately $14.1 million for 2024.
Excess and Obsolete Inventory Reserves
The Company’s excess and obsolete inventory reserve assessment includes analyzing the Company’s inventory at the SKU level by assessing each SKU quantity based on years on hand, the stage within the product lifecycle the SKU is assigned and sales history. From this data analysis, the Company’s excess and obsolete inventory is identified, analyzed and compared against the Company’s reserve. Additionally, from time to time, specific SKUs may be identified as excess and/or obsolete for which a reserve will be recognized.
The Company classifies each product into a product lifecycle category: introduction, expansion, saturation, reduction and disposition. This assessment is routinely performed and includes, but is not limited to, the analysis of anticipated, historical and actual demand; and changes in customer preferences. SKU-level classifications are updated as warranted.
Restructuring and Related Expenses
The Company records restructuring and transformation activities when management commits to and approves a restructuring plan. The components of a restructuring plan require significant management judgments and estimates that would materially impact reported performance if different assumptions were used and have a significant uncertainty in measurements. Impairment of inventory is recognized when the cost of inventory exceeds its net realizable value. There are significant assumptions required by management to estimate the net realizable value associated with inventory located at the stores and distribution centers to be closed, including the anticipated sell through rate and estimated sales proceeds less costs to sell. Asset impairment charges associated with operating lease right-of-use (“ROU”) assets are recognized when the ROU carrying value exceeds its fair value. There are significant assumptions required by management to estimate the fair value of ROU assets, including the market rental rates and discount rates utilized in the discounted cash flow model. Severance and retention costs associated with workforce reductions are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Employee termination benefits are recognized as a liability when it is probable that a liability exists, and the amount is reasonably estimable. Other exit-related costs, including nonrecurring professional fees, are recognized as incurred. Restructuring expenses are recognized as an operating expense in cost of sales or selling, general and administrative expenses within the consolidated statements of operations and related liabilities are recorded within accounts payable and accrued expenses on the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information.
New Accounting Pronouncements
For a description of recently adopted and issued accounting standards, including the expected dates of adoption and estimated effects, if any, on the consolidated financial statements, see “Recently Issued Accounting Pronouncements” in Note 2. Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included herein.
31
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
The Company is subject to interest rate risk to the extent the Company borrows against its revolving credit facility as it is based, at the Company’s option, on adjusted Term Secured Overnight Financing Rate (“SOFR”) plus a margin, or an alternate base rate plus a margin. As of December 28, 2024 and December 30, 2023, the Company had no borrowings outstanding under its revolving credit facility.
The Company’s financial assets that are exposed to credit risk consist primarily of trade accounts receivable and vendor receivables. The Company is exposed to normal credit risk from customers. The Company’s concentration of credit risk is limited because the Company’s customer base consists of a large number of customers with relatively small balances, which allows the credit risk to be spread across a broad base. The Company has not historically had significant credit losses.
The Company is exposed to foreign currency exchange rate fluctuations for the portion of its inventory purchases denominated in foreign currencies. The Company believes that the price volatility relating to foreign currency exchange rates is partially mitigated by the Company’s ability to adjust selling prices. During 2024 and 2023, foreign currency transactions did not materially impact net income.
Item 8. Financial Statements and Supplementary Data.
This information is included in “Item 15. Exhibits, Financial Statement Schedules” of this annual report and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 Exchange Act) are management’s controls and other procedures that are designed to ensure that information required to be disclosed by management in the Company’s reports that are filed or submitted 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 management, including the Company’s 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.
Evaluation of Disclosure Controls and Procedures
Management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of its disclosure controls and procedures as of December 28, 2024. Based on this evaluation, the Company’s principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
32
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13(a) - 15(f) under the Exchange Act. Management’s internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide “reasonable assurance” regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with GAAP. Management’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that its receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide “reasonable assurance” regarding prevention or timely detection of unauthorized acquisition, use or disposition of its assets that could have a material effect on the financial statements.
As of December 28, 2024, management, including the Company’s principal executive officer and principal financial officer, assessed the effectiveness of its internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, the Company’s principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, the Company’s internal control over financial reporting was effective to accomplish their objectives at the reasonable assurance level.
Details on Prior Material Weaknesses Fully Remediated During the Period
As disclosed in the Form 10-Q for the period ended October 5, 2024, the Company devoted significant time and resources to complete its remediation of the material weakness. The following components of the remediation plan, among others, have been executed:
•Backfilled open roles and hired approximately 40 experienced personnel, an increase of 37% from the first quarter of 2024, (both permanent employees and contract labor) with the requisite accounting and internal controls knowledge and experience to sufficiently complement the existing global controllership organization;
•Completed the review of the organizational structure of the global controllership function by a third-party consultant and implemented recommended changes;
•Assessed our methodologies, policies, and procedures to ensure adequate design and effectiveness of processes supporting internal control over financial reporting;
•Assessed the specific training needs for newly hired and existing personnel and developed and delivered training programs designed to uphold our internal controls standards. Monthly trainings have been held with account reconciliation preparers and reviewers along with target trainings for individual control owners; and
•Following the departure of the Company’s Chief Financial Officer during the third fiscal quarter of 2023, hired a new Chief Financial Officer who began employment with the Company on November 27, 2023.
The Company considers that the actions described above are comprehensive and have sufficiently strengthened the Company’s internal control over financial reporting. The significant progress observed to date provides evidence that the remediation efforts are effective in improving the control environment. Based on management’s evaluation of the Company’s accounting resources and personnel used to fulfill internal control responsibilities over a sustained period of financial reporting, the Company has concluded that the material weakness over accounting resources has been fully remediated as of October 5, 2024.
Details on Account Reconciliation Material Weakness
In addition, as disclosed in the Form 10-Q for the period ended April 20, 2024, in connection with the preparation of the financial statements for the first quarter of 2024, management identified certain cash account reconciliations whereby a former employee in the Company’s India-based shared services center circumvented a cash reconciliation controls policy and concealed unreconciled items. This individual did not follow the Company’s policy to display all reconciling items in the reconciliation process. Based on the remediation measures described above, including adding redundant or compensating controls and implementing a quality control function, the Company has concluded that the material weakness over account reconciliations has been fully remediated as of December 28, 2024.
Management believes that the Consolidated Financial Statements and related financial information included in this Form 10-K present fairly, in all material respects, our balance sheets, statements of operations, comprehensive income and cash flows as of and for the periods presented.
33
Changes in Internal Control Over Financial Reporting
Except for the changes described above, there has been no change in the Company’s internal control over financial reporting during the fourth quarter ended December 28, 2024 that has materially affected or is reasonably likely to materially affect its internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
Attestation Report of Registered Public Accounting Firm
Management’s internal control over financial reporting as of December 28, 2024 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, who also audited the Company’s consolidated financial statements for the year ended December 28, 2024, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of its internal control over financial reporting as of December 28, 2024.
Item 9B. Other Information.
During the twelve weeks ended December 28, 2024, no
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
34
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
For a discussion of the Company’s directors, executive officers and corporate governance, see the information set forth in the sections and subsections entitled “Proposal No. 1 - Election of Directors,” “Corporate Governance,” “Additional Information Regarding Executive Compensation - Information Concerning the Company’s Executive Officers,” “Audit Committee Report,” and “Additional Information Regarding Executive Compensation - Delinquent Section 16(a) Reports,” “Code of Ethics and Business Conduct” and “Code of Ethics for Finance Professionals” in the Company’s proxy statement for the 2025 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year ended December 28, 2024 (the “2025 Proxy Statement”), which is incorporated herein by reference.
Item 11. Executive Compensation.
See the information set forth in the sections entitled “Compensation Committee Report,” “Compensation Discussion and Analysis,” “Compensation Program Risk Assessment,” “Additional Information Regarding Executive Compensation” and “Director Compensation” in the 2025 Proxy Statement, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
See the information set forth in the subsections entitled “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the 2025 Proxy Statement, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See the information set forth in the subsections entitled “Corporate Governance - Related Party Transactions” and “Board Independence and Structure” in the 2025 Proxy Statement, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
See the information set forth in the subsection entitled “2024 and 2023 Audit Fees” in the 2025 Proxy Statement, which is incorporated herein by reference.
35
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| (1) Financial Statements | ||||||||
Audited Consolidated Financial Statements of Advance Auto Parts, Inc. and Subsidiaries for the years ended December 28, 2024, December 30, 2023 and December 31, 2022: | ||||||||
| (2) Financial Statement Schedule | ||||||||
| (3) Exhibits | ||||||||
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Advance Auto Parts, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Advance Auto Parts, Inc. and subsidiaries (the "Company") as of December 28, 2024 and December 30, 2023, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2024, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Vendor Incentives — Refer to Note 2 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company receives incentives in the form of reductions in amounts owed to and/or payments due from vendors related to volume rebates and other promotions. Volume rebates and vendor promotional allowances are earned based on inventory purchases and initially recorded as a reduction to inventory, except for allowances provided as reimbursement of specific, incremental, and identifiable costs incurred to promote a vendor’s products that are offset in selling, general and administrative expenses. The deferred amounts are recorded as a reduction in cost of sales as the inventory is sold.
While many of these incentives are under long-term agreements in excess of one year, others are negotiated on an annual basis or shorter. Accordingly, auditing vendor incentives was challenging due to the extent of audit effort required to evaluate whether the vendor incentives were recorded in accordance with the terms of the vendor agreements.
37
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to whether the vendor incentives were recorded in accordance with the terms of the vendor agreements included the following, among others:
•We tested the effectiveness of controls over the process that ensures that all vendor agreements are communicated to accounting.
•We tested the effectiveness of controls over the recording of vendor incentives as a reduction in inventories, and subsequently as a reduction in cost of sales as the related inventory was sold.
•We selected a sample of vendor incentives from the income recognized as a reduction to cost of sales during the year and from incentive income that was deferred at year-end, and recalculated, using the terms of the vendor agreement, both the amount recorded as deferred vendor incentives as a reduction in inventories and the amount recognized in earnings as a reduction in cost of sales.
•We selected a sample of vendors from the Company’s inventory purchases made during the year and confirmed directly with the vendor that the agreement obtained from the Company and used in the determination of recording vendor incentives as a reduction in cost of sales was the most recent for the applicable period between the parties.
Restructuring — Refer to Note 3 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company recorded restructuring and impairment charges related to its Board of Directors approved restructuring and asset optimization plan (“2024 Restructuring Plan”). This plan anticipates the closure of approximately 500 stores, approximately 200 independent locations and four distribution centers. The Company incurred $740.4 million of restructuring charges, which primarily related to inventory write-down charges for reducing inventory to net realizable value in connection with the store and distribution center closures and asset impairment charges associated with operating lease right-of-use (ROU) assets. The determination of restructuring charges and related reserves requires management to make significant estimates and assumptions regarding the amount of inventory write-down charges and impairment charges of operating lease ROU assets.
The principal considerations for our determination that the evaluation of restructuring charges associated with inventory write-downs for closed store and distribution center locations and impairment charges related to operating lease ROU assets are:
•The significant assumptions required by management in estimating the net realizable value associated with inventory located at the stores and distribution centers to be closed including the anticipated sell through rate and estimated sales proceeds less costs to sell.
•The significant assumptions required by management to estimate the fair value of ROU assets utilizing a discounted cash flow model including market rental rates and discount rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the anticipated sell through rate and estimated sales proceeds less costs to sell associated with inventory write-down charges included the following, among others:
•Tested the effectiveness of controls over management’s process for developing the inventory write-down charges, including controls over the review of the anticipated sell through rate and estimated sales proceeds less costs to sell, and the completeness and accuracy of underlying data.
•Evaluated the reasonableness of management’s estimates of net realizable value of inventory for locations to be closed based on subsequent sales activity and contractual agreements with wholesalers to purchase the inventory at an agreed upon price.
Our audit procedures related to market rental rates and discount rates associated with the Company’s impairment assessment of ROU assets included the following, among others:
•Tested the effectiveness of controls over management’s impairment assessment process, including key assumptions used in the impairment analysis such as market rental rates and appropriate discount rate.
•Evaluated the reasonableness of management’s impairment assessment of ROU assets by:
◦Testing the completeness and accuracy of underlying data
38
◦Evaluating key assumptions including involvement of our valuation specialist to assess market rental rates and discount rates
◦Testing the mathematical accuracy of management’s calculations, including the completeness and accuracy of underlying data
/s/Deloitte & Touche LLP
February 26, 2025
We have served as the Company’s auditor since 2002.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Advance Auto Parts, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Advance Auto Parts and subsidiaries (the “Company”) as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 28, 2024, of the Company and our report dated February 26, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Deloitte & Touche LLP
February 26, 2025
40
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
| December 28, 2024 | December 30, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
Inventories | |||||||||||
| Other current assets | |||||||||||
| Current assets held for sale | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other noncurrent assets | |||||||||||
| Noncurrent assets held for sale | — | ||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Other current liabilities | |||||||||||
| Current liabilities held for sale | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Noncurrent liabilities held for sale | — | ||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, nonvoting, $ | |||||||||||
Common stock, voting, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
41
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Net sales | $ | $ | $ | ||||||||||||||
| Cost of sales | |||||||||||||||||
| Gross profit | |||||||||||||||||
Selling, general and administrative expenses, exclusive of restructuring and related expenses | |||||||||||||||||
Restructuring and related expenses | |||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||
| Operating (loss) income | ( | ||||||||||||||||
| Other, net: | |||||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
| Loss on early redemptions of senior unsecured notes | ( | ||||||||||||||||
Other income (expense), net | ( | ||||||||||||||||
| Total other, net | ( | ( | ( | ||||||||||||||
| (Loss) Income before provision for income taxes | ( | ( | |||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||
| Net (loss) income from continuing operations | ( | ( | |||||||||||||||
Net income from discontinued operations | |||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | |||||||||||||
| Basic (loss) earnings per common share from continuing operations | $ | ( | $ | ( | $ | ||||||||||||
Basic earnings per common share from discontinued operations | |||||||||||||||||
| Basic (loss) earnings per common share | $ | ( | $ | $ | |||||||||||||
| Basic weighted-average common shares outstanding | |||||||||||||||||
| Diluted (loss) earnings per common share from continuing operations | $ | ( | $ | ( | $ | ||||||||||||
Diluted earnings per common share from discontinued operations | |||||||||||||||||
| Diluted earnings (loss) per common share | $ | ( | $ | $ | |||||||||||||
| Diluted weighted-average common shares outstanding | |||||||||||||||||
Consolidated Statements of Comprehensive Income
(in thousands)
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Net (loss) income | $ | ( | $ | $ | |||||||||||||
Other comprehensive loss: | |||||||||||||||||
Changes in net unrecognized other postretirement benefit costs, net of tax of $ | ( | ( | |||||||||||||||
| Currency translation adjustments | ( | ( | |||||||||||||||
Total other comprehensive loss | ( | ( | |||||||||||||||
| Comprehensive (loss) income | $ | ( | $ | $ | |||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
42
Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock, at cost | Accumulated Other Comprehensive Loss | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon the exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Total other comprehensive income | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon the exercise of stock options | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance, December 30, 2023 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net (loss) | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Restricted stock units and deferred stock units vested | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance, December 28, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
43
Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) | |||||||||||||||||
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | |||||||||||||
| Net income from discontinued operations | |||||||||||||||||
Net (loss) income from continuing operations | ( | ( | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Share-based compensation | |||||||||||||||||
| Write-down on receivables | — | — | |||||||||||||||
Loss on sale and impairment of long-lived assets | |||||||||||||||||
| Loss on early redemption of senior unsecured notes | |||||||||||||||||
| Provision for deferred income taxes | ( | ( | |||||||||||||||
| Other, net | |||||||||||||||||
| Net change in: | |||||||||||||||||
| Receivables, net | ( | ||||||||||||||||
Inventories | ( | ( | |||||||||||||||
| Accounts payable | ( | ||||||||||||||||
| Accrued expenses | ( | ||||||||||||||||
| Other assets and liabilities, net | ( | ||||||||||||||||
| Net cash provided by operating activities from continuing operations | |||||||||||||||||
| Net cash (used in) provided by operating activities from discontinued operations | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment | ( | ( | ( | ||||||||||||||
| Purchase of intangible asset | ( | ||||||||||||||||
| Proceeds from sales of property and equipment | |||||||||||||||||
| Net cash used in investing activities from continuing operations | ( | ( | ( | ||||||||||||||
| Net cash provided by (used in) investing activities from discontinued operations | ( | ( | |||||||||||||||
| Net cash provided by (used in) investing activities | ( | ( | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Borrowings under credit facilities | |||||||||||||||||
| Payments on credit facilities | ( | ( | |||||||||||||||
| Proceeds from issuance of senior unsecured notes, net | |||||||||||||||||
| Payments on senior unsecured notes | ( | ||||||||||||||||
| Dividends paid | ( | ( | ( | ||||||||||||||
| Purchase of noncontrolling interests | ( | ||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ||||||||||||||
| Other, net | ( | ||||||||||||||||
| Net cash (used in) provided by financing activities | ( | ( | |||||||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | ( | ||||||||||||||||
Cash and cash equivalents, beginning of period | |||||||||||||||||
Cash and cash equivalents, end of period | $ | $ | $ | ||||||||||||||
44
Advance Auto Parts, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) | |||||||||||||||||
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Summary of cash and cash equivalents: | |||||||||||||||||
Cash and cash equivalents of continuing operations, end of period | $ | $ | $ | ||||||||||||||
Cash and cash equivalents of discontinued operations, end of period | |||||||||||||||||
Cash and cash equivalents, end of period | $ | $ | $ | ||||||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Interest paid | $ | $ | $ | ||||||||||||||
| Income tax payments | $ | $ | $ | ||||||||||||||
| Non-cash transactions: | |||||||||||||||||
| Accrued purchases of property and equipment | $ | $ | $ | ||||||||||||||
| Transfer of property and equipment from (to) assets related to discontinued operations to (from) continuing operations | $ | $ | ( | $ | |||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
45
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
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 consolidated financial statements 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 “the Company”).
On August 22, 2024, the Company entered into a definitive purchase agreement to sell its Worldpac, Inc. business (“Worldpac”), which reflects a strategic shift in its business. The Company completed the sale of Worldpac for a cash consideration of $1.5 billion, with customary adjustments for working capital and other items. The transaction closed on November 1, 2024. The Company received net proceeds of approximately $1.47 billion from the transaction after paying transaction fees and excluding the impact of taxes. The Company intends to use net proceeds from the transaction for general corporate purposes, which may include the provision of additional working capital, funding internal operational improvement initiatives and repayment or refinancing of outstanding indebtedness. As a result of the sale, the Company has presented Worldpac as discontinued operations in its Consolidated Statements of Operations and Consolidated Statements of Cash Flows for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations were classified as held for sale for prior period in the Consolidated Balance Sheet. Refer to Note 20. Discontinued Operations of the Notes to the Consolidated Financial Statements included herein.
As of December 28, 2024, the Company operated a total of 4,788 stores primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of December 28, 2024, the Company served 934 independently owned Carquest branded stores across the same geographic locations served by the Company’s stores in addition to Mexico and various Caribbean islands. The Company’s stores operate primarily under the trade names “Advance Auto Parts” and “Carquest.”
The Company has one reportable segment and two operating segments. The operating segments are aggregated primarily due to the economic and operational similarities of each operating segment as the stores have similar characteristics, including the nature of the products and services offered, customer base and the methods used to distribute products and provide services to its customers. The Company previously had three operating segments as Worldpac was one of the Company’s operating segments. The sale of Worldpac resulted in the Company having two operating segments, “Advance Auto Parts/Carquest U.S.” and “Carquest Canada.” Refer to Note 19. Segment Reporting for additional information on the Company’s segments.
On November 13, 2024, the Company’s Board of Directors approved a restructuring and asset optimization plan (“2024 Restructuring Plan”) designed to improve the Company’s profitability and growth potential and streamline its operations. Additionally, in November 2023, the Company announced a strategic and operational plan which would result in $150 million of savings, of which $50 million would be reinvested into frontline team members. In addition to a reduction in workforce, this plan streamlines the Company’s supply chain by configuring a multi-echelon supply chain by leveraging current asset and operating fewer, more productive distribution centers that focus on replenishment and move more parts closer to the customer. Refer to Note 3. Restructuring of the notes to the Consolidated Financial Statements included herein.
Accounting Period
The Company’s fiscal year ends on the Saturday closest to December 31st. All references herein for the years 2024, 2023 and 2022 represent the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022, and consisted of fifty-two weeks.
Basis of Presentation
46
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
2. Significant Accounting Policies
Cash and Cash Equivalents
Inventory
The Company’s inventory consists primarily of parts, batteries, accessories and other products used on vehicles that have reasonably long shelf lives and is stated at the lower of cost or market. The cost of the Company’s merchandise inventory is primarily determined using the last-in, first-out (“LIFO”) method. Under the LIFO method, the Company’s cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs relating to prices paid in 2024 and prior years. The Company regularly reviews inventory quantities on-hand to consider whether it has excess or obsolete inventory and adjusts the carrying value as necessary. In the fourth quarter of 2024, the Company announced a restructuring and asset optimization plan designed to improve the Company’s profitability and growth potential and streamline its operations. In executing this plan and initiating store closure activities, the Company liquidated inventory held at these locations and rationalized its product assortment held as a result of a reduced sell-through footprint which resulted in an inventory charge of $431.5 million and was reflected in cost of sales. In 2023, the Company performed a strategic and operational review of the business, which included the rationalization of product assortment and planned decisive actions. As a result, the Company made a change in the estimate of excess inventory reserves resulting in a $109.5 million charge to cost of sales.
Vendor Incentives
The Company receives incentives in the form of reductions to amounts owed to and/or payments from vendors related to volume rebates and other promotional considerations. Many of these incentives are under long-term agreements in excess of one year, while others are negotiated on an annual or more frequent basis. Advertising allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred. Volume rebates and allowances that do not meet the requirements for offsetting in SG&A are recorded as a reduction to inventory as volume rebates and allowances are earned based on inventory purchases.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged directly to expense when incurred; major improvements are capitalized. When items are sold or retired, the related cost and accumulated depreciation are removed from the account balances, with any gain or loss reflected in the Consolidated Statements of Operations.
Costs incurred with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software, generally five years . Subsequent additions, modifications or upgrades are capitalized to the extent it enhances the software’s functionality. Capitalized software is classified in the construction in progress category, but once placed into service is removed from construction in progress and classified within the furniture, fixtures and equipment category and is depreciated on the straight-line method over to ten years .
47
Goodwill and Other Indefinite-Lived Intangible Assets
The Company performs an evaluation for the impairment of goodwill and other indefinite-lived intangible assets for the Company’s reporting units annually as of the first day of the fourth quarter, or when indications of potential impairment exist. These indicators would include a significant change in operating performance, the business climate, legal factors, competition, or a planned sale or disposition of a significant portion of the business, among other factors. The evaluation of goodwill and other indefinite-lived intangibles may be a Step-0 analysis, which consists of a qualitative assessment, or a Step-1 analysis, which includes a quantitative assessment. In a Step-0 analysis, the Company assesses qualitative factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that the goodwill might be impaired and whether it is necessary to perform a quantitative goodwill impairment test. In the quantitative goodwill impairment test, the Company compares the carrying value of a reporting unit to its fair value. In performing a Step-1 analysis, the Company has historically used an income approach which requires many assumptions including forecast, discount rate, long-term growth rate, among other items. The Company has also utilized the market approach which derives metrics from comparable publicly-traded companies. The Company has generally engaged a third-party valuation firm to assist in the fair value assessment of goodwill. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value.
The other indefinite-lived intangible assets are tested for impairment at the asset group level. Other indefinite-lived intangible assets are evaluated by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If the fair value based on the future discounted cash flows exceeds the carrying value, the Company concludes that no intangible asset impairment has occurred. If the carrying value of the indefinite-lived intangible asset exceeds the fair value, the Company recognizes an impairment loss.
The Company has two operating segments, defined as “Advance Auto Parts/Carquest U.S.” and “Carquest Canada.” As each operating segment represents a reporting unit, goodwill is assigned to each reporting unit. See Note 5. Goodwill and Intangibles for additional information.
Valuation of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable and exceeds its fair value. When such an event occurs, the Company estimates the undiscounted future cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. These impairment evaluations involve estimates of asset useful lives and future cash flows. If the undiscounted expected future cash flows are less than the carrying amount of the asset and the carrying amount of the asset exceeds its fair value, an impairment loss is recognized. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques (e.g., discounted cash flow analysis).
The Company assessed the recoverability of its long-lived assets assigned to closing locations in connection with the announced restructuring and distribution network optimization plan. This assessment resulted in carrying values that exceeded fair values for certain asset groups, primarily related to ROU assets. As a result, an impairment charge of $171.4 million was recorded, and is reflected in SG&A. Impairment charges not related to the restructuring and asset optimization plans were not material. See Restructuring and Related Expenses policy below.
