Advance Auto Parts
Annual Report 2018

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2 0 1 8 A N N U A L R E P O R T 2018 ANNUAL REPORT Advance has supported JDRF by raising more than $44 million over the past 24 years, including $400,000 in 2018 SOCIAL RESPONSIBILITY Advance is proud to have helped raise more than $11 million since 2011 for Building Home for Heroes, including $2 million in 2018 Advance began our national support of the American Heart Association in 2018 and raised more than $500,000 during the first year INVESTING IN OUR TEAM MEMBERS Through the Fuel the Frontline and Be an Owner programs, Advance has granted more than 16,000 equity awards valued at more than $40 million to nearly 10,000 Team Members since 2016, which has contributed to the reduction of turnover over the past two years. “Fuel the Frontline is enabling us to attract the very Best Parts People in the business. When we take care of our People, they in turn take care of our Customers, and when we take care of our Customers, we drive long term shareholder value.” – Tom Greco, President and Chief Executive Officer ENVIRONMENTAL SUSTAINABILITY Advance published it’s inaugural Corporate Sustainability and Social Report focusing on our people, our planet and our community. *Includes Carquest independently owned locations DIVERSITY & INCLUSION Advance was recognized with the “Leaders in Diversity” award from the Triangle Business Journal in 2018 in recognition of the impact of Advance’s strategic focus on Diversity and Inclusion. D E A R F E L L O W A D V A N C E A U T O P A R T S S H A R E H O L D E R S 2018 was an exciting year for Advance Auto Parts during which we made significant progress in nearly every aspect of our business. We delivered our highest comparable store sales in eight years of 2.3 percent, significantly narrowed the competitive growth gap, expanded margins and produced record cash flow. improvement we saw The continuous throughout 2018 would not have been p o s s i b l e w i t h o u t t h e h a r d w o r k a n d dedication of our more than 70,000 Team Members across Advance, as well as our network of Carquest Independent Partners. We delivered operational improvements against many key metrics in 2018, which enabled meaningful, top line growth. This is a testament of our commitment to Our Mission: “Passion for Customers…Passion for Yes!” As we begin 2019, we are encouraged by the macro indicators and forecasted improvement to key demand drivers for the aftermarket auto parts industry. Our team is focused on serving our Customers better than ever, and we are confident that we will continue to build momentum throughout the year and deliver further progress on our long term goals. I N V E S T I N G I N L O N G T E R M G R O W T H In 2018, we began to ramp-up capital investments to drive long term sustainable improvements in our operational and financial performance. As we solidified our foundation for growth and enhanced our Customer Value Proposition, we invested nearly $200 million in both the business infrastructure and tools for our Team Members in 2018. Our 2018 investments were concentrated in information technology and supply chain initiatives that will address long standing integration oppor tunities and unlock new capabilities to build competitive advantage and expand margins. In other areas, our investments will eliminate costly and redundant back office systems that add unnecessary costs and create significant inefficiencies. Albeit early in implementation, the strategic efforts we made during the past 12 months are becoming evident in our improving performance results. EXPANDING MARGINS AND DRIVING FREE CASH FLOW Advance is uniquely positioned within the automotive aftermarket industry, and for that matter, broader retail, to deliver sustained margin expansion and generate significant Free cash flow over the next several years. In 2018, we focused on key areas of cost savings to drive margin improvement including our material cost optimization efforts, which resulted in product margin expansion across several major categories. Within our supply chain, we saw continuous improvement through the year as we began to standardize operations throughout our network to enable meaningful improvements in safety, fill rates and order accuracy. In addition, our footprint optimization efforts included the closure of two distribution centers in the back half of the year, and the announcement of a third distribution center that will be closed in the first half of 2019. Finally, through a disciplined approach to controlling costs across the enterprise, we delivered meaningful cost reductions in several key areas of our P&L including lower shrink and defectives, as well as liability and claims insurance as a direct result of improved safety — continued performance across Advance. Additionally, we leveraged store labor on a rate basis throughout the year, despite wage inflation pressures experienced nationwide, as we remain focused on delivering productivity improvements in our frontline operations. Further, our disciplined approach to managing cash and delivering on our capital allocation priorities enabled meaningful improvement in 2018, incl udi ng a n ea r ly 3 3 0 b as is point improvement in our AP ratio. Finally, our working capital management resulted in record Free cash flow of $617 million(1) in 2018, an increase of 50 percent year over year. PASSION FOR CUSTOMERS… PASSION FOR YES! Across Advance, we are focused on our commitment to a Customer first approach in every decision and every investment we make. Whether it is a Do-It-Yourself (DIY) or Professional Customer, we are working each and every day to ensure we improve our fundamental Customer Value Proposition. We recognize that Customer needs continue to evolve, and we must develop capabilities to ensure we can ser ve the Customer in an evolving landscape. This includes innovative digital platforms that make it easier for our Customers to do business with us as their trusted partner for all of their automotive needs. Our Customer focused transformation efforts in 2018 included the roll out of Cross Banner Visibility, which enables our Team Members, as well as our Professional Customers, to view the entire breadth of our parts catalog, regardless of banner, in one place. This was completed during the first quarter and was a meaningful driver of our comparable store sales growth throughout the year. Additionally, our Professional Customers also benefitted from the introduction of MyAdvance, our consolidated professional front-end portal, in the second half of 2018, which includes the AdvancePro platform and provides access to the full assortment of parts across the Advance family. MyAdvance combines nearly 30 different tools in one place, providing Professional Customers a unique experience with best in class shop services and solutions, including an “Expert Corner” in areas such as shop management. We are excited to further enhance our Customer Value Proposition and grow market share in 2019. With several investments planned this year to better serve our Customers, including the roll out of our omnichannel partnership with Walmar t.com, Dynamic Assor tment and a mobile app, we are focused on delivering sales growth and margin expansion. CORPORATE SUSTAINABILITY AND SOCIAL RESPONSIBILITY In line with our commitment to provide our stakeholders fur ther transparency to all that we are doing at Advance to deliver Our Vision: Advancing a World in Motion, we published our inaugural Corporate Sustainability and Social Report in December 2018. We recognize the impor tance of delivering winning results while advancing the professional development and growth of our Team Members. In addition, we believe it is our responsibility to help leave the world a better place for future generations and operate as a trusted par tner to our Team Members and communities where we live and serve. Consistent with these priorities, our report includes a concentrated focus on three key areas: our people, our planet and our community. — continued Our People Our cultural beliefs are the foundation of how we work and live and are essential to our long term success. These beliefs are highlighted throughout our field operations and corporate offices, and are engrained in everything we do: Speak Up Be Accountable Take Action Grow Talent Move Forward Champion Inclusion We recognize the knowledge, dedication and unrelenting focus by our Team Members will continue to be a differentiating factor in the transformation of Advance. f o c u s o n Throughout 2018, we continued o u r i n c r e a s i n g Diversity & Inclusion across the enterprise. We are incredibly proud of our progress during 2018 where we increased representation of females and people of color in leadership roles by 25 percent. Our continued progress in this critical area was recognized by the Triangle Business Journal, a leading business publication ser ving the Raleigh, Durham and Chapel their Hill, Nor th Carolina areas, with “Leaders in Diver sity” award for 2018. T h e awa r d recognizes our commitment to D i v e r s i t y & I n c l u s i o n t h r o u g h o u r “Champion Inclusion” Cultural Belief: I embrace the diversity of people, thoughts, skills and styles to deliver results. to meaningful progress In addition enhancing our diverse and inclusive workforce, we are committed to continuous expansion of our learning and development oppor tunities for Team Members at all levels of our organization. In 2018 alone, we invested significantly in new capabilities and increased our training courses by 40 percent! With an extensive and robust training platform, we are creating a learning where culture of continuous our Team Member s have tools the necessar y to achieve the personal and professional growth they desire. It is critical that we continue investing in not only the development of our Team Member s, but also in the long term financial opportunities we provide them to help strengthen both their current earnings and future savings opportunities. As such, we continued our investments in key incentive programs in 2018, including our Fuel the Frontline and Be An Owner recognition programs. Since the initial roll out in 2016, we have now granted more than 16,000 equity awards valued at more than $40 million to nearly 10,000 Team Members. We are confident our Fuel the Frontline investments have been a key driver in the dramatic reduction in frontline turnover over the past two years. In addition, we recently announced significant improvements to our retirement savings, including a material increase to the company match for our 401(k) participants. T h r o u g h o u t A d v a n c e , w e recognize our Team Members are our best part and investing in their success underscores our commitment to them. Increasingly over the past several years, our Team Members are taking notice of our investments in both their development and the tools needed to do their job better, which is improving the overall culture and health of our organization. We saw marked improvement in our 2018 Organizational Health Survey, including areas such as “Supervisors inspire high performance through their leadership,” — continued “Team Member s have clear ly defined objectives and know how to help the company meet its objectives” and “Support for diversity is strong in all levels.” As we begin the third year of our transformation journey, we are excited with the progress we have made with Team Member engagement and look forward to what lies ahead to further enhance the Advance culture. Our Planet At Advance, we are dedicated to reducing our environmental impact while ensuring we leave the world a better place for future generations. These effor ts include waste reduction through our increased recycling programs where we have delivered consistent improvement during the last several years. Nearly all of our stores and branches include robust programs for motor oil, lead acid batteries and antifreeze recycling. Additionally, we continue to make notable improvements in our overall energy efficiency. This includes the installation of LED lighting, high efficiency HVAC systems and a centralized energy management system. Further, the ongoing conversion of our 15,000+ store delivery fleet from V6 pickup trucks to more economical hybrid and four cylinder automobiles is enabling a reduction in both emissions and fuel costs. Our commitment to reducing our environmental impact is an ongoing effort, and while we have made progress, we are committed to doing more in the years to come. We will continue to invest in meaningful systems and processes to enable fur ther improvement and look forward to sharing updates on our progress as we execute on our long term strategic objectives. Our Community In 2018, Advance focused on three major charitable partnerships at a corporate level. We continued our 24 year relationship with JDRF and their mission to find a cure for Type 1 Diabetes - helping raise more than $44 million during our partnership. At Advance, we are dedicated to our veterans, and continued our suppor t of Building Homes for Heroes. This organization builds and modifies homes for men and women who were injured while serving our country, and then gifts them, mortgage free, to veterans and their families. In 2018, Advance helped by raising $2 million, bringing our total amount raised since 2011 to more than $11 million. This year, we also began our national support of the American Heart Association (AHA) where we served as chair of the Triangle Heart Walk in 2018. Unfortunately, heart disease and stroke is the number one killer in America and has a significant impact on our own Team Members. This makes supporting the AHA an important cause for all of us at Advance. This was a record year for the North Carolina event with nearly $2 million in total contributions, of which Advance raised more than $500,000 to help fight heart disease and stroke. THINK AHEAD. THINK ADVANCE. T h i n k A h e a d . T h i n k A d v a n c e , o u r n e w marketing campaign is a multi-platform digital and audio campaign launched in the third quarter of 2018. Through early tracking of engagement and customer perception, we are seeing the highest level — continued of brand awareness since we began tracking these metrics in early 2017. We know our Customers are passionate about their cars and this campaign focuses on our commitment to them. At Advance, we are creating value and true partnerships in order to be the trusted partner for all Customer’s auto part needs. ADVANCING IN 2019 On behalf of our entire leadership team, we are extremely proud of our 2018 accomplishments, but we are even more excited about the road ahead. We recently updated our Strategic Business Plan and are confident in our ability to successfully deliver on our 2019 objectives. Through the combination of improving underlying industry fundamentals and, importantly, our ability to drive further execution improvements throughout Advance, we will continue to build on our momentum throughout 2019 and beyond. We are committed to delivering top line growth, margin expansion and strong cash flow as we continue to invest in our transformation objectives. In summary, we are confident we are on the right path, with the right plan and have the absolute best Team Members in the industry to help us capitalize on the significant opportunities ahead. Thank you for your continued support as we remain focused on delivering sustainable value and growth for all of our Team Members, Customers and shareholders. Respectfully, Tom Greco President and Chief Executive Officer Jeffrey C. Smith Chairman of the Board (1) Free cash flow is a non-GAAP measure and should be considered in addition to, but not as a substitute for, information contained in our “Consolidated Statements of Cash Flows” that can be found on page 35 in our 2018 Form 10-K included in this annual report. Free cash flow of $617 million can be reconciled to net cash provided by operating activities on a GAAP basis of $811 million by adding back purchases of property and equipment of $194 million. UNITED€STATES SECURITIES€AND€EXCHANGE€COMMISSION Washington,€D.C.