48
Self-Insurance
Leases
The Company leases certain store locations, distribution centers, office spaces, equipment and vehicles. The Company recognizes lease expense on a straight-line basis over the initial term of the lease unless external economic factors exist such that renewals are reasonably certain. In those instances, the renewal period would be included in the lease term to determine the period in which to recognize the lease expense. Most leases require the Company to pay non-lease components, such as taxes, maintenance, insurance and other certain costs applicable to the leased asset. For leases related to store locations, distribution centers, office spaces and vehicles, the Company accounts for lease and non-lease components as a single amount.
Fair Value Measurements
Share-Based Payments
Revenues
Accounting Standards Codification 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”) defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of the Company’s contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Discounts and incentives are treated as separate performance obligations. The Company allocates the contract’s transaction price to each of these performance obligations separately using explicitly stated amounts or the Company’s best estimate using historical data.
In accordance with ASC 606, revenue is recognized at the time the sale is made at which time the Company’s walk-in customers take immediate possession of the merchandise or same-day delivery is made to the Company’s professional delivery customers, which include certain independently owned store locations. Payment terms are established for the Company’s professional delivery customers based on pre-established credit requirements. Payment terms vary depending on the customer and generally range from one to thirty days. Based on the nature of receivables, no significant financing components exist. For e-commerce sales, revenue is recognized either at the time of pick-up at one of the Company’s store locations or at the time of shipment depending on the customer's order designation. Sales are recorded net of discounts, sales incentives and rebates, sales taxes, and estimated returns and allowances. The Company estimates the reduction to net sales and cost of sales for returns based on current sales levels and the Company’s historical return experience.
49
Some of the Company’s products include a core component, which represents a recyclable piece of the auto part. If a customer purchases an auto part that includes a core component, the customer is charged for the core unless a used core is returned at the time of sale. Customers that return a core subsequent to the sale date will be refunded.
The following table summarizes financial information for each of the Company’s product groups:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Percentage of Sales, by Product Group | |||||||||||||||||
| Parts and Batteries | % | % | % | ||||||||||||||
| Accessories and Chemicals | |||||||||||||||||
| Engine Maintenance | |||||||||||||||||
| Other | |||||||||||||||||
| Total | % | % | % | ||||||||||||||
Receivables, net, consists primarily of receivables from professional customers and is stated at net realizable value. The Company grants credit to certain professional customers who meet the Company’s pre-established credit requirements. The Company regularly reviews accounts receivable balances and maintains allowances for credit losses estimated whenever events or circumstances indicate the carrying value may not be recoverable. The Company considers the following factors when determining if collection is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. The Company controls credit risk through credit approvals, credit limits and accounts receivable and credit monitoring procedures.
Cost of Sales
Cost of sales includes actual product cost, warranty costs, vendor incentives, cash discounts on payments to vendors, costs associated with operating the Company’s distribution network, including payroll and benefits costs, occupancy costs and depreciation, in-bound freight-related costs from the Company’s vendors, impairment of inventory resulting from store closures and inventory-related reserves and costs associated with moving merchandise inventories from the Company’s distribution centers to stores and customers. Refer to the Restructuring and Related Expenses policy below.
Selling, General and Administrative Expenses, Exclusive of Restructuring and Related Expenses
50
Restructuring and Related Expenses
The Company records restructuring and transformation activities when management or the Board of Directors commits to and approves a restructuring plan. Impairment of inventory is recognized when the cost of inventory exceeds its net realizable value. Asset impairment charges associated with operating lease ROU assets are recognized when the ROU carrying value exceeds its fair value. Severance and retention costs associated with workforce reductions are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Employee termination benefits are recognized as a liability when it is probable that a liability exists, and the amount is reasonably estimable. Other exit-related costs, including nonrecurring professional fees, are recognized as incurred. Restructuring expenses are recognized as an operating expense in cost of sales or selling, general and administrative expenses within the consolidated statements of operations and related liabilities are recorded within accounts payable and accrued expenses on the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information. Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included for additional detail.
Preopening Expenses
Preopening expenses, which consist primarily of payroll and occupancy costs related to the opening of new stores, are expensed as incurred as a component of SG&A in the accompanying Consolidated Statements of Operations.
Advertising Costs
Foreign Currency Translation
The assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at current exchange rates. Revenues, expenses and cash flows are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a separate component in the Consolidated Statements of Comprehensive Income. Foreign currency transactions, which are included in other income (expense), net, were a loss of $5.5 million, $7.3 million and $3.7 million in 2024, 2023 and 2022, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under the asset and liability method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income tax reporting purposes. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date.
The Company recognizes tax benefits and/or tax liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more-likely-than-not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts as the Company must determine the probability of various possible outcomes.
51
Earnings per Share
Recently Issued Accounting Pronouncements - Not Yet Adopted
Disclosure Improvements
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements (“ASU 2023-06”), which defines when companies will be required to improve and clarify disclosure and presentation requirements. This ASU should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the applicable requirements have not been removed by the SEC by June 30, 2027, this ASU will not become effective. Early adoption is prohibited. The Company is currently evaluating the impact of adopting ASU 2023-06 on the consolidated financial statements and related disclosures, and does not believe it will have a material impact on the consolidated financial statements.
Climate Disclosure Requirements
In March 2024, the SEC issued its final climate disclosure rules, which require the disclosure of climate-related information in annual reports and registration statements. The rules require disclosure in the audited financial statements of certain effects of severe weather events and other natural conditions and greenhouse gas emissions above certain financial thresholds, as well as amounts related to carbon offsets and renewable energy credits or certificates, if material. Additionally, the rule established disclosure requirements regarding material climate-related risks, descriptions of board oversight and risk management activities, the material impacts of these risks on a registrants' strategy, business model and outlook and any material climate-related targets or goals. On April 4, 2024, the SEC determined to voluntarily stay the final rules pending certain legal challenges. Prior to the stay in the new rules, disclosures would have been effective for annual periods beginning January 1, 2025, except for the greenhouse gas emissions disclosure which would have been effective for annual periods beginning January 1, 2026. The Company is currently evaluating the impact of the new rules on the consolidated financial statements and related disclosures.
Income Tax Disclosure Improvements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (“ASU 2023-09”), which requires a company to enhance its income tax disclosures. In each annual reporting period, the company should disclose the specific categories used in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, including disaggregation of taxes paid by jurisdiction. The related disclosures are effective for the fiscal year beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements and related disclosures and believes the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements.
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation (“ASU 2024-03”), which requires public entities to disclose more detailed information about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expenses and depreciation. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03 on the consolidated financial statements and related disclosures.
52
Recently Issued Accounting Pronouncements - Adopted
Improvements to Reportable Segment Disclosures
3. Restructuring
2024 Restructuring Plan
On November 13, 2024, the Company’s Board of Directors approved a restructuring and asset optimization plan (“2024 Restructuring Plan”) designed to improve the Company’s profitability and growth potential and streamline its operations. This plan anticipates closure of approximately 500 stores, approximately 200 independent locations and four distribution centers by mid-2025, as well as headcount reductions.
Expenses associated with the 2024 Restructuring Plan included: 1) inventory write-down of inventory to net realizable value due to liquidation sales as a result of store closures and streamlining assortment associated with the 2024 Restructuring Plan announced in fourth quarter 2024, 2) noncash asset impairment and accelerated amortization and depreciation of operating lease ROU assets and plant, property and equipment, 3) personnel expenses related to severance and transition expenses, which were offered to certain employees who would provide services through key dates to ensure completion of closure activities and 4) other location closure-related activity, including nonrecurring services rendered by third-party vendors assisting with the turnaround initiatives and other related expenses, including incremental revisions to receivable collectability due to termination of contracts with independents associated with the 2024 Restructuring Plan.
Other Restructuring Initiatives
In November 2023, the Company announced a strategic and operational plan which would result in $150.0 million of savings, of which $50.0 million would be reinvested into frontline team members. In addition to a reduction in workforce, this plan streamlines the Company’s supply chain by configuring a multi-echelon supply chain by leveraging current asset and operating fewer, more productive distribution centers that focus on replenishment and move more parts closer to the customer. In achieving this plan, the Company is in process of converting certain distribution centers and stores into market hubs. In addition to providing replenishment to near-by stores, market hubs support retail operations. In addition to the distribution network optimization, other restructuring expenses included: 1) Worldpac post transaction-related expenses for professional services and 2) other restructuring expenses including nonrecurring services rendered by third-party vendors assisting with the turnaround initiatives, including a strategic business review, income in connection with the Worldpac transition service agreement, executive turnover costs and a book to tax basis difference in connection with the Worldpac sale.
For the year ended December 28, 2024, the Company incurred the following charges related to the restructuring plans. Inventory related expenses are reflected in Cost of sales on the Consolidated Statement of Operations. The remaining categories are included in Selling, general and administrative expenses in the Consolidated Statements of Operations. There were no restructuring costs associated with the 2024 Restructuring Plan prior to 2024.
| Year Ended | |||||||||||
2024 Restructuring Plan Expenses: (1) | December 28, 2024 | December 30, 2023 | |||||||||
Cost of sales: | |||||||||||
Inventory write-down | $ | $ | |||||||||
Selling, general and administrative expenses: | |||||||||||
| Impairment and write-down of long-lived assets | |||||||||||
| Severance and other personnel expenses | |||||||||||
Other location closure related expenses (2) | |||||||||||
| Total selling, general and administrative expenses | |||||||||||
2024 Restructuring Plan Expenses | $ | $ | |||||||||
Other Restructuring Plan Expenses: | |||||||||||
Selling, general and administrative expenses: | |||||||||||
Distribution network optimization (3) | $ | $ | |||||||||
Impairment and write-down of long-lived assets | |||||||||||
Worldpac post transaction-related expenses | — | ||||||||||
Other restructuring expenses (4) | |||||||||||
Other Restructuring Plan Expenses | $ | $ | |||||||||
(1) The table above excludes certain routine impairment charges of long-lived assets and write-downs of slow-moving inventory occurring in the ordinary course of business.
(2) Other location closure-related activity includes nonrecurring services rendered by third-party vendors assisting with the 2024 Restructuring Plan and other related expenses of $20.8 million including incremental revisions to receivable collectability due to contract terminations with independents associated with the restructuring plan of $24.7 million.
(3) Distribution network optimization includes incremental depreciation as a result of accelerating long-lived assets over a shorter useful life of $5.0 million.
(4) For the year ended December 28, 2024, Other Restructuring Plan expenses include nonrecurring services rendered by third-party vendors to perform a strategic business review of $15.5 million and executive turnover costs of $1.6 million. For the year ended December 30, 2023, Other Restructuring expenses include severance costs associated with a reduction in workforce and professional service fees.
The following table shows the change in the restructuring liability during the year ended December 28, 2024, which are included within accounts payable, accrued liabilities and other current liabilities in the Consolidated Balance Sheets, is as follows:
| Restructuring liability | Professional service fees | Severance and other personnel expenses | |||||||||||||||
| Balance at December 30, 2023 | $ | $ | |||||||||||||||
| Restructuring expenses during the period | |||||||||||||||||
| Cash payments | ( | ( | |||||||||||||||
| Balance at December 28, 2024 | $ | $ | |||||||||||||||
53
4. Inventories
The Company used the LIFO method of accounting for approximately 91.5 % of Inventories at December 28, 2024 and 92.8 % of Inventories at December 30, 2023. As a result, the Company recorded a decrease to Cost of sales of $92.0 million in 2024, a decrease to Cost of sales of $115.6 million in 2023 and an increase to Cost of sales of $283.4 million in 2022.
During 2024, the Company experienced a significant decrease in inventory values primarily due to the 2024 Restructuring Plan. This decrease resulted in liquidations of LIFO inventory layers carried at costs prevailing in prior years. The effect of the LIFO liquidation was a decrease to cost of sales of $21.2 million and an increase to net earnings of $15.9 million ($0.27 per diluted share). During 2023, the Company experienced a decrease in inventory values which resulted in a liquidation of a LIFO inventory layer. This liquidation did not have a material impact to the Consolidated Financial Statements.
Purchasing and warehousing costs included in Inventories as of December 28, 2024 and December 30, 2023 were $367.8 million and $454.0 million, respectively.
Inventory balances were as follows:
| December 28, 2024 | December 30, 2023 | ||||||||||
| Inventories at first-in, first-out (“FIFO”) | $ | $ | |||||||||
| Adjustments to state inventories at LIFO | ( | ( | |||||||||
| Inventories at LIFO | $ | $ | |||||||||
5. Goodwill and Other Intangible Assets, Net
Goodwill
At December 28, 2024 and December 30, 2023, the carrying amount of goodwill in the accompanying Consolidated Balance Sheets was $598.2 million and $601.2 million, respectively. The change in Goodwill during 2024 and 2023 was $2.9 million and $1.0 million, respectively, and related to foreign currency translation. There has been no history of impairment of goodwill experienced to date.
Other Intangible Assets, Net
Amortization expense was $12.4 million, $13.3 million and $14.9 million for 2024, 2023 and 2022, respectively. A summary of the composition of the gross carrying amounts and accumulated amortization of acquired other intangible assets are presented in the following table:
| December 28, 2024 | December 30, 2023 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Non-compete and other | ( | ( | |||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Brands, trademark and trade names | |||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
54
Future Amortization Expense
The expected amortization expense for the next five years and thereafter for acquired intangible assets recorded as of December 28, 2024 was as follows:
| Year | Amount | |||||||
| 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| $ | ||||||||
6. Receivables, net
Receivables, net, consisted of the following:
| December 28, 2024 | December 30, 2023 | ||||||||||
| Trade | $ | $ | |||||||||
| Vendor | |||||||||||
| Other | |||||||||||
| Total receivables | |||||||||||
| Less: allowance for credit losses | ( | ( | |||||||||
| Receivables, net | $ | $ | |||||||||
For the year ended December 28, 2024, the allowance for credit losses increased $34.2 million, primarily due to incremental reserves established as a result of the 2024 Restructuring Plan. Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included herein.
55
7. Long-term Debt and Fair Value of Financial Instruments
Long-term debt consisted of the following:
| December 28, 2024 | December 30, 2023 | ||||||||||
| $ | $ | ||||||||||
| Less: Current portion of long-term debt | |||||||||||
| Long-term debt, excluding the current portion | $ | $ | |||||||||
| Fair value of long-term debt | $ | $ | |||||||||
Fair Value of Financial Assets and Liabilities
The fair value of the Company’s senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The carrying amounts of the Company’s 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 November 9, 2021, the Company entered into a credit agreement that provided a $1.2 billion unsecured revolving credit facility (the “2021 Credit Agreement”) with Advance Auto Parts, Inc., as Borrower, Advance Stores, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as the Administrative Agent, and replaced the previous credit agreement. The revolver under the 2021 Credit Agreement replaced the revolver under the previous credit agreement. The revolver under the 2021 Credit Agreement provides for the issuance of letters of credit with a sublimit of $200.0 million. The Company may request that the total revolving commitment be increased by an amount not exceeding $500.0 million during the term of the 2021 Credit Agreement.
On February 27, 2023, the Company entered into Amendment No. 1 (“Amendment No. 1”) to 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. Amendment No. 1 also replaced an adjusted LIBOR benchmark rate with a term secured overnight financing rate benchmark rate, as adjusted by an increase of 10 basis points, plus the applicable margin under 2021 Credit Agreement.
56
On August 21, 2023, the Company 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), and on November 20, 2023, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement in order to further amend financial covenants related to the Consolidated Coverage Ratio. Pursuant to Amendment No. 2 and Amendment No. 3, the Company may not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.00 to 1.00 for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025. Amendment No. 2. and Amendment No. 3 made no other material changes to the terms of the 2021 Credit Agreement.
On February 26, 2024, the Company entered into Amendment No. 4 (“Amendment No. 4”) to the 2021 Credit Agreement to enable certain addbacks to the definition of Consolidated EBITDA contained therein for specific write-downs of inventory and vendor receivables. Amendment No. 4 also updated certain limitations on future incurrences of other indebtedness and liens, replacing the cap thereon of 10 % of consolidated net tangible assets with $400 million, and eliminated the $250 million basket for accounts receivable securitization transactions. Amendment No. 4 made no other material changes to the terms of the 2021 Credit Agreement.
On November 13, 2024, the Company entered into Amendment No. 5 to the 2021 Credit Agreement. Amendment No. 5 (i) permits up to $575 million of certain restructuring charges to be added back to Consolidated EBITDAR (as defined therein), (ii) permits up to $800 million of unrestricted cash to be netted out of debt in the calculation of the Leverage Ratio (as defined therein), and (iii) reduced the minimum Consolidated Coverage Ratio (as defined therein) to 1.50 to 1.00 through July 12, 2025 and 1.75 to 1.00 thereafter. Amendment No. 5 also reduced the unsecured revolving credit facility under the 2021 Credit Agreement from $1.2 billion to $1.0 billion and amended the pricing on the loans thereunder in connection with changes in the Company’s credit ratings, as described below.
Amendment No. 5 also updated certain covenants and other limitations on the Company, including (i) expanding the scope of the covenant restricting the ability to create, incur or assume additional debt to cover Advance Auto Parts, Inc., (ii) restricting the Company’s rights to complete share repurchases and increase cash dividend amounts, (iii) requiring the Company to grant liens on deposit accounts, inventory and accounts receivables if credit ratings are downgraded below a minimum threshold, (iv) imposing an additional monthly minimum daily liquidity financial covenant of $750 million, (v) providing for the maturity date under the 2021 Credit Agreement to automatically spring forward to the extent necessary for the 2021 Credit Agreement to mature at least 91 days prior to any scheduled maturity date under any of the Company’s senior unsecured notes, (vi) prohibiting further extensions of the maturity date under the 2021 Credit Agreement beyond the existing maturity date, and (vii) eliminating certain baskets for additional indebtedness, liens and asset sales.
On February 25, 2025, the Company entered into Amendment No. 6 (“Amendment No. 6”) to the 2021 Credit Agreement to, among other things, (i) expand the scope of domestic subsidiaries that would be required to grant security interests and guarantee the Company’s obligations under the 2021 Credit Agreement upon the occurrence of a Springing Lien Trigger Event (as defined therein) to include all of the Company’s subsidiaries other than the Company’s Insignificant Subsidiaries (as defined in Amendment No. 6), (ii) revise the definition of Consolidated Coverage Ratio to exclude up to $175 million of accelerated rent charges related to lease buyouts and to permit the minimum Consolidated Coverage Ratio to remain at 1.50 to 1.00 for one additional quarter before increasing to 1.75 to 1.00 on and after the fiscal quarter ending on January 3, 2026, (iii) revise the definition of Consolidated EBITDA to increase the threshold for Identified Restructuring Charges (as defined therein) from $575 million to $625 million, and (iv) expand the scope of the guaranteed obligations to include bank product obligations and cash management obligations.
The interest rates on outstanding amounts, if any, on the revolving facility under the 2021 Credit Agreement will be based, at the Company’s option, on Term Secured Overnight Financing Rate (“SOFR”) (as defined in the 2021 Credit Agreement), plus a margin, or an alternate base rate, plus a margin. The margins per annum for the revolving loan will vary from 0.795 % to 1.525 % for Term SOFR (with margins of 1.325 % or greater applying when credit ratings are below BBB/Baa2) and from 0.00 % to 0.525 % for alternate base rate (with margins of 0.325 % or greater applying when credit ratings are below BBB/Baa2) based on the assigned debt ratings of the Company. A facility fee will be charged on the total revolving facility commitment, payable quarterly in arrears, in an amount that will vary from 0.08 % to 0.35 % (with rates of 0.250 % or greater applying when credit ratings are below BB+/Ba1) per annum based on the assigned debt ratings of the Company.
57
The 2021 Credit Agreement contains customary covenants restricting the ability of: (a) Advance Auto Parts, Inc. and its subsidiaries to, among other things, (i) create, incur or assume additional debt, (ii) incur liens, (iii) guarantee obligations, and (iv) change the nature of their business; (b) Advance Auto Parts, Inc., Advance Stores and their subsidiaries to, among other things, (i) enter into certain hedging arrangements, (ii) enter into restrictive agreements limiting their ability to incur liens on any of their property or assets, pay distributions, repay loans, or guarantee indebtedness of their subsidiaries; and (c) Advance Auto Parts, Inc., among other things, to change its holding company status. Advance is also required to comply with financial covenants with respect to a maximum leverage ratio and a minimum coverage ratio. The 2021 Credit Agreement also provides for customary events of default, including non-payment defaults, covenant defaults and cross-defaults of Advance’s other material indebtedness. The Company was in compliance with its financial covenants with respect to the 2021 Credit Agreement as of December 28, 2024.
As of December 28, 2024 and December 30, 2023, the Company had no outstanding borrowings or letters of credit outstanding under the 2021 Credit Agreement. As of December 28, 2024, the borrowing availability was $1.0 billion. As of December 30, 2023, the borrowing availability was $1.2 billion.
As of December 28, 2024 and December 30, 2023, the Company had $90.8 million and $91.2 million, respectively, 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 the Company’s self-insurance policies.
Senior Unsecured Notes
The Company’s 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, the Company completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500.0 million, which were not registered under the Securities Act, were exchanged for a like principal amount of 3.90 % senior unsecured notes due 2030 (the “Exchange Notes” or “2030 Notes”), which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except that the Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration rights agreement provisions applicable to the Original Notes.
The Company’s 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, the Company incurred $2.9 million of debt issuance costs.
The Company’s 3.50 % senior unsecured notes due March 15, 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, the Company incurred $3.2 million of debt issuance costs.
The Company’s 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, the Company incurred $1.6 million of debt issuance costs.
The Company’s 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, the Company incurred $1.9 million of debt issuance costs.
58
The Company’s 2026 Notes, 2027 Notes, 2028 Notes, 2030 Notes and 2032 Notes are collectively referred to herein as the Company’s “senior unsecured notes” or the “Notes.” The terms of the 2026 Notes, 2027 Notes, 2028 Notes and 2032 Notes are governed by an indenture dated as of April 29, 2010 (as amended, supplemented, waived or otherwise modified, the “2010 Indenture”) among Advance Auto Parts, Inc., the subsidiary guarantors from time to time party thereto and Wells Fargo Bank, National Association, as Trustee. The terms of the 2030 Notes are governed by an indenture dated as of April 16, 2020 (as amended, supplemented, waived or otherwise modified, the “2020 Indenture” and together with the 2010 Indenture, the “Indentures”) among Advance Auto Parts, Inc., the subsidiary guarantors from time to time party thereto and Wells Fargo Bank, National Association, as Trustee.
The Company may redeem some or all of the senior unsecured notes at any time or from time to time, at the redemption prices described in the Indentures. In addition, in the event of a Change of Control Triggering Event (as defined in the Indentures), the Company will be required to offer to repurchase 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 and unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.
The Indentures contain customary provisions for events of default including for: (i) failure to pay principal or interest when due and payable; (ii) failure to comply with covenants or agreements in the Indentures or the Notes and failure to cure or obtain a waiver of such default upon notice; (iii) a default under any debt for money borrowed by us or any of our subsidiaries that results in acceleration of the maturity of such debt, or failure to pay any such debt within any applicable grace period after final stated maturity, in an aggregate amount greater than $25.0 million without such debt having been discharged or acceleration having been rescinded or annulled within ten days after receipt by us of notice of the default by the Trustee or holders of not less than 25 % in aggregate principal amount of the Notes then outstanding; and (iv) events of bankruptcy, insolvency or reorganization affecting us and certain of its subsidiaries. In the case of an event of default, the principal amount of the Notes plus accrued and unpaid interest may be accelerated. The Indentures also contain covenants limiting the ability to incur debt secured by liens and to enter into certain sale and lease-back transactions.
Future Payments
As of December 28, 2024, the aggregate future annual maturities of long-term debt instruments were as follows:
| Year | Amount | |||||||
| 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Debt Guarantees
The Company is a guarantor of loans made by banks to various independently-owned Carquest-branded stores that are customers of the Company totaling $98.4 million as of December 28, 2024 and $106.9 million as of December 30, 2023. 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 was $181.3 million as of December 28, 2024 and $221.2 million as of December 30, 2023. The Company continuously assesses the likelihood of performance under these guarantees and believes that performance is remote as of December 28, 2024.
59
8. Property and Equipment
Property and equipment consisted of the following:
Useful Lives | December 28, 2024 | December 30, 2023 | |||||||||||||||
Land and land improvements (1) | $ | $ | |||||||||||||||
| Buildings | |||||||||||||||||
| Building and leasehold improvements | |||||||||||||||||
| Furniture, fixtures and equipment | |||||||||||||||||
| Vehicles | |||||||||||||||||
| Construction in progress | |||||||||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||||||||
| Property and equipment, net | $ | $ | |||||||||||||||
(1) Land is deemed to have an indefinite life.
As of December 28, 2024 and December 30, 2023, the Company had capitalized software costs of $1.03 billion and $960.4 million, respectively, and accumulated depreciation of $767.2 million and $677.9 million, respectively. Depreciation expense relating to property and equipment was $279.6 million, $256.2 million and $233.4 million for 2024, 2023 and 2022, respectively.
As of December 28, 2024, the Company recorded $143.8 million of non-cash asset impairment and write-down charges, including impairment and incremental depreciation as a result of accelerating assets over a shorter useful life in connection with the 2024 Restructuring Plan and the Other Restructuring Plan which is included in restructuring and related expenses within the accompanying Consolidated Statements of Operations. Refer to Note 3. Restructuring of the notes to the Consolidated Financial Statements included herein.
9. Leases and Other Commitments
Leases
Substantially all of the Company’s leases are for facilities and vehicles. The initial term for facilities is typically to ten years , with renewal options at five-year intervals, with the exercise of lease renewal options at the Company’s sole discretion. The Company’s vehicle and equipment leases are typically to six years . The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease liabilities consisted of the following:
| December 28, 2024 | December 30, 2023 | ||||||||||
| Total operating lease liabilities | $ | $ | |||||||||
| ( | ( | ||||||||||
| Non-current operating lease liabilities | $ | $ | |||||||||
The current portion of operating lease liabilities was included in other current liabilities in the accompanying Consolidated Balance Sheets.
60
Total lease cost was included in cost of sales and SG&A in the accompanying Consolidated Statements of Operations and is recorded net of immaterial sublease income. Total lease cost comprised of the following:
| Year Ended | |||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||
| Operating lease cost | $ | $ | |||||||||
| Variable lease cost | |||||||||||
| Total lease cost | $ | $ | |||||||||
The future maturity of lease liabilities are as follows:
| Year | Amount | |||||||
| 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: Imputed interest | ( | |||||||
| Total operating lease liabilities | $ | |||||||
Operating lease liabilities included $16.7 million related to options to extend lease terms that are reasonably certain of being exercised and excluded $66.5 million of legally binding lease obligations for leases signed, but not yet commenced.
The weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were 6.5 years and 4.2 % as of December 28, 2024. The Company calculated the weighted average discount rates using incremental borrowing rates, which equal the rates of interest that the Company would pay to borrow funds on a fully collateralized basis over a similar term.
As of December 28, 2024, the Company recorded $65.4 million of non-cash asset impairment and write-down charges, including impairment and incremental lease abandonment expenses as a result of accelerated amortization on leases the Company expects to exit before the end of the contractual term, net of gains on lease terminations which is included in restructuring and related expenses within the accompanying Consolidated Statements of Operations. Refer to Note 3. Restructuring of the Notes to the Consolidated Financial Statements included herein.
Other information relating to the Company’s lease liabilities were as follows:
| Year Ended | |||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
61
Other Commitments
The Company has entered into certain arrangements which require the future purchase of goods or services. The Company’s obligations primarily consist of payments for the purchase of hardware, software and maintenance. As of December 28, 2024, future payments of these arrangements were $147.5 million and were not accrued in the Company’s Consolidated Balance Sheet.
During the first quarter of 2024, the Company entered into a sale-leaseback transaction where the Company sold a building and land and entered into a three-year lease of the property upon the sale. This transaction resulted in a gain of $22.3 million and is included in SG&A on the Consolidated Statement of Operations.
10. Accrued Expenses
Accrued expenses consisted of the following:
| December 28, 2024 | December 30, 2023 | ||||||||||
| Payroll and related benefits | $ | $ | |||||||||
| Taxes payable | |||||||||||
| Self-insurance reserves | |||||||||||
| Inventory related accruals | |||||||||||
| Accrued rebates | |||||||||||
| Accrued professional services/legal | |||||||||||
| Capital expenditures | |||||||||||
| Other | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
11. Share Repurchase Program
In February 2022, the Company’s Board of Directors authorized an additional $1.0 billion toward the existing share repurchase program. Previously in April 2021 and November 2019, the Company’s Board of Directors authorized $1.0 billion and $700.0 million for the Company’s share repurchase program. The Company’s share repurchase program permitted the repurchase of the Company’s common stock on the open market and in privately negotiated transactions from time to time. The Board of Directors were able to increase or otherwise modify, renew, suspend or terminate the share repurchase program without prior notice. However, Amendment No. 5 to the Company’s 2021 Credit Agreement generally prohibits open market share repurchases.
During 2024 and 2023, the Company did not repurchase any shares of the Company’s common stock under the Company’s share repurchase program. The Company had $947.3 million remaining under the Company’s share repurchase program as of December 28, 2024 and December 30, 2023.
62
12. Earnings per Share
The computations of basic and diluted earnings per share were as follows:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Numerator | |||||||||||||||||
| Net (loss) income from continuing operations | $ | ( | $ | ( | $ | ||||||||||||
Net income from discontinued operations | |||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | |||||||||||||
| Denominator | |||||||||||||||||
| Basic weighted average common shares | |||||||||||||||||
| Dilutive impact of share-based awards | |||||||||||||||||
Diluted weighted average common shares(1) | |||||||||||||||||
| Basic (loss) earnings per common share from continuing operations | $ | ( | $ | ( | $ | ||||||||||||
| Basic earnings per common share from discontinued operations | |||||||||||||||||
| Basic (loss) earnings per common share | $ | ( | $ | $ | |||||||||||||
| Diluted (loss) earnings per common share from continuing operations | $ | ( | $ | ( | $ | ||||||||||||
| Diluted earnings per common share from discontinued operations | |||||||||||||||||
| Diluted earnings (loss) per common share | $ | ( | $ | $ | |||||||||||||
63
13. Income Taxes
Provision for Income Taxes
Provision for income taxes consisted of the following:
| Current | Deferred | Total | |||||||||||||||
| 2024 | |||||||||||||||||
| Federal | $ | $ | ( | $ | ( | ||||||||||||
| State | ( | ( | |||||||||||||||
| Foreign | ( | ||||||||||||||||
| $ | $ | ( | $ | ( | |||||||||||||
| 2023 | |||||||||||||||||
| Federal | $ | $ | ( | $ | ( | ||||||||||||
| State | ( | ( | |||||||||||||||
| Foreign | ( | ||||||||||||||||
| $ | $ | ( | $ | ( | |||||||||||||
| 2022 | |||||||||||||||||
| Federal | $ | $ | $ | ||||||||||||||
| State | |||||||||||||||||
| Foreign | ( | ||||||||||||||||
| $ | $ | $ | |||||||||||||||
The provision for income taxes differed from the amount computed by applying the federal statutory income tax rate due to:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
Income before provision for income taxes at statutory U.S. federal income tax rate ( | $ | ( | $ | ( | $ | ||||||||||||
State income taxes, net of federal income tax | ( | ( | |||||||||||||||
| Other, net | ( | ( | |||||||||||||||
| Provision for income taxes | $ | ( | $ | ( | $ | ||||||||||||
64
Deferred Income Tax Assets (Liabilities)
Temporary differences that give rise to significant deferred income tax assets (liabilities) were as follows:
| December 28, 2024 | December 30, 2023 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Accrued expenses not currently deductible for tax | $ | $ | |||||||||
| Share-based compensation | |||||||||||
| Accrued medical and workers compensation | |||||||||||
| Net operating loss carryforwards | |||||||||||
| Operating lease liabilities | |||||||||||
| Other, net | |||||||||||
| Total deferred income tax assets before valuation allowances | |||||||||||
| Less: Valuation allowance | ( | ( | |||||||||
| Total deferred income tax assets | |||||||||||
| Deferred income tax liabilities: | |||||||||||
| Property and equipment | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Intangible assets | ( | ( | |||||||||
| Operating lease right-of-use assets | ( | ( | |||||||||
| Total deferred income tax liabilities | ( | ( | |||||||||
| Net deferred income tax liabilities | $ | ( | $ | ( | |||||||
As of December 28, 2024 and December 30, 2023, the Company’s net operating loss (“NOL”) carryforwards comprised state NOLs of $105.7 million and $102.2 million, respectively. These NOLs may be used to reduce future taxable income and expire periodically through 2039. Due to uncertainties related to the realization of these NOLs in certain jurisdictions, as well as other credits available to the Company has recorded a valuation allowance of $1.8 million as of December 28, 2024 and $2.9 million as of December 30, 2023. In addition, the Company recorded a $3.0 million valuation allowance on foreign tax credit carryforwards as of December 28, 2024. The amount of deferred income tax assets realizable could change in the future if projections of future taxable income change.
The Company has not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside of the U.S. As of December 28, 2024 and December 30, 2023, these accumulated net earnings generated by foreign operations were $93.4 million and $80.3 million, respectively, which did not include earnings deemed to be repatriated as part of the U.S. Tax Cuts and Jobs Act. It is not practicable to determine the income tax liability that would be payable if such earnings were repatriated.
65
Unrecognized Tax Benefits
The following table summarizes the activity of the Company’s gross unrecognized tax benefits:
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Unrecognized tax benefits, beginning of period | $ | $ | $ | ||||||||||||||
| Increases related to prior period tax positions | |||||||||||||||||
| Decreases related to prior period tax positions | ( | ||||||||||||||||
| Increases related to current period tax positions | |||||||||||||||||
| Settlements | ( | ||||||||||||||||
| Expiration of statute of limitations | ( | ( | ( | ||||||||||||||
| Unrecognized tax benefits, end of period | $ | $ | $ | ||||||||||||||
As of December 28, 2024, December 30, 2023 and December 31, 2022, the entire amount of unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate of 23.6 %, 36.4 % and 21.7 %, respectively. During 2024, the Company recorded income tax-related interest and penalty expense of $0.6 million, and in 2023 and 2022, the Company recorded income tax-related interest and penalty benefits of $0.2 million and $0.6 million, respectively, due to uncertain tax positions included in the Provision for income taxes in the accompanying Consolidated Statements of Operations. As of December 28, 2024 and December 30, 2023, the Company recorded a liability for potential interest of $3.1 million and $2.5 million, respectively, and for potential penalties of $0.03 million and $0.1 million, respectively. The Company does not provide for any penalties associated with tax contingencies unless considered probable of assessment. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2021.
14. Contingencies
Currently and from time to time, the Company is subject to litigation, claims and other disputes, including legal and regulatory proceedings, arising in the normal course of business. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. Although the final outcome of pending legal matters cannot be determined, based on the facts presently known, it is management’s opinion that the final outcome of any pending matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
On October 9, 2023, and October 27, 2023, two putative class actions on behalf of purchasers of the Company’s securities who purchased or otherwise acquired their securities between November 16, 2022, and May 30, 2023, inclusive (the “Class Period”), were commenced against the Company and certain of the Company’s former officers in the United States District Court for the Eastern District of North Carolina. The plaintiffs allege that the defendants made certain false and materially misleading statements during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These cases were consolidated on February 9, 2024, and the court-appointed lead plaintiff filed a consolidated and amended complaint on April 22, 2024. The consolidated and amended complaint proposes a Class Period of November 16, 2022 to November 15, 2023, and alleges that defendants made false and misleading statements in connection with (a) the Company’s 2023 guidance and (b) certain accounting issues previously disclosed by the Company. On June 21, 2024, defendants filed a motion to dismiss the consolidated and amended complaint. On January 23, 2025, the motion to dismiss was granted by the United States District Court for the Eastern District of North Carolina. On February 21, 2025, plaintiffs filed an appeal to the 4th Circuit Court of Appeals. The Company strongly disputes the allegations and intends to defend the case vigorously.
On January 17, 2024, February 20, 2024, and February 26, 2024, derivative shareholder complaints were commenced against the Company’s directors and certain former officers alleging derivative liability for the allegations made in the securities class action complaints noted above. On April 9, 2024, the court consolidated these actions and appointed co-lead counsel. On June 10, 2024, the court issued a stay order on the consolidated derivative complaint pending resolution of the motion to dismiss for the underlying securities class action complaint.
66
15. Benefit Plans
401(k) Plan
The Company maintains a defined contribution benefit plan, which covers substantially all team members after one year of service and who have attained the age of 21. The plan allows for team member salary deferrals, which are matched at the Company’s discretion. Company contributions to these plans were $22.7 million, $22.5 million and $20.9 million in 2024, 2023 and 2022, respectively.
Deferred Compensation
The Company maintains a non-qualified deferred compensation plan for certain team members. This plan provides for a minimum and maximum deferral percentage of the team member’s base salary and bonus as determined by the Retirement Plan Committee. The Company established and maintained a deferred compensation liability for this plan. As of December 28, 2024 and December 30, 2023, these liabilities were $14.7 million and $14.3 million, respectively, and were included within Accrued Expenses in the Consolidated Balance Sheets.
16. Share-Based Compensation
Overview
The Company grants share-based compensation awards to the Company’s team members and members of the Company’s Board of Directors as provided for under the 2023 Omnibus Incentive Compensation Plan (“2023 Plan”), approved on May 24, 2023, which replaced the Company’s 2014 Long-Term Incentive Plan. In 2024, 2023 and 2022, the Company granted share-based compensation in the form of RSUs or deferred stock units (“DSUs”). The Company’s grants, which have three methods of measuring fair value, generally include a time-based service or a performance-based or a market-based portion, which collectively represent the target award.
In 2024, 2023 and 2022, the Company also granted options to purchase common stock to certain employees under the Company’s 2023 Plan. The options are granted at an exercise price equal to the closing market price of Advance's common stock on the date of the grant, expire after ten years and vest one-third annually over three years . The Company records compensation expense for the grant date fair value of the option awards evenly over the vesting period.
At December 28, 2024, there were 1.7 million shares of common stock available for future issuance under the 2023 Plan based on management’s current estimate of the probable vesting outcome for performance-based awards. Shares forfeited become available for reissuance and are included in availability.
Restricted Stock Units
For time-based RSUs, the fair value of each award was determined based on the market price of the Company’s common stock on the date of grant. Time-based RSUs generally vest over a three-year period in equal annual installments beginning on the first anniversary of the grant date. During the vesting period, holders of RSUs are entitled to receive dividend equivalents, but are not entitled to voting rights.
For performance-based RSUs, the fair value of each award was determined based on the market price of the Company’s common stock on the date of grant. Performance-based awards generally may vest following a three-year period subject to the achievement of certain financial goals as specified in the grant agreements. Depending on the Company’s results during the three-year performance period, the actual number of awards vesting at the end of the period generally ranges from 0 % to 200 % of the performance award. Performance-based RSUs generally do not have dividend equivalent rights and do not have voting rights until the shares are earned and issued following the applicable performance period. The number of performance-based awards outstanding is based on the number of awards that the Company believes were probable of vesting at December 28, 2024.
There were no performance-based RSUs granted during 2024. There were 22 thousand performance-based RSUs granted during 2023 and no performance-based RSUs granted during 2022. The change in units based on performance represents the change in the number of granted awards expected to vest based on the updated probability assessment as of December 28,
67
2024. Compensation expense for performance-based awards of $6.4 million, $5.6 million and $10.8 million in 2024, 2023 and 2022, respectively, was determined based on management’s estimate of the probable vesting outcome.
For market-based RSUs, the fair value of each award was determined using a Monte Carlo simulation model. The model uses multiple input variables that determined the probability of satisfying the market condition requirements as follows:
| 2024 | 2023 | 2022 | |||||||||||||||
Risk-free interest rate(1) | % | % | % | ||||||||||||||
| Expected dividend yield | % | % | % | ||||||||||||||
Expected stock price volatility(2) | % | % | % | ||||||||||||||
(1)The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate having a term consistent with the vesting period of the award.
(2)Expected volatility is determined based on historical volatility over a matching look-back period and is consistent with the correlation coefficients between the Company’s stock prices and the Company’s peer group.
Additionally, the Company estimated a liquidity discount of 20.07 % using the Chaffe Model to adjust the fair value for the post-vest restrictions. Vesting of market-based RSUs depends on the Company’s relative total shareholder return among a designated group of peer companies during a three-year period and will be subject to a one-year holding period after vesting.
The following table summarizes activity for time-based, performance-based and market-based RSUs in 2024 (inclusive of discontinued operations related activity):
| Time-Based | Performance-Based | Market-Based | |||||||||||||||||||||||||||||||||
| Number of Awards | Weighted Average Grant Date Fair Value | Number of Awards | Weighted Average Grant Date Fair Value | Number of Awards | Weighted Average Grant Date Fair Value | ||||||||||||||||||||||||||||||
| Nonvested at December 30, 2023 | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Granted | $ | $ | $ | ||||||||||||||||||||||||||||||||
Change in units based on performance | $ | $ | $ | ||||||||||||||||||||||||||||||||
Vested (1) | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
| Forfeited | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Nonvested at December 28, 2024 | $ | $ | $ | ||||||||||||||||||||||||||||||||
(1) The vested shares of market-based RSUs were not exercised due to low multiplier effect for 2020 awards.
The following table summarizes certain information concerning activity for time-based, performance-based and market-based RSUs:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Time-based: | |||||||||||||||||
| Weighted average fair value of RSUs granted | $ | $ | $ | ||||||||||||||
| Total grant date fair value of RSUs vested | $ | $ | $ | ||||||||||||||
| Performance-based: | |||||||||||||||||
| Weighted average fair value of RSUs granted | $ | $ | $ | ||||||||||||||
| Total grant date fair value of RSUs vested | $ | $ | $ | ||||||||||||||
| Market-based: | |||||||||||||||||
| Weighted average fair value of RSUs granted | $ | $ | $ | ||||||||||||||
| Total grant date fair value of RSUs vested | $ | $ | $ | ||||||||||||||
68
As of December 28, 2024, the maximum potential payout under the Company’s currently outstanding market-based RSUs were 341 thousand units.
Stock Options
In 2024, the Company granted 203 thousand stock options where the weighted average fair value of stock options granted was $30.60 per share. The fair value was estimated on the date of grant by applying the Black-Scholes-Merton option-pricing valuation model.
The following table includes summary information for stock options as of December 28, 2024 (inclusive of discontinued operations related activity):
| Number of Awards | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at December 30, 2023 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | $ | ||||||||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||||||||
| Outstanding at December 28, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable at December 28, 2024 | $ | $ | |||||||||||||||||||||
The following table presents the range of the weighted-average assumptions used in determining the fair values of options granted:
| Year Ended | |||||||||||
| December 28, 2024 | |||||||||||
Risk-free interest rate (1) | – | ||||||||||
Expected life (2) | |||||||||||
Expected volatility (3) | – | ||||||||||
Expected dividend yield (4) | – | ||||||||||
(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 the Company does not have sufficient historical data, the Company utilized the simplified method provided by the Securities and Exchange Commission 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. The Company utilized historical trends and the implied volatility of the Company’s publicly traded financial instruments in developing the volatility estimate for the Company’s stock options.
(4) The expected dividend yield is calculated based on the Company’s expected quarterly dividend and the three-month average stock price as of the grant date.
Other Considerations
Total income tax benefit related to share-based compensation expense for 2024, 2023 and 2022 was $10.0 million, $10.1 million and $11.7 million, respectively.
As of December 28, 2024, there was $61.0 million of unrecognized compensation expense related to all share-based awards that were expected to be recognized over a weighted average period of 1.52 years.
69
Deferred Stock Units
The Company grants share-based awards annually to the Company’s Board of Directors in connection with the Company’s annual meeting of stockholders. These awards are granted in the form of DSUs as provided for in the Advance Auto Parts, Inc. Deferred Stock Unit Plan for Non-Employee Directors and Selected Executives (“DSU Plan”). Each DSU is equivalent to one share of the Company’s common stock and will be distributed in common shares after the director’s service on the Board ends. DSUs granted vest over a one-year service period. Additionally, the DSU Plan provides for the deferral of compensation earned in the form of (i) an annual retainer for directors and (ii) wages for certain highly compensated team members. These DSUs are settled in common stock with the participants at a future date, or over a specified time period, as elected by the participants in accordance with the DSU Plan.
The Company granted 29 thousand, 74 thousand and nine thousand DSUs in 2024, 2023 and 2022, respectively. The weighted average fair value of DSUs granted during 2024, 2023 and 2022 was $65.21 , $66.60 and $193.05 , respectively. The DSUs were awarded at a price equal to the market price of the Company’s underlying common stock on the date of the grant. For 2024, 2023 and 2022, the Company recognized $3.3 million, $3.4 million and $1.7 million, respectively, of share-based compensation expense for these DSU grants.
Employee Stock Purchase Plan
The Company also offers an employee stock purchase plan (“ESPP”). Under the ESPP, eligible team members may elect salary deferrals to purchase the Company’s common stock at a discount of 10 % from its fair market value on the date of purchase. There are annual limitations on the amounts a team member may elect of either $25 thousand per team member or 10 % of compensation, whichever is less. As of December 28, 2024, there were 2.4 million shares available to be issued under the ESPP.
17. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, consisted of the following:
| Unrealized Gain (Loss) on Postretirement Plan | Foreign Currency Translation | Accumulated Other Comprehensive (Loss) Income | |||||||||||||||
| Balance, January 1, 2022 | $ | $ | ( | $ | ( | ||||||||||||
| 2022 activity | ( | ( | ( | ||||||||||||||
| Balance, December 31, 2022 | ( | ( | |||||||||||||||
| 2023 activity | ( | ( | |||||||||||||||
| Balance, December 30, 2023 | ( | ( | |||||||||||||||
| 2024 activity | ( | ||||||||||||||||
| Balance, December 28, 2024 | $ | $ | ( | $ | ( | ||||||||||||
18. Supplier Finance Programs
The Company maintains supply chain financing agreements with third-party financial institutions to provide the Company’s suppliers with enhanced receivables options. Through these agreements, the Company’s suppliers, at their sole discretion, may elect to sell their receivables due from the Company to the third-party financial institution at terms negotiated between the supplier and the third-party financial institution. The Company does not provide any guarantees to any third party in connection with these financing arrangements. The Company’s obligations to its 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 the Company’s Consolidated Balance Sheets. As of December 28, 2024 and December 30, 2023, the Company’s to suppliers participating in these financing arrangements were $3.2 billion and $3.4 billion, respectively.
70
The Company’s confirmed obligations to suppliers participating in these financing arrangements consist of the following:
| December 28, 2024 | |||||
| Confirmed obligations outstanding at the beginning of the year | $ | 3,360,733 | |||
| Invoices confirmed during the year | |||||
| Confirmed invoices paid during the year | ( | ||||
| Confirmed obligations outstanding at the end of the year | $ | ||||
71
19. Segment Reporting
Following the sale of the Worldpac business in November 2024, the Company has one reportable segment as the two remaining operating segments, “Advance Auto Parts/Carquest U.S.” and “Carquest Canada,” are aggregated due to their economic and operational similarities. Both operating segments sell similar products across channels, operate in markets with parallel (or similar) economic conditions, sell to related customer bases, leverage similar methods to distribute products and provide services to its customers. The accounting policies of both operating segments are the same as those described in the summary of significant accounting policies. Due to the assessed quantitative and qualitative economic and operational similarities between the operating segments, management does not believe there would be additional value gained from disaggregated disclosure.
The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who regularly reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance for the Company’s single reportable segment. The CODM primarily focuses on net income to evaluate its reportable segment. The CODM also uses net income for evaluating pricing strategy and to assess the performance for determining the compensation of certain employees. Significant segment expenses reviewed, which represent the difference between segment revenue and segment net income, consisted of the following:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Net sales | $ | $ | $ | ||||||||||||||
| Less: | |||||||||||||||||
| Cost of sales | $ | $ | $ | ||||||||||||||
SG&A (1) | |||||||||||||||||
| Restructuring and related expenses | |||||||||||||||||
Depreciation and amortization expense (2) | |||||||||||||||||
| Interest expense | |||||||||||||||||
Other segment items (3) | ( | ( | |||||||||||||||
| Provision for income taxes | ( | ( | |||||||||||||||
| Net (loss) income from continuing operations | $ | $ | $ | ||||||||||||||
(1) SG&A excludes Restructuring and related expenses and depreciation and amortization.
(2) The 2024 amount has been reduced by depreciation and amortization related to restructuring which is included in Restructuring and related expenses.
The following table presents the Company’s net sales disaggregated by geographical area:
| Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| United States | $ | $ | $ | ||||||||||||||
| Canada | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
No asset information has been provided for the reportable segment as the CODM does not regularly review asset information by reportable segment. As of December 28, 2024 and December 30, 2023, assets held in the U.S. accounted for 96 % and 97 % of total assets.
There were no major customers individually accounting for 10% or more of consolidated net revenues.