€20549 FORM€10-K x ANNUAL€REPORT€PURSUANT€TO€SECTION€13€OR€15(d)€OF€THE€SECURITIES EXCHANGE€ACT€OF€1934 For€the€fiscal€year€ended€December€29,€2018€ o TRANSITION€REPORT€PURSUANT€TO€SECTION€13€OR€15(d)€OF€THE€SECURITIES EXCHANGE€ACT€OF€1934 For€the€transition€period€from€________€to€________. Commission€file€number€001-16797 ________________________ ADVANCE€AUTO€PARTS,€INC. (Exact€name€of€registrant€as€specified€in€its€charter) ________________________ €Delaware (State€or€other€jurisdiction€of incorporation€or€organization) 2635€East€Millbrook€Road Raleigh,€North€Carolina (Address€of€principal€executive€offices) €€€€54-2049910 (I.R.S.€Employer Identification€No.) €€€€27604 (Zip€Code) (540)€362-4911 (Registrant(cid:129)s€telephone€number,€including€area€code) € Securities€Registered€Pursuant€to€Section€12(b)€of€the€Act Title€of€each€class Common€Stock€($0.0001€par€value) Name€of€each€exchange€on€which€registered New€York€Stock€Exchange 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€x No€o 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€o€No€x 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€x€No€o 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€x€No€o Indicate€by€check€mark€if€disclosure€of€delinquent€filers€pursuant€to€Item€405€of€Registration€S-K€(‚229.405€of€this€chapter) is€not€contained€herein,€and€will€not€be€contained,€to€the€best€of€registrant(cid:129)s€knowledge,€in€definitive€proxy€or€information€statements incorporated€by€reference€in€Part€III€of€this€Form€10-K€or€any€amendment€to€the€Form€10-K.€o 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€ƒlarge€accelerated€filer,„€ƒaccelerated€filer,„€ƒsmaller reporting€company„€and€ƒemerging€growth€company„€in€Rule€12b-2€of€the€Exchange€Act.€ Large€accelerated€filer€x Non-accelerated€filer€€o€ Accelerated€filer€o Smaller€reporting€company€o Emerging€growth€company€o If€an€emerging€growth€company,€indicate€by€check€mark€if€the€registrant€has€elected€not€to€use€the€extended€transition period€for€complying€with€any€new€or€revised€financial€accounting€standards€provided€pursuant€to€Section€13(a)€of€the Exchange€Act.€o Indicate€by€check€mark€whether€the€registrant€is€a€shell€company€(as€defined€in€Rule€12b-2€of€the€Exchange€Act).€ Yes€o€No€x As€of€the€last€business€day€of€the€registrant(cid:129)s€most€recently€completed€second€fiscal€quarter,€July€13,€2018,€the€aggregate market€value€of€common€stock€held€by€non-affiliates€of€the€registrant€was€$9,863,346,448,€based€on€the€last€sales€price€on July€13,€2018,€as€reported€by€the€New€York€Stock€Exchange. As€of€February€15,€2019,€the€number€of€shares€of€the€registrant(cid:129)s€common€stock€outstanding€was€71,670,134€shares. Portions€of€the€registrant(cid:129)s€definitive€proxy€statement€for€its€2019€Annual€Meeting€of€Stockholders,€to€be€held€on€May€15, 2019,€are€incorporated€by€reference€into€Part€III€of€this€Form€10-K. Documents€Incorporated€by€Reference: TABLE€OF€CONTENTS €Page Part€I. Part€II. Part€III. Part€IV. Item€1.€ Business ............................................................................................................................ Item€1A. Risk€Factors....................................................................................................................... Item€1B. Unresolved€Staff€Comments ............................................................................................. Item€2. Properties .......................................................................................................................... Item€3. Legal€Proceedings ............................................................................................................. Item€4. Mine€Safety€Disclosures ................................................................................................... Item€5. Market€for€the€Registrant's€Common€Equity,€Related€Stockholder€Matters€and€Issuer Purchases€of€Equity€Securities .......................................................................................... Item€6. Selected€Consolidated€Financial€Data............................................................................... Item€7. Management's€Discussion€and€Analysis€of€Financial€Condition€and€Results€of Operations ......................................................................................................................... Item€7A. Quantitative€and€Qualitative€Disclosures€About€Market€Risks ........................................ Item€8. Financial€Statements€and€Supplementary€Data................................................................. Item€9. Changes€in€and€Disagreements€with€Accountants€on€Accounting€and€Financial Disclosure.......................................................................................................................... Item€9A. Controls€and€Procedures ................................................................................................... Item€9B. Other€Information ............................................................................................................. Item€10. Directors,€Executive€Officers€and€Corporate€Governance................................................ Item€11. Executive€Compensation................................................................................................... Item€12. Security€Ownership€of€Certain€Beneficial€Owners€and€Management€and€Related Stockholder€Matters .......................................................................................................... Item€13. Certain€Relationships€and€Related€Transactions,€and€Director€Independence.................. Item€14. Principal€Accountant€Fees€and€Services ........................................................................... Item€15. Exhibits,€Financial€Statement€Schedules .......................................................................... Item€16. Form€10-K€Summary ........................................................................................................ Signatures............................................................................................................................................................................. 2 6 12 12 13 13 14 16 17 26 26 26 27 27 28 28 28 28 28 29 74 75 FORWARD-LOOKING€STATEMENTS Certain€statements€in€this€Annual€Report€on€Form€10-K€are€ƒforward-looking€statements„€within€the€meaning€of€the Private€Securities€Litigation€Reform€Act€of€1995.€All€statements,€other€than€statements€of€historical€facts,€may€be€forward- looking€statements.€Forward-looking€statements€are€usually€identified€by€the€use€of€words€such€as€ƒanticipate,„€ƒbelieve,„ ƒcould,„€ƒestimate,„€ƒexpect,„€ƒforecast,„€ƒintend,„€ƒlikely,„€ƒmay,„€ƒplan,„€ƒposition,„€ƒpossible,„€ƒpotential,„€ƒprobable,„ ƒproject,„€ƒprojection,„€ƒshould,„€ƒstrategy,„€ƒwill,„€or€similar€expressions.€These€statements€are€based€upon€assessments€and assumptions€of€management€in€light€of€historical€results€and€trends,€current€conditions€and€potential€future€developments€that often€involve€judgment,€estimates,€assumptions€and€projections.€Forward-looking€statements€reflect€current€views€about€our plans,€strategies€and€prospects,€which€are€based€on€information€currently€available€as€of€the€date€of€this€report.€Except€as required€by€law,€we€undertake€no€obligation€to€update€any€forward-looking€statements€to€reflect€events€or€circumstances€after the€date€of€such€statements.€Please€refer€to€other€filings€made€by€the€Company€with€the€Securities€and€Exchange€Commission for€additional€risk€factors€that€could€materially€affect€the€Company(cid:129)s€actual€results.€Forward-looking€statements€are€subject€to risks€and€uncertainties,€many€of€which€are€outside€our€control,€which€could€cause€actual€results€to€differ€materially€from€these statements.€Therefore,€you€should€not€place€undue€reliance€on€those€statements. 1 Item€1. Business. PART€I Unless€the€context€otherwise€requires,€ƒAdvance,„€ƒwe,„€ƒus,„€ƒour,„€and€similar€terms€refer€to€Advance€Auto€Parts,€Inc.,€its subsidiaries€and€their€respective€operations€on€a€consolidated€basis.€Our€fiscal€year€consists€of€52€or€53€weeks€ending€on€the Saturday€closest€to€December€31st€of€each€year.€Our€fiscal€year€ended€December€29,€2018€(ƒ2018„),€fiscal€year€ended€December€30, 2017€(ƒ2017„)€and€fiscal€year€ended€December€31,€2016€(ƒ2016„)€included€52€weeks€of€operations. Overview We€are€a€leading€automotive€aftermarket€parts€provider€in€North€America,€serving€both€professional€installers (ƒProfessional„),€and€ƒdo-it-yourself„€(ƒDIY„),€customers€as€well€as€independently€owned€operators.€Our€stores€and€branches offer€a€broad€selection€of€brand€name,€original€equipment€manufacturer€(ƒOEM„)€and€private€label€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€29,€2018,€we€operated€4,966€total€stores€and€143€branches€primarily€under€the€trade€names ƒAdvance€Auto€Parts„,€ƒAutopart€International„,€ƒCarquest„€and€ƒWorldpac„.€ We€were€founded€in€1929€as€Advance€Stores€Company,€Incorporated€and€operated€as€a€retailer€of€general€merchandise until€the€1980s.€During€the€1980s,€we€began€targeting€the€sale€of€automotive€parts€and€accessories€to€DIY€customers.€We initiated€our€Professional€delivery€program€in€1996€and€have€steadily€increased€our€sales€to€Professional€customers€since€2000. We€have€grown€significantly€as€a€result€of€comparable€store€sales€growth,€new€store€openings€and€strategic€acquisitions. Advance€Auto€Parts,€Inc.,€a€Delaware€corporation,€was€incorporated€in€2001€in€conjunction€with€the€acquisition€of€Discount Auto€Parts,€Inc.€In€2014,€we€acquired€General€Parts€International,€Inc.€(ƒGPI„),€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€names.€ Stores€and€Branches Through€our€integrated€operating€approach,€we€serve€our€Professional€and€DIY€customers€through€a€variety€of€channels ranging€from€traditional€ƒbrick€and€mortar„€store€locations€to€self-service€e-commerce€sites.€We€believe€we€are€better€able€to meet€our€customers(cid:129)€needs€by€operating€under€several€store€names,€which€are€as€follows:€ Advance€Auto€Parts€…€Our€4,380€stores€as€of€December€29,€2018€are€generally€located€in€freestanding€buildings€with€a focus€on€both€Professional€and€DIY€customers.€The€average€size€of€an€Advance€Auto€Parts€store€is€approximately€7,600 square€feet€with€the€size€of€our€typical€new€stores€ranging€from€approximately€6,600€to€22,900€square€feet.€These€stores carry€a€wide€variety€of€products€serving€aftermarket€auto€part€needs€for€both€domestic€and€import€vehicles.€Our€Advance Auto€Parts€stores€carry€a€product€offering€of€approximately€21,000€stock€keeping€units€(ƒSKUs„),€generally€consisting€of€a custom€mix€of€product€based€on€each€store(cid:129)s€respective€market.€Supplementing€the€inventory€on-hand€at€our€stores, additional€less€common€SKUs€are€available€in€many€of€our€larger€stores€(known€as€ƒHUB„€stores).€These€additional€SKUs are€available€on€a€same-day€or€next-day€basis.€ Autopart€International€…€Our€185€stores€as€of€December€29,€2018€operate€primarily€in€the€Northeastern€and€Mid- Atlantic€regions€of€the€United€States€with€a€focus€on€Professional€customers.€These€stores€specialize€in€imported aftermarket€and€private€label€branded€auto€parts.€Autopart€International€stores€offer€approximately€54,000€SKUs€through routine€replenishment€from€their€supply€chain. Carquest€…€Our€401€stores€as€of€December€29,€2018,€including€140€stores€in€Canada,€are€generally€located€in freestanding€buildings€with€a€primary€focus€on€Professional€customers,€but€also€serving€DIY€customers.€The€average€size of€a€Carquest€store€is€approximately€7,300€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€21,000€SKUs. As€of€December€29,€2018,€Carquest€also€served€1,231€independently€owned€stores€that€operate€under€the€ƒCarquest„€name.€ Worldpac€…€Our€143€branches€as€of€December€29,€2018€that€principally€serve€Professional€customers€utilizing€an efficient€and€sophisticated€on-line€ordering€and€fulfillment€system. Worldpac€ branches€ are€ generally€ larger€ than€ our€ other store€locations€averaging€approximately€26,400€square€feet€in€size.€Worldpac€specializes€in€imported,€OEM€parts. Worldpac(cid:129)s€complete€product€offering€includes€over€165,000€SKUs€for€import€and€domestic€vehicle€carlines.€ 2 Our€Products€ The€following€table€shows€some€of€the€types€of€products€that€we€sell€by€major€category€of€items: Parts€&€Batteries Batteries€and€battery€accessories Accessories€&€Chemicals Air€conditioning€chemicals€and€accessories Belts€and€hoses Air€fresheners Engine€Maintenance Air€filters Fuel€and€oil€additives Brakes€and€brake€pads Antifreeze€and€washer€fluid Fuel€filters Chassis€parts Electrical€wire€and€fuses Climate€control€parts Electronics Grease€and€lubricants Motor€oil Clutches€and€drive€shafts Floor€mats,€seat€covers€and€interior€accessories Oil€filters Engines€and€engine€parts Hand€and€specialty€tools Exhaust€systems€and€parts Lighting 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 Part€cleaners€and€treatments Transmission€fluid We€provide€our€customers€with€quality€products,€that€are€offered€at€a€good,€better€or€best€recommendation€differentiated€by price€and€quality.€ Our€Customers Our€Professional€customers€consist€primarily€of€customers€for€whom€we€deliver€product€from€our€store€or€branch€locations to€their€places€of€business,€including€garages,€service€stations€and€auto€dealers.