72
20. Discontinued Operations
On August 22, 2024, the Company entered into a definitive purchase agreement to sell Worldpac for $1.5 billion, with customary purchase price adjustments for working capital and other items. The transaction closed on November 1, 2024. Net proceeds from the transaction after paying expenses and excluding the impact of taxes were approximately $1.47 billion. The Company’s sale of Worldpac was progress towards the changing landscape of the business with increased focus on the Advance blended-box model. The Company classified the results of operations and cash flows of Worldpac as discontinued operations in its Consolidated Statements of Operations and Consolidated Statements of Cash Flows for all periods presented. The related assets and liabilities associated with the discontinued operations are not included in the Consolidated Balance Sheet as of December 28, 2024. Additionally, beginning August 22, 2024, the Company ceased recording depreciation and amortization for Worldpac’s finite-lived intangible assets and operating lease ROU assets.
In connection with the Worldpac divestiture, the Company agreed to provide letters of credit in the aggregate amount of up to $200 million, issued under its unsecured revolving credit facility, for up to months after closing of the transaction as credit support for Worldpac’s new supply chain financing program, which letter of credit exposure will reduce to zero no later than 24 months after closing.
Additionally, the Company and Worldpac entered into a Transition Services Agreement and Reverse Transition Services Agreement, pursuant to which the two entities will provide certain services to each other during the post-closing period. The minimum terms of the agreements are for twelve months two three-month
The following table represents the major classes of assets and liabilities of discontinued operations as of December 30, 2023:
| December 30, 2023 | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | |||||
| Cash | $ | ||||
| Receivables, net | |||||
Inventories | |||||
| Other current assets | |||||
| Property and equipment, net of accumulated depreciation | |||||
| Operating lease right-of-use assets | |||||
| Other intangible assets, net | |||||
| Goodwill | |||||
| Other noncurrent assets | |||||
| Total assets of held for sale | $ | ||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | |||||
| Accounts payable | $ | ||||
| Accrued expenses | |||||
| Other current liabilities | |||||
| Noncurrent operating lease liabilities | |||||
| Deferred income taxes | |||||
| Other noncurrent liabilities | |||||
| Total liabilities held for sale | $ | ||||
73
The following table presents the major components of discontinued operations in the Company's Consolidated Statements of Operations:
Year Ended | |||||||||||||||||
| December 28, 2024 | December 30, 2023 | December 31, 2022 | |||||||||||||||
| Major classes of line items constituting income of discontinued operations before provision for income taxes: | |||||||||||||||||
| Net Sales | $ | $ | $ | ||||||||||||||
Cost of sales, including purchasing and warehousing costs | |||||||||||||||||
Gross profit | |||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||
| Operating income | |||||||||||||||||
| Other, net: | |||||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
Other (expense) income, net | ( | ( | |||||||||||||||
| Gain on divestiture | |||||||||||||||||
| Total other, net | ( | ||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||
| Provision for income taxes | |||||||||||||||||
| Net income from discontinued operations | $ | $ | $ | ||||||||||||||
74
Advance Auto Parts, Inc.
Schedule II - Valuation and Qualifying Accounts
(in thousands)
| Allowance for credit losses | Balance at Beginning of Period | Charges to Expenses | Deductions | Balance at End of Period | ||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | ( | $ | |||||||||||||||||||||
| December 30, 2023 | $ | $ | $ | ( | $ | |||||||||||||||||||||
| December 28, 2024 | $ | $ | $ | ( | $ | |||||||||||||||||||||
For the year ended December 28, 2024, the allowance for credit losses increased $34.2 million, primarily due to incremental reserves established as a result of the 2024 Restructuring Plan. Refer to Note 6. Receivables, net, of the Notes to the Consolidated Financial Statements included herein.
Other valuation and qualifying accounts have not been reported in this schedule because they are either not applicable or because the information has been included elsewhere in this report.
75
EXHIBIT INDEX
| Incorporated by Reference | Filed | ||||||||||||||||
| Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | Herewith | ||||||||||||
| 10-Q | 3.1 | 8/22/2024 | |||||||||||||||
8-K | 3.1 | 8/14/2023 | |||||||||||||||
| 10-K | 4.0 | 2/18/2020 | |||||||||||||||
| 8-K | 4.1 | 4/29/2010 | |||||||||||||||
| 8-K | 10.45 | 6/3/2011 | |||||||||||||||
| 8-K | 4.4 | 1/17/2012 | |||||||||||||||
| 8-K | 4.5 | 12/21/2012 | |||||||||||||||
| 8-K | 4.6 | 4/19/2013 | |||||||||||||||
| 8-K | 4.7 | 12/9/2013 | |||||||||||||||
| 10-Q | 4.11 | 5/28/2014 | |||||||||||||||
| 8-K | 4.1 | 4/17/2020 | |||||||||||||||
| 8-K | 4.6 | 9/30/2020 | |||||||||||||||
| 8-K | 4.1 | 3/4/2022 | |||||||||||||||
8-K | 4.1 | 3/9/2023 | |||||||||||||||
8-K | 4.1 | 3/9/2023 | |||||||||||||||
8-K | 4.6 | 9/30/2020 | |||||||||||||||
8-K | 4.1 | 3/9/2023 | |||||||||||||||
8-K | 4.1 | 4/17/2020 | |||||||||||||||
76
| Incorporated by Reference | Filed | ||||||||||||||||
| Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | Herewith | ||||||||||||
| 8-K | 4.1 | 3/4/2022 | |||||||||||||||
| 10-Q | 10.4 | 11/14/2024 | |||||||||||||||
| 10-Q | 10.3 | 11/14/2024 | |||||||||||||||
10-Q | 10.3 | 5/30/2024 | |||||||||||||||
10-Q | 10.4 | 5/30/2024 | |||||||||||||||
10-Q | 10.5 | 5/30/2024 | |||||||||||||||
| 10-K | 10.8 | 3/12/2024 | |||||||||||||||
10-K | 10.57 | 2/9/2019 | |||||||||||||||
| 10-Q | 10.2 | 5/24/2022 | |||||||||||||||
| 10-Q | 10.3 | 5/24/2022 | |||||||||||||||
| 10-Q | 10.4 | 5/24/2022 | |||||||||||||||
| 10-Q | 10.3 | 6/6/2023 | |||||||||||||||
10-Q | 10.4 | 6/6/2023 | |||||||||||||||
10-Q | 10.5 | 6/6/2023 | |||||||||||||||
10-Q | 10.1 | 6/6/2023 | |||||||||||||||
10-Q | 10.6 | 6/6/2023 | |||||||||||||||
10-Q | 10.7 | 6/6/2023 | |||||||||||||||
10-Q | 10.8 | 6/6/2023 | |||||||||||||||
10-K | 10.45 | 2/22/2021 | |||||||||||||||
| 10-K | 10.24 | 3/12/2024 | |||||||||||||||
| 10-K | 10.31 | 3/12/2024 | |||||||||||||||
| 8-K | 10.1 | 9/13/2024 | |||||||||||||||
8-K | 10.01 | 8/23/2023 | |||||||||||||||
8-K | 10.01 | 11/15/2023 | |||||||||||||||
77
| Incorporated by Reference | Filed | ||||||||||||||||
| Exhibit No. | Exhibit Description | Form | Exhibit | Filing Date | Herewith | ||||||||||||
| 8-K | 10.1 | 11/15/2021 | |||||||||||||||
| 8-K | 10.2 | 11/15/2021 | |||||||||||||||
10-K | 10.29 | 02/28/2023 | |||||||||||||||
10-Q | 10.1 | 8/23/2023 | |||||||||||||||
10-Q | 10.5 | 11/21/2023 | |||||||||||||||
8-K | 10.1 | 2/28/2024 | |||||||||||||||
8-K | 10.1 | 11/14/2024 | |||||||||||||||
| 8-K | 10.1 | 2/26/2025 | |||||||||||||||
8-K | 10.1 | 3/12/2024 | |||||||||||||||
X | |||||||||||||||||
X | |||||||||||||||||
X | |||||||||||||||||
| 8-K | 10.1 | 8/22/2024 | |||||||||||||||
10-K | 10.39 | 3/12/2024 | |||||||||||||||
| X | |||||||||||||||||
| X | |||||||||||||||||
| X | |||||||||||||||||
| X | |||||||||||||||||
| X | |||||||||||||||||
| X | |||||||||||||||||
X | |||||||||||||||||
| 101.INS | XBRL Instance Document. | X | |||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | X | |||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | X | |||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | X | |||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document. | X | |||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | X | |||||||||||||||
| 104.1 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit). | X | |||||||||||||||
*Indicates a management contract or compensatory plan.
78
Item 16. Form 10-K Summary.
None.
79
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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. | ||||||||||||||
| Dated: | February 26, 2025 | By: | /s/ Ryan P. Grimsland | |||||||||||
Ryan P. Grimsland | ||||||||||||||
Executive Vice President, Chief Financial Officer | ||||||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Shane M. O’Kelly | President and Chief Executive Officer and Director | February 26, 2025 | ||||||||||||
| Shane M. O’Kelly | (Principal Executive Officer) | |||||||||||||
| /s/ Ryan P. Grimsland | Executive Vice President, Chief Financial Officer | February 26, 2025 | ||||||||||||
| Ryan P. Grimsland | (Principal Financial Officer) | |||||||||||||
| /s/ Michael P. Beland | Senior Vice President, Controller and Chief Accounting Officer | February 26, 2025 | ||||||||||||
| Michael P. Beland | (Principal Accounting Officer) | |||||||||||||
| /s/ Eugene I. Lee, Jr. | Chairman and Director | February 26, 2025 | ||||||||||||
| Eugene I. Lee, Jr. | ||||||||||||||
| /s/ Carla J. Bailo | Director | February 26, 2025 | ||||||||||||
| Carla J. Bailo | ||||||||||||||
| /s/ John F. Ferraro | Director | February 26, 2025 | ||||||||||||
| John F. Ferraro | ||||||||||||||
| /s/ Joan M. Hilson | Director | February 26, 2025 | ||||||||||||
| Joan M. Hilson | ||||||||||||||
| /s/ Jeffrey J. Jones II | Director | February 26, 2025 | ||||||||||||
| Jeffrey J. Jones II | ||||||||||||||
| /s/ Douglas A. Pertz | Director | February 26, 2025 | ||||||||||||
| Douglas A. Pertz | ||||||||||||||
| /s/ Gregory L. Smith | Director | February 26, 2025 | ||||||||||||
Gregory L. Smith | ||||||||||||||
| /s/ Thomas W. Seboldt | Director | February 26, 2025 | ||||||||||||
Thomas W. Seboldt | ||||||||||||||
| /s/ Sherice R. Torres | Director | February 26, 2025 | ||||||||||||
| Sherice R. Torres | ||||||||||||||
| /s/ A. Brent Windom | Director | February 26, 2025 | ||||||||||||
| A. Brent Windom | ||||||||||||||
80
Exhibit 10.33
EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement") dated as of January 4, 2015 between Advance Auto Parts, Inc. ("Advance" or the "Company"), a Delaware corporation, its subsidiaries, predecessors, successors, affiliated corporations, companies and partnerships, and its current and former officers, directors, and agents (collectively, the "Company") and Tammy Moss Finley (the "Executive").
The Company and the Executive agree as follows:
1. Position; Term of Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ the Executive, and the Executive agrees to serve the Company, as its Executive Vice President, Human Resources and General Counsel ("Executive's Position"). The parties intend that the Executive shall continue to so serve in this capacity throughout the Employment Term (as such term is defined below).
The term of Executive's employment by the Company pursuant to this Agreement shall commence on January 4, 2015 ("Commencement Date") and shall end on the day prior to the first anniversary of the Commencement Date, unless sooner terminated under the provisions of Paragraph 4 below ("Employment Term"); provided, however, that commencing on the first anniversary of the Commencement Date ("Anniversary Date") the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to the Anniversary Date, either party shall have given notice to the other that it does not wish to extend the Employment Term (a "Non-Renewal"), in which case the Employment Term shall end on the day prior to the Anniversary Date; and on each Anniversary Date thereafter the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to such Anniversary Date, either party shall have given notice of a Non-Renewal to the other, in which case the Employment Term shall end 90 days following such notice.
2. Duties.
(a) Duties and Responsibilities. The Executive shall have such duties and responsibilities of the Executive's Position and such other duties and responsibilities that are reasonably consistent with the Executive's Position as the Company may request from time to time and Executive shall perform such duties and carry out such responsibilities to the best of the Executive's ability for the purpose of advancing the business of the Company and its subsidiaries, if any (jointly and severally, "Related Entities"). The Executive shall observe and conform to the applicable policies and directives promulgated from time to time by the Company and its Board of Directors or by any superior officer(s) of the Company. Subject to the provisions of Subsection 2(b) below, the Executive shall devote the Executive's full time, skill and attention during normal business hours to the business and affairs of the Company and its Related Entities, except for holidays and vacations consistent with applicable Company policy and except for illness or incapacity. The services to be performed by the Executive hereunder may be changed from time to time at the discretion of the Company. The Company shall retain full direction and control of the means and methods by which the Executive performs the Executive's services and of the place or places at which such services are to be rendered.
(b) Other Activities. During the Term of this Agreement, it shall not be a violation of this Agreement for the Executive to, and the Executive shall be entitled to (i) serve on corporate,
1
civic, charitable, retail industry association or professional association boards or committees within the limitations of the Company's Guidelines on Significant Governance Issues, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as the activities set forth in (i), (ii), and (iii) above (x) do not significantly interfere with the performance of the Executive's duties and responsibilities as required by this Agreement and do not involve a conflict of interest with the Executive's duties or responsibilities hereunder, (y) are in compliance with the Company's policies and procedures in effect from time to time, including the Code of Ethics & Business Conduct and the Guidelines on Significant Governance Issues, in each case as may be amended periodically, and (z) do not violate Section 18 of this Agreement.
3. Compensation.
(a) Base Salary. During the Employment Term, the Company shall pay to the Executive a salary of $400,000.00 per annum, payable consistent with the Company's standard payroll practices then in effect ("Base Salary"). Such Base Salary shall be reviewed by the Compensation Committee of Advance's Board of Directors (hereinafter the "Compensation Committee") at least annually, with any changes taking into account, among other factors, Company and individual performance.
(b) Bonus. The Executive shall receive a bonus in such amounts and based upon achievement of such corporate and individual performance and other criteria as shall be approved by the Compensation Committee from time to time, with a target amount, if such performance and other criteria are achieved, of eighty-five percent (85%) of the Base Salary (the "Target Bonus Amount"), with a maximum payout of one hundred and seventy percent (170%) of the Base Salary during the initial Term of this Agreement, which bonus shall be paid in a manner consistent with the Company's bonus practices then in effect. The Target Bonus Amount and the maximum payout for any subsequent renewal Term of the Agreement shall be determined by the Compensation Committee. To be eligible to receive a bonus, the Executive must be employed by the Company on the date the bonus is paid.
(c) Incentive Compensation Clawback. Any compensation provided by the Company to the Executive, excepting only compensation pursuant to Section 3(a) above, shall be subject to the Company's Incentive Compensation Clawback Policy as such policy shall be adopted, and from time to time amended, by the Board or the Compensation Committee.
(d) Benefit Plans. During the Employment Term, the Executive shall be entitled to participate in all retirement and employment benefit plans and programs of the Company that are generally available to senior executives of the Company. Such participation shall be pursuant to the terms and conditions of such plans and programs, as the same shall be amended from time to time. The Executive shall be entitled to four (4) weeks paid vacation annually.
(e) Business Expenses. During the Employment Term, the Company shall, in accordance with policies then in effect with respect to payments of business expenses, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses (other than ordinary commuting expenses) incurred by the Executive in performing services hereunder; provided, however, that, with respect to reimbursements, if any, not otherwise excludible from the Executive's gross income, to the extent required to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), no reimbursement of expenses incurred by the Executive during any taxable year shall be made after the last day of the following taxable year, and the right to reimbursement of such expenses shall not be subject to liquidation or exchange for another benefit. All such expenses shall be accounted for in such reasonable detail as the Company may require.
4. Termination of Employment.
2
(a) Death. In the event of the death of the Executive during the Employment Term, the Executive's employment shall be automatically terminated as of the date of death and a lump sum amount, equivalent to the Executive's annual Base Salary and Target Bonus then in effect, shall be paid, within 60 days after the date of the Executive's death, to the Executive's designated beneficiary, or to the Executive's estate or other legal representative if no beneficiary was designated at the time of the Executive's death. In the event of the death of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right ("SAR"), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively "Awards"), as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The foregoing benefit will be provided in addition to any death, disability or other benefits provided under the Company's benefit plans and programs in which the Executive was participating at the time of his death. Except in accordance with the terms of the Company's benefit programs and other plans and programs then in effect, after the date of the Executive's death, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(b) Disability. In the event of the Executive's Disability as hereinafter defined, the employment of the Executive may be terminated by the Company, effective upon the Disability Termination Date (as defined below). In such event, the Company shall pay the Executive an amount equivalent to thirty percent (30%) of the Executive's Base Salary for a one year period, which amount shall be paid in one lump sum within 45 days following the Executive's "separation from service," as that term is defined in Section 409A of the Code and regulations promulgated thereunder, from the Company (his "Separation From Service"), provided that the Executive or an individual duly authorized to execute legal documents on the Executive's behalf executes and does not revoke within any applicable revocation period the release described in Section 4(k)(ii)(B). The foregoing benefit will be provided in addition to any disability or other benefits provided under the Company's benefit plans in which the Executive participates. For the avoidance of doubt, participation by the Executive in the Company's long-term and/or short term disability insurance benefit plans is voluntary on the part of the Executive and is made available by the Company at the sole cost of the Executive. The purpose and intent of the preceding three sentences is to ensure that the Executive receives a combination of insurance benefits and Company payments following the Disability Termination Date equal to 100% of his then-applicable Base Salary for such one-year period. In the event that Executive does not elect to participate in the Company's long-term and/or short-term disability insurance benefit plans, the Company shall not be obligated to pay the Executive any amount in excess of thirty percent (30%) of the Executive's Base Salary. In the event of the Disability of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively "Awards"), as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The Company shall also pay to the Executive a lump sum amount equivalent to the Executive's Target Bonus Amount then in effect, which amount shall be paid in one lump sum within 45 days following the Executive's Separation from Service, provided that the Executive or an individual duly authorized to execute legal documents on the Executive's behalf executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii)(B). Otherwise, after the Disability Termination Date, except in accordance with the Company's benefit programs and other plans then in effect, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.
3
"Disability," for purposes of this Agreement, shall mean the Executive's incapacity due to physical or mental illness causing the Executive's complete and full-time absence from the Executive's duties, as defined in Paragraph 2, for either a consecutive period of more than six months or at least 180 days within any 270-day period.
(c) Termination by the Company for Due Cause. Nothing herein shall prevent the Company from terminating the Executive's employment at any time for "Due Cause" (as hereinafter defined). The Executive shall continue to receive the Base Salary provided for in this Agreement only through the period ending with the date of such termination. Any rights and benefits the Executive may have under employee benefit plans and programs of the Company shall be determined in accordance with the terms of such plans and programs. Except as provided in the two immediately preceding sentences, after termination of employment for Due Cause, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.
For purposes of this Agreement, "Due Cause" shall mean:
(i) a material breach by the Executive of the Executive's duties and obligations under this Agreement or violation in any material respect of any code or standard of conduct generally applicable to the officers of the Company, including, but not limited to, the Company's Code of Ethics and Business Conduct, which, if curable, has not been cured by the Executive within 15 business days after the Executive's receipt of notice to the Executive specifying the nature of such breach or violations;
(ii) a material violation by the Executive of the Executive's Loyalty Obligations as provided in Paragraph 18;
(iii) the commission by the Executive or indictment for a crime of moral turpitude or a felony involving fraud, breach of trust, or misappropriation;
(iv) the Executive's willfully engaging in bad faith conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or
(v) a determination by the Company that the Executive is in violation of the Company's Substance Abuse Policy.
(d) Termination by the Company Other than for Due Cause, Death or Disability. The foregoing notwithstanding, the Company may terminate the Executive's employment for any or no reason, as it may deem appropriate in its sole discretion and judgment; provided, however, that in the event such termination is not due to Death, Disability or Due Cause, the Executive shall (i) be entitled to a Termination Payment as hereinafter defined and (ii) be sent written notice stating the termination is not due to Death, Disability or Due Cause. In the event of such termination by the Company, the Executive shall receive certain payments and benefits as set forth in this Subsection 4(d).
(i) Termination Payment. If the Company terminates the Executive's employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term, the term "Termination Payment" shall mean a cash payment equal to the sum of:
(A) an amount equal to the Executive's annual Base Salary, as in effect immediately prior to such termination (unless the termination is in connection with an action that would have enabled the Executive to terminate his employment for Good
4
Reason pursuant to Section 4(e)(i)(A), in which case, it shall be the Base Salary in effect prior to any such material diminution of the Base Salary) (the "Termination Salary Payment"), and
(B) an amount equal to the average value of the annual bonuses pursuant to Section 3(b) paid to Executive for the three completed fiscal years immediately prior to the date of such termination; provided, however, that if Executive has been employed by the Company for fewer than three complete fiscal years prior to the date of such termination, Executive shall receive an amount equal to the average value of the annual bonuses pursuant to Section 3(b) that the Executive has received during the period of the Executive's employment.
(ii) Outplacement Services. The Company shall make outplacement services available to the Executive, at a cost to the Company not to exceed $12,000, for a period of time not to exceed 12 months following the date of termination pursuant to the Company's Executive outplacement program with the Company's selected vendor, to include consulting, search support and administrative services.
(iii) Medical Coverage. In addition, the Company shall provide the Executive with medical, dental and vision insurance benefits (which may also cover, if applicable, the Executive's spouse and eligible dependents) for three hundred sixty-five (365) days from the date of the Executive's termination of employment or until such time as the Executive is eligible for group health coverage under another employer's plan, whichever occurs first. In order to trigger the Company's obligation to provide health care continuation benefits, the Executive must elect continuation coverage pursuant to the Consolidation Omnibus Budget Act of 1985, as amended ("COBRA"), upon such eligibility. The Company's obligation shall be satisfied solely through the payment of the Executive's COBRA premiums during the 365-day period, but only to the extent that such premiums exceed the amount that would otherwise have been payable by the Executive for coverage of the Executive and the Executive's eligible dependents that were covered by the Company's medical, dental, and vision insurance programs at the time of the Executive's termination of employment had the Executive continued to be employed by the Company.
(iv) Timing of Payments. The Termination Salary Payment and Termination Bonus Payment shall be paid in one lump sum within 45 days following the date of the Executive's Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii)(B) below.
(v) Entire Obligation. Except as provided in Subsection 4(j) of this Agreement, following the Executive's termination of employment under this Subsection 4(d), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 6, 7, 8, 9, 10, 11, 16, 18, 19 (to the extent such policies, guidelines and codes by their terms apply post-employment) and 20). Except for the Termination Payment and as otherwise provided in accordance with the terms of the Company's benefit programs and plans then in effect or as expressly required under applicable law, after termination by the Company of employment for other than Death, Disability or Due Cause, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(e) Resignation from Employment by the Company for Good Reason. Termination by the Company without Due Cause under Subsection 4(d) shall be deemed to have occurred if the Executive elects to terminate the Executive's employment for Good Reason.
5
(i) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(A) a material diminution in the Executive's "Total Direct Compensation," which shall mean the value of the total of the Executive's Base Salary, Target Bonus opportunity, and annual equity award taken together;
(B) a material diminution in the Executive's authority, duties, or responsibilities;
(C) the Company's requiring the Executive to be based more than 60 miles from the Company's office in Roanoke, Virginia at which the Executive was principally employed immediately prior to the date of the relocation, provided, however, that requiring the Executive to relocate to and be based at the Company's office in Raleigh, North Carolina shall not constitute Good Reason;
(D) delivery by the Company of a notice of a Non-Renewal; or
(E) any other action or inaction that constitutes a material breach by the Company of the terms of this Agreement.
(ii) Notice of Good Reason Condition. In order to be considered a resignation for Good Reason for purposes of this Agreement, the Executive must provide the Company with written notice and description of the existence of the Good Reason condition within 60 days of the initial discovery by the Executive of the existence of said Good Reason condition and the Company shall have 30 business days to cure such Good Reason condition.
(iii) Effective Date of Resignation. The effective date of the Executive's resignation for Good Reason must occur no longer than six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above. If Executive has not resigned for Good Reason effective within six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above the Executive shall be deemed to have waived said Good Reason condition.