€Our€Professional€sales€represented approximately€58%€of€our€sales€in€2018,€2017€and€2016.€We€also€serve€1,231€independently€owned€Carquest€stores€with shipments€directly€from€our€distribution€centers.€Our€DIY€customers€are€primarily€served€through€our€stores€and€can€also€order online€to€pick€up€merchandise€at€a€conveniently€located€store€or€have€their€purchases€shipped€directly€to€them.€Except€where prohibited,€we€also€provide€a€variety€of€services€at€our€stores€free€of€charge€to€our€customers,€including: † † † † † † † Battery€and€wiper€installation; Battery€charging; Check€engine€light€reading; Electrical€system€testing,€including€batteries,€starters,€alternators€and€sensors; ƒHow-To„€video€clinics; Oil€and€battery€recycling;€and Loaner€tool€programs. We€also€serve€our€customers€online€at€www.AdvanceAutoParts.com.€Our€Professional€customers€can€conveniently€place their€orders€electronically,€including€through€MyAdvance.com,€by€phone€or€in-store€and€we€deliver€product€from€our€store€or branch€locations€to€their€places€of€business. Store€Development The€key€factors€used€in€selecting€sites€and€market€locations€in€which€we€operate€include€population,€demographics,€traffic count,€vehicle€profile,€number€and€strength€of€competitors(cid:129)€stores€and€the€cost€of€real€estate.€As€of€December€29,€2018,€4,948 stores€and€branches€were€located€in€49€U.S.€states€and€2€U.S.€territories€and€161€stores€and€branches€were€located€in€9€Canadian provinces. We€serve€our€Advance€Auto€Parts€and€Carquest€stores€primarily€from€our€customer€support€centers€in€Raleigh,€NC€and Roanoke,€VA.€We€also€maintain€a€store€support€center€in€Newark,€CA€to€support€our€Worldpac€and€e-commerce€operations€and in€Norton,€MA€to€support€our€Autopart€International€stores.€ 3 Supply€Chain Our€supply€chain€consists€of€a€network€of€distribution€centers,€HUBs,€stores€and€branches€that€enable€us€to€provide€same- day€or€next-day€availability€to€our€customers.€As€of€December€29,€2018,€we€operated€51€distribution€centers,€ranging€in€size from€approximately€51,000€to€943,000€square€feet€with€total€square€footage€of€approximately€11.5€million.€Our€smaller distribution€centers€primarily€service€our€Carquest€stores,€including€those€that€have€converted€to€the€Advance€Auto€Parts format,€while€our€larger€distribution€centers€primarily€service€Advance€Auto€Parts,€Autopart€International€and€Worldpac locations.€In€2018,€we€closed€distribution€centers€in€Gallman,€MS€and€San€Antonio,€TX. Merchandise,€Marketing€and€Advertising In€2018,€we€purchased€merchandise€from€over€1,100€vendors,€with€no€single€vendor€accounting€for€more€than€9%€of purchases.€Our€purchasing€strategy€involves€negotiating€agreements€to€purchase€merchandise€over€a€specified€period€of€time along€with€other€provisions,€including€pricing,€volume€and€payment€terms. Our€merchandising€strategy€is€to€carry€a€broad€selection€of€high€quality€and€reputable€brand€name€automotive€parts€and accessories€that€we€believe€will€appeal€to€our€Professional€customers€and€also€generate€DIY€customer€traffic.€Some€of€our brands€include€Bosch‡ ,€Castrol‡ ,€Dayco‡ ,€Denso‡ ,€Gates‡ ,€Moog‡ ,€Monroe‡ ,€NGK‡ ,€Prestone‡ ,€Purolator‡ ,€Trico‡ €and Wagner‡ .€In€addition€to€these€branded€products,€we€stock€a€wide€selection€of€high-quality€private€label€products€with€a€goal€of appealing€to€ va€ lue-conscious€customers.€These€lines€of€merchandise€include€chemicals,€interior€automotive€accessories, batteries€and€parts€under€various€private€label€names€such€as€Autocraft‡ ,€Autopart€International‡ ,€Driveworks‡ ,€Tough€One‡ and€Wearever‡ as€well€as€the€Carquest‡ € brand. to Our€marketing€and€advertising€program€is€designed€to€drive€brand€awareness,€consideration€by€consumers€and€omni- channel€traffic€by€positioning€Advance€Auto€Parts€as€the€leader€in€parts€availability,€in-store€parts€and€project€expertise€within the€aftermarket€auto€parts€category.€We€strive€to€exceed€our€customers(cid:129)€expectations€end-to-end€through€a€comprehensive online€and€in-store€pick€up€experience,€extensive€parts€assortment,€experienced€parts€professionals,€Professional€programs€that are€designed€to€build€loyalty€with€our€customers€and€our€DIY€customer€loyalty€program,€Speed€Perks.€Our€DIY€campaign€was developed€around€a€multi-channel€communications€plan€that€brings€together€radio,€television,€direct€marketing,€social€media, sponsorships,€store€events€and€Speed€Perks. Seasonality Our€business€is€somewhat€seasonal€in€nature,€with€the€highest€sales€usually€occurring€in€the€spring€and€summer€months.€In addition,€our€business€can€be€affected€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€enhance€sales€by€causing automotive€parts€to€fail€at€an€accelerated€rate.€Our€fourth€quarter€is€generally€our€most€volatile€as€weather€and€spending€trade- offs€typically€influence€our€Professional€and€DIY€sales. Team€Members€ As€of€December€29,€2018,€we€employed€approximately€40,000€full-time€Team€Members€and€approximately€31,000€part- time€Team€Members.€Our€workforce€consisted€of€85%€of€our€Team€Members€employed€in€store-level€operations,€11% employed€in€distribution€and€4%€employed€in€our€corporate€offices.€As€of€December€29,€2018,€less€than€1%€of€our€Team Members€were€represented€by€labor€unions.€We€have€never€experienced€any€labor€disruption.€ Intellectual€Property€ We€own€a€number€of€trade€names,€service€marks€and€trademarks,€including€ƒAdvance€Auto€Parts„,€ƒAutopart International„,€ƒCarquest„,€ƒCARQUEST€Technical€Institute„,€ƒDriverSide„,€ƒMotoLogic„,€ƒMotoShop„,€ƒWorldpac„, ƒspeedDIAL„€and€ƒTECH-NET€Professional€Auto€Service„€for€use€in€connection€with€the€automotive€parts€business.€In addition,€we€own€and€have€registered€a€number€of€trademarks€for€our€private€label€brands.€We€believe€that€these€trade€names, service€marks€and€trademarks€are€important€to€our€merchandising€strategy.€We€do€not€know€of€any€infringing€uses€that€would materially€affect€the€use€of€these€trade€names€and€marks€and€we€actively€defend€and€enforce€them. 4 Competition€ We€operate€in€both€the€Professional€and€DIY€markets€of€the€automotive€aftermarket€industry.€Our€primary€competitors€are (i)€both€national€and€regional€chains€of€automotive€parts€stores,€including€AutoZone,€Inc.,€NAPA,€O(cid:129)Reilly€Automotive,€Inc., The€Pep€Boys-Manny,€Moe€&€Jack€and€Auto€Plus€(formerly€Uni-Select€USA,€Inc.),€(ii)€discount€stores€and€mass€merchandisers that€carry€automotive€products,€(iii)€wholesalers€or€jobber€stores,€including€those€associated€with€national€parts€distributors€or associations,€(iv)€independently€owned€stores,€(v)€automobile€dealers€that€supply€parts€and€(vi)€internet-based€retailers.€We believe€that€chains€of€automotive€parts€stores€that,€like€us,€have€multiple€locations€in€one€or€more€markets,€have€competitive advantages€in€customer€service,€marketing,€inventory€selection,€purchasing€and€distribution€as€compared€to€independent retailers€and€jobbers€that€are€not€part€of€a€chain€or€associated€with€other€retailers€or€jobbers.€The€principal€methods€of competition€in€our€business€include€customer€service,€product€offerings,€availability,€quality,€price€and€store€location. Environmental€Matters€ We€are€subject€to€various€federal,€state€and€local€laws€and€governmental€regulations€relating€to€the€operation€of€our 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.€We€sell€products€containing€hazardous€materials€as part€of€our€business.€In€addition,€our€customers€may€bring€automotive€lead-acid€batteries,€used€motor€oil€or€other€recyclable items€onto€our€properties.€We€currently€provide€collection€and€recycling€programs€for€used€lead-acid€batteries,€used€oil€and other€recyclable€items€at€a€majority€of€our€stores€as€a€service€to€our€customers.€Pursuant€to€agreements€with€third-party€vendors, lead-acid€batteries,€used€motor€oil€and€other€recyclable€items€are€collected€by€our€Team€Members,€deposited€onto€pallets€or€into vendor€supplied€containers€and€stored€by€us€until€collected€by€the€third€party€vendors€for€recycling€or€proper€disposal.€The terms€of€our€contracts€with€third€party€vendors€require€that€they€are€in€compliance€with€all€applicable€laws€and€regulations.€Our 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€our€experience,€we€do€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. We€own€and€lease€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,€we€receive€notices€from€the€U.S.€Environmental Protection€Agency€and€state€environmental€authorities€indicating€that€there€may€be€contamination€on€properties€we€own,€lease or€operate€or€may€have€owned,€leased€or€operated€in€the€past€or€on€adjacent€properties€for€which€we€may€be€responsible. Compliance€with€these€laws€and€regulations€and€clean-up€of€released€hazardous€substances€have€not€had€a€material€impact€on our€operations€to€date. Available€Information€ Our€Internet€address€is€www.AdvanceAutoParts.com.€Our€website€and€the€information€contained€therein€or€linked€thereto are€not€part€of€this€Annual€Report€on€Form€10-K€for€2018.€We€make€available€free€of€charge€through€our€Internet€website€our annual€reports€on€Form€10-K,€quarterly€reports€on€Form€10-Q,€current€reports€on€Form€8-K,€proxy€statements,€registration statements€and€amendments€to€those€reports€filed€or€furnished€pursuant€to€the€Exchange€Act€as€soon€as€reasonably€practicable after€we€electronically€file€such€material€with,€or€furnish€them€to€the€SEC.€The€SEC€maintains€a€website€that€contains€reports, proxy€statements€and€other€information€regarding€issuers€that€file€electronically€with€the€SEC.€These€materials€may€be€obtained electronically€by€accessing€the€SEC(cid:129)s€website€at€www.sec.gov. 5 Item€1A.€Risk€Factors.€ Our€business€is€subject€to€a€variety€of€risks.€Our€business,€financial€condition,€results€of€operations€and€cash€flows€could€be negatively€impacted€by€the€following€risk€factors.€These€risks€are€not€the€only€risks€that€may€impact€our€business.€ If€overall€demand€for€the€products€we€sell€declines,€our€business,€financial€condition,€results€of€operations€and€cash flows€will€suffer.€Decreased€demand€could€also€negatively€impact€our€stock€price. Overall€demand€for€products€sold€by€our€stores€depends€on€many€factors€and€may€decrease€due€to€any€number€of€reasons, including: † † † † † † † aƒdecreaseƒinƒtheƒtotalƒnumberƒofƒvehiclesƒonƒtheƒroadƒorƒinƒtheƒnumberƒofƒannualƒmilesƒdrivenƒorƒsignificantƒincrease inƒtheƒuseƒofƒridesharingƒservices,€because€fewer€vehicles€means€less€maintenance€and€repairs,€and€lower€vehicle mileage,€which€decreases€the€need€for€maintenance€and€repair; theƒeconomy,€because€during€periods€of€declining€economic€conditions€and€rising€interest€rates,€consumers€may€reduce their€discretionary€spending€by€deferring€vehicle€maintenance€or€repair€and€new€car€purchases,€which€may€impact€the number€of€cars€requiring€repair€in€the€future; theƒweather,ƒbecause€milder€weather€conditions€may€lower€the€failure€rates€of€automobile€parts€while€extended€periods of€rain€and€winter€precipitation€may€cause€our€customers€to€defer€elective€maintenance€and€repair€of€their€vehicles; theƒaverageƒdurationƒofƒvehicleƒmanufacturerƒwarrantiesƒandƒaverageƒageƒofƒvehiclesƒbeingƒdriven,ƒbecause€newer cars€typically€require€fewer€repairs€and€will€be€repaired€by€the€manufacturers(cid:129)€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(cid:129)€warranties€and tend€to€need€more€maintenance€and€repair€than€newer€vehicles; anƒincreaseƒinƒinternet-basedƒretailers,€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 our€physical€stores€and€may€cause€fewer€customers€to€order€aftermarket€parts€on€our€website;€ technologicalƒadvances,ƒsuchƒasƒbatteryƒelectricƒvehicles,ƒandƒtheƒincreaseƒinƒqualityƒofƒvehiclesƒmanufactured, 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€battery€electric€vehicles,€do€not€require€oil€changes;€and theƒrefusalƒofƒvehicleƒmanufacturersƒtoƒmakeƒavailableƒdiagnostic,ƒrepairƒandƒmaintenanceƒinformation€to€the automotiveƒaftermarketƒindustryƒthatƒourƒProfessionalƒandƒDIYƒcustomersƒrequireƒtoƒdiagnose,ƒrepairƒandƒmaintain theirƒvehicles,€because€this€may€force€consumers€to€have€a€majority€of€diagnostic€work,€repairs€and€maintenance performed€by€the€vehicle€manufacturers(cid:129)€dealer€networks. If€we€are€unable€to€compete€successfully€against€other€companies€in€the€automotive€aftermarket€industry€we€may€lose customers€and€our€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.€We€compete€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€our€competitors€may€possess€advantages€over€us€in€certain€markets€we€share,€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,€prices€and€product€warranties.€Internet-based€retailers€may€possess€cost€advantages€over us€due€to€lower€overhead€costs,€time€and€travel€savings€and€ability€to€price€competitively.€In€order€to€compete€favorably,€we may€need€to€increase€delivery€speeds€and€incur€higher€shipping€costs.€Consolidation€among€our€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€we€compete. In€addition,€our€reputation€is€critical€to€our€continued€success.€Customers€are€increasingly€shopping,€reading€reviews€and comparing€products€and€prices€on-line.€If€we€fail€to€maintain€high€standards€for,€or€receive€negative€publicity€(whether€through social€media€or€traditional€media€channels)€relating€to,€product€safety€and€quality€or€our€integrity€and€reputation,€we€could€lose customers€to€our€competition.€The€product€we€sell€is€branded€both€in€brands€of€our€vendors€and€in€our€own€private€label€brands. If€the€perceived€quality€or€value€of€the€brands€we€sell€declines€in€the€eyes€of€our€customers,€our€results€of€operations€could€be negatively€affected. 6 Competition€may€require€us€to€reduce€our€prices€below€our€normal€selling€prices€or€increase€our€promotional€spending, which€could€lower€our€revenue€and€profitability.€Competitive€disadvantages€may€also€prevent€us€from€introducing€new€product lines,€require€us€to€discontinue€current€product€offerings,€or€change€some€of€our€current€operating€strategies.€If€we€do€not€have the€resources,€expertise€and€consistent€execution,€or€otherwise€fail€to€develop€successful€strategies,€to€address€these€potential competitive€disadvantages,€we€may€lose€customers,€our€revenues€and€profit€margins€may€decline€and€we€may€be€less€profitable or€potentially€unprofitable. If€we€are€unable€to€successfully€implement€our€business€strategy,€including€increasing€sales€to€Professional€and€DIY customers,€expanding€our€margins€and€increasing€our€return€on€invested€capital,€our€business,€financial€condition, results€of€operations€and€cash€flows€could€be€adversely€affected.€ We€have€identified€numerous€initiatives€as€part€of€our€business€strategy€to€increase€sales€to€both€Professional€and€DIY customers€and€expand€our€margins€in€order€to€increase€our€earnings€and€cash€flows.