(f) Termination by the Company Other Than For Due Cause, Death or Disability or Resignation from Employment for Good Reason Within Twelve Months After a Change in Control. If the Company terminates the Executive's employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control (as defined below), or if the Executive elects to terminate the Executive's employment for Good Reason prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control, then (i) the Executive shall be entitled to a Change In Control Termination Payment as hereinafter defined in lieu of the Termination Payment set forth in Subsection 4(d)(i) above, (ii) the Executive shall receive benefits as defined in Subsections 4(d)(ii) and (iii) above, and (iii) either the Company or the Executive, as the case may be, shall provide Notice of Termination pursuant to Subsection 4(j)(i) other than in the case of a Non-Renewal, which shall be communicated in accordance with Section 1.
(i) Change In Control Termination Payment. The term "Change In Control Termination Payment" shall mean a cash payment equal to the sum of:
6
(A) an amount equal to two times the Executive's annual Base Salary, as in effect immediately prior to such termination (unless the termination is due to Section 4(e)(i)(A), in which case, it shall be two times the Executive's annual Base Salary in effect prior to any such material diminution of the Base Salary) (the "Change In Control Termination Salary Payment"), and
(B) an amount equal to two times the Executive's Target Bonus Amount, as in effect immediately prior to such termination (unless the termination is due to Sections 4(e)(i)(A) or (E), in which case, it shall be two times the Executive's Target Bonus in effect prior to any such material diminution of the Target Bonus or termination of the bonus plan, respectively) (the "Change In Control Termination Bonus Payment").,
(ii) Timing of Payments. The Change In Control Termination Salary Payment and the Change In Control Termination Bonus Payment shall be paid in lump sum payments within 45 days following the date of the Executive's Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4G)(ii) below.
(iii) Entire Obligation. Except as provided in Subsection 4(i) of this Agreement, following the Executive's termination of employment under this Subsection 4(f), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 6, 7, 8, 9, 10, 11, 16, 18, 19 (to the extent such policies, guidelines and codes by their terms apply post-employment) and 20). Except for the Change In Control Termination Payment and as otherwise provided in accordance with the terms of the Company's benefit programs and plans then in effect or as expressly required under applicable law, within twelve (12) months after a Change In Control, after termination by the Company of employment for other than Death, Disability or Due Cause or after termination by the Executive for Good Reason, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(iv) Change In Control. For purposes of this Agreement, "Change In Control" shall mean the occurrence of any of the following events:
(A) a Transaction, as defined below, unless securities possessing more than 50% of the total combined voting power of the survivor's or acquiror's outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company's outstanding securities immediately prior to that transaction, or
(B) any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means of a merger or consolidation, beneficial ownership (determined pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the said Exchange Act) of securities possessing more than 25% of the total combined voting power of the Company's outstanding securities unless pursuant to a tender or exchange offer made directly to the Company's stockholders that the Board recommends such stockholders accept, other than (i) the Company or any of its Affiliates, (ii) an employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or
7
(C) over a period of thirty-six (36) consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board.
For purposes of Section 4(f)(iv)(A), "Transaction" means (I) consummation of any merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) any sale or exchange of all of the Stock of the Company for cash, securities or other property, (3) any sale, transfer, or other disposition of all or substantially all of the Company's assets to one or more other persons in a single transaction or series of related transactions or (4) any liquidation or dissolution of the Company
(v) IRC 280G "Net-Best". Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (A) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the "Excise Tax"), and (B) the reduction of the amounts payable to Executive to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the "Safe Harbor Cap") would provide Executive with a greater after tax amount than if such amounts were not reduced, then the amounts payable to Executive shall be reduced (but not below zero) to the Safe Harbor Cap. If the reduction of the amounts payable would not result in a greater after tax result to Executive, no amounts payable under this Agreement shall be reduced pursuant to this provision.
(A) Reduction of Payments. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first cash amounts payable under this Agreement (in contrast to benefit amounts), and applying any reduction to amounts payable in the following order: (A) first, any cash amounts payable to Executive as a Termination Payment or Change in Control Termination Payment under this Agreement, as applicable; (B) second, any cash amounts payable by Company for Outplacement Services on behalf of Executive under the terms of this Agreement; (C) third, any amounts payable by Company on behalf of Executive under the terms of this Agreement for continued Medical Coverage; (D) fourth, any other cash amounts payable by Company to or on behalf of Executive under the terms of this Agreement: (E) fifth, outstanding performance-based equity grants to the extent that any such grants would be subject to the Excise Tax; and (F) finally, any time-vesting equity grants to the extent that any such grants would be subject to the Excise Tax.
(B) Determinations by Accounting Firm. All determinations required to be made under this Section 4(f)(v) shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as
8
is requested by the Company. Notwithstanding the foregoing, in the event (A) the Board shall determine prior to the Change in Control that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (B) the Audit Committee of the Board determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (C) the Accounting Firm is serving as accountant or auditor for the person(s) effecting the Change in Control, the Board shall appoint another nationally recognized public accounting firm reasonably acceptable to Executive to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. If Payments are reduced to the Safe Harbor Cap or the Accounting Firm determines that no Excise Tax is payable by Executive without a reduction in Payments, the Accounting Firm shall provide a written opinion to Executive to the effect that the Executive is not required to report any Excise Tax on the Executive's federal income tax return, and that the failure to report the Excise Tax, if any, on Executive's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph 4(f)(v)(C) below).
(C) Excess Payment/Underpayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive, which are in excess of the limitations provided in this Section (referred to hereinafter as an "Excess Payment"), Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent the Executive's reasonable expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Notwithstanding the foregoing, in the event that amounts payable under this Agreement were reduced pursuant to paragraph 4(f)(v)(A) and the value of stock options is subsequently re-determined by the Accounting Firm within the context of Treasury Regulation §1.2800-1 Q/A 33 that reduces the value of the Payments attributable to such options, the Company shall promptly pay to Executive any amounts payable under this Agreement that were not previously paid solely as a result of paragraph 4(f)(v)(A) up to the Safe Harbor Cap.
9
(g) Voluntary Termination Without Good Reason. In the event that the Executive terminates the Executive's employment at the Executive's own volition prior to the expiration of the Employment Term (except as provided in Subsection 4(e) above), such termination shall constitute a "Voluntary Termination" and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Due Cause under Subsection 4(c) above.
(h) Compliance With Code Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and operated so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Code or shall comply with the requirements of such provision; provided however that in no event shall the Company be liable to the Executive for or with respect to any taxes, penalties or interest which may be imposed upon the Executive pursuant to Section 409A. To the extent that any amount payable pursuant to Subsections 4(b), (d)(i), (d)(iii) or (f) constitutes a "deferral of compensation" subject to Section 409A (a "409A Payment"), then, if on the date of the Executive's "separation from service," as such term is defined in Treas. Reg. Section l.409A l(h)(l), from the Company (his "Separation from Service"), the Executive is a "specified employee," as such term is defined in Treas. Reg. Section 1.409-1(i), as determined from time to time by the Company, then such 409A Payment shall not be made to the Executive earlier than the earlier of (i) six (6) months after the Executive's Separation from Service; or (ii) the date of his death. The 409A Payments under this Agreement that would otherwise be made during such period shall be aggregated and paid in one lump sum, without interest, on the first business day following the end of the six (6) month period or following the date of the Executive's death, whichever is earlier, and the balance of the 409A Payments, if any, shall be paid in accordance with the applicable payment schedule provided in this Section 4. To the extent any 409A Payment is conditioned on the Executive (or his legal representative) executing a release of claims, which 409A Payment would be made in a later taxable year of the Executive than the taxable year in which his Separation from Service occurs if such release were executed and delivered and became irrevocable at the last possible date allowed under this Agreement, such 409A Payment will be paid no earlier than such later taxable year. In applying Section 409A to compensation paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. The Executive hereby acknowledges that he has been advised to seek and has sought the advice of a tax advisor with respect to the tax consequences to the Executive of all payments pursuant to this Agreement, including any adverse tax consequences or penalty taxes under Code Section 409A and applicable State tax law. Executive hereby agrees to bear the entire risk of any such adverse federal and State tax consequences and penalty taxes in the event any payment pursuant to this Agreement is deemed to be subject to Code Section 409A, and that no representations have been made to the Executive relating to the tax treatment of any payment pursuant to this Agreement under Code Section 409A and the corresponding provisions of any applicable State income tax laws.
(i) Cooperation. During the term of the Executive's employment by the Company and for a period of one (1) year immediately following the termination of the Executive's employment with the Company, the Executive agrees to be reasonably available to assist the Company and its representatives and agents with any business and/or litigation (or potential litigation) matters affecting or involving the Company. The Company will reimburse the Executive for all associated reasonable costs of travel.
(j) Notice of Termination, Resignation and Release. Any termination under Subsection 4(b) by the Company for Disability or Subsection 4(c) for Due Cause or by the Executive for Good Reason under Subsection 4(e) or by the Company or the Executive within twelve (12) months after a Change in Control under Subsection 4(f) or by the Executive by Voluntary Termination under Subsection 4(g) shall be communicated by Notice of Termination to the other party thereto given in accordance with Paragraph I0.
(i) Notice of Termination. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in
10
this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such Notice, specifies the termination date (which date shall not be prior to the date of such notice or more than 15 days after the giving of such Notice).
(ii) Resignation and Release. Notwithstanding anything in this Agreement to the contrary, unless the Company provides otherwise, upon termination of employment for any reason, Executive shall be deemed to have resigned as a member of the Board of Directors of the Company, if applicable, and as an officer, director, manager and employee of the Company and its Related Entities and shall execute any documents and take any actions to effect the foregoing as requested by the Company. In order to be eligible to receive any payments or benefits hereunder as a result of the termination of the Executive's employment, in addition to fulfilling all other conditions precedent to such receipt, the Executive or the Executive's legal representative must within 21 days (or such other period as required under applicable law) after presentation of a release in form and substance reasonably satisfactory to the Company and its legal counsel, execute said release, and within 7 days (or such other period as required under applicable law) after such execution not revoke said release, on behalf of the Executive and the Executive's estate, heirs and representatives, releasing the Company, its Related Entities and each of the Company's and such Related Entities' respective officers, directors, employees, members, managers, agents, independent contractors, representatives, shareholders, successors and assigns (all of which persons and entities shall be third party beneficiaries of such release with full power to enforce the provisions thereof) from any and all claims related to the Executive's employment with the Company; termination of the Executive's employment; all matters alleged or which could have been alleged in a charge or complaint against the Company; any and all injuries, losses or damages to Employee, including any claims for attorney's fees; any and all claims relating to the conduct of any employee, servant, officer, director or agent of the Company; and any and all matters, transactions or things occurring prior to the date of said release, including any and all possible claims, known or unknown, which could have been asserted against the Company or the Company's employees, agents, servants, officers or directors. Notwithstanding the foregoing, the form of release shall except out therefrom, and acknowledge the Executive's continuing rights with respect to, the following: (i) all vested rights that the Executive may have under all welfare, retirement and other plans and programs of the Company in which the Executive was participating at the time of his employment termination, including all equity plans and programs of the Company with respect to which equity awards were made to the Executive, (ii) all continuing rights that the Executive may have under this Agreement, and (iii) all rights that the Executive may have following the termination of his employment under the Company's Certificate of Incorporation and Bylaws, any applicable Company insurance and any indemnity agreements to which the Executive is a party which provide for indemnification, insurance or other, similar coverage for the Executive with respect to his actions or inactions as an officer, employee and/or member of the Board. For clarification, unless and until the Executive executes and does not, within any applicable revocation period, revoke the release, the Company shall have no obligation to make any Termination Payment to the Executive, and, even if the Executive does not execute the release, the Executive shall be bound by the post-termination provisions of this Agreement, including without limitation Section 18.
(k) Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive's employment at any time, for any reason, the Executive shall be paid all amounts that had already been earned and accrued as of the time of termination, including but not limited to (i) pay for unused vacation accrued in accordance with the Company's vacation policy; (ii) any bonus that had been earned but not yet paid; and (iii) reimbursement for any business expenses accrued in accordance with Subsection 3(d).
11
(l) Employment at Will. The Executive hereby agrees that the Company may terminate the Executive's employment under this Paragraph 4 at will, without regard to:• (i) any general or specific policies (written or oral) of the Company relating to the employment or termination of employment of its employees; (ii) any statements made to the Executive, whether oral or in any document, pertaining to the Executive's relationship with the Company; or (iii) without a determination of Due Cause by the Company.
5. Treatment of Equity Awards Upon Change In Control. In the event of a Change in Control as defined hereinabove, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right ("SAR"), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively "Awards") as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to such provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant.
6. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term "Company," as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.
(b) Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company; provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of the Executive's legal incompetency or Death and shall not preclude the legal representative of the Executive's estate from assigning any right hereunder to the person or persons entitled thereto under the Executive's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Executive's estate. The term "beneficiaries," as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of the Executive's incompetency) or the Executive's estate.
7. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Virginia.
8. Entire Agreement. This Agreement, which shall include the Exhibits hereto, contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto, including without limitation any previous employment, severance or separation agreements (including any severance or change in control benefits contained therein); provided that the obligations set forth in Section 18 of this Agreement are in addition to any similar obligations Executive has to the Company or its affiliates. This Agreement may only be modified by an instrument in writing signed by both parties hereto.
9. Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time.
12
10. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:
If to the Company:
Advance Auto Parts, Inc.
5008 Airport Road
Roanoke, VA 24012
Attn: General Counsel
With a copy to:
Advance Auto Parts, Inc.
5008 Airport Road
Roanoke, VA 24012
Attn: Chief Executive Officer
If to the Executive:
Tammy Moss Finley
3871 Piney Ridge Drive
Roanoke, VA 24018
11. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, excepting only the enforcement of any Loyalty Obligations arising under Paragraph 18 of this Agreement, shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in effect in the Commonwealth of Virginia and judgment upon such award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The board of arbitrators shall consist of one arbitrator to be appointed by the Company, one by the Executive, and one by the two arbitrators so chosen. The arbitration shall be held at such place as may be agreed upon at the time by the parties to the arbitration. The cost of arbitration shall be borne as determined by the arbitrators.
12. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive's estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.
13. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.
14. Titles. Titles to the paragraphs and subsections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any paragraph or subsection.
15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
13
16. Amendment. Except as provided in Paragraph 13 above, this Agreement may not be modified or amended except by written instrument signed by all parties hereto.
17. Counsel. This Agreement has been prepared by the Company with the assistance of Kirkland & Ellis LLP, as counsel to the Company ("Counsel"), after full disclosure of its representation of the Company and with the consent and direction of the Company and the Executive. The Executive has reviewed the contents of this Agreement and fully understands its terms. The Executive acknowledges that the Executive is fully aware of the Executive's right to the advice of counsel independent from that of the Company, that the Company has advised him of such right and disclosed to him the risks in not seeking such independent advice, and that the Executive fully understands the potentially adverse interests of the parties with respect to this Agreement. The Executive further acknowledges that neither the Company nor its Counsel has made representations or given any advice with respect to the tax or other consequences of this Agreement or any transactions contemplated by this Agreement to him and that the Executive has been advised of the importance of seeking independent counsel with respect to such consequences. By executing this Agreement, the Executive represents that the Executive has, after being advised of the potential conflicts between him and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel.
18. Loyalty Obligations. The Executive agrees that the following obligations ("Loyalty Obligations") shall apply in consideration of the Executive's employment by or continued employment with the Company:
(a) Confidential Information.
(i) Company Information. The Executive agrees at all times during the term of the Executive's employment and thereafter, to hold any Confidential Information of the Company or its Related Entities in strictest confidence, and not to use (except for the benefit of the Company to fulfill the Executive's employment obligations) or to disclose to any person, firm or corporation other than the Company or those designated by it said Confidential Information without the prior authorization of the Company, except as may otherwise be required by law or legal process. The Executive agrees that "Confidential Information" means any proprietary information prepared or maintained in any format, including technical data, trade secrets or know-how in which the Company or Related Entities have an interest, including, but not limited to, business records, contracts, research, product or service plans, products, services, customer lists and customers (including, but not limited to, vendors to the Company or Related Entities on whom the Executive called, with whom the Executive dealt or with whom the Executive became acquainted during the term of the Executive's employment), pricing data, costs, markets, expansion plans, summaries, marketing and other business strategies, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration or marketing, financial or other business information obtained by the Executive or disclosed to the Executive by the Company or Related Entities or any other person or entity during the term of the Executive's employment with the Company either directly or indirectly electronically, in writing, orally, by drawings, by observation of services, systems or other aspects of the business of the Company or Related Entities or otherwise. Confidential Information does not include information that: (A) was available to the public prior to the time of disclosure, whether through press releases, SEC filings or otherwise; or (B) otherwise becomes available to the public through no act or omission of the Executive.
(ii) Third Party Information. The Executive recognizes that the Company and Related Entities have received and in the future will receive from third parties their
14
confidential or proprietary information subject to a duty on the part of the Company or Related Entities to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees at all times during the Executive's employment and thereafter to hold all such confidential or proprietary infonnation in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Executive's work for the Company consistent with the obligations of the Company or Related Entities with such third party.
(b) Conflicting Employment. The Executive agrees that, during the term of the Executive's employment with the Company, the Executive will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company or Related Entities are now involved or become involved during the term of the Executive's employment. Nor will the Executive engage in any other activities that conflict with the business of the Company or Related Entities. Furthermore the Executive agrees to devote such time as may be necessary to fulfill the Executive's obligations to the Company.
(c) Returning Company Property. The Executive agrees that any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by the Executive or others pursuant to or during the Executive's employment with the Company or otherwise shall be the property of the Company or its Related Entities and their respective successors or assigns. At the time of leaving the employ of the Company, the Executive will deliver all material Company property to the Company or to the Company's designee and will not keep in the Executive's possession, recreate or deliver said property to anyone else. In the event of the termination of the Executive's employment and upon request by the Company, the Executive agrees to sign and deliver the "Termination Certification" attached hereto as Exhibit A.
(d) Notification of New Employer. In the event that the Executive leaves the employ of the Company, the Executive hereby grants consent to notification by the Company to the Executive's new employer (whether the Executive is employed as an employee, consultant, independent contractor, director, partner, officer, advisor, Executive, volunteer or manager) about the Executive's Loyalty Obligations specified under this Agreement.
(e) Non-Interference. The Executive covenants and agrees that while the Executive is employed by the Company and for a period of one (1) year immediately following the termination of the Executive's employment with the Company for any reason, the Executive shall not, without the prior written approval of the Company, directly or indirectly, either on behalf of the Executive or any other person or entity, Interfere with the Company or any of its Related Entities.
(i) For purposes of this Agreement, "Interfere" shall mean, except in the performance of the Executive's duties and responsibilities on behalf of and for the benefit of the Company, (A) to solicit, entice, persuade, induce, influence or attempt to influence, directly or indirectly, customers or prospective customers, suppliers or prospective suppliers, employees, agents or independent contractors of the Company or any of its Related Entities to restrict, reduce, sever or otherwise alter their relationship with the Company or any of its Related Entities, or (B) to hire on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, any current or former employee or independent contractor of the Company who at any time was supervised (1) directly by the Executive or (2) by another person who was supervised directly by the Executive, or (C) whether as a direct solicitor or provider of such services, or in a direct management or direct supervisory capacity over others who solicit or provide such services, to solicit or provide services that fall within the definition of Restricted Activities as defined in Subsection 1S(f)(ii) below to any customer of the Company or its Related Entities.
15
(ii) After termination of the Executive's employment, this provision shall only apply to those current or former employees, independent contractors, customers or suppliers of the Company or Related Entities who were such at any time within 12 months prior to the date of such termination.
(f) Covenants Not to Compete
(i) Non-Competition. the Executive covenants and agrees that during the period from the date hereof until, one (1) year immediately following the termination, for any reason, of the Executive's employment with the Company (the "Non-Compete Period"), the Executive will not, directly or indirectly:
(A) own or hold, directly or beneficially, as a shareholder (other than as a shareholder with less than 5% of the outstanding common stock of a publicly traded corporation), option holder, warrant holder, partner, member or other equity or security owner or holder of any company or business that derives more than 15% of its revenue from the Restricted Activities (as defined below) within the Restricted Area (as defined below), or any company or business controlling, controlled by or under common control with any company or business directly engaged in such Restricted Activities within the Restricted Area (any of the foregoing, a "Restricted Company") or
(B) engage or participate as an employee, director, officer, manager, Executive, partner, independent contractor, consultant or technical or business advisor (or any foreign equivalents of the foregoing) with any Restricted Company in the Restricted Activities within the Restricted Area.
(ii) Restricted Activities/Restricted Area. For purposes of this Agreement, the term "Restricted Activities" means (I) the retail, commercial and/or wholesale sale, rental, and/or distribution of parts, accessories, supplies (including, but not limited to, paint), equipment and/or maintenance items for automobiles, light and heavy duty trucks ( both commercial and non-commercial), off-road equipment, buses, recreational vehicles, and/or agricultural equipment, and/or (2) the provision of any automotive related service (including, but not limited to, shop management, inventory control, and/or vehicle repair software or marketing) to auto repair shops, garages, specialty-service providers (e.g. any business that specializes in automotive oil changes, painting, tires, mufflers, brakes, transmission, and/or body work) and/or service centers, including, but not limited to painting, collision or body service centers. The term "Restricted Area" means the United States of America, including its territories and possessions.
(iii) Association with Restricted Company. In the event that the Executive intends to associate (whether as an employee, consultant, independent contractor, officer, manager, advisor, partner, Executive, volunteer or director) with any Restricted Company during the Non-Compete Period, the Executive must provide information in writing to the Company relating to the activities proposed to be engaged in by the Executive for such Restricted Company. All such current associations are set forth on Exhibit B to this Agreement. In the event that the Company consents in writing to the Executive's engagement in such activity, the engaging in such activity by the Executive shall be conclusively deemed not to be a violation of this Subsection l 8(f). Such consent is not intended and shall not be deemed to be a waiver or nullification of the covenant of non competition of the Executive or other similarly bound Executives.
16
(g) Non-Disparagement The Executive agrees that while the Executive is employed by the Company and at all times following the termination of the Executive's employment with the Company for any reason, the Executive will not take any action or make any statement which disparages the Company or its practices or which disrupts or impairs its normal operations, such that it causes a material adverse impact to the Company.
(h) Effect of Non-Payment of Benefits; Clawback. The Executive's post- termination of employment obligations under this Paragraph 18 shall cease upon the Company's failure to make any payments or benefits hereunder as a result of the termination of the Executive's employment when due if within 15 days after written notice from the Executive to the Company of such failure, the Company does not make the required payment. In the event that the Executive materially violates Subsection 18(e), 18(f), or 18(g), and does not cure such violation (if it can be cured) within five (5) days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the applicable period under Subsection 18(e), 18(f), or l 8(g), and the denominator of which is the total number of days in the applicable period under such Section, In the event that the Executive materially violates Subsection 18(a) or 18(c), and does not cure such violation (if it can be cured) within five days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the one (I) year period immediately following the termination and the denominator of which is 365. The Executive further agrees that such repayment obligation shall constitute liquidated damages and that the Company shall have no other right to damages under this Agreement or at law with respect to breaches of Subsection 18(a), 18(c), 18(e), 18(f), or 18(g), but the Company shall have the right to seek equitable relief pursuant to Subsection 18(i) hereunder.
(i) Specific Enforcement; Remedies Cumulative; Attorney Fees. The Executive acknowledges that the Company and Related Entities, as the case may be, will be irreparably injured if the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) and 18(g) hereof are not specifically enforced and the Executive agrees that the terms of such provisions (including without limitation the periods set forth in Subsections 18(e), 18(f) and 18(g)) are reasonable and appropriate. If the Executive commits, or the Company has evidence based on which it reasonably believes the Executive threatens to commit, a material breach of any of the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof, the Company and/or Related Entities, as the case may be, shall have the right and remedy, in addition to and not in limitation of any other remedy that may be available at law or in equity, to have the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof specifically enforced by any court having jurisdiction through immediate injunctive and other equitable relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and/or Related Entities and that money damages will not provide an adequate remedy therefore. Such injunction shall be available without the posting of any bond or other security, and the Executive hereby consents to the issuance of such injunction.
(j) Re-Set of Period for Non-Competition and Non-Interference. In the event that a legal or equitable action is commenced with respect to any of the provisions of Subsections 18(e), 18(f) or 18(g) hereof and the Executive has not complied, in all material respects, with the provisions in such subsections with respect to which such action has been commenced, then the one-year period, as described in such subsections not so complied with by the Executive, shall be extended from its original expiration date, day-for-day, for each day that the Executive is found to have not complied, in all material respects, with such subsections.