€If€we€are€unable€to€implement€these initiatives€efficiently€and€effectively,€our€business,€financial€condition,€results€of€operations€and€cash€flows€could€be€adversely affected.€For€a€description€of€select€initiatives,€see€Note€4,€ExitƒActivitiesƒandƒOtherƒInitiatives,ƒof€the€Notes€to€the€Consolidated Financial€Statements€included€herein. Our€inventory€and€ability€to€meet€customer€expectations€may€be€adversely€impacted€by€factors€out€or€our€control.€ For€that€portion€of€our€inventory€manufactured€and/or€sourced€outside€the€United€States,€geopolitical€changes,€changes€in trade€regulations€or€tariff€rates,€currency€fluctuations,€work€stoppages,€labor€strikes,€port€delays,€civil€unrest,€natural€disasters, pandemics€and€other€factors€beyond€our€control€may€increase€the€cost€of€items€we€purchase€or€create€shortages€that€could€have a€material€adverse€effect€on€our€sales€and€profitability.€In€addition,€unanticipated€changes€in€consumer€preferences€or€any unforeseen€hurdles€to€meeting€our€customers(cid:129)€needs€for€automotive€products€(particularly€parts€availability)€in€a€timely€manner could€undermine€our€business€strategy. If€we€are€unable€to€successfully€implement€our€growth€strategy,€keep€existing€store€locations€or€open€new€locations€in desirable€places€on€favorable€terms,€it€could€adversely€affect€our€business,€financial€condition,€results€of€operations€and cash€flows. We€intend€to€continue€to€expand€the€markets€we€serve€as€part€of€our€growth€strategy,€which€may€include€opening€new stores€or€branches,€as€well€as€expansion€of€our€online€business.€We€may€also€grow€our€business€through€strategic€acquisitions. We€do€not€know€whether€the€implementation€of€our€growth€strategy€will€be€successful.€As€we€expand€our€market€presence through€various€means,€it€becomes€more€critical€that€we€have€consistent€and€effective€execution€across€all€of€our€Company(cid:129)s locations€and€brands.€We€are€unsure€whether€we€will€be€able€to€open€and€operate€new€locations€on€a€timely€or€sufficiently profitable€basis,€or€that€opening€new€locations€in€markets€we€already€serve€will€not€harm€the€profitability€or€comparable€store sales€of€existing€locations.€The€newly€opened€and€existing€locations(cid:129)€profitability€will€depend€on€the€competition€we€face€as well€as€our€ability€to€properly€stock,€market€and€price€the€products€desired€by€customers€in€these€markets.€The€actual€number and€format€of€any€new€locations€to€be€opened€and€the€success€of€our€growth€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; our€ability€to€expand€our€on-line€offerings€and€sales;€and our€ability€to€manage€the€expansion€and€to€hire,€train€and€retain€qualified€Team€Members. We€compete€with€other€retailers€and€businesses€for€suitable€locations€for€our€stores.€Local€land€use€and€zoning€regulations, environmental€regulations€and€other€regulatory€requirements€may€impact€our€ability€to€find€suitable€locations€and€influence€the cost€of€constructing,€renovating€and€operating€our€stores.€In€addition,€real€estate,€zoning,€construction€and€other€delays€may adversely€affect€store€openings€and€renovations€and€increase€our€costs.€Further,€changing€local€demographics€at€existing€store locations€may€adversely€affect€revenue€and€profitability€levels€at€those€stores.€The€termination€or€expiration€of€leases€at€existing store€locations€may€adversely€affect€us€if€the€renewal€terms€of€those€leases€are€unacceptable€to€us€and€we€are€forced€to€close€or relocate€stores.€If€we€determine€to€close€or€relocate€a€store€subject€to€a€lease,€we€may€remain€obligated€under€the€applicable lease€for€the€balance€of€the€lease€term.€In€addition€to€potentially€incurring€costs€related€to€lease€obligations,€we€may€also€incur severance€or€other€facility€closure€costs€for€stores€that€are€closed€or€relocated. 7 If€we€are€unable€to€successfully€integrate€future€acquisitions€into€our€existing€operations,€it€could€adversely€affect€our business,€financial€condition,€results€of€operations€and€cash€flows. We€also€expect€to€continue€to€make€strategic€acquisitions€an€element€of€our€growth€strategy.€Acquisitions€involve€certain risks€that€could€cause€our€growth€and€profitability€to€differ€from€our€expectations.€The€success€of€our€acquisitions€depends€on€a number€of€factors,€including€among€other€things: † † † † † † † our€ability€to€continue€to€identify€and€acquire€suitable€targets€or€to€acquire€additional€companies€at€favorable€prices and€on€other€favorable€terms; our€ability€to€obtain€the€full€benefits€envisioned€by€strategic€relationships; the€risk€that€management(cid:129)s€attention€may€be€distracted; our€ability€to€retain€key€personnel€from€acquired€businesses;€ our€ability€to€successfully€integrate€the€operations€and€systems€of€the€acquired€companies€and€achieve€the€strategic, operational,€financial€or€other€anticipated€synergies€of€the€acquisition; we€may€incur€significant€transaction€and€integration€costs€in€connection€with€acquisitions€that€may€not€be€offset€by€the synergies€achieved€from€the€acquisition€in€the€near€term,€or€at€all;€and we€may€assume€or€become€subject€to€loss€contingencies,€known€or€unknown,€of€the€acquired€companies,€which€could relate€to€past,€present€or€future€facts,€events,€circumstances€or€occurrences. € If€we€experience€difficulties€implementing€various€information€systems,€including€our€new€enterprise€resource€planning system€((cid:129)ERP‚),€our€ability€to€conduct€or€business€could€be€negatively€impacted. We€are€dependent€on€information€systems€to€facilitate€the€day-to-day€operations€of€the€business€and€to€produce€timely, accurate€and€reliable€information€on€financial€and€operational€results.€We€are€in€process€of€implementing€various€information systems,€including€a€new€ERP.€These€implementations€will€require€significant€investment€of€human€and€financial€resources, and€we€may€experience€significant€delays,€increased€costs€and€other€difficulties€with€these€projects.€Any€significant€disruption or€deficiency€in€the€design€and€implementation€of€these€information€systems€could€adversely€affect€our€ability€to€process orders,€ship€product,€send€invoices€and€track€payments,€fulfill€contractual€obligations€or€otherwise€operate€our€business.€While we€have€invested€meaningful€resources€in€planning,€project€management€and€training,€additional€and€serious€implementation issues€may€arise€as€we€integrate€onto€these€new€information€systems€that€may€disrupt€our€operations€and€negatively€impact€our business,€financial€condition,€results€of€operations€and€cash€flows. If€we€are€unable€to€maintain€adequate€supply€chain€capacity€and€improve€supply€chain€efficiency,€we€will€not€be€able€to expand€our€business,€which€could€adversely€affect€our€business,€financial€condition,€results€of€operations€and€cash€flows. Our€store€inventories€are€primarily€replenished€by€shipments€from€our€network€of€distribution€centers,€warehouses€and HUB€stores.€As€we€expand€our€market€presence,€we€will€need€to€increase€the€efficiency€and€maintain€adequate€capacity€of€our supply€chain€network€in€order€to€achieve€the€business€goal€of€reducing€inventory€costs€while€improving€availability€and movement€of€goods€throughout€our€supply€chain€to€meet€consumer€product€needs€and€channel€preferences.€We€continue€to streamline€and€optimize€our€supply€chain€network€and€systems€and€cannot€be€assured€of€our€ability€to€increase€the€productivity and€efficiency€of€our€overall€supply€chain€network€to€desired€levels.€If€we€fail€to€effectively€utilize€our€existing€supply€chain€or if€our€investments€in€our€supply€chain€do€not€provide€the€anticipated€benefits,€we€could€experience€sub-optimal€inventory€levels or€increases€in€our€costs,€which€could€adversely€affect€our€business,€financial€condition,€results€of€operations€and€cash€flows. We€are€dependent€on€our€suppliers€to€supply€us€with€products€that€comply€with€safety€and€quality€standards€at competitive€prices. We€are€dependent€on€our€vendors€continuing€to€supply€us€quality€products€on€payment€terms€that€are€favorable€to€us.€If€our merchandise€offerings€do€not€meet€our€customers(cid:129)€expectations€regarding€safety€and€quality,€we€could€experience€lost€sales, increased€costs€and€exposure€to€legal€and€reputational€risk.€All€of€our€suppliers€must€comply€with€applicable€product€safety laws,€and€we€are€dependent€on€them€to€ensure€that€the€products€we€buy€comply€with€all€safety€and€quality€standards.€Events that€give€rise€to€actual,€potential€or€perceived€product€safety€concerns€could€expose€us€to€government€enforcement€action€and private€litigation€and€result€in€costly€product€recalls€and€other€liabilities.€To€the€extent€our€suppliers€are€subject€to€additional government€regulation€of€their€product€design€and/or€manufacturing€processes,€the€cost€of€the€merchandise€we€purchase€may rise.€In€addition,€negative€customer€perceptions€regarding€the€safety€or€quality€of€the€products€we€sell€could€cause€our customers€to€seek€alternative€sources€for€their€needs,€resulting€in€lost€sales.€In€those€circumstances,€it€may€be€difficult€and costly€for€us€to€regain€the€confidence€of€our€customers. 8 Our€reliance€on€suppliers€subjects€us€to€various€risks€and€uncertainties€which€could€affect€our€financial€results. We€source€the€products€we€sell€from€a€wide€variety€of€domestic€and€international€suppliers.€Our€financial€results€depend€on us€securing€acceptable€terms€with€our€suppliers€for,€among€other€things,€the€price€of€merchandise€we€purchase€from€them, funding€for€various€forms€of€promotional€programs,€payment€terms€and€terms€covering€returns€and€factory€warranties.€To varying€degrees,€our€suppliers€may€be€able€to€leverage€their€competitive€advantages€-€for€example,€their€financial€strength,€the strength€of€their€brand€with€customers,€their€own€stores€or€online€channels€or€their€relationships€with€other€retailers€-€to€our commercial€disadvantage.€Generally,€our€ability€to€negotiate€favorable€terms€with€our€suppliers€is€more€difficult€with€suppliers for€whom€our€purchases€represent€a€smaller€proportion€of€their€total€revenues,€consequently€impacting€our€profitability€from such€vendor€relationships.€We€have€established€standards€for€product€safety€and€quality€and€workplace€standards€that€we require€all€our€suppliers€to€meet.€We€do€not€condone€human€trafficking,€forced€labor,€child€labor,€harassment€or€abuse€of€any kind,€and€we€expect€our€suppliers€to€operate€within€these€same€principles.€Our€ability€to€find€qualified€suppliers€who€can supply€products€in€a€timely€and€efficient€manner€that€meet€our€standards€can€be€challenging.€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.€If€we€encounter€any€of€these€issues€with€our€suppliers,€our€business,€financial condition,€results€of€operations€and€cash€flows€could€be€adversely€impacted. Deterioration€of€general€macro-economic€conditions,€including€unemployment,€inflation€or€deflation,€consumer€debt levels,€high€fuel€and€energy€costs,€could€have€a€negative€impact€on€our€business,€financial€condition,€results€of€operations and€cash€flows€due€to€impacts€on€our€suppliers,€customers€and€operating€costs.€ Our€business€depends€on€developing€and€maintaining€close€relationships€with€our€suppliers€and€on€our€suppliers(cid:129)€ability and€willingness€to€sell€quality€products€to€us€at€favorable€prices€and€terms.€Many€factors€outside€our€control€may€harm€these relationships€and€the€ability€or€willingness€of€these€suppliers€to€sell€us€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€our€suppliers(cid:129)€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€our€product€requirements.€Financial€or€operational€difficulties€that€some€of our€suppliers€may€face€could€also€increase€the€cost€of€the€products€we€purchase€from€them€or€our€ability€to€source€product€from them.€We€might€not€be€able€to€pass€our€increased€costs€onto€our€customers.€If€our€suppliers€fail€to€develop€new€products€we may€not€be€able€to€meet€the€demands€of€our€customers€and€our€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€our€relationship€with€some€suppliers,€and€could€lead€to€less€competition€and result€in€higher€prices.€We€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€macro-economic€conditions€or€an€increase€in€fuel€costs€or€proposed€or€additional€tariffs€may€have€a negative€impact€on€our€customers(cid:129)€net€worth,€financial€resources,€disposable€income€or€willingness€or€ability€to€pay€for accessories,€maintenance€or€repair€for€their€vehicles,€resulting€in€lower€sales€in€our€stores.€An€increase€in€fuel€costs€may€also reduce€the€overall€number€of€miles€driven€by€our€customers€resulting€in€fewer€parts€failures€and€a€reduced€need€for€elective maintenance. Rising€energy€prices€also€directly€impact€our€operating€and€product€costs,€including€our€store,€supply€chain,€Professional delivery,€utility€and€product€acquisition€costs. We€depend€on€the€services€of€many€qualified€executives€and€other€Team€Members,€whom€we€may€not€be€able€to€attract, develop€and€retain.€ Our€success€depends€to€a€significant€extent€on€the€continued€services€and€experience€of€our€executives€and€other€Team Members.€We€may€not€be€able€to€retain€our€current€executives€and€other€key€Team€Members€or€attract€and€retain€additional qualified€executives€and€Team€Members€who€may€be€needed€in€the€future.€We€must€also€continue€to€motivate€employees€and keep€them€focused€on€our€strategies€and€goals.€Our€ability€to€maintain€an€adequate€number€of€executive€and€other€qualified Team€Members€is€highly€dependent€on€an€attractive€and€competitive€compensation€and€benefits€package.€In€addition,€less€than one€percent€of€our€Team€Members€are€represented€by€unions.€If€these€Team€Members€were€to€engage€in€a€strike,€work stoppage,€or€other€slowdown,€or€if€the€terms€and€conditions€in€labor€agreements€were€renegotiated,€we€could€experience€a disruption€in€our€operations€and€higher€ongoing€labor€costs.€If€we€fail€or€are€unable€to€maintain€competitive€compensation,€our customer€service€and€execution€levels€could€suffer€by€reason€of€a€declining€quality€of€our€workforce,€which€could€adversely affect€our€business,€financial€condition,€results€of€operations€and€cash€flows.€ 9 The€market€price€of€our€common€stock€may€be€volatile€and€could€expose€us€to€securities€class€action€litigation. The€stock€market€and€the€price€of€our€common€stock€may€be€subject€to€wide€fluctuations€based€upon€general€economic€and market€conditions.€Downturns€in€the€stock€market€may€cause€the€price€of€our€common€stock€to€decline.€The€market€price€of€our stock€may€also€be€affected€by€our€ability€to€meet€analysts(cid:129)€expectations.€Failure€to€meet€such€expectations,€even€slightly,€could have€an€adverse€effect€on€the€price€of€our€common€stock.€In€the€past,€following€periods€of€volatility€in€the€market€price€of€a company(cid:129)s€securities,€securities€class€action€litigation€has€often€been€instituted€against€such€a€company.