17
(k) Jurisdiction and Venue. WITH RESPECT TO THE ENFORCEMENT OF ANY AND ALL LOYALTY OBLIGATIONS ARISING UNDER PARAGRAPH 18, THE SUBSECTIONS 18(k) AND 18(1) OF THIS AGREEMENT SHALL APPLY. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FOLLOWING COURTS IN MATTERS RELATED TO THIS PARAGRAPH 18 AND AGREE NOT TO COMMENCE ANY SUIT, ACTION OR PROCEEDING RELATING THERETO EXCEPT IN ANY OF SUCH COURTS: THE STATE COURTS OF THE COMMONWEALTH OF VIRGINIA, THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF ROANOKE, VIRGINIA, OR THE STATE COURTS OR THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN ANY MUNICIPALITY WHEREIN AN OFFICE OF THE COMPANY IS LOCATED, IN WHICH OFFICE THE EXECUTIVE WAS PHYSICALLY PRESENT WHILE RENDERING SERVICES FOR THE COMPANY AT ANY TIME DURING THE 12 MONTHS IMMEDIATELY PRECEDING THE COMMENCEMENT OF SUCH SUIT, ACTION OR PROCEEDING OR IMMEDIATELY PRECEDING THE TERMINATION OF EXECUTIVE'S EMPLOYMENT, IF TERMINATED.
(l) Waiver of Jury Trial. EXECUTIVE AGREES TO WANE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, ANY LOYALTY OBLIGATIONS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY EXECUTIVE, AND EXECUTIVE ACKNOWLEDGES THAT, EXCEPT FOR THE COMPANY'S AGREEMENT TO LIKEWISE WAIVE ITS RIGHTS TO A TRIAL BY JURY (WHICH THE COMPANY HEREBY MAKES), THE COMPANY HAS NOT MADE ANY REPRESENTATIONS OF FACTS TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANYWAY TO MODIFY OR NULLIFY ITS EFFECT. EXECUTIVE FURTHER ACKNOWLEDGES THAT EXECUTIVE HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF EXECUTIVE'S OWN FREE WILL, AND THAT EXECUTIVE HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. EXECUTIVE FURTHER ACKNOWLEDGES THAT EXECUTIVE HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER AND AS EVIDENCE OF THIS FACT SIGNS THIS AGREEMENT BELOW.
20. Adherence to Company Policies. The Executive agrees to adhere diligently to all established Company policies and procedures, including but not limited to the Company's Guidelines on Significant Governance Issues, Code of Ethics and Business Conduct and, if applicable, the Code of Ethics for Financial Professionals. The Executive agrees that if the Executive does not adhere to any of the provisions of such Guidelines and Codes, the Executive will be in breach of the provisions hereof
21. Representations. The Executive agrees to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. The Executive represents that Executive's performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by the Executive in confidence or in trust prior to the Executive's employment by the Company. The Executive has not entered into, and the Executive agrees the Executive will not enter into, any oral or written agreement in conflict herewith and the Executive's employment by the Company and the Executive's services to the Company will not violate the terms of any oral or written agreement to which the Executive is a party.
22. Binding Effect of Execution. The Company and the Executive agree that this Agreement shall not bind or be enforceable by or against either party until this Agreement has been duly executed by both the Executive and the Company.
[SIGNATURE PAGE FOLLOWS]
18
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above.
Advance Auto Parts, Inc.
By:/s/Darren R. Jackson (SEAL)
Print Name:Darren R. Jackson
Title: CEO
Address: 5008 Airport Road
Roanoke, VA 24012
Executive
Name:Tammy Moss Finley
Signature:/s/Tammy Moss Finley
Address: 3871 Piney Ridge Drive
Roanoke, VA 24018
19
EXECUTION COPY
EXHIBIT A
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any material devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to the Company.
I further certify that I have, to the best of my knowledge, complied in all material respects with all the terms of my Employment Agreement with the Company.
Date:____________________________________
________________________________________
Executive’s Signature
________________________________________
Executive’s Name (Print)
20
EXECUTION COPY
EXHIBIT B
LIST OF ASSOCIATIONS WITH RESTRICTED COMPANIES
X None
Additional Sheets Attached
Signature of the Executive:/s/Tammy M. Finley
Print Name of the Executive:Tammy M. Finley
Date: 2/12/15
21
Exhibit 10.34
EXECUTION COPY
EMPLOYMENT AGREEMENT
First Amendment
FIRST AMENDMENT, dated as of August 12, 2015 ("First Amendment") to the EMPLOYMENT AGREEMENT, dated as of January 4, 2015, between Advance Auto Parts, Inc. ("Advance" or the "Company"), a Delaware corporation, and Tammy Moss Finley (the "Executive") (the "Agreement").
The Company and the Executive agree as follows:
1. Amendment to Section 18 of the Agreement. Effective as of January 4, 2015, Section 18 of the Agreement is hereby amended by revising Section 18 in its entirety to read as follows,
18. Loyalty Obligations. The Executive agrees that the following obligations ("Loyalty Obligations") shall apply in consideration of the Executive's employment by or continued employment with the Company:
(a) Confidential Information.
(i) Company Information. The Executive agrees at all times during the term of the Executive's employment and thereafter, to hold any Confidential Information of the Company or its Related Entities in strictest confidence, and not to use (except for the benefit of the Company to fulfill the Executive's employment obligations) or to disclose to any person, firm or corporation other than the Company or those designated by it said Confidential Information without the prior authorization of the Company, except as may otherwise be required by law or legal process. The Executive agrees that "Confidential Information" means any proprietary information prepared or maintained in any format, including technical data, trade secrets or know how in which the Company or Related Entities have an interest, including, but not limited to, business records, contracts, research, product or service plans, products, services, customer lists and customers (including, but not limited to, vendors to the Company or Related Entities on whom the Executive called, with whom the Executive dealt or with whom the Executive became acquainted during the term of the Executive's employment), pricing data, costs, markets, expansion plans, summaries, marketing and other business strategies, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration or marketing, financial or other business information obtained by the Executive or disclosed to the Executive by the Company or Related Entities or any other person or entity dming the term of the Executive's employment with the Company either directly or indirectly electronically, in writing, orally, by drawings, by observation of services, systems or other aspects of the business of the Company or Related Entities or otherwise. Confidential Information does not include infom1ation that: (A) was available to the public prior to the time of disclosure, whether through press releases, SEC filings or otherwise; or (B) otherwise becomes available to the public through no act or omission of the Executive.
(ii) Third Party Information. The Executive recognizes that the Company and Related Entities have received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the part of the Company or Related Entities to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees at all times during the Executive's employment and thereafter to hold all such confidential or proprietary information in the
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Executive's work for the Company consistent with the obligations of the Company or Related Entities with such third party.
(b) Conflicting Employment. The Executive agrees that, during the term of the Executive's employment with the Company, the Executive will not engage in any other employment, business, consulting or other business activity directly related to the business in which the Company or Related Entities are now involved or become involved during the term of the Executive's employment. Nor will the Executive engage in any other activities that conflict with the business of the Company or Related Entities. Furthermore the Executive agrees to devote such time as may be necessary to fulfill the Executive's obligations to the Company.
(c) Returning Company Property. The Executive agrees that any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by the Executive or others pursuant to or during the Executive's employment with the Company or otherwise shall be the prope1iy of the Company or its Related Entities and their respective successors or assigns. At the time of leaving the employ of the Company, the Executive will deliver all material Company property to the Company or to the Company's designee and will not keep in the Executive's possession, recreate or deliver said property to anyone else. In the event of the termination of the Executive's employment and upon request by the Company, the Executive agrees to sign and deliver the "Termination Certification" attached hereto as Exhibit A.
(d) Notification of New Employer. In the event that the Executive leaves the employ of the Company, and is employed or engaged in a manner not involving legal representation or the practice of law, the Executive hereby grants consent to notification by the Company to the Executive's new employer (whether the Executive is employed as an employee, consultant, independent contractor, director, partner, officer, advisor, Executive, volunteer or manager) about the Executive's Loyalty Obligations specified under this Agreement.
(e) Non-Interference. The Executive covenants and agrees that while the Executive is employed by the Company and for a period of one (1) year immediately following the termination of the Executive's employment with the Company for any reason, the Executive shall not, without the prior written approval of the Company, directly or indirectly, either on behalf of the Executive or any other person or entity, Interfere with the Company or any of its Related Entities.
(i) For purposes of this Agreement, "Interfere" shall mean, except in the performance of the Executive's duties and responsibilities on behalf of and for the benefit of the Company, (A) to solicit, entice, persuade, induce, influence or attempt to influence, directly or indirectly, customers or prospective customers, suppliers or prospective suppliers, employees, agents or independent contractors of the Company or any of its Related Entities to restrict, reduce, sever or otherwise alter their relationship with the Company or any of its Related Entities, or (B) to hire on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, any current or former employee or independent contractor of the Company who at any time was supervised (1) directly by the Executive or (2) by another person who was supervised directly by the Executive, or (C) whether as a direct solicitor or provider of such services, or in a direct management or direct supervisory capacity over others who solicit or provide such services, to solicit or provide services that fall within the definition of Restricted Activities as defined in Subsection 18(f)(ii) below
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
to any customer of the Company or its Related Entities, provided in no event shall this (1) restrict Executive from providing legal representation to or for, or soliciting legal representation from or for, any such customer, (2) restrict Executive from providing legal representation to or for, or soliciting legal representation from or for, any attorney or firm, including both in house counsel and outside counsel, or (3) restrict any such customer, attorney or firm from contacting or interacting with Executive regarding legal representation.
(ii) After termination of the Executive's employment, this provision shall only apply to those current or former employees, independent contractors, customers or suppliers of the Company or Related Entities who were such at any time within 12 months prior to the date of such termination.
(f) Covenants Not to Compete
(i) Non-Competition. the Executive covenants and agrees that during the period from the date hereof until, one (1) year immediately following the termination, for any reason, of the Executive's employment with the Company (the "Non-Compete Period"), the Executive will not, directly or indirectly:
(A) own or hold, directly or beneficially, as a shareholder (other than as a shareholder with less than 5% of the outstanding common stock of a publicly traded corporation), option holder, warrant holder, partner, member or other equity or security owner or holder of any company or business that derives more than 15% of its revenue from the Restricted Activities (as defined below) within the Restricted Area (as defined below), or any company or business controlling, controlled by or under common control with any company or business directly engaged in such Restricted Activities within the Restricted Area (any of the foregoing, a "Restricted Company") or
(B) engage or participate as an employee, director, officer, manager, Executive, partner, independent contractor, consultant or technical or business advisor (or any foreign equivalents of the foregoing) with any Restricted Company in the Restricted Activities within the Restricted Area, provided however, that such restriction shall not apply to any such engagement or participation involving any legal representation or the practice of law.
(ii) Restricted Activities/Restricted Area. For purposes of this Agreement, the term "Restricted Activities" means (1) the retail, commercial and/or wholesale sale, rental, and/or distribution of parts, accessories, supplies (including, but not limited to, paint), equipment and/or maintenance items for automobiles, light and heavy duty trucks (both commercial and non commercial), off-road equipment, buses, recreational vehicles, and/or agricultural equipment, and/or (2) the provision of any automotive-related service (including, but not limited to, shop management, inventory control, and/or vehicle repair software or marketing) to auto repair shops, garages, specialty-service providers (e.g. any business that specializes in automotive oil changes, painting, tires, mufflers, brakes, transmission, and/or body work) and/or service centers, including, but not limited to painting, collision or body service centers. 1n no event shall "Restricted Activities" mean or include legal representation or the practice of law or any communication or contact with Executive, regardless of who initiates it, regarding any legal representation or the practice of law. The term "Restricted Area" means the United States of America, including its territories and possessions.
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
(iii) Association with Restricted Company. In the event that the Executive intends to associate (whether as an employee, consultant, independent contractor, officer, manager, advisor, partner, executive, volunteer or director) with any Restricted Company during the Non-Compete Period in a manner not involving any legal representation or the practice of law, the Executive must provide information in writing to the Company relating to the activities proposed to be engaged in by the Executive for such Restricted Company. All such current associations are set forth on Exhibit B to this Agreement. 1n the event that the Company consents in writing to the Executive's engagement in such activity, the engaging in such activity by the Executive shall be conclusively deemed not to be a violation of this Subsection IS(f). Notwithstanding anything to the contrary herein, such consent is not intended and shall not be deemed to be a waiver or nullification of the covenant of non-competition of the Executive or other similarly bound Executives.
(g) Non-Disparagement. The Executive agrees that while the Executive is employed by the Company and at all times following the termination of the Executive's employment with the Company for any reason, the Executive will not take any action or make any statement which disparages the Company or its practices or which disrupts or impairs its normal operations, such that it causes a material adverse impact to the Company.
(h) Effect of Non-Payment of Benefits; Clawback. The Executive's post-termination of employment obligations under this Paragraph 18 shall cease upon the Company's failure to make any payments or benefits hereunder as a result of the termination of the Executive's employment when due if within 15 days after written notice from the Executive to the Company of such failure, the Company does not make the required payment. In the event that the Executive materially violates Subsection 18(e), 18(£), or 18(g), and does not cure such violation (if it can be cured) within five (5) days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the hmm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the applicable period under Subsection 18(e), 18(£), or 18(g), and the denominator of which is the total number of days in the applicable period under such Section. In the event that the Executive materially violates Subsection 18(a) or 18(c), and does not cure such violation (if it can be cured) within five days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the one (I) year period immediately following the termination and the denominator of which is 365. The Executive further agrees that such repayment obligation shall constitute liquidated damages and that the Company shall have no other right to damages under this Agreement or at law with respect to breaches of Subsection 18(a), 18(c), 18(e), 18(£), or 18(g), but the Company shall have the right to seek equitable relief pursuant to Subsection 18(i) hereunder.
(i) Specific Enforcement; Remedies Cumulative; Attorney Fees. The Executive acknowledges that the Company and Related Entities, as the case may be, will be irreparably injured if the provisions of Subsections 18(a), l 8(b), 18(c), 18(e), 18(£) and l 8(g) hereof are not specifically enforced and the Executive agrees that the terms of such provisions (including without limitation the periods set forth in Subsections 18(e), l 8(f) and l
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
8(g)) are reasonable and appropriate. If the Executive commits, or the Company has evidence based on which it reasonably believes the Executive threatens to commit, a material breach of any of the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof, the Company and/or Related Entities, as the case may be, shall have the right and remedy, in addition to and not in limitation of any other remedy that may be available at law or in equity, to have the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof specifically enforced by any court having jurisdiction through i1mnediate injunctive and other equitable relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and/or Related Entities and that money damages will not provide an adequate remedy therefore. Such injunction shall be available without the posting of any bond or other security, and the Executive hereby consents to the issuance of such injunction.
(j) Re-Set of Period for Non-Competition and Non-Interference. In the event that a legal or equitable action is commenced with respect to any of the provisions of Subsections 18(e), 18(f) or 18(g) hereof and the Executive has not complied, in all material respects, with the provisions in such subsections with respect to which such action has been commenced, then the one-year period, as described in such subsections not so complied with by the Executive, shall be extended from its original expiration date, day-for-day, for each day that the Executive is found to have not complied, in all material respects, with such subsections.
(k) Jurisdiction and Venue. WITH RESPECT TO THE ENFORCEMENT OF ANY AND ALL LOYALTY OBLIGATIONS ARISING UNDER PARAGRAPH 18, THE SUBSECTIONS 18(k) AND 18(1) OF THIS AGREEMENT SHALL APPLY. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FOLLOWING COURTS IN MATTERS RELATED TO THIS PARAGRAPH 18 AND AGREE NOT TO COMMENCE ANY SUIT, ACTION OR PROCEEDING RELATING THERETO EXCEPT IN ANY OF SUCH COURTS: THE STATE COURTS OF THE COMMONWEALTH OF VIRGINIA, THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF ROANOKE, VIRGINIA, OR THE STATE COURTS OR THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN ANY MUNICIPALITY WHEREIN AN OFFICE OF THE COMPANY IS LOCATED, IN WHICH OFFICE THE EXECUTIVE WAS PHYSICALLY PRESENT WHILE RENDERING SERVICES FOR THE COMPANY AT ANY TIME DURING THE 12 MONTHS IMMEDIATELY PRECEDING THE COMMENCEMENT OF SUCH SUIT, ACTION OR PROCEEDING OR IMMEDIATELY PRECEDING THE TERMINATION OF EXECUTIVE'S EMPLOYMENT, IF TERMINATED.
(l) Waiver of Jury Trial. EXECUTIVE AGREES TO WANE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, ANY LOYALTY OBLIGATIONS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY EXECUTIVE, AND EXECUTIVE ACKNOWLEDGES THAT, EXCEPT FOR THE COMPANY'S AGREEMENT TO LIKEWISE WANE ITS RIGHTS TO A TRIAL BY JURY (WHICH THE COMPANY HEREBY MAKES), THE COMPANY HAS NOT MADE ANY REPRESENTATIONS OF FACTS TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. EXECUTIVE FURTHER ACKNOWLEDGES THAT EXECUTIVE HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF EXECUTIVE'S OWN FREE WILL, AND THAT EXECUTIVE HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. EXECUTIVE
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
FURTHER ACKNOWLEDGES THAT EXECUTIVE HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER AND AS EVIDENCE OF THIS FACT SIGNS THIS AGREEMENT BELOW.
(m) No Prohibition Against Legal Representation. Notwithstanding any other provision in this Paragraph 18, as this Paragraph 18 relates to Executive's practice of law and representation of clients, this provision is intended to be, and shall be interpreted as, consistent with the Virginia State Bar Rules of Professional Conduct (or similar rules in other jurisdictions), including, but not limited to, Rule 5.6(a), so as to not prohibit, limit or otherwise restrict Executive's ability to practice law and represent any person or company nor to restrict any person or company from contacting or engaging Executive for legal representation purposes and the Company expressly agrees and acknowledges that Executive shall be free and unrestricted to provide legal representation to any agent, employee, employer, independent contractor, customer, Restricted Company, or any other person or company who Executive is otherwise restricted or prohibited from interacting with in any manner pursuant to this Paragraph 18 consistent with the Virginia State Bar Rules of Professional Conduct (or similar rules in other jurisdictions) and there are no restrictions on any of them contacting Executive to request legal representation.
2. Renumber Subsequent Sections. Sections 20 and 21 shall be renumbered as Sections 19 and 20, respectively.
3, Full Force and Effect. Except for those terms and provisions amended herein, all other terms and conditions in the Agreement shall remain unchanged and in full force and effect.
[SIGNATURE PAGE FOLLOWS]
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
EXECUTION COPY
IN WITNESS WHEREOF, the Company and Executive have executed this First Amendment to the Agreement as of the date first written above.
Advance Auto Parts, Inc.
By:/s/ Darren R. Jackson
Print Name: Darren R. Jackson (SEAL)
Title: CEO
Address: 5008 Airport Road
Roanoke, VA 24012
Executive
Print Name: Tammy Moss Finley
Signature:/s/ Tammy M.Finley .
Address: 3871 Piney Ridge Drive
Roanoke, VA 24018
Employment Agreement - Tammy Moss Finley (January 4, 2015) EXECUTION COPY
Exhibit 10.35
EMPLOYMENT AGREEMENT
This AGREEMENT (the “Agreement”) dated as of December 12, 2022, is between Advance Auto Parts, Inc. (“Advance” or the “Company”), a Delaware corporation, its subsidiaries, predecessors, successors, affiliated corporations, companies and partnerships, and its current and former officers, directors, and agents (collectively, the “Company”) and Stephen J. Szilagyi (the “Executive”).
The Company and the Executive agree as follows:
1. Position; Term of Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ the Executive, and the Executive agrees to serve the Company, as its Executive Vice President, Chief Supply Chain Officer (“Executive’s Position”). The parties intend that the Executive shall continue to so serve in this capacity throughout the Employment Term (as such term is defined below).
The term of Executive’s employment by the Company pursuant to this Agreement shall be considered to have commenced on January 9, 2023 (“Commencement Date”) and shall end on the day prior to the first anniversary of the Commencement Date, unless sooner terminated under the provisions of Paragraph 4 below (“Employment Term”); provided, however, that commencing on the first anniversary of the Commencement Date (“Anniversary Date”) the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to the Anniversary Date, either party shall have given notice to the other that it does not wish to extend the Employment Term (a “Non-Renewal”), in which case the Employment Term shall end on the day prior to the Anniversary Date; and on each Anniversary Date thereafter the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to such Anniversary Date, either party shall have given notice of a Non- Renewal to the other, in which case the Employment Term shall end 90 days following such notice. For purposes of clarification, the provision of an Employment Term does not change Executive’s at will status as stated in Section 4(l) below nor does it entitle Executive to payment of any compensation if Executive’s employment is terminated during the Employment Term, other than as specifically provided for below.
2. Duties.
(a) Duties and Responsibilities; Location. The Executive shall have such duties and responsibilities of the Executive’s Position and such other duties and responsibilities that are reasonably consistent with the Executive’s Position as the Company may request from time to time and Executive shall perform such duties and carry out such responsibilities to the best of the Executive’s ability for the purpose of advancing the business of the Company and its subsidiaries, if any (jointly and severally, “Related Entities”). The Executive shall observe and conform to the applicable policies and directives promulgated from time to time by the Company and its Board of Directors or by any superior officer(s) of the Company. Subject to the provisions of Subsection 2(b) below, the Executive shall devote the Executive’s full time, skill and attention during normal business hours to the business and affairs of the Company and its Related Entities, except for holidays and vacations consistent with applicable Company policy and except for illness or incapacity. The services to be performed by the Executive hereunder may be changed from time to time at the discretion of the Company. The Company shall retain full direction and
1
control of the means and methods by which the Executive performs the Executive’s services and of the place or places at which such services are to be rendered. Effective on the Commencement Date, the Executive’s principal office location shall be the Company’s offices located in Raleigh, North Carolina. Executive understands that, while Executive’s principal office is located in North Carolina, the Executive’s Position will entail involvement with the entire range of the Company’s operations across the United States and Canada and may from time to time require travel throughout the United States and Canada.
(b) Other Activities. During the Term of this Agreement, it shall not be a violation of this Agreement for the Executive to, and the Executive shall be entitled to (i) serve on corporate, civic, charitable, retail industry association or professional association boards or committees within the limitations of the Company’s Guidelines on Significant Governance Issues, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as the activities set forth in (i), (ii), and (iii) above (x) do not significantly interfere with the performance of the Executive’s duties and responsibilities as required by this Agreement and do not involve a conflict of interest with the Executive’s duties or responsibilities hereunder, (y) are in compliance with the Company’s policies and procedures in effect from time to time, including the Code of Ethics & Business Conduct and the Guidelines on Significant Governance Issues, in each case as may be amended periodically, and (z) do not violate Section 18 of this Agreement.
3. Compensation.
(a) Base Salary. During the Employment Term, the Company shall pay to the Executive a salary of $550,000 per annum, payable consistent with the Company’s standard payroll practices then in effect (“Base Salary”). Such Base Salary shall be reviewed by the Compensation Committee of Advance’s Board of Directors (hereinafter the “Compensation Committee”) at least annually, with any changes taking into account, among other factors, Company and individual performance.
(b) Bonus. The Executive shall be eligible to receive a bonus in such amounts and based upon achievement of such corporate and/or individual performance and other criteria as shall be approved by the Compensation Committee from time to time, with a target amount, if such performance and other criteria are achieved, of eighty-five percent (85%) of the Base Salary (the “Target Bonus Amount”), which bonus shall be paid in a manner consistent with the Company’s bonus practices then in effect. The Target Bonus Amount and the maximum payout for any subsequent renewal Term of the Agreement shall be determined by the Compensation Committee. To be eligible to receive a bonus, the Executive must be employed by the Company on the date the bonus is paid.
(c) Incentive Compensation Clawback. Any compensation provided by the Company to the Executive, excepting only compensation pursuant to Section 3(a) above, shall be subject to the Company’s Incentive Compensation Clawback Policy as such policy shall be adopted, and from time to time amended, by the Board or the Compensation Committee.
(d) Benefit Plans. During the Employment Term, the Executive shall be eligible to participate in all retirement and employment benefit plans and programs of the Company that are
2
generally available to senior executives of the Company. Executive may also receive long term incentive grants pursuant to the Company’s long-term incentive program(s). Such participation shall be pursuant to the terms and conditions of such plans and programs, as the same shall be amended from time to time.
(e) Business Expenses. During the Employment Term, the Company shall, in accordance with policies then in effect with respect to payments of business expenses, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses (other than ordinary commuting expenses) incurred by the Executive in performing services hereunder; provided, however, that, with respect to reimbursements, if any, not otherwise excludible from the Executive’s gross income, to the extent required to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no reimbursement of expenses incurred by the Executive during any taxable year shall be made after the last day of the following taxable year, and the right to reimbursement of such expenses shall not be subject to liquidation or exchange for another benefit. All such expenses shall be accounted for in such reasonable detail as the Company may require.