€If€similar€litigation were€instituted€against€us,€it€could€result€in€substantial€costs€and€a€diversion€of€our€attention€and€resources,€which€could€have€an adverse€effect€on€our€business. Our€level€of€indebtedness,€a€downgrade€in€our€credit€ratings€or€a€deterioration€in€global€credit€markets€could€limit€the cash€flow€available€for€operations€and€could€adversely€affect€our€ability€to€service€our€debt€or€obtain€additional financing.€ Our€level€of€indebtedness€could€restrict€our€operations€and€make€it€more€difficult€for€us€to€satisfy€our€debt€obligations.€For example,€our€level€of€indebtedness€could,€among€other€things: † † † affect€our€liquidity€by€limiting€our€ability€to€obtain€additional€financing€for€working€capital; limit€our€ability€to€obtain€financing€for€capital€expenditures€and€acquisitions€or€make€any€available€financing€more costly; require€us€to€dedicate€all€or€a€substantial€portion€of€our€cash€flow€to€service€our€debt,€which€would€reduce€funds available€for€other€business€purposes,€such€as€capital€expenditures,€dividends€or€acquisitions; limit€our€flexibility€in€planning€for€or€reacting€to€changes€in€the€markets€in€which€we€compete; place€us€at€a€competitive€disadvantage€relative€to€our€competitors€who€may€have€less€indebtedness; render€us€more€vulnerable€to€general€adverse€economic€and€industry€conditions;€and † † † † make€it€more€difficult€for€us€to€satisfy€our€financial€obligations. The€indenture€governing€our€notes€and€credit€agreement€governing€our€credit€facilities€contain€financial€and€other restrictive€covenants.€Our€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€our€debt,€including€such€notes. In€addition,€our€overall€credit€rating€may€be€negatively€impacted€by€deteriorating€and€uncertain€credit€markets€or€other factors€that€may€or€may€not€be€within€our€control.€The€interest€rates€on€our€publicly€issued€debt€and€revolving€credit€facility€are linked€directly€to€our€credit€ratings.€Accordingly,€any€negative€impact€on€our€credit€ratings€would€likely€result€in€higher€interest rates€and€interest€expense€on€any€borrowings€under€our€revolving€credit€facility€or€future€issuances€of€public€debt€and€less favorable€terms€on€other€operating€and€financing€arrangements.€In€addition,€it€could€reduce€the€attractiveness€of€certain€vendor payment€programs€whereby€third-party€institutions€finance€arrangements€to€our€vendors€based€on€our€credit€rating,€which€could result€in€increased€working€capital€requirements.€ Conditions€and€events€in€the€global€credit€market€could€have€a€material€adverse€effect€on€our€access€to€short€and€long-term borrowings€to€finance€our€operations€and€the€terms€and€cost€of€that€debt.€It€is€possible€that€one€or€more€of€the€banks€that provide€us€with€financing€under€our€revolving€credit€facility€may€fail€to€honor€the€terms€of€our€existing€credit€facility€or€be financially€unable€to€provide€the€unused€credit€as€a€result€of€significant€deterioration€in€such€bank(cid:129)s€financial€condition.€An inability€to€obtain€sufficient€financing€at€cost-effective€rates€could€have€a€material€adverse€effect€on€our€business,€financial condition,€results€of€operations€and€cash€flows.€ 10 Because€we€are€involved€in€litigation€from€time€to€time,€and€are€subject€to€numerous€laws€and€governmental regulations,€we€could€incur€substantial€judgments,€fines,€legal€fees€and€other€costs. We€are€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,€we€are€involved€in€litigation€involving€claims€related€to,€among other€things,€breach€of€contract,€tortious€conduct,€employment,€labor€discrimination,€breach€of€laws€or€regulations€(including The€Americans€With€Disabilities€Act),€payment€of€wages,€exposure€to€asbestos€or€potentially€hazardous€product,€real€estate€and product€defects.€The€damages€sought€against€us€in€some€of€these€litigation€proceedings€are€substantial.€Although€we€maintain liability€insurance€for€some€litigation€claims,€if€one€or€more€of€the€claims€were€to€greatly€exceed€our€insurance€coverage€limits or€if€our€insurance€policies€do€not€cover€a€claim,€this€could€have€a€material€adverse€effect€on€our€business,€financial€condition, results€of€operations€and€cash€flows.€For€instance,€we€are€currently€subject€to€a€putative€securities€class€action€regarding€past public€disclosures€(see€Item€3,€"Legal€Proceedings"€of€this€annual€report)€and€to€several€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). We€are€subject€to€numerous€federal,€state€and€local€laws€and€governmental€regulations€relating€to,€among€other€things, environmental€protection,€product€quality€and€safety€standards,€building€and€zoning€requirements,€labor€and€employment, discrimination€and€income€taxes.€Compliance€with€existing€and€future€laws€and€regulations€could€increase€the€cost€of€doing business€and€adversely€affect€our€results€of€operations.€If€we€fail€to€comply€with€existing€or€future€laws€or€regulations,€we€may be€subject€to€governmental€or€judicial€fines€or€sanctions,€while€incurring€substantial€legal€fees€and€costs,€as€well€as€reputational risk.€In€addition,€our€capital€and€operating€expenses€could€increase€due€to€remediation€measures€that€may€be€required€if€we€are found€to€be€noncompliant€with€any€existing€or€future€laws€or€regulations. We€work€diligently€to€maintain€the€privacy€and€security€of€our€customer,€supplier,€Team€Member€and€business information€and€the€functioning€of€our€computer€systems,€website€and€other€on-line€offerings.€In€the€event€of€a€security breach€or€other€cyber€security€incident,€we€could€experience€adverse€operational€effects€or€interruptions€and/or€become subject€to€legal€or€regulatory€proceedings,€any€of€which€could€lead€to€damage€to€our€reputation€in€the€marketplace€and substantial€costs. The€nature€of€our€business€requires€us€to€receive,€retain€and€transmit€certain€personally€identifiable€information€about€our customers,€suppliers€and€Team€Members,€some€of€which€is€entrusted€to€third-party€service€providers.€While€we€have€taken€and continue€to€undertake€significant€steps€to€protect€such€personally€identifiable€information€and€other€confidential€information and€to€protect€the€functioning€of€our€computer€systems,€website€and€other€online€offerings,€a€compromise€of€our€data€security systems€or€those€of€businesses€we€interact€with€could€result€in€information€related€to€our€customers,€suppliers,€Team€Members or€business€being€obtained€by€unauthorized€persons€or€adverse€operational€effects€or€interruptions,€which€could€have€a€material adverse€effect€on€our€business,€financial€condition,€results€of€operations€and€cash€flows.€We€develop,€maintain€and€update processes€and€systems€in€an€effort€to€try€to€prevent€this€from€occurring,€but€these€actions€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. Despite€our€efforts,€our€security€measures€may€be€breached€in€the€future€due€to€a€cyber-attack,€computer€malware€viruses, exploitation€of€hardware€and€software€vulnerabilities,€Team€Member€error,€malfeasance,€fraudulent€inducement€(including€so- called€ƒsocial€engineering„€attacks€and€ƒphishing„€scams)€or€other€acts.€While€we€have€experienced€threats€to€our€data€and systems,€including€phishing€attacks,€to€date€we€are€not€aware€that€we€have€experienced€a€material€cyber-security€breach€that has€in€any€manner€hindered€our€operational€capabilities.€Unauthorized€parties€may€in€the€future€obtain€access€to€our€data€or€the data€of€our€customers,€suppliers€or€Team€Members€or€may€otherwise€cause€damage€to€or€interfere€with€our€equipment,€our€data and/or€our€network€including€our€supply€chain.€Any€breach,€damage€to€or€interference€with€our€equipment€or€our€network,€or unauthorized€access€in€the€future€could€result€in€significant€operational€difficulties€including€legal€and€financial€exposure€and damage€to€our€reputation€that€could€potentially€have€an€adverse€effect€on€our€business.€While€we€also€seek€to€obtain€assurances that€others€we€interact€with€will€protect€confidential€information,€there€is€always€the€risk€that€the€confidentiality€or€accessibility of€data€held€or€utilized€by€others€may€be€compromised.€If€a€compromise€of€our€data€security€or€function€of€our€computer systems€or€website€were€to€occur,€it€could€have€a€material€adverse€effect€on€our€operating€results€and€financial€condition€and possibly€subject€us€to€additional€legal,€regulatory€and€operating€costs€and€damage€our€reputation€in€the€marketplace. 11 Business€interruptions€may€negatively€impact€our€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€or€other€natural€disasters,€war€or€acts€of€terrorism,€or€the€threat€of€any€of€these calamities€or€others,€may€have€a€negative€impact€on€our€ability€to€obtain€merchandise€to€sell€in€our€stores,€result€in€certain€of our€stores€being€closed€for€an€extended€period€of€time,€negatively€affect€the€lives€of€our€customers€or€Team€Members,€or otherwise€negatively€impact€our€operations.€Some€of€our€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€we€cannot€obtain€such€merchandise€from€other€sources€at€similar€costs€and€without€an€adverse€delay,€our sales€and€profit€margins€may€be€negatively€affected. In€the€event€that€commercial€transportation,€including€the€global€shipping€industry,€is€curtailed€or€substantially€delayed,€our business€may€be€adversely€impacted€as€we€may€have€difficulty€receiving€merchandise€from€our€suppliers€and/or€transporting€it to€our€stores. Terrorist€attacks,€war€in€the€Middle€East,€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€us and€our€suppliers,€and€also€negatively€impact€our€customers(cid:129)€disposable€income,€causing€an€adverse€impact€on€our€business, sales,€profit€margins€and€results€of€operations. We€rely€extensively€on€our€computer€systems€and€the€systems€of€our€business€partners€to€manage€inventory,€process transactions€and€report€results.€These€systems€are€subject€to€damage€or€interruption€from€power€outages,€telecommunication failures,€computer€viruses,€security€breaches€and€catastrophic€events€or€occasional€system€breakdowns€related€to€ordinary€use or€wear€and€tear.€If€our€computer€systems€or€those€of€our€business€partners€fail€we€may€experience€loss€of€critical€data€and interruptions€or€delays€in€our€ability€to€process€transactions€and€manage€inventory.€Any€such€failure,€including€plans€for disaster€recovery,€if€widespread€or€extended,€could€adversely€affect€the€operation€of€our€business€and€our€results€of€operations. We€may€be€affected€by€global€climate€change€or€by€legal,€regulatory,€or€market€responses€to€such€change. The€concern€over€climate€change€has€led€to€legislative€and€regulatory€initiatives€aimed€at€reducing€greenhouse€gas emissions€(ƒGHG„).€For€example,€proposals€that€would€impose€mandatory€requirements€related€to€GHG€continue€to€be considered€by€policy€makers€in€the€United€States€and€elsewhere.€Laws€enacted€to€reduce€GHG€that€directly€or€indirectly€affect our€suppliers€(through€an€increase€in€their€cost€of€production)€or€our€business€(through€an€impact€on€our€inventory€availability, cost€of€sales,€operations€or€demand€for€the€products€we€sell)€could€adversely€affect€our€business,€financial€condition,€results€of operations€and€cash€flows.€Changes€in€automotive€technology€and€compliance€with€any€new€or€more€stringent€laws€or regulations,€or€stricter€interpretations€of€existing€laws,€could€require€additional€expenditures€by€us€or€our€suppliers€all€of€which could€adversely€impact€the€demand€for€our€products€and€our€business,€financial€condition,€results€of€operations€or€cash€flows. Item€1B.€Unresolved€Staff€Comments.€ None. Item€2.€Properties.€ The€following€table€summarizes€the€location,€ownership€status€and€total€square€footage€of€space€utilized€for€distribution centers,€principal€corporate€offices€and€retail€stores€and€branches€at€the€end€of€2018:€ Distribution€Centers Customer€Support€Centers: Raleigh,€NC Roanoke,€VA Stores€and€branches Location 51€locations€in€33€U.S.€states€and€4€Canadian€provinces Square€Footage€(in thousands) Leased Owned 7,298 4,183 Raleigh,€NC Roanoke,€VA 4,948€stores€and€branches€in€49€U.S.€states€and€2€U.S. territories€and€161€stores€and€branches€in€9€Canadian provinces 177 253 … … 35,525 6,210 12 Item€3.€Legal€Proceedings.€ On€February€6,€2018,€a€putative€class€action€on€behalf€of€purchasers€of€our€securities€who€purchased€or€otherwise€acquired their€securities€between€November€14,€2016€and€August€15,€2017,€inclusive€(the€ƒClass€Period„),€was€commenced€against€us and€certain€of€our€current€and€former€officers€in€the€U.S.€District€Court€for€the€District€of€Delaware.€The€plaintiff€alleges€that the€defendants€failed€to€disclose€material€adverse€facts€about€our€financial€well-being,€business€relationships,€and€prospects during€the€alleged€Class€Period€in€violation€of€Section€10(b)€of€the€Securities€Exchange€Act€of€1934€and€Rule€10b-5 promulgated€thereunder.€The€case€is€still€in€its€preliminary€stages.€We€strongly€dispute€the€allegations€of€the€complaint€and intend€to€defend€the€case€vigorously.€ Refer€to€discussion€in€Note€14,€Contingencies,€of€the€Notes€to€the€Consolidated€Financial€Statements€included€herein€for information€relating€to€additional€legal€proceedings. Item€4.€Mine€Safety€Disclosures.€ Not€applicable. 13 PART€II Item€5. Market€for€Registrant(cid:129)s€Common€Equity,€Related€Stockholder€Matters€and€Issuer€Purchases€of€Equity€Securities. Our€common€stock€is€listed€on€the€New€York€Stock€Exchange€(ƒNYSE„)€under€the€symbol€ƒAAP„.€ At€February€15,€2019,€there€were€348€holders€of€record€of€our€common€stock,€which€does€not€include€the€number€of beneficial€owners€whose€shares€were€represented€by€security€position€listings. Our€stock€repurchase€program€authorizing€the€repurchase€of€up€to€$600.0€million€in€common€stock€was€authorized€by€our Board€of€Directors€on€August€8,€2018€and€publicly€announced€on€August€14,€2018.€The€following€table€sets€forth€information with€respect€to€repurchases€of€our€common€stock€for€the€fourth€quarter€ended€December€29,€2018: Period October€7,€2018€to€November€3,€2018 November€4,€2018€to€December€1,€2018 December€2,€2018€to€December€29,€2018 Total € Total€Number of€Shares Purchased€(1) 486,728 6,215 470,834 963,777 Average Price€Paid per€Share€(1) 164.53 $ 169.44 156.61 160.69 $ Total€Number€of Shares€Purchased€as Part€of€Publicly Announced€Plans€or Programs Maximum€Dollar Value€that€May€Yet Be€Purchased Under€the€Plans€or Programs (In€thousands) 486,723 … 465,085 951,808 $ $ 400,000 400,000 327,218 327,218 (1) The€aggregate€cost€of€repurchasing€shares€in€connection€with€the€net€settlement€of€shares€issued€as€a€result€of€the€vesting of€restricted€stock€units€was€$2.0€million,€or€an€average€price€of€$167.87€per€share,€during€the€twelve€weeks€ended December€29,€2018. 14 Stock€Price€Performance The€following€graph€shows€a€comparison€of€the€cumulative€total€return€on€our€common€stock,€the€Standard€&€Poor(cid:129)s€500 Index€and€the€Standard€&€Poor(cid:129)s€Retail€Index.€The€graph€assumes€that€the€value€of€an€investment€in€our€common€stock€and€in each€such€index€was€$100€on€December€28,€2013,€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€our€common€stock.€ COMPARISON€OF€CUMULATIVE€TOTAL€RETURN€AMONG ADVANCE€AUTO€PARTS,€INC.,€S&P€500€INDEX AND€S&P€RETAIL€INDEX $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 3 8 / 1 2 / 2 1 5 3 / 1 1 / 0 0 6 2 / 1 1 / 0 0 6 1 / 1 2 / 3 1 7 0 / 1 2 / 3 1 8 9 / 1 2 / 2 1 Advance Auto Parts S&P 500 Index S&P Retail Index Company/Index Advance€Auto€Parts S&P€500€Index S&P€Retail€Index December€28, 2013 January€3, 2015 January€2, 2016 December€31, 2016 December€30, 2017 December€29, 2018 $ $ $ 100.00 100.00 100.00 $ $ $ 144.25 114.11 109.80 $ $ $ 136.93 115.71 137.39 $ $ $ 153.86 129.55 143.76 $ $ $ 90.69 157.84 185.59 $ $ $ 141.43 149.63 206.28 15 Item€6. Selected€Consolidated€Financial€Data. The€following€table€sets€forth€our€selected€historical€consolidated€statements€of€operations,€balance€sheets€and€other operating€data.€Included€in€this€table€are€key€metrics€and€operating€results€used€to€measure€our€financial€progress.€The€selected historical€consolidated€financial€and€other€data€(excluding€the€Selected€Store€Data€and€Performance€Measures)€as€of December€29,€2018€and€December€30,€2017€and€for€the€years€ended€December€29,€2018,€December€30,€2017€and December€31,€2016€have€been€derived€from€our€audited€consolidated€financial€statements€and€the€related€notes€included elsewhere€in€this€report.€The€historical€consolidated€financial€and€other€data€as€of€December€31,€2016,€January€2,€2016€and January€3,€2015€and€for€the€fiscal€years€ended€January€2,€2016€(ƒ2015„)€and€January€3,€2015€(ƒ2014„)€have€been€derived€from our€audited€consolidated€financial€statements€and€the€related€notes€that€have€not€been€included€in€this€report.€You€should€read this€data€along€with€ƒManagement(cid:129)s€Discussion€and€Analysis€of€Financial€Condition€and€Results€of€Operations„€and€our consolidated€financial€statements€and€the€related€notes€included€elsewhere€in€this€report.€ (inƒthousands,ƒexceptƒperƒshareƒdata, storeƒdataƒandƒratios) Statement€of€Operations€Data: Net€sales Gross€profit Operating€income Net€income€(2) Basic€earnings€per€common€share Diluted€earnings€per€common€share Cash€dividends€declared€per€basic€share Balance€Sheet€and€Other€Financial€Data: 2018 2017 Year€(1) 2016 2015 2014 $ 9,580,554 $ 9,373,784 $ 9,567,679 $ 9,737,018 $ 9,843,861 $ 4,219,413 $ 4,085,049 $ 4,255,915 $ 4,422,772 $ 4,453,613 $ $ $ $ $ 604,275 423,847 5.75 5.73 0.24 $ $ $ $ $ 570,212 475,505 6.44 6.42 0.24 $ $ $ $ $ 787,598 459,622 6.22 6.20 0.24 $ $ $ $ $ 825,780 473,398 6.45 6.40 0.24 $ $ $ $ $ 851,710 493,825 6.75 6.71 0.24 Total€assets Total€debt $ 9,040,648 $ 8,482,301 $ 8,315,033 $ 8,127,701 $ 7,954,392 $ 1,045,930 $ 1,044,677 $10,433,255 $ 1,206,895 $ 1,628,927 Total€stockholders(cid:129)€equity $ 3,550,813 $ 3,415,196 $ 2,916,192 $ 2,460,648 $ 2,002,912 Selected€Store€Data€and€Performance Measures: Comparable€store€sales€growth€(3) Number€of€stores,€beginning€of€year New€stores Closed€stores Number€of€stores,€end€of€year 2.3% 5,183 27 (101) 5,109 (2.0%) 5,189 60 (66) 5,183 (1.4%) 0.0% 2.0% 5,293 78 (182) 5,189 5,372 121 (200) 5,293 4,049 1,487 (164) 5,372 (1) All€fiscal€years€presented€are€52€weeks,€with€the€exception€of€2014,€which€consisted€of€53€weeks.€The€impact€of€week€53 included€in€sales,€gross€profit€and€selling,€general€and€administrative€expenses€for€2014€was€$150.4€million,€$67.8€million€and $46.7€million. (2) Net€income€for€2018€and€2017€includes€an€income€tax€benefit€of€$5.7€million€and€$143.8€million€related€to€the€U.S.€Tax€Cuts and€Jobs€Act€(the€ƒAct„)€that€was€signed€into€law€on€December€22,€2017.€Refer€to€discussion€in€Note€12,€IncomeƒTaxes,€of€the Notes€to€the€Consolidated€Financial€Statements€included€herein€for€further€information. (3) Comparable€store€sales€include€net€sales€from€our€stores,€branches€and€e-commerce€websites.€Sales€to€independently€owned Carquest€branded€stores€are€excluded€from€our€comparable€store€sales.€The€change€in€store€sales€is€calculated€based€on€the change€in€net€sales€starting€once€a€store€or€branch€has€been€open€for€13€complete€accounting€periods€(each€period€represents four€weeks).€Relocations€are€included€in€comparable€store€sales€from€the€original€date€of€opening.€Acquired€stores€are included€in€our€comparable€store€sales€once€the€stores€have€completed€13€complete€accounting€periods€following€the acquisition€date€(approximately€one€year).€Comparable€store€sales€growth€for€2014€excludes€sales€from€the€53rd€week€of€2014. 16 Item€7.€Management(cid:129)s€Discussion€and€Analysis€of€Financial€Condition€and€Results€of€Operations. Theƒfollowingƒdiscussionƒandƒanalysisƒofƒfinancialƒconditionƒandƒresultsƒofƒoperationsƒshouldƒbeƒreadƒinƒconjunctionƒwith ourƒconsolidatedƒhistoricalƒfinancialƒstatementsƒandƒtheƒnotesƒtoƒthoseƒstatementsƒthatƒappearƒelsewhereƒinƒthisƒreport.ƒOur discussionƒcontainsƒforward-lookingƒstatementsƒbasedƒuponƒcurrentƒexpectationsƒthatƒinvolveƒrisksƒandƒuncertainties,ƒsuchƒas ourƒplans,ƒobjectives,ƒexpectationsƒandƒintentions.ƒActualƒresultsƒandƒtheƒtimingƒofƒeventsƒcouldƒdifferƒmateriallyƒfromƒthose anticipatedƒinƒtheseƒforward-lookingƒstatementsƒasƒaƒresultƒofƒaƒnumberƒofƒfactors,ƒincludingƒthoseƒsetƒforthƒunderƒtheƒsection entitledƒ€RiskƒFactors(cid:129)ƒelsewhereƒinƒthisƒreport. Management€Overview€ Net€sales€increased€2.2%€in€2018,€primarily€driven€by€an€increase€in€comparable€store€sales.€We€experienced€improvement across€all€regions€with€stronger€sales€growth€in€our€Mid-Atlantic,€Midwest€and€Northeast€regions,€growth€in€our€Professional and€Canadian€businesses,€as€well€as€increased€sales€in€several€product€categories. Our€gross€margin€expansion€for€2018€was€primarily€driven€by€our€increase€in€comparable€sales,€an€improvement€in inventory€management€related€to€utilizing€inventory€on€hand€and€continued€material€cost€optimization€efforts.€These improvements€in€margin€were€partially€offset€by€increased€supply€chain€costs€due€to€higher€fuel€prices€and€transportation€costs. Our€diluted€earnings€per€share€in€2018€was€$5.73€compared€to€$6.42€in€2017.€When€adjusted€for€the€following€non- operational€items,€our€adjusted€diluted€earnings€per€share€(ƒadjusted€EPS„)€in€2018€was€$7.13€compared€to€$5.37€during€2017: GPI€integration€and€store€closure€and€consolidation€expenses GPI€amortization€of€acquired€intangible€assets Transformation€expenses Other€income€adjustment Impact€of€the€Act Year€Ended December€29, 2018 December€30, 2017 $ $ $ $ $ 0.07 0.39 1.02 $ $ $ … $ (0.08) $ 0.22 0.33 0.41 (0.07) (1.94) Refer€to€€ReconciliationƒofƒNon-GAAPƒFinancialƒMeasures(cid:129)ƒfor€further€details€of€our€comparable€adjustments€and€the usefulness€of€such€measures€to€investors. Summary of 2018 Financial Results A€high-level€summary€of€our€financial€results€and€other€highlights€from€2018€includes: † † † Net€sales€during€2018€were€$9,580.6€million,€an€increase€of€2.2%€as€compared€to€2017,€which€primarily€related€to€a comparable€store€sales€growth€of€2.3%. Operating€income€for€2018€was€$604.3€million,€an€increase€of€$34.1€million€from€2017.€As€a€percentage€of€total€sales, operating€income€was€6.3%,€an€increase€of€22€basis€points€as€compared€to€2017,€due€to€an€increase€in€comparable store€sales,€continued€material€cost€improvement€and€lower€GPI€integration€and€store€closure€and€consolidation€costs. Partially€offsetting€these€improvements,€we€incurred€an€increase€in€supply€chain€costs,€higher€bonus,€an€increase€in costs€relating€to€our€transformation€plan€and€an€increase€in€spending€related€to€our€new€marketing€campaign. Inventories€as€of€December€29,€2018€increased€$194.1€million,€or€4.7%,€as€compared€to€2017.€This€increase€was driven€by€our€implementation€of€demand-based€assortment,€higher€purchases€to€ensure€future€replenishment capabilities€throughout€our€supply€chain€and€the€additional€Worlpac€ branches€ we€ opened€ in€ 2018. † We€generated€cash€flow€from€operations€of€$811.0€million€during€2018,€an€increase€of€35.0%€compared€to€2017, † primarily€due€to€improvements€to€working€capital. Provision€for€income€taxes€increased€$86.7€million€to€$131.4€million€in€2018€as€compared€to€$44.8€million€in€2017 primarily€due€to€a€net€$143.8€million€one-time€tax€benefit€associated€with€the€Act€that€was€recorded€in€2017,€which was€partially€offset€by€the€reduction€of€the€federal€tax€rate€from€35%€to€21%€due€to€the€enactment€of€the€Act. Refer€to€€ResultsƒofƒOperations(cid:129)ƒand€€LiquidityƒandƒCapitalƒResources(cid:129)€for€further€details€on€our€results. 17 Business Update We€continue€to€make€progress€on€the€various€elements€of€our€strategic€business€plan,€which€is€focused€on€improving€the customer€experience€and€driving€consistent€execution€for€both€Professional€and€DIY€customers.€To€achieve€these improvements,€we€have€undertaken€planned€transformation€actions€to€help€build€a€foundation€for€long-term€success€across€the entire€company.€These€transformation€actions€include: † † † † † † † Improvement€of€our€common€catalog€of€products€across€our€Professional€and€DIY€businesses€…€AAP,€Carquest (ƒCQ„),€Worldpac€(ƒWP„)€and€Autopart€International€(ƒAI„)€that€was€completed€in€the€first€half€of€2018. Development€of€a€demand-based€assortment,€leveraging€purchase€and€search€history€from€the€common€catalog,€versus our€existing€push-down€supply€approach.€This€technology€is€a€first€step€in€moving€from€a€supply-driven€to€a€demand- driven€assortment. Progress€in€the€early€development€of€a€more€efficient€end-to-end€supply€chain€to€deliver€our€broad€assortment. Continued€movement€towards€optimizing€our€footprint€by€market€to€drive€share,€repurposing€of€our€in-market€store and€asset€base€and€optimizing€our€distribution€centers.€ Creation€of€new€Professional€omni-channel€capabilities€to€reach€our€customers€in€the€manner€that€is€most€desirable€for them,€including€the€launch€of€MyAdvance.com,€an€interactive,€easy-to-use,€mobile-friendly€platform€where€we€have combined€multiple€online€tools€and€capabilities€into€one€place.€ Entered€into€strategic€partnership€with€Walmart.com€that€we€expect€to€enable€us€to€reach€a€much€broader€group€of€DIY customers€and€help€drive€our€DIY€market€share€growth. Continued€focus€on€Worldpac€branch€openings€in€2018€to€drive€Professional€growth€while€investing€in€online€and digital€to€drive€DIY€improvements. Industry Update Operating€within€the€automotive€aftermarket€industry,€we€are€influenced€by€a€number€of€general€macroeconomic€factors, many€of€which€are€similar€to€those€affecting€the€overall€retail€industry.€These€factors€include,€but€are€not€limited€to: Fuel€costs Unemployment€rates Consumer€confidence Competition Changes€in€new€car€sales † † † † † † Miles€driven † † † † Vehicle€manufacturer€warranties Average€age€of€vehicles€in€operation Economic€and€political€uncertainty Deferral€of€elective€automotive€maintenance€and€improvements€in€new€car€quality While€these€factors€tend€to€fluctuate,€we€remain€confident€in€the€long-term€growth€prospects€for€the€automotive€parts industry. 18 Results€of€Operations€ The€following€table€sets€forth€certain€of€our€operating€data€expressed€as€a€percentage€of€net€sales€for€the€periods€indicated.€ (inƒmillions) Net€sales Cost€of€sales Gross€profit SG&A Operating€income Interest€expense Other€income,€net Provision€for€income€taxes Net€income Year€Ended 2018€vs. 2017 December€29,€2018 December€30,€2017 December€31,€2016 $€Change $ 9,580.6 100.0% $ 9,373.8 100.0% $ 9,567.7 100.0% $ 206.8 72.4 56.4 55.5 134.4 43.6 44.5 100.3 37.5 36.3 34.1 6.1 8.2 2.2 (0.6) (0.6) (1.3) 0.1 0.1 2.9 0.5 86.7 4.8% $ (51.7) 5.1% $ 56.0 44.0 37.7 6.3 (0.6) 0.1 1.4 4.4% $ 5,311.8 4,255.9 3,468.3 787.6 (59.9) 11.1 279.2 459.6 5,288.7 4,085.0 3,514.8 570.2 (58.8) 8.8 44.8 475.5 5,361.1 4,219.4 3,615.1 604.3 (56.6) 7.6 131.4 423.8 $ Basis Points 2017€vs. 2016 $€Change Basis Points … $ (193.9) … 90 (23.0) (46) (90) (170.9) 46 125 24 46.5 (215) (217.4) 22 … 1.1 4 (2) (2) (2.3) (244) (234.5) 89 27 15.9 (65) $ Note:ƒTableƒamountsƒmayƒnotƒfootƒdueƒtoƒrounding. 2018€Compared€to€2017 Net Sales Net€sales€for€2018€were€$9,580.6€million,€an€increase€of€$206.8€million,€or€2.2%,€from€net€sales€in€2017.€This€increase€was primarily€due€to€our€comparable€store€sales€growth€of€2.3%.€Our€growth€in€comparable€store€sales€was€driven€by€an€overall improvement€across€our€business€in€2018,€growth€in€our€Professional€and€Canadian€businesses,€increased€sales€in€several product€categories€and€strong€spring€and€summer€selling€seasons,€partially€offset€by€decreased€sales€in€the€winter€season resulting€from€extreme€cold€temperatures. Gross Profit Gross€profit€for€2018€was€$4,219.4€million,€or€44.0%€of€net€sales,€as€compared€to€$4,085.0€million,€or€43.6%€of€net€sales, in€2017,€an€increase€of€46€basis€points.€The€increase€in€gross€profit€as€a€percentage€of€net€sales€was€primarily€the€result€of€an improvement€in€inventory€management€related€to€utilizing€inventory€on€hand€and€material€cost€optimization€efforts,€as€well€as a€continued€focus€on€productivity€initiatives€throughout€the€year.€These€improvements€in€margin€were€partially€offset€by increased€supply€chain€costs€due€to€higher€fuel€prices€and€transportation€costs. SG&A SG&A€for€2018€was€$3,615.1€million,€or€37.7%€of€net€sales,€as€compared€to€$3,514.8€million,€or€37.5%€of€net€sales,€for 2017,€an€increase€of€24€basis€points.€This€increase€as€a€percentage€of€net€sales€was€primarily€due€to€costs€incurred€in€connection with€our€transformation€plan,€higher€bonus€and€increased€spending€related€to€our€new€marketing€campaign.€Partially€offsetting these€costs€were€lower€GPI€integration€and€store€closure€and€consolidation€and€insurance€and€claims€expense€in€2018€compared to€the€prior€year,€as€well€as€a€continued€focus€on€expense€management€throughout€the€year. Income Taxes Our€effective€income€tax€rate€was€23.7%€and€8.6%€for€2018€and€2017.€The€increase€in€our€effective€tax€rate€for€2018 compared€to€2017€was€primarily€related€to€the€net€tax€benefit€of€$143.8€million€related€to€the€Act€that€was€recorded€in€2017. This€was€partially€offset€by€the€reduction€of€the€federal€tax€rate€from€35%€to€21%€due€to€the€enactment€of€the€Act,€which favorably€impacted€our€Net€income€for€2018€by€$77.7€million,€or€$1.05€per€diluted€share.€During€the€third€quarter€of€2018€in conjunction€with€the€completion€of€our€2017€U.S.€income€tax€return,€we€identified€a€change€in€estimate€to€amounts€previously recorded€for€the€remeasurement€of€the€net€deferred€tax€liability€and€nonrecurring€repatriation€tax€on€accumulated€earnings€of foreign€subsidiaries€which€resulted€in€a€net€tax€benefit€of€$5.7€million.€Our€accounting€for€the€impact€of€the€Act€under€Staff Accounting€Bulletin€No.€118€(ƒSAB€118„)€was€completed€as€of€the€third€quarter€of€2018. 