4. Termination of Employment.
(a) Death. In the event of the death of the Executive during the Employment Term, the Executive’s employment shall be automatically terminated as of the date of death and a lump sum amount, equivalent to the Executive’s annual Base Salary and Target Bonus Amount then in effect, shall be paid, within 60 days after the date of the Executive’s death, to the Executive’s designated beneficiary, or to the Executive’s estate or other legal representative if no beneficiary was designated at the time of the Executive’s death. In the event of the death of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right (“SAR”), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”), as such Awards are defined in the Advance Auto Parts 2014 Long-Term Incentive Plan, as amended, effective August 7, 2018 (“2014 LTIP” or “Advance’s 2014 LTIP”) (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The foregoing benefit will be provided in addition to any death, disability or other benefits provided under the Company’s benefit plans and programs in which the Executive was participating at the time of Executive’s death. Except in accordance with the terms of the Company’s benefit programs and other plans and programs then in effect, after the date of the Executive’s death, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(b) Disability. In the event of the Executive’s Disability as hereinafter defined, the employment of the Executive may be terminated by the Company, effective upon the Disability Termination Date (as defined below). In such event, the Company shall pay the Executive an amount equivalent to thirty percent (30%) of the Executive’s Base Salary for a one year period, which amount shall be paid in one lump sum within 45 days following the Executive’s “separation from service,” as that term is defined in Section 409A of the Code and regulations promulgated thereunder, from the Company (his “Separation From Service”), provided that the Executive or an individual duly authorized to execute legal documents on the Executive’s behalf executes and does not revoke within any applicable revocation period the release described in
3
Section 4(j)(ii). The foregoing benefit will be provided in addition to any disability or other benefits provided under the Company’s benefit plans in which the Executive participates. For the avoidance of doubt, participation by the Executive in the Company’s long-term and/or short-term disability insurance benefit plans is voluntary on the part of the Executive and is made available by the Company at the sole cost of the Executive. The purpose and intent of the preceding three sentences is to ensure that the Executive receives a combination of insurance benefits and Company payments following the Disability Termination Date equal to 100% of Executive’s then-applicable Base Salary for such one-year period. In the event that Executive does not elect to participate in the Company’s long-term and/or short-term disability insurance benefit plans, the Company shall not be obligated to pay the Executive any amount in excess of thirty percent (30%) of the Executive’s Base Salary. In the event of the Disability of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”), as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The Company shall also pay to the Executive a lump sum amount equivalent to the Executive’s Target Bonus Amount then in effect, which amount shall be paid in one lump sum within 45 days following the Executive’s Separation from Service, provided that the Executive or an individual duly authorized to execute legal documents on the Executive’s behalf executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii). Otherwise, after the Disability Termination Date, except in accordance with the Company’s benefit programs and other plans then in effect, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.
“Disability,” for purposes of this Agreement, shall mean the Executive’s incapacity due to physical or mental illness causing the Executive’s complete and full-time absence from the Executive’s duties, as defined in Paragraph 2, for either a consecutive period of more than six months or at least 180 days within any 270-day period. The “Disability Termination Date” shall be the date on which the Company makes such determination of the Executive’s Disability.
(c) Termination by the Company for Due Cause. Nothing herein shall prevent the Company from terminating the Executive’s employment at any time for “Due Cause” (as hereinafter defined). The Executive shall continue to receive the Base Salary provided for in this Agreement only through the period ending with the date of such termination. Any rights and benefits the Executive may have under employee benefit plans and programs of the Company shall be determined in accordance with the terms of such plans and programs. Except as provided in the two immediately preceding sentences, after termination of employment for Due Cause, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.
For purposes of this Agreement, “Due Cause” shall mean:
(i) a material breach by the Executive of the Executive’s duties and obligations under this Agreement or violation in any material respect of any code or standard of conduct generally applicable to the officers of the Company, including, but not limited to, the Company’s Code of Ethics and Business Conduct, which, if curable,
4
has not been cured by the Executive within 15 business days after the Executive’s receipt of notice to the Executive specifying the nature of such breach or violations;
(ii) a material violation by the Executive of the Executive’s Loyalty Obligations as provided in Paragraph 18;
(iii) the commission by the Executive or indictment for a crime of moral turpitude or a felony involving fraud, breach of trust, or misappropriation;
(iv) the Executive’s willfully engaging in bad faith conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or
(v) a determination by the Company that the Executive is in violation of the Company’s Substance Abuse Policy.
(d) Termination by the Company Other than for Due Cause, Death or Disability. The foregoing notwithstanding, the Company may terminate the Executive’s employment for any or no reason, as it may deem appropriate in its sole discretion and judgment; provided, however, that in the event such termination is not due to Death, Disability or Due Cause, the Executive shall (i) be entitled to a Termination Payment as hereinafter defined and (ii) be sent written notice stating the termination is not due to Death, Disability or Due Cause. In the event of such termination by the Company, the Executive shall receive certain payments and benefits as set forth in this Subsection 4(d).
(i) Termination Payment. If the Company terminates the Executive’s employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term, the term “Termination Payment” shall mean a cash payment equal to the sum of:
(A) an amount equal to the Executive’s annual Base Salary, as in effect immediately prior to such termination (unless the termination is in connection with an action that would have enabled the Executive to terminate Executive’s employment for Good Reason pursuant to Section 4(e)(i)(A), in which case, it shall be the Base Salary in effect prior to any such material diminution of the Base Salary) (the “Termination Salary Payment”), and
(B) an amount equal to the average value of the annual bonuses pursuant to Section 3(b) paid to Executive for the three completed fiscal years immediately prior to the date of such termination; provided, however, that if Executive has been employed by the Company for fewer than three complete fiscal years prior to the date of such termination, Executive shall receive an amount equal to the average value of the annual bonuses pursuant to Section 3(b) that the Executive has received during the period of the Executive’s employment.
(ii) Outplacement Services. The Company shall make outplacement services available to the Executive, at a cost to the Company not to exceed $12,000, for a period of time not to exceed 12 months following the date of termination pursuant to the
5
Company’s Executive outplacement program with the Company’s selected vendor, to include consulting, search support and administrative services.
(iii) Medical Coverage. In addition, the Company shall provide the Executive with medical, dental and vision insurance benefits (which may also cover, if applicable, the Executive’s spouse and eligible dependents) for three hundred sixty-five (365) days from the date of the Executive’s termination of employment or until such time as the Executive is eligible for group health coverage under another employer’s plan, whichever occurs first. In order to trigger the Company’s obligation to provide health care continuation benefits, the Executive must elect continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), upon such eligibility. The Company’s obligation shall be satisfied solely through the payment of the Executive’s COBRA premiums during the 365-day period, but only to the extent that such premiums exceed the amount that would otherwise have been payable by the Executive for coverage of the Executive and the Executive’s eligible dependents that were covered by the Company’s medical, dental, and vision insurance programs at the time of the Executive’s termination of employment had the Executive continued to be employed by the Company.
(iv) Timing of Payments. The Termination Salary Payment and Termination Bonus Payment shall be paid in one lump sum within 45 days following the date of the Executive’s Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii) below.
(v) Entire Obligation. Except as provided in Subsection 4(j) of this Agreement, following the Executive’s termination of employment under this Subsection 4(d), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 4(i) and 18 (to the extent such policies, guidelines and codes by their terms apply post-employment)). Except for the Termination Payment and as otherwise provided in accordance with the terms of the Company’s benefit programs and plans then in effect or as expressly required under applicable law, after termination by the Company of employment for other than Death, Disability or Due Cause, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(e) Resignation from Employment by the Executive for Good Reason. Termination by the Company without Due Cause under Subsection 4(d) shall be deemed to have occurred if the Executive elects to resign from employment for Good Reason.
(i) Good Reason. For purposes of this Agreement, “Good Reason” shall
mean:
(A) a material diminution in the Executive’s “Total Direct Compensation,” which shall mean the value of the total of the Executive’s Base Salary, Target Bonus opportunity, and annual equity award taken together;
6
(B) a material diminution in the Executive’s authority, duties, or responsibilities;
(C) the Company’s requiring the Executive to be based more than 60 miles from the Company’s office in Raleigh, North Carolina;
(D) delivery by the Company of a notice of Non-Renewal; or
(E) any other action or inaction that constitutes a material breach by the Company of the terms of this Agreement.
(ii) Notice of Good Reason Condition. In order to be considered a resignation for Good Reason for purposes of this Agreement, the Executive must provide the Company with written notice and description of the existence of the Good Reason condition within 60 days of the initial discovery by the Executive of the existence of said Good Reason condition and the Company shall have 30 business days to cure such Good Reason condition.
(iii) Effective Date of Resignation. The effective date of the Executive’s resignation for Good Reason must occur no longer than six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above. If Executive has not resigned for Good Reason effective within six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above, the Executive shall be deemed to have waived said Good Reason condition.
(f) Termination by the Company Other Than For Due Cause, Death or Disability or Resignation from Employment for Good Reason Within Twelve Months After a Change in Control. If the Company terminates the Executive’s employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control (as defined below), or if the Executive elects to terminate the Executive’s employment for Good Reason prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control, then (i) the Executive shall be entitled to a Change In Control Termination Payment as hereinafter defined in lieu of the Termination Payment set forth in Subsection 4(d)(i) above, (ii) the Executive shall receive benefits as defined in Subsections 4(d)(ii) and (iii) above, and (iii) either the Company or the Executive, as the case may be, shall provide Notice of Termination pursuant to Subsection 4(j)(i) other than in the case of a Non-Renewal, which shall be communicated in accordance with Section 1.
(i) Change In Control Termination Payment. The term “Change In Control Termination Payment” shall mean a cash payment equal to the sum of:
(A) an amount equal to two times the Executive’s annual Base Salary, as in effect immediately prior to such termination (unless the termination is due to Section 4(e)(i)(A), in which case, it shall be two times the Executive’s annual Base Salary in effect prior to any such material diminution of the Base Salary) (the “Change In Control Termination Salary Payment”), and
7
(B) an amount equal to two times the Executive’s Target Bonus Amount, as in effect immediately prior to such termination (unless the termination is due to Sections 4(e)(i)(A) or (E), in which case, it shall be two times the Executive’s Target Bonus Amount in effect prior to any such material diminution of the Target Bonus Amount or termination of the bonus plan, respectively) (the “Change In Control Termination Bonus Payment”).
(ii) Timing of Payments. The Change In Control Termination Salary Payment and the Change In Control Termination Bonus Payment shall be paid in lump sum payments within 45 days following the date of the Executive’s Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii) below.
(iii) Entire Obligation. Except as provided in Subsection 4(i) of this Agreement, following the Executive’s termination of employment under this Subsection 4(f), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 4(i) and 18 (to the extent such policies, guidelines and codes by their terms apply post-employment)). Except for the Change In Control Termination Payment and as otherwise provided in accordance with the terms of the Company’s benefit programs and plans then in effect or as expressly required under applicable law, within twelve (12) months after a Change In Control, after termination by the Company of employment for other than Death, Disability or Due Cause or after termination by the Executive for Good Reason, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.
(iv) Change In Control. For purposes of this Agreement, “Change In Control” shall mean the occurrence of any of the following events:
(A) a Transaction, as defined below, unless securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities immediately prior to that transaction, or
(B) any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means of a merger or consolidation, beneficial ownership (determined pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the said Exchange Act) of securities possessing more than 25% of the total combined voting power of the Company’s outstanding securities unless pursuant to a tender or exchange offer made directly to the Company’s stockholders that the Board recommends such stockholders accept, other than (i) the Company or any of its Affiliates, (ii) an employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or
8
(C) over a period of thirty-six (36) consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board.
For purposes of Section 4(f)(iv)(A), “Transaction” means (1) consummation of any merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) any sale or exchange of all of the Stock of the Company for cash, securities or other property, (3) any sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions or (4) any liquidation or dissolution of the Company.
(v) IRC 280G “Net-Best”. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (A) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the “Excise Tax”), and (B) the reduction of the amounts payable to Executive to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”) would provide Executive with a greater after tax amount than if such amounts were not reduced, then the amounts payable to Executive shall be reduced (but not below zero) to the Safe Harbor Cap. If the reduction of the amounts payable would not result in a greater after tax result to Executive, no amounts payable under this Agreement shall be reduced pursuant to this provision.
(A) Reduction of Payments. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first cash amounts payable under this Agreement (in contrast to benefit amounts), and applying any reduction to amounts payable in the following order: (A) first, any cash amounts payable to Executive as a Termination Payment or Change in Control Termination Payment under this Agreement, as applicable; (B) second, any cash amounts payable by Company for Outplacement Services on behalf of Executive under the terms of this Agreement; (C) third, any amounts payable by Company on behalf of Executive under the terms of this Agreement for continued Medical Coverage; (D) fourth, any other cash amounts payable by Company to or on behalf of Executive under the terms of this Agreement: (E) fifth, outstanding performance-based equity grants to the extent that any such grants would be subject to the Excise Tax; and (F) finally, any time-vesting equity grants to the extent that any such grants would be subject to the Excise Tax.
9
(B) Determinations by Accounting Firm. All determinations required to be made under this Section 4(f)(v) shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company. Notwithstanding the foregoing, in the event (A) the Board shall determine prior to the Change in Control that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (B) the Audit Committee of the Board determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (C) the Accounting Firm is serving as accountant or auditor for the person(s) effecting the Change in Control, the Board shall appoint another nationally recognized public accounting firm reasonably acceptable to Executive to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. If Payments are reduced to the Safe Harbor Cap or the Accounting Firm determines that no Excise Tax is payable by Executive without a reduction in Payments, the Accounting Firm shall provide a written opinion to Executive to the effect that the Executive is not required to report any Excise Tax on the Executive’s federal income tax return, and that the failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph 4(f)(v)(C) below).
(C) Excess Payment/Underpayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service (the “IRS”) proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive, which are in excess of the limitations provided in this Section (referred to hereinafter as an “Excess Payment”), Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made under this Section. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate
10
from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent the Executive’s reasonable expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Notwithstanding the foregoing, in the event that amounts payable under this Agreement were reduced pursuant to paragraph 4(f)(v)(A) and the value of stock options is subsequently re-determined by the Accounting Firm within the context of Treasury Regulation §1.280G-1 Q/A 33 that reduces the value of the Payments attributable to such options, the Company shall promptly pay to Executive any amounts payable under this Agreement that were not previously paid solely as a result of paragraph 4(f)(v)(A) up to the Safe Harbor Cap.
(g) Voluntary Termination Without Good Reason. In the event that the Executive terminates the Executive’s employment at the Executive’s own volition prior to the expiration of the Employment Term (except as provided in Subsection 4(e) above), such termination shall constitute a “Voluntary Termination” and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Due Cause under Subsection 4(c) above.
(h) Compliance With Code Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and operated so that the payment of the benefits set forth herein shall either be exempt from the requirements of Section 409A of the Code or shall comply with the requirements of such provision; provided however that in no event shall the Company be liable to the Executive for or with respect to any taxes, penalties or interest which may be imposed upon the Executive pursuant to Section 409A. To the extent that any amount payable pursuant to Subsections 4(b), (d)(i), (d)(iii) or (f) constitutes a “deferral of compensation” subject to Section 409A (a “409A Payment”), then, if on the date of the Executive’s “separation from service,” as such term is defined in Treas. Reg. Section 1.409A-1(h)(1), from the Company (his “Separation from Service”), the Executive is a “specified employee,” as such term is defined in Treas. Reg. Section 1.409-1(i), as determined from time to time by the Company, then such 409A Payment shall not be made to the Executive earlier than the earlier of (i) six (6) months after the Executive’s Separation from Service; or (ii) the date of Executive’s death. The 409A Payments under this Agreement that would otherwise be made during such period shall be aggregated and paid in one lump sum, without interest, on the first business day following the end of the six (6) month period or following the date of the Executive’s death, whichever is earlier, and the balance of the 409A Payments, if any, shall be paid in accordance with the applicable payment schedule provided in this Section 4. To the extent any 409A Payment is conditioned on the Executive (or Executive’s legal representative) executing a release of claims, which 409A Payment would be made in a later taxable year of the Executive than the taxable year in which Executive’s Separation from Service occurs if such release were executed and delivered and became irrevocable at the last possible date allowed under this Agreement, such 409A Payment will be paid no earlier than such later taxable year. In applying Section 409A to compensation paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. The Executive hereby acknowledges that Executive has been advised to seek and has sought the advice of a tax advisor with respect to the tax consequences to the Executive of all payments pursuant to this Agreement, including any adverse tax consequences or penalty taxes
11
under Code Section 409A and applicable State tax law. Executive hereby agrees to bear the entire risk of any such adverse federal and State tax consequences and penalty taxes in the event any payment pursuant to this Agreement is deemed to be subject to Code Section 409A, and that no representations have been made to the Executive relating to the tax treatment of any payment pursuant to this Agreement under Code Section 409A and the corresponding provisions of any applicable State income tax laws.
(i) Cooperation. During the term of the Executive’s employment by the Company and following the termination of the Executive’s employment with the Company, the Executive agrees to be reasonably available to assist the Company and its representatives and agents with any business and/or litigation (or potential litigation) matters affecting or involving the Company. The Company will reimburse the Executive for all associated reasonable costs of travel.
(j) Notice of Termination, Resignation and Release. Any termination under Subsection 4(b) by the Company for Disability or Subsection 4(c) for Due Cause or by the Executive for Good Reason under Subsection 4(e) or by the Company or the Executive within twelve (12) months after a Change in Control under Subsection 4(f) or by the Executive by Voluntary Termination under Subsection 4(g) shall be communicated by Notice of Termination to the other party thereto given in accordance with Paragraph 10.
(i) Notice of Termination. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such Notice, specifies the termination date (which date shall not be prior to the date of such notice or more than 15 days after the giving of such Notice).
(ii) Resignation and Release. Notwithstanding anything in this Agreement to the contrary, unless the Company provides otherwise, upon termination of employment for any reason, Executive shall be deemed to have resigned as a member of the Board of Directors of the Company, if applicable, and as an officer, director, manager and employee of the Company and its Related Entities and shall execute any documents and take any actions to effect the foregoing as requested by the Company. In order to be eligible to receive any payments or benefits hereunder as a result of the termination of the Executive’s employment, in addition to fulfilling all other conditions precedent to such receipt, the Executive or the Executive’s legal representative must within 21 days (or such other period as required under applicable law) after presentation of a release in form and substance reasonably satisfactory to the Company and its legal counsel, execute said release, and within 7 days (or such other period as required under applicable law) after such execution not revoke said release, on behalf of the Executive and the Executive’s estate, heirs and representatives, releasing the Company, its Related Entities and each of the Company’s and such Related Entities’ respective officers, directors, employees, members, managers, agents, independent contractors, representatives, shareholders, successors and assigns (all of which persons and entities shall be third party beneficiaries of such release with full power to enforce the provisions thereof) from any and all claims related to the Executive’s employment with the Company; termination of the Executive’s
12
employment; all matters alleged or which could have been alleged in a charge or complaint against the Company; any and all injuries, losses or damages to Executive, including any claims for attorney’s fees; any and all claims relating to the conduct of any employee, servant, officer, director or agent of the Company; and any and all matters, transactions or things occurring prior to the date of said release, including any and all possible claims, known or unknown, which could have been asserted against the Company or the Company’s employees, agents, servants, officers or directors. Notwithstanding the foregoing, the form of release shall except out therefrom, and acknowledge the Executive’s continuing rights with respect to, the following: (i) all vested rights that the Executive may have under all welfare, retirement and other plans and programs of the Company in which the Executive was participating at the time of Executive’s employment termination, including all equity plans and programs of the Company with respect to which equity awards were made to the Executive, (ii) all continuing rights that the Executive may have under this Agreement, (iii) all rights that the Executive may have following the termination of Executive’s employment under the Company’s Certificate of Incorporation and Bylaws, any applicable Company insurance and any indemnity agreements to which the Executive is a party which provide for indemnification, insurance or other, similar coverage for the Executive with respect to Executive’s actions or inactions as an officer, employee and/or member of the Board, and (iv) claims which by law cannot be waived by signing this Agreement. For clarification, unless and until the Executive executes and does not, within any applicable revocation period, revoke the release, the Company shall have no obligation to make any Termination Payment to the Executive, and, even if the Executive does not execute the release, the Executive shall be bound by the post-termination provisions of this Agreement, including without limitation Section 18.
(k) Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive’s employment at any time, for any reason, the Executive shall be paid all amounts that had already been earned and accrued as of the time of termination, including but not limited to (i) any bonus that had been earned but not yet paid; and (ii) reimbursement for any business expenses accrued in accordance with Subsection 3(e).
(l) Employment at Will. The Company and Executive expressly understand and agree that nothing herein shall be construed as a guarantee of employment for any specific time, nor does it change the at will employment relationship. Either the Company or Executive may terminate the Executive’s employment under this Paragraph 4 at will, for any or no reason, subject to compliance with the applicable post-termination obligations of each contained herein.
5. Treatment of Equity Awards Upon Change In Control. In the event of a Change in Control as defined hereinabove, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right (“SAR”), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”) as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to such provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant.
6. Successors and Assigns.
13
(a) Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term “Company,” as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.
(b) Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company; provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of the Executive’s legal incompetency or Death and shall not preclude the legal representative of the Executive’s estate from assigning any right hereunder to the person or persons entitled thereto under the Executive’s will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Executive’s estate. The term “beneficiaries,” as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of the Executive’s incompetency) or the Executive’s estate.
7. Governing Law. This Agreement shall be governed by the laws of the State of North Carolina.
8. Entire Agreement. This Agreement, which shall include the Exhibits hereto, contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto, including without limitation any previous employment, severance or separation agreements (including any severance or change in control benefits contained therein); provided that the obligations set forth in Section 18 of this Agreement are in addition to any similar obligations Executive has to the Company or its affiliates. This Agreement may only be modified by an instrument in writing signed by both parties hereto.
9. Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time.
10. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:
If to the Company:
Advance Auto Parts, Inc.
4200 Six Forks Road
Raleigh, NC 27609
Attn: General Counsel
14
With a copy to:
Advance Auto Parts, Inc.
4200 Six Forks Road
Raleigh, NC 27609
Attn: Chief Executive Officer
If to the Executive:
Stephen J. Szilagyi
15027 June Washam Road
Davidson, NC 28036
or Executive’s address currently on file in the Company’s records if different from the above.
11. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, excepting only the enforcement of any Loyalty Obligations arising under Paragraph 18 of this Agreement, shall be settled by arbitration in the state of North Carolina in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect in the State of North Carolina and judgment upon such award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The board of arbitrators shall consist of one arbitrator to be appointed by the Company, one by the Executive, and one by the two arbitrators so chosen. The arbitration shall be held at such place as may be agreed upon at the time by the parties to the arbitration. The cost of arbitration shall be borne as determined by the arbitrators.
12. Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive’s estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.
13. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.
14. Titles. Titles to the paragraphs and subsections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any paragraph or subsection.
15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
15
16. Amendment. Except as provided in Paragraph 13 above, this Agreement may not be modified or amended except by written instrument signed by all parties hereto.
17. Independent Counsel. The Executive acknowledges that Executive has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of its terms by independent legal counsel, selected of the Executive’s own free will, and that the Executive has had the opportunity to discuss this Agreement with counsel. Executive further acknowledges that Executive has read and understands the meaning and ramifications of this Agreement and as evidence of this fact signs this Agreement below. The Executive further acknowledges that the Company has not made any representations or given any advice with respect to the tax or other consequences of this Agreement, or any transactions contemplated by this Agreement to Executive and that the Executive has been advised of the importance of seeking independent counsel with respect to such consequences. By executing this Agreement, the Executive represents that the Executive has, after being advised of the potential conflicts between Executive and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel.
18. Loyalty Obligations. The Executive agrees that, immediately upon execution of this Agreement, the following obligations (“Loyalty Obligations”) shall apply in consideration of the Executive’s employment by or continued employment with the Company:
(a) Confidential Information.
(i) Company Information. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees at all times during the term of the Executive’s employment and thereafter, to hold any Confidential Information of the Company or its Related Entities in strictest confidence, and not to use (except for the benefit of the Company to fulfill the Executive’s employment obligations) or to disclose to any person, firm or corporation other than the Company or those designated by it said Confidential Information without the prior authorization of the Company, except as may otherwise be required by law or legal process. The Executive agrees that “Confidential Information” means any proprietary information prepared or maintained in any format, including technical data, trade secrets or know-how in which the Company or Related Entities have an interest, including, but not limited to, business records, contracts, research, product or service plans, products, services, customer lists and customers (including, but not limited to, vendors to the Company or Related Entities on whom the Executive called, with whom the Executive dealt or with whom the Executive became acquainted during the term of the Executive’s employment), pricing data, costs, markets, expansion plans, summaries, marketing and other business strategies, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration or marketing, financial or other business information obtained by the Executive or disclosed to the Executive by the Company or Related Entities or any other person or entity during the term of the Executive’s employment with the Company either directly or indirectly electronically, in writing, orally, by drawings, by observation of services, systems or other aspects of the business of the Company or Related Entities or otherwise. Confidential Information does not include information that: (A) was available to the public prior to the time of disclosure, whether through press
16
releases, SEC filings or otherwise; or (B) otherwise becomes available to the public through no act or omission of the Executive or through the wrongful act of a third party.