19 2017€Compared€to€2016 Net Sales Net€sales€for€2017€were€$9,373.8€million,€a€decline€of€$193.9€million,€or€2.0%,€over€net€sales€for€2016.€This€decrease€was primarily€due€to€our€comparable€store€sales€decline€of€2.0%€and€the€portion€of€sales€that€did€not€transfer€from€stores€that€were consolidated.€During€2017,€we€consolidated€16€stores€and€closed€50€stores,€which€was€partially€offset€by€the€opening€of€60€new stores.€Our€decline€in€comparable€store€sales€was€driven€by€a€decrease€in€overall€transactions€in€2017€and€mild€summer€weather conditions,€which€was€partially€offset€by€an€increase€in€the€average€transaction€value€and€favorable€weather€in€the€fourth quarter€of€the€year€that€drove€a€stronger€demand€across€the€business. Gross Profit Gross€profit€for€2017€was€$4,085.0€million,€or€43.6%€of€net€sales,€as€compared€to€$4,255.9€million,€or€44.5%€of€net€sales, in€2016,€a€decrease€of€90€basis€points.€The€decrease€in€gross€profit€as€a€percentage€of€net€sales€was€primarily€the€result€of higher€supply€chain€costs€driven€by€unfavorable€commodity€prices€and€the€negative€impact€related€to€the€continued€inventory optimization€efforts,€partially€offset€by€continued€material€cost€improvement. SG&A SG&A€for€2017€was€$3,514.8€million,€or€37.5%€of€net€sales,€as€compared€to€$3,468.3€million,€or€36.3%€of€net€sales,€for 2016,€an€increase€of€125€basis€points.€This€increase€as€a€percentage€of€net€sales€was€primarily€due€to€costs€incurred€in connection€with€our€transformation€plan€and€higher€customer€facing€costs€including€store€labor€and€incentives€and€higher medical€costs.€Partially€offsetting€these€costs€were€lower€GPI€integration€and€store€closure€and€consolidation€expenses€in€2017 compared€to€the€prior€year€and€continued€focus€on€expense€management€throughout€the€year.€ Interest Expense Interest€expense€for€2017€was€$58.8€million,€as€compared€to€$59.9€million€in€2016.€€The€decrease€in€interest€expense€was due€to€lower€outstanding€balances€of€our€credit€facilities€during€2017,€as€compared€to€2016. Income Taxes Income€tax€expense€for€2017€was€$44.8€million,€as€compared€to€$279.2€million€for€2016.€Our€effective€income€tax€rate was€8.6%€and€37.8%€for€2017€and€2016.€The€decrease€in€our€effective€tax€rate€for€2017€compared€to€2016€was€primarily€due€to a€net€$143.8€million€benefit€related€to€the€Act. Reconciliation€of€Non-GAAP€Financial€Measures €Management‚sƒDiscussionƒandƒAnalysisƒofƒFinancialƒConditionƒandƒResultsƒofƒOperations(cid:129)ƒincludes€certain€financial measures€not€derived€in€accordance€with€accounting€principles€generally€accepted€in€the€United€States€of€America (ƒGAAP„).€Non-GAAP€financial€measures€should€not€be€used€as€a€substitute€for€GAAP€financial€measures,€or€considered€in isolation,€for€the€purpose€of€analyzing€our€operating€performance,€financial€position€or€cash€flows.€We€have€presented€these non-GAAP€financial€measures€as€we€believe€that€the€presentation€of€our€financial€results€that€exclude€(1)€non-operational expenses€associated€with€the€integration€of€GPI€and€store€closure€and€consolidation;€(2)€non-cash€charges€related€to€the acquired€GPI€intangible€assets;€(3)€transformation€expenses€under€our€strategic€business€plan;€and€(4)€nonrecurring€impact€of the€Act,€is€useful€and€indicative€of€our€base€operations€because€the€expenses€vary€from€period€to€period€in€terms€of€size,€nature and€significance€and/or€relate€to€the€integration€of€GPI€and€store€closure€and€consolidation€activity€in€excess€of€historical levels.€These€measures€assist€in€comparing€our€current€operating€results€with€past€periods€and€with€the€operational€performance of€other€companies€in€our€industry.€The€disclosure€of€these€measures€allows€investors€to€evaluate€our€performance€using€the same€measures€management€uses€in€developing€internal€budgets€and€forecasts€and€in€evaluating€management(cid:129)s€compensation. Included€below€is€a€description€of€the€expenses€we€have€determined€are€not€normal,€recurring€cash€operating€expenses necessary€to€operate€our€business€and€the€rationale€for€why€providing€these€measures€is€useful€to€investors€as€a€supplement€to the€GAAP€measures. 20 GPI€Integration€and€Store€Closure€and€Consolidation€Expenses…We€acquired€GPI€in€2014€and€are€progressing€in€our multi-year€plan€to€integrate€the€operations€of€GPI€with€AAP.€Due€to€the€size€of€the€acquisition,€we€consider€these€expenses€to be€outside€of€our€base€business.€Therefore,€we€believe€providing€additional€information€in€the€form€of€non-GAAP€measures that€exclude€these€costs€is€beneficial€to€the€users€of€our€financial€statements€in€evaluating€the€operating€performance€of€our€base business€and€our€sustainability€once€the€integration€is€complete.€In€addition€to€integration€expenses,€we€incur€store€closure€and consolidation€expenses€that€consist€of€expenses€associated€with€our€plans€to€convert€and€consolidate€the€Carquest€stores acquired€from€GPI.€While€periodic€store€closures€are€common,€these€closures€represent€a€significant€program€outside€of€our typical€market€evaluation€process.€We€believe€it€is€useful€to€provide€additional€non-GAAP€measures€that€exclude€these€costs€to provide€investors€greater€comparability€of€our€base€business€and€core€operating€performance.€We€also€continue€to€have€store closures€that€occur€as€part€of€our€normal€market€evaluation€process€and€have€not€excluded€the€expenses€associated€with€these store€closures€in€computing€our€non-GAAP€measures. Transformation€Expenses…We€expect€to€recognize€a€significant€amount€of€transformation€expenses€over€the€next€several years€as€we€transition€from€integration€of€our€AAP/CQUS€businesses€to€a€plan€that€involves€a€more€holistic€and€integrated transformation€of€the€entire€Company,€including€WP€and€AI.€These€expenses€will€include,€but€not€be€limited€to,€restructuring costs,€store€closure€costs€and€third-party€professional€services€and€other€significant€costs€to€integrate€and€streamline€our operating€structure€across€the€enterprise.€We€are€focused€on€several€areas€throughout€Advance,€such€as€supply€chain€and information€technology. U.S.€Tax€Reform…On€December€22,€2017,€the€Act€was€signed€into€law.€The€Act€amends€the€Internal€Revenue€Code€of 1986€by,€among€other€things,€permanently€lowering€the€corporate€tax€rate€to€21%€from€the€existing€maximum€rate€of€35%, implementing€a€territorial€tax€system€and€imposing€a€one-time€repatriation€tax€on€deemed€repatriated€earnings€of€foreign subsidiaries.€During€the€third€quarter€of€2018,€and€in€conjunction€with€the€completion€of€our€2017€U.S.€income€tax€return,€we identified€a€change€in€estimate,€in€accordance€with€SAB€118,€to€amounts€previously€estimated€for€the€remeasurement€of€the€net deferred€tax€liability€and€nonrecurring€repatriation€tax€on€accumulated€earnings€foreign€subsidiaries. We€have€included€a€reconciliation€of€this€information€to€the€most€comparable€GAAP€measures€in€the€following€table. (inƒthousands,ƒexceptƒperƒshareƒdata) Net€income€(GAAP) Cost€of€sales€adjustments: Transformation€expenses SG&A€adjustments: GPI€integration€and€store€closure€and€consolidation€expenses GPI€amortization€of€acquired€intangible€assets Transformation€expenses Other€income€adjustment€(1) Provision€for€income€taxes€on€adjustments€(2) Impact€of€the€Act,€net Adjusted€net€income€(Non-GAAP) Diluted€earnings€per€share€(GAAP) Adjustments,€net€of€tax Adjusted€EPS€(Non-GAAP) Year€Ended December€29, 2018 December€30, 2017 $ 423,847 $ 475,505 6,740 … 7,360 38,018 93,767 … (36,274) (5,665) 527,793 5.73 1.40 7.13 $ $ $ 26,207 39,477 50,425 (8,878) (40,748) (143,756) 398,232 6.42 (1.05) 5.37 $ $ $ (1) The€adjustment€to€Other€income€for€2017€relates€to€income€recognized€from€an€indemnification€agreement€associated with€the€acquisition€of€GPI. (2) The€income€tax€impact€of€non-GAAP€adjustments€is€calculated€using€the€estimated€tax€rate€in€effect€for€the€respective non-GAAP€adjustments.€ 21 Liquidity€and€Capital€Resources€ Overview Our€primary€cash€requirements€necessary€to€maintain€our€current€operations€include€payroll€and€benefits,€inventory purchases,€contractual€obligations,€capital€expenditures,€payment€of€income€taxes€and€funding€of€initiatives€under€our€strategic business€plan.€In€addition,€we€may€use€available€funds€for€acquisitions,€to€repay€borrowings€under€our€credit€agreement,€to periodically€repurchase€shares€of€our€common€stock€under€our€stock€repurchase€programs€and€for€the€payment€of€quarterly cash€dividends.€Historically,€we€have€funded€these€requirements€primarily€through€cash€generated€from€operations, supplemented€by€borrowings€under€our€credit€facilities€and€debt€securities€as€needed.€We€believe€funds€generated€from€our expected€results€of€operations,€available€cash€and€cash€equivalents,€and€available€borrowing€capacity€under€our€credit€facility will€be€sufficient€to€fund€our€primary€obligations€for€the€next€year. Capital Expenditures Our€primary€capital€requirements€have€been€the€funding€of€our€investments€in€supply€chain€and€information€technology (ƒIT„),€e-commerce€and€maintenance€of€existing€stores.€We€lease€approximately€84%€of€our€stores.€ Our€capital€expenditures€were€$193.7€million€in€2018,€an€increase€of€$4.0€million€from€2017.€This€increase€in€capital expenditures€related€to€several€IT€projects,€including€our€Finance€enterprise€resource€planning€tool,€as€well€as€investment€in supply€chain€and€store€improvements. Our€future€capital€requirements€will€depend€in€large€part€on€the€timing€or€number€of€the€investments€we€make€on€IT€and supply€chain€network€initiatives€and€existing€stores€and€new€store€development€(leased€and€owned€locations)€within€a€given year.€In€2019,€we€anticipate€that€our€capital€expenditures€related€to€such€investments€will€range€from€$250€million€to€$300 million,€but€may€vary€with€business€conditions.€ Analysis of Cash Flows The€following€table€summarizes€our€cash€flows€from€operating,€investing€and€financing€activities: (inƒmillions) Cash€flows€provided€by€operating€activities Cash€flows€used€in€investing€activities Cash€flows€used€in€financing€activities Effect€of€exchange€rate€changes€on€cash Net€increase€in€cash€and€cash€equivalents OperatingƒActivities Year€Ended December€29, 2018 December€30, 2017 January€2, 2016 $ $ 811.0 (191.8) (263.9) (5.7) 349.6 $ $ 600.8 (178.6) (14.9) 4.5 411.8 $ $ 523.3 (262.0) (217.1) 0.3 44.4 For€2018,€net€cash€provided€by€operating€activities€increased€$210.2€million€to€$811.0€million.€The€net€increase€in operating€cash€flows€compared€to€the€prior€year€was€primarily€driven€by€our€focus€on€working€capital€management,€including an€increase€in€Accounts€payable,€partially€offset€by€increases€in€Receivables,€net€and€Inventories. For€2017,€net€cash€provided€by€operating€activities€increased€$77.5€million€to€$600.8€million.€This€net€increase€in operating€cash€flow€was€primarily€driven€by€the€timing€of€payments€within€working€capital.€Our€inventory€balance€as€of December€30,€2017€decreased€$157.4€million,€or€3.6%,€over€the€prior€year€primarily€driven€by€the€focus€on€inventory optimization€across€the€Company. 22 InvestingƒActivities For€2018,€net€cash€used€in€investing€activities€increased€by€$13.2€million€to€$191.8€million€compared€to€2017.€The€increase in€cash€used€in€investing€activities€was€primarily€driven€by€an€increase€in€capital€expenditures€related€to€several€IT€projects, including€our€Finance€enterprise€resource€planning€tool,€as€well€as€investments€in€supply€chain,€e-commerce€and€store improvements. For€2017,€net€cash€used€in€investing€activities€decreased€by€$83.4€million€to€$178.6€million€compared€to€2016.€The decrease€in€cash€used€in€investing€activities€was€primarily€driven€by€the€decrease€in€cash€used€for€purchases€of€property€and equipment.€ FinancingƒActivities For€2018,€net€cash€used€in€financing€activities€increased€by€$249.0€million€to€$263.9€million.€This€increase€was€primarily€a result€of€returning€cash€to€shareholders€in€the€form€of€stock€repurchases€and€dividends. For€2017,€net€cash€used€in€financing€activities€decreased€by€$202.3€million€to€$14.9€million.€This€decrease€was€primarily€a result€of€lower€net€repayments€on€the€revolving€credit€facility€and€term€loan€than€in€the€prior€year. Long-Term Debt As€of€December€29,€2018,€we€had€a€credit€rating€from€Standard€&€Poor(cid:129)s€of€BBB-€and€from€Moody(cid:129)s€Investor€Service€of Baa2.€The€current€outlooks€by€Standard€&€Poor(cid:129)s€and€Moody(cid:129)s€are€both€stable.€The€current€pricing€grid€used€to€determine€our borrowing€rate€under€our€revolving€credit€facility€is€based€on€our€credit€ratings.€If€these€credit€ratings€decline,€our€interest€rate on€outstanding€balances€may€increase€and€our€access€to€additional€financing€on€favorable€terms€may€become€more€limited.€In addition,€it€could€reduce€the€attractiveness€of€certain€vendor€payment€programs€whereby€third-party€institutions€finance arrangements€to€our€vendors€based€on€our€credit€rating,€which€could€result€in€increased€working€capital€requirements. Conversely,€if€these€credit€ratings€improve,€our€interest€rate€may€decrease. On€January€29,€2019,€we€notified€Wells€Fargo€Bank,€N.A.,€as€trustee,€of€our€intent€to€redeem€all€$300.0€million€aggregate principal€amount€of€our€outstanding€5.75%€Notes€due€2020.€For€detailed€information€refer€to€Note€7,€Long-termƒDebtƒandƒFair ValueƒofƒFinancialƒInstruments,€of€the€Notes€to€the€Consolidated€Financial€Statements€included€herein. Stock Repurchases On€August€8,€2018,€the€Company's€Board€of€Directors€authorized€a€$600€million€stock€repurchase€program.€Under€this authorization,€the€Company€repurchased€1.7€million€shares€of€its€common€stock€at€an€aggregate€cost€of€$272.8€million€during 2018.€We€had€$327.2€million€remaining€under€our€stock€repurchase€program€as€of€December€29,€2018.€ Subsequent€to€December€29,€2018,€we€have€repurchased€0.8€million€shares€of€common€stock€at€an€aggregate€cost€of $127.2€million€through€our€stock€repurchase€program. Off-Balance-Sheet Arrangements As€of€December€29,€2018,€other€than€as€disclosed€in€Note€7,€Long-termƒDebtƒandƒFairƒValueƒofƒFinancialƒInstruments,€of the€Notes€to€the€Consolidated€Financial€Statements€included€herein,€we€had€no€other€off-balance-sheet€arrangements.€We include€other€off-balance-sheet€arrangements€in€our€Contractual€Obligations€table€including€operating€lease€payments€and interest€payments€on€our€senior€unsecured€notes,€revolving€credit€facility€and€letters€of€credit€outstanding. 23 Contractual Obligations In€addition€to€our€senior€unsecured€notes€and€revolving€credit€facility,€we€utilize€operating€leases€as€another€source€of financing.€The€amounts€payable€under€these€operating€leases€are€included€in€our€Contractual€Obligations€table.