(ii) Third Party Information. The Executive recognizes that the Company and Related Entities have received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the part of the Company or Related Entities to maintain the confidentiality of such information and to use it only for certain limited purposes. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees at all times during the Executive’s employment and thereafter to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Executive’s work for the Company consistent with the obligations of the Company or Related Entities with such third party.
(iii) Permitted Disclosure. Nothing in this Agreement shall prohibit or restrict the Executive from lawfully (A) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by the Securities and Exchange Commission (“SEC”), the Department of Justice, the Equal Employment Opportunity Commission (“EEOC”), the Congress, or any other governmental or regulatory agency, entity, or official(s) or self- regulatory organization (collectively, “Governmental Authorities”) regarding a possible violation of any law, rule, or regulation; (B) responding to any inquiry or legal process directed to you individually (and not directed to the Company and/or its subsidiaries) from any such Governmental Authorities, including an inquiry about the existence of this Agreement or its underlying facts or circumstances; (C) testifying, participating or otherwise assisting in an action or proceeding by any such Governmental Authorities relating to a possible violation of law; or (D) making any other disclosures that are protected under the whistleblower provisions of any applicable law, rule, or regulation. Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made to Executive’s attorney in relation to a lawsuit for retaliation against Executive for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nor does this Agreement require Executive to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that Executive has engaged in any such conduct.
(b) Conflicting Employment. The Executive agrees that, during the term of the Executive’s employment with the Company, the Executive will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company or Related Entities are now involved or become involved during the term of the Executive’s employment. Nor will the Executive engage in any other activities that conflict with the business of the Company or Related Entities. Furthermore the Executive agrees to devote such time as may be necessary to fulfill the Executive’s obligations to the Company and
17
during the term of the Executive’s employment with the Company to refrain from any other occupation, consulting or other business activity without the prior approval or consent of the Company.
(c) Returning Company Property. The Executive agrees that any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by the Executive or others pursuant to or during the Executive’s employment with the Company or otherwise shall be the property of the Company or its Related Entities and their respective successors or assigns. Upon separation of employment for any reason, or at any time during employment at the request of the Company, the Executive will deliver all material Company property to the Company or to the Company’s designee and will not keep in the Executive’s possession, recreate or deliver said property to anyone else. Upon separation of employment for any reason and upon request by the Company, the Executive agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit A. Executive further agrees that at any time during employment or upon separation of employment for any reason, at the request of the Company, to reasonably cooperate with the Company to ensure that Executive does not possess any Company property or information within any mobile device, tablet, PDA, personal laptop, hard drive or thumb drive, personal cloud or email account, or any other personal electronic or data storage device, including providing access to any such devices to a third party forensic vendor for purposes of removing any such property and information, at the cost of the Company and through measures designed to protect Executive’s personal information.
(d) Notification of New Employer. In the event that the Executive leaves the employ of the Company, the Executive agrees to notify the Executive’s new employer and hereby grants consent to notification by the Company to the Executive’s new employer (whether the Executive is employed as an employee, consultant, independent contractor, director, partner, officer, advisor, Executive, volunteer or manager) about the Executive’s Loyalty Obligations specified under this Agreement.
(e) Non-Interference. The Executive covenants and agrees that while the Executive is employed by the Company and for a period of one (1) year immediately following the termination of the Executive’s employment with the Company for any reason, the Executive shall not, without the prior written approval of the Company, directly or indirectly, either on behalf of the Executive or any other person or entity, Interfere with the Company or any of its Related Entities.
(i) For purposes of this Agreement, “Interfere” shall mean, except in the performance of the Executive’s duties and responsibilities on behalf of and for the benefit of the Company, (A) to solicit, entice, persuade, induce, influence or attempt to influence, directly or indirectly, Customers, suppliers, Employees or Independent Contractors of the Company or any of its Related Entities to restrict, reduce, sever or otherwise alter their relationship with the Company or any of its Related Entities; or (B) to hire or recruit on the Executive’s own behalf or on behalf of any other person or entity, directly or indirectly, any Employee or Independent Contractor of the Company who at any time was supervised (1) directly by the Executive or (2) by another person who was supervised directly by the Executive; or (C) whether as a direct solicitor or provider of such services,
18
or in a direct management or direct supervisory capacity over others who solicit or provide such services, to solicit or provide services that fall within the definition of Restricted Activities as defined in Subsection 18(f)(ii) below to any Customer of the Company or its Related Entities. Nothing in this section shall be construed to prohibit the Executive from engaging in non-targeted solicitation of Employees and Independent Contractors of the Company such as advertisements to the general public.
(ii) For purposes of this Agreement, a “Customer” shall mean any person or entity: (a) with which the Executive has engaged in material discussions regarding Restricted Activities at any time within 12 months prior to the end of the Executive’s employment; (b) whose business dealings with the Company are or were managed or supervised by the Executive as part of Executive’s duties for the Company; or (c) about which the Executive obtained Confidential Information solely as a result of the Executive’s employment with the Company. “Customer” also includes a prospective customer with which the Executive has engaged in material discussions regarding Restricted Activities at any time within 12 months prior to the end of the Executive’s employment or about which Executive obtained Confidential Information solely as a result of the Executive’s employment with the Company. “Employee or Independent Contractor” shall mean any employee or independent contractor who, at the time of the recruitment or hire by the Executive or by anyone the Executive is overseeing, is currently employed or engaged with the Company or who was employed or engaged with the Company at any time during the twelve (12) month period preceding the date of the recruitment or hire by the Executive or by anyone the Executive is overseeing.
(f) Covenants Not to Compete
(i) Non-Competition. The Executive understands that the Company operates across the United States and Canada. The Executive acknowledges that the Executive’s duties as Executive Vice President, Chief Supply Chain Officer, will entail involvement with the entire range of the Company’s operations across the United States and Canada, and that the Executive’s extensive familiarity with the Company’s business and Confidential Information justifies a restriction applicable across the entire geographic footprint in which the Company provides services and does business. To the fullest extent permitted by any applicable law, the Executive covenants and agrees that during employment, and for the period of one (1) year immediately following the termination, for any reason, of the Executive’s employment with the Company (the “Non-Compete Period”), the Executive will not:
(A) own or hold, directly or beneficially, as a shareholder, option holder, warrant holder, partner, member or other equity or security owner or holder of any company or business that derives more than 15% of its revenue from the Restricted Activities (as defined below) within the Restricted Area (as defined below), or any company or business controlling, controlled by or under common control with any company, business or division directly engaged in such Restricted Activities within the Restricted Area (any of the foregoing, a “Restricted Company”); or
19
(B) engage or participate with any Restricted Company in the Restricted Activities within the Restricted Area in any capacity in which the Executive will use or disclose or could reasonably be expected to use or disclose any Confidential Information for the purpose of providing, or attempting to provide, such Restricted Company with a competitive advantage in the industry; or
(C) engage or participate in the same or similar capacity that the Executive worked for with the Company during the last twelve (12) months of Executive’s employment with any Restricted Company in the Restricted Activities within the Restricted Area.
(ii) Restricted Activities/Restricted Area. For purposes of this Agreement, the term “Restricted Activities” means (1) the retail, commercial and/or wholesale sale, rental, and/or distribution of parts, accessories, supplies (including, but not limited to, paint), equipment and/or maintenance items for automobiles, light and heavy duty trucks (both commercial and non-commercial), off-road equipment, buses, recreational vehicles, and/or agricultural equipment, and/or (2) the provision of any automotive-related service (including, but not limited to, shop management, inventory control, and/or vehicle repair software or marketing) to auto repair shops, garages, specialty-service providers (e.g. any business that specializes in automotive oil changes, painting, tires, mufflers, brakes, transmission, and/or body work) and/or service centers, including, but not limited to painting, collision or body service centers. The term “Restricted Area” means: (1) the United States of America and Canada, including their territories and possessions; (2) the United States of America; (3) in any location where a Customer is located if that Customer is purchasing products or services from the Company from that location as of the end of the Executive’s employment; (4) the area within which Executive was assigned during the last 6 months of Executive’s employment with the Company. In the event it is determined by judicial action that any portion of the Restricted Area is unenforceable, the geographic scope of the restriction shall be limited to any/all of the preceding as a court of competent jurisdiction shall deem reasonable and enforceable.
(iii) Association with Restricted Company. In the event that the Executive intends to associate (whether as an employee, consultant, independent contractor, officer, manager, advisor, partner, Executive, volunteer or director) with any Restricted Company during the Non-Compete Period, the Executive must provide information in writing to the Company relating to the activities proposed to be engaged in by the Executive for such Restricted Company. All such current associations are set forth on Exhibit B to this Agreement. In the event that the Company consents in writing to the Executive’s engagement in such activity, the engaging in such activity by the Executive shall be conclusively deemed not to be a violation of this Subsection 18(f). Such consent is not intended and shall not be deemed to be a waiver or nullification of the covenant of non- competition of the Executive or other similarly bound Executives.
(iv) Limitations. Nothing in this section shall be construed to limit Executive’s ability to own a de minimis share of stock (defined as less than 5% of the outstanding common stock) of a publicly traded corporation, regardless of whether such entity is competitive with the Company. Nothing in this section shall be construed to
20
limit the Executive’s ability after separation to take a position with a company that competes with the Company which has multiple divisions or business units, so long as the Executive’s employment with the competitor is not within the division or business unit that engages in Restricted Activities, and so long as the confidentiality and other provisions of this Agreement are adhered to in all respects.
(g) Non-Disparagement. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees that while the Executive is employed by the Company and at all times following the termination of the Executive’s employment with the Company for any reason, the Executive will not take any action or make any statement which disparages the Company or its practices or which disrupts or impairs its normal operations, such that it causes a material adverse impact to the Company.
(h) Effect of Non-Payment of Benefits; Clawback. The Executive’s post-termination of employment obligations under this Paragraph 18 shall cease upon the Company’s failure to make any payments or benefits hereunder as a result of the termination of the Executive’s employment when due if within 15 days after written notice from the Executive to the Company of such failure, the Company does not make the required payment. In the event that the Executive materially violates Subsection 18(e) or 18(f), and does not cure such violation (if it can be cured) within five (5) days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the applicable period under Subsection 18(e) or 18(f), and the denominator of which is the total number of days in the applicable period under such Section. In the event that the Executive materially violates Subsection 18(a), 18(c) or 18(g), and does not cure such violation (if it can be cured) within five days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the one (1) year period immediately following the termination and the denominator of which is 365. The Executive further agrees that in addition to Executive’s repayment obligations with respect to breaches of Subsection 18(a), 18(c), 18(e), 18(f), or 18(g), the Company shall have the right to seek equitable relief pursuant to Subsection 18(i) hereunder.
(i) Specific Enforcement; Remedies Cumulative. The Executive acknowledges that the Company and Related Entities, as the case may be, will be irreparably injured if the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) and 18(g) hereof are not specifically enforced and the Executive agrees that the terms of such provisions (including without limitation the periods set forth in Subsections 18(e), 18(f) and 18(g)) are reasonable and appropriate. If the Executive commits, or the Company has evidence based on which it reasonably believes the Executive threatens to commit, a material breach of any of the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof, the Company and/or Related Entities, as the case may be, shall have the right and remedy, in addition to and not in limitation of any other remedy that may be available at law or in equity, to have the provisions of Subsections 18(a), 18(b), 18(c),
21
18(e), 18(f) or 18(g) hereof specifically enforced by any court having jurisdiction through immediate injunctive and other equitable relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and/or Related Entities and that money damages will not provide an adequate remedy therefore. Such injunction shall be available without the posting of any bond or other security, and the Executive hereby consents to the issuance of such injunction.
(j) Re-Set of Period for Non-Competition and Non-Interference. In the event that a legal or equitable action is commenced with respect to any of the provisions of Subsections 18(e) or 18(f) hereof and the Executive has not complied, in all material respects, with the provisions in such subsections with respect to which such action has been commenced, then the one-year period, as described in such subsections not so complied with by the Executive, shall be extended from its original expiration date, day-for-day, for each day that the Executive is found to have not complied, in all material respects, with such subsections.
(k) Jurisdiction and Venue. WITH RESPECT TO THE ENFORCEMENT OF ANY AND ALL LOYALTY OBLIGATIONS ARISING UNDER PARAGRAPH 18, THE SUBSECTIONS 18(k) AND 18(l) OF THIS AGREEMENT SHALL APPLY. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FOLLOWING COURTS IN MATTERS RELATED TO THIS PARAGRAPH 18 AND AGREE NOT TO COMMENCE ANY SUIT, ACTION OR PROCEEDING RELATING THERETO EXCEPT IN ANY OF SUCH COURTS: THE STATE COURTS OF THE STATE OF NORTH CAROLINA, THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF RALEIGH, NORTH CAROLINA.
(1) Executive Acknowledgments. The Executive acknowledges and agrees that (i) any and all loyalty obligations arising under Paragraph 18 were discussed with, and accepted by, the Executive prior to the commencement of the Executive’s employment as Executive Vice President, [President, Stores]; (ii) the loyalty obligations arising under Paragraph 18 constitute a material inducement to the Company to enter into this Agreement and to agree to employ the Executive on the terms and conditions stated herein; (iii) the loyalty obligations arising under Paragraph 18 are reasonable in time, territory, and scope, and in all other respects; (iv) should any part or provision of any covenant be held invalid, void, or unenforceable in any court of competent jurisdiction, such invalidity, voidness, or unenforceability shall not render invalid, void, or unenforceable any other part or provision of this Agreement; and (v) if any portion of the foregoing provisions is found to be invalid or unenforceable by a court of competent jurisdiction because its duration, territory, definition of activities, or definition of information covered is considered to be invalid or unreasonable in scope, the invalid or unreasonable terms shall be redefined to carry out the Executive’s and the Company’s intent in agreeing to these restrictive covenants. These restrictive covenants shall be construed as agreements independent of any other provision in this Agreement and the existence of any claim or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the loyalty obligations arising under Paragraph 18.
19. Adherence to Company Policies. The Executive agrees to adhere diligently to all established Company policies and procedures, including but not limited to the Company’s Guidelines on Significant Governance Issues, Code of Ethics and Business Conduct and, if
22
applicable, the Code of Ethics for Financial Professionals. The Executive agrees that if the Executive does not adhere to any of the provisions of such Guidelines and Codes, the Executive will be in breach of the provisions hereof.
20. Representations. The Executive agrees to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. The Executive represents that Executive’s performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by the Executive in confidence or in trust prior to the Executive’s employment by the Company. The Executive has not entered into, and the Executive agrees the Executive will not enter into, any oral or written agreement in conflict herewith and the Executive’s employment by the Company and the Executive’s services to the Company will not violate the terms of any oral or written agreement to which the Executive is a party.
21. Binding Effect of Execution. The Company and the Executive agree that this Agreement shall not bind or be enforceable by or against either party until this Agreement has been duly executed by both the Executive and the Company.
[SIGNATURE PAGE FOLLOWS]
23
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above.
Advance Auto Parts, Inc.
By:/s/ Tom Greene (SEAL)
Print Name: Tom Greene
Title: CFO
Address: 4200 Six Forks Road, Raleigh, NC 27609
Executive
Name: Stephen J. Szilagyi
Signature:/s/ Stephen J. Szilagyi
Address: Executive's Address Currently on File in the Company's Records
Employment Agreement - Stephen Szilagyi
24
EXHIBIT A
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any Confidential Information, including but not limited to, material devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to the Company.
I further certify that I have, to the best of my knowledge, complied in all material respects with all the terms of my Employment Agreement with the Company.
Date: | ||
Executive’s Signature | ||
Executive’s Name (Print) | ||
25
EXHIBIT B
LIST OF ASSOCIATIONS WITH RESTRICTED COMPANIES
X·None
Additional Sheets Attached
Signature of the Executive:/s/ Stephen J. Szilagyi
Print Name of the Executive:Stephen J. Szilagyi
Date: Jan 25, 2023
26
Exhibit 21.1
Advance Auto Parts, Inc.
Subsidiaries of the Registrant
As of December 28, 2024
| Company Name | State or Sovereign Power of Incorporation | |||||||
| Advance Stores Company, Incorporated | Virginia | |||||||
| Advance Trucking Corporation | Virginia | |||||||
| Western Auto Supply Company | Delaware | |||||||
| Western Auto of St. Thomas, Inc. | Delaware | |||||||
| Western Auto of Puerto Rico, Inc. | Delaware | |||||||
| Discount Auto Parts, LLC | Virginia | |||||||
| Advance Auto Innovations, LLC | Virginia | |||||||
| Advance Patriot, Inc. | Delaware | |||||||
| Advance Auto Business Support, LLC | Virginia | |||||||
| E-Advance, LLC | Virginia | |||||||
| Crossroads Global Trading Corp. | Virginia | |||||||
| Advance e-Service Solutions, Inc. | Virginia | |||||||
| Driverside, Inc. | Delaware | |||||||
| Motologic, Inc. | Delaware | |||||||
| AAP Financial Services, Inc. | Virginia | |||||||
| B.W.P. Distributors, Inc. | New York | |||||||
| General Parts International, Inc. | North Carolina | |||||||
| General Parts, Inc. | North Carolina | |||||||
| Golden State Supply, LLC | Nevada | |||||||
| Worldwide Auto Parts, Inc. | California | |||||||
| Straus-Frank Enterprises, LLC | Texas | |||||||
| General Parts Distribution, LLC | North Carolina | |||||||
| GPI Technologies, LLC | Delaware | |||||||
| Carquest Canada LTD | Canada | |||||||
| Neuse River Insurance Company, Inc. | Utah | |||||||
Exhibit 22.1
List of the Issuer and its Guarantor Subsidiaries
As of December 28, 2024 the following subsidiaries of Advance Auto Parts, Inc. (the “Issuer”) guarantee the 5.90% senior unsecured notes due March 9, 2026 (the "2026" Notes), and the 1.750% senior unsecured notes due October 1, 2027 (the “2027 Notes”), and the 5.95% senior unsecured notes due March 9, 2028 (the "2028" Notes), and the 3.90% senior unsecured notes due April 15, 2030 (the “2030 Notes”) and the 3.50% senior unsecured notes due March 15, 2032 (the “2032 Notes”), each issued by the Issuer:
| Entity | Jurisdiction of Incorporation or Organization | 2026 Notes | 2027 Notes | 2028 Notes | 2030 Notes | 2032 Notes | ||||||||||||||
| Advance Auto Parts, Inc. | Delaware | Issuer | Issuer | Issuer | Issuer | Issuer | ||||||||||||||
| Advance Stores Company, Incorporated | Virginia | Guarantor | Guarantor | Guarantor | Guarantor | Guarantor | ||||||||||||||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-274224 on Form S-3, Post-Effective Amendment on Registration Statement Nos. 333-196240, and 333-115772 on Form S-8, and Registration Statement Nos. 333-272497 and 333-272495 on Form S-8 of our reports dated February 26, 2025, relating to the consolidated financial statements and financial statement schedule of Advance Auto Parts, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting, appearing in the Annual Report on Form 10-K of the Company for the year ended December 28, 2024.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 26, 2025
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shane M. O'Kelly, certify that:
1.I have reviewed this annual report on Form 10-K of Advance Auto Parts, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 26, 2025
| /s/ Shane M. O'Kelly | ||
| Shane M. O'Kelly | ||
| President and Chief Executive Officer and Director | ||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ryan P. Grimsland, certify that:
1.I have reviewed this annual report on Form 10-K of Advance Auto Parts, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 26, 2025
| /s/ Ryan P. Grimsland | ||
| Ryan P. Grimsland | ||
| Executive Vice President, Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Shane M. O'Kelly, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report on Form 10-K of Advance Auto Parts, Inc. for the year ended December 28, 2024 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-K. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: | February 26, 2025 | By: | /s/ Shane M. O'Kelly | ||||||||
| Name: Shane M. O'Kelly Title: President and Chief Executive Officer and Director | |||||||||||
I, Ryan P. Grimsland, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Annual Report on Form 10-K of Advance Auto Parts, Inc. for the year ended December 28, 2024 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-K. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: | February 26, 2025 | By: | /s/ Ryan P. Grimsland | ||||||||
| Name: Ryan P. Grimsland Title: Executive Vice President, Chief Financial Officer | |||||||||||
Exhibit 97.1
Advance Auto Parts, Inc.
Compensation Recovery Policy
Adopted by the Compensation Committee of the Board of Directors on August 7, 2023
Effective Date
This Policy shall apply to any Incentive Compensation received on or after October 2, 2023.
Statement of Policy
Subject to the exceptions set forth below, following an Accounting Restatement, Advance Auto Parts, Inc. (the “Company”) shall recover reasonably promptly the amount of Incentive Compensation received during the Recoupment Period by any Covered Executive that exceeds the Incentive Compensation that would have been received by such Covered Executive taking into account the Accounting Restatement (calculated on a pre-tax basis).
This Policy, as may be amended from time to time by the Board, will apply to all Incentive Compensation received during the Recoupment Period by a person (a) after beginning service as a Covered Executive, (b) who served as a Covered Executive at any time during the performance period for that Incentive Compensation and (c) while the Company has a class of securities listed on the New York Stock Exchange (“NYSE”) or another national securities exchange or a national securities association. Accordingly, this Policy can apply to a person that is no longer a Company employee or a Covered Executive at the time of recovery.
Incentive Compensation is deemed “received” for purposes of this Policy in the fiscal period during which the measure specified in the Incentive Compensation award is attained, even if the payment or issuance of such Incentive Compensation occurs after the end of that period. For example, if the performance target for an award is based on total stockholder return for the year ended December 31, 2023, the award will be deemed to have been received in 2023 even if paid in 2024.
Exceptions
The Company shall not be required to recover Incentive Compensation pursuant to this Policy if the Compensation Committee (the “Committee”) has made a determination that recovery would be impracticable and one of the following conditions are met:
(a)after making a reasonable and documented attempt to recover erroneously awarded Incentive Compensation, the Committee determines that the direct expenses that would be paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered; or
(b)based on a legal opinion of counsel acceptable to the NYSE, the Committee determines that recovery would violate a home country law adopted prior to November 28, 2022; or
(c)the Committee determines that recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the
1
Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
Definitions
“Accounting Restatement” means the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. For the avoidance of doubt, a restatement resulting solely from the retrospective application of a change in generally accepted accounting principles is not an Accounting Restatement.
“Covered Executive” shall mean the Company’s Chief Executive Officer, President, Chief Financial Officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function, any other officer who performs a policy-making function for the Company, any other person who performs similar policy-making functions for the Company, and any other employee who may from time to time be deemed subject to this Policy by the Committee.
“Incentive Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure. For purposes of this definition, a “financial reporting measure” is (i) a measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements or derived wholly or in part from such measures, or (ii) the Company’s stock price or total shareholder return.
“Recoupment Period” means the three completed fiscal years preceding the Trigger Date.
“Trigger Date” means the earlier to occur of: (a) the date the Board of Directors, the Audit Committee, or the officer or officers of the Company authorized to take such action concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; or (b) the date a court, regulator, or other legally authorized body directs the Company to prepare an Accounting Restatement.
Administration
This Policy is intended to comply with the listing requirements of the NYSE and related SEC rules and shall be interpreted in a manner consistent with those requirements. The Committee has full authority to interpret and administer this policy. The Committee’s determinations under the policy shall be final and binding on all persons and shall be given the maximum deference permitted by law. If the Committee cannot determine the amount of excess Incentive Compensation received by a Covered Executive directly from the information in the Accounting Restatement, such as in the case of Incentive Compensation tied to stock price or total stockholder return, then it shall make its determination based on a reasonable estimate of the effect of the Accounting Restatement and shall maintain documentation of such determination.
2
No Indemnification or Advancement of Legal Fees
The Company shall not indemnify any Covered Executives against, or pay the premiums for any insurance policy to cover, any amounts recovered under this Policy or any expenses that a Covered Executive incurs in opposing Company efforts to recoup amounts pursuant to the Policy.
Non-Exclusive Remedy
Recoupment of Incentive Compensation pursuant to this Policy shall not in any way limit or affect the rights of the Company to pursue disciplinary, legal, or other action or pursue any other remedies available to it. This Policy shall be in addition to, any rights of the Company to recoup Incentive Compensation from Covered Executives under applicable laws and regulations, including but not limited to the Sarbanes-Oxley Act of 2002, as amended, or pursuant to the terms of any employment agreement, equity award agreement, or similar agreement with a Covered Executive.
3