€Our€future contractual€obligations€related€to€long-term€debt,€operating€leases€and€other€contractual€obligations€as€of€December€29,€2018 were€as€follows: (inƒthousands) Payments€Due€by€Period Contractual€Obligations Long-term€debt€(1) €Interest€payments Operating€leases€(2) Other€long-term€liabilities€(3) Purchase€commitments€(4) $ Total 1,050,210 174,375 2,876,275 558,165 101,516 Less€than€1 Year 1€-€3€Years 3€-€5€Years More€than€5 Years $ 210 $ 300,000 $ 750,000 $ 51,000 520,541 … 35,276 76,125 898,707 … 34,520 47,250 619,586 … 31,720 … … 837,441 … … $ 4,760,541 $ 607,027 $ 1,309,352 $ 1,448,556 $ 837,441 Note:€For€additional€information€refer€to€Note€7,€Long-termƒDebtƒandƒFairƒValueƒofƒFinancialƒInstruments;€Note€12, IncomeƒTaxes;€Note€13,€LeaseƒCommitments;€Note€14,€Contingencies;€and€Note€15,€BenefitƒPlans,€of€the€Notes€to€the Consolidated€Financial€Statements€included€herein.€ (1) Long-term€debt€represents€the€principal€amount€of€our€senior€unsecured€notes,€which€become€due€in€2020,€2022€and 2023.€ (2) We€lease€certain€store€locations,€distribution€centers,€office€space,€equipment€and€vehicles.€Our€property€leases generally€contain€renewal€and€escalation€clauses€and€other€concessions.€These€provisions€are€considered€in€our calculation€of€our€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€our€minimum€lease payment€calculations.€ Includes€the€long-term€portion€of€deferred€income€taxes€and€other€liabilities,€including€self-insurance€reserves€for which€no€contractual€payment€schedule€exists.€As€we€expect€the€payments€to€occur€beyond€12€months€from December€29,€2018,€the€related€balances€have€not€been€reflected€in€the€ƒPayments€Due€by€Period„€section€of€the€table.€ (3) (4) Purchase€commitments€include€agreements€to€purchase€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.€Included€in€the€table€above€is€the€lesser€of€the€remaining obligation€or€the€cancellation€penalty€under€the€agreement.€ Critical€Accounting€Policies Our€financial€statements€have€been€prepared€in€accordance€with€GAAP.€Our€discussion€and€analysis€of€the€financial condition€and€results€of€operations€are€based€on€these€financial€statements.€The€preparation€of€these€financial€statements requires€the€application€of€accounting€policies€in€addition€to€certain€estimates€and€judgments€by€our€management.€Our estimates€and€judgments€are€based€on€currently€available€information,€historical€results€and€other€assumptions€we€believe€are reasonable.€Actual€results€could€differ€materially€from€these€estimates.€ The€preparation€of€our€financial€statements€included€the€following€significant€estimates€and€exercise€of€judgment.€ GoodwillƒandƒIndefinite-LivedƒIntangibleƒAssets We€evaluate€goodwill€and€indefinite-lived€intangibles€for€impairment€annually€as€of€the€first€day€of€our€fourth€quarter€or whenever€events€or€changes€in€circumstances€indicate€the€carrying€value€of€the€goodwill€or€other€intangible€asset€may€not€be recoverable.€We€test€goodwill€for€impairment€at€the€reporting€unit€level.€Effective€in€the€third€quarter€of€2017,€we€realigned€our three€geographic€divisions,€which€included€the€operations€of€the€stores€operating€under€the€Advance€Auto€Parts,€Carquest€and Autopart€International€trade€names,€into€two€U.S.€geographic€divisions.€As€a€result€of€this€realignment€and€change€in€the operating€structure€of€its€Carquest€Independent€and€Carquest€Canada€businesses,€we€now€have€five€operating€segments.€As each€operating€segment€represents€a€reporting€unit,€goodwill€was€reassigned€to€the€affected€reporting€units€using€a€relative€fair value€approach. 24 Our€detailed€impairment€testing€involves€comparing€the€fair€value€of€each€reporting€unit€to€its€carrying€value,€including goodwill.€If€a€reporting€unit(cid:129)s€fair€value€has€historically€significantly€exceeded€its€carrying€value,€then€a€risk-based€market approach€of€determining€the€reporting€unit(cid:129)s€fair€value€is€utilized.€We€use€a€valuation€specialist€to€determine€the€fair€value€for the€remaining€reporting€units.€If€the€fair€value€exceeds€carrying€value,€we€conclude€that€no€goodwill€impairment€has€occurred. If€the€carrying€value€of€the€reporting€unit€exceeds€its€fair€value,€a€second€step€is€required€to€measure€possible€goodwill impairment€loss.€ Our€indefinite-lived€intangible€assets€primarily€consist€of€the€Carquest€and€Worldpac€brands€are€tested€for€impairment€at the€asset€group€level.€Indefinite-lived€intangibles€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,€we€conclude€that€no€intangible€asset€impairment€has€occurred.€If€the€carrying€value€of€the€indefinite-lived intangible€asset€exceeds€the€fair€value,€we€recognize€an€impairment€loss. We€complete€our€impairment€evaluations€by€combining€information€from€our€internal€valuation€analyses,€considering€other publicly€available€market€information€and€using€an€independent€valuation€firm.€We€determine€fair€value€using€widely€accepted valuation€techniques,€including€discounted€cash€flows€and€market€multiple€analyses.€These€types€of€analyses€require management€to€make€assumptions€as€a€marketplace€participant€would€and€to€apply€judgment€to€estimate€industry€economic factors€and€the€profitability€of€future€business€strategies€of€our€Company€and€our€reporting€units.€These€assumptions€and estimates€are€a€major€component€of€the€derived€fair€value€of€our€reporting€units.€Critical€assumptions€include€projected€sales growth,€gross€profit€rates,€SG&A€rates,€working€capital€fluctuations,€capital€expenditures,€discount€rates,€royalty€rates€and terminal€growth€rates.€If€actual€results€are€not€consistent€with€our€estimates€or€assumptions,€we€may€be€exposed€to€an impairment€charge€that€could€be€material.€ InventoryƒReserves Our€inventory€consists€primarily€of€parts,€batteries,€accessories€and€other€products€used€on€vehicles€that€have€reasonably long€shelf€lives.€Although€the€risk€of€obsolescence€is€minimal,€we€consider€whether€we€may€have€excess€inventory€based€on our€current€approach€for€managing€slower€moving€inventory.€We€establish€reserves€when€the€expected€net€proceeds€are€less than€carrying€value. Future€changes€by€vendors€in€their€policies€or€willingness€to€accept€returns€of€excess€inventory,€changes€in€our€inventory management€approach€for€excess€and€obsolete€inventory€or€failure€by€us€to€effectively€manage€the€life€cycle€of€our€inventory could€require€us€to€revise€our€estimates€of€required€reserves€and€result€in€a€negative€impact€on€our€consolidated€statement€of operations.€A€10%€difference€in€actual€inventory€reserves€at€December€29,€2018€would€result€in€a€change€in€expense€of approximately€$9.5€million€for€2018. Self-InsuranceƒReserves Our€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€our€historical€claims experience.€Specific€factors€include,€but€are€not€limited€to,€assumptions€about€health€care€costs,€the€severity€of€accidents€and the€incidence€of€illness€and€the€average€size€of€claims.€Generally,€claims€for€automobile€and€general€liability€and€workers(cid:129) compensation€take€several€years€to€settle.€We€classify€the€portion€of€our€self-insurance€reserves€that€is€not€expected€to€be€settled within€one€year€in€long-term€liabilities. While€we€do€not€expect€the€amounts€ultimately€paid€to€differ€significantly€from€our€estimates,€our€self-insurance€reserves and€corresponding€SG&A€could€be€affected€if€future€claim€experience€differs€significantly€from€historical€trends€and€actuarial assumptions.€A€10%€change€in€our€self-insurance€liabilities€at€December€29,€2018€would€result€in€a€change€in€expense€of approximately€$15.4€million€for€2018. VendorƒIncentivesƒ We€receive€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.€Volume€rebates€and€vendor€promotional€allowances€not€offsetting€in€SG&A€are earned€based€on€inventory€purchases€and€initially€recorded€as€a€reduction€to€inventory.€These€deferred€amounts€are€included€as a€reduction€to€cost€of€sales€as€the€inventory€is€sold. 25 Vendor€promotional€allowances€provided€as€a€reimbursement€of€specific,€incremental€and€identifiable€costs€incurred€to promote€a€vendor(cid:129)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€our€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.€ Similarly,€we€recognize€other€promotional€incentives€earned€under€long-term€agreements€as€a€reduction€to€cost€of€sales. However,€these€incentives€are€recognized€based€on€the€cumulative€net€purchases€as€a€percentage€of€total€estimated€net purchases€over€the€life€of€the€agreement.€Short-term€incentives€with€terms€less€than€one€year€are€generally€recognized€as€a reduction€to€cost€of€sales€over€the€duration€of€the€agreements. Amounts€received€or€receivable€from€vendors€that€are€not€yet€earned€are€reflected€as€deferred€revenue.€Management(cid:129)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.€We€regularly€review€the€receivables€from€vendors to€ensure€they€are€able€to€meet€their€obligations.€Historically,€the€change€in€our€reserve€for€receivables€related€to€vendor funding€has€not€been€significant. 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€our€consolidated€financial€statements,€see€ƒRecentlyƒIssuedƒAccountingƒPronouncements(cid:129)€in€Note 2,€SignificantƒAccountingƒPolicies,ƒof€the€Notes€to€the€Consolidated€Financial€Statements€included€herein. Item€7A.€Quantitative€and€Qualitative€Disclosures€about€Market€Risks.€ We€are€subject€to€interest€rate€risk€to€the€extent€we€borrow€against€our€revolving€credit€facility€as€it€is€based,€at€our€option, on€adjusted€LIBOR,€plus€a€margin,€or€an€alternate€base€rate,€plus€a€margin.€As€of€December€29,€2018€and€December€30,€2017, we€had€no€borrowings€outstanding€under€our€revolving€credit€facility. Our€financial€assets€that€are€exposed€to€credit€risk€consist€primarily€of€trade€accounts€receivable€and€vendor€receivables. We€are€exposed€to€normal€credit€risk€from€customers.€Our€concentration€of€credit€risk€is€limited€because€our€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.€We€have€not€historically€had€significant€credit€losses. We€are€exposed€to€foreign€currency€exchange€rate€fluctuations€for€the€portion€of€our€inventory€purchases€denominated€in foreign€currencies.€We€believe€that€the€price€volatility€relating€to€foreign€currency€exchange€rates€is€partially€mitigated€by€our ability€to€adjust€selling€prices.€During€2018,€2017€and€2016,€foreign€currency€transactions€did€not€significantly€impact€net income. Item€8.€Financial€Statements€and€Supplementary€Data.€ See€financial€statements€included€in€Item€15€ƒExhibits,ƒFinancialƒStatementƒSchedules„€of€this€annual€report.€ Item€9.€Changes€in€and€Disagreements€with€Accountants€on€Accounting€and€Financial€Disclosure.€ None. 26 Item€9A.€Controls€and€Procedures. DisclosureƒControlsƒandƒProcedures Disclosure€controls€and€procedures€(as€that€term€is€defined€in€Rules€13a-15(e)€and€15d-15(e)€under€the€Securities Exchange€Act€of€1934,€as€amended€(the€ƒExchange€Act„))€are€our€controls€and€other€procedures€that€are€designed€to€ensure€that information€required€to€be€disclosed€by€us€in€our€reports€that€we€file€or€submit€under€the€Exchange€Act€is€recorded,€processed, summarized€and€reported€within€the€time€periods€specified€in€the€SEC(cid:129)s€rules€and€forms,€and€that€such€information€is accumulated€and€communicated€to€our€management,€including€our€principal€executive€officer€and€principal€financial€officer,€as appropriate€to€allow€timely€decisions€regarding€required€disclosure.€Internal€controls€over€financial€reporting,€no€matter€how well€designed,€have€inherent€limitations,€including€the€possibility€of€human€error€and€the€override€of€controls.€Therefore,€even those€systems€determined€to€be€effective€can€provide€only€ƒreasonable€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. EvaluationƒofƒDisclosureƒControlsƒandƒProcedures Our€management€evaluated,€with€the€participation€of€our€principal€executive€officer€and€principal€financial€officer,€the effectiveness€of€our€disclosure€controls€and€procedures€as€of€December€29,€2018.€Based€on€this€evaluation,€our€principal executive€officer€and€our€principal€financial€officer€have€concluded€that,€as€of€the€end€of€the€period€covered€by€this€report,€our disclosure€controls€and€procedures€were€effective€to€accomplish€their€objectives€at€the€reasonable€assurance€level. Management‚sƒReportƒonƒInternalƒControlƒoverƒFinancialƒReporting Our€management€is€responsible€for€establishing€and€maintaining€adequate€internal€control€over€financial€reporting€as defined€in€Rule€13(a)€-€15(f)€under€the€Exchange€Act.€Our€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€ƒreasonable€assurance„€regarding€the€reliability€of€financial€reporting€and€the preparation€of€our€financial€statements€for€external€purposes€in€accordance€with€GAAP.€Our€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€our€assets;€(2)€provide€reasonable€assurance€that€transactions€are€recorded as€necessary€to€permit€preparation€of€financial€statements€in€accordance€with€GAAP,€and€that€our€receipts€and€expenditures€are being€made€only€in€accordance€with€authorizations€of€our€management€and€directors;€and€(3)€provide€ƒreasonable€assurance„ regarding€prevention€or€timely€detection€of€unauthorized€acquisition,€use,€or€disposition€of€our€assets€that€could€have€a€material effect€on€the€financial€statements. As€of€December€29,€2018,€management,€including€our€principal€executive€officer€and€principal€financial€officer,€assessed the€effectiveness€of€the€Company(cid:129)s€internal€control€over€financial€reporting€based€on€the€criteria€established€in€InternalƒControl -ƒIntegratedƒFrameworkƒ(2013)€issued€by€the€Committee€of€Sponsoring€Organizations€of€the€Treadway€Commission€(COSO). Based€on€this€assessment,€management€has€determined€that€our€internal€control€over€financial€reporting€as€of€December€29, 2018€is€effective.€ ChangesƒinƒInternalƒControlƒOverƒFinancialƒReporting There€were€no€changes€in€our€internal€control€over€financial€reporting€(as€that€term€is€defined€in€Rules€13a-15(f)€and 15d-15(f)€under€the€Exchange€Act)€that€occurred€during€the€quarter€ended€December€29,€2018€that€have€materially€affected,€or are€reasonably€likely€to€materially€affect,€our€internal€control€over€financial€reporting. AttestationƒReportƒofƒRegisteredƒPublicƒAccountingƒFirm Our€internal€control€over€financial€reporting€as€of€December€29,€2018€has€been€audited€by€Deloitte€&€Touche€LLP,€an independent€registered€public€accounting€firm,€which€also€audited€our€Consolidated€Financial€Statements€for€the€year€ended December€29,€2018,€as€stated€in€their€report€included€herein,€which€expresses€an€unqualified€opinion€on€the€effectiveness€of€our internal€control€over€financial€reporting€as€of€December€29,€2018. Item€9B.€Other€Information. Refer€to€discussion€in€Note€4,€ExitƒActivitiesƒandƒOtherƒInitiatives,€of€the€Notes€to€the€Consolidated€Financial€Statements included€herein. 27 PART€III Item€10. Directors,€Executive€Officers€and€Corporate€Governance. For€a€discussion€of€our€directors,€executive€officers€and€corporate€governance,€see€the€information€set€forth€in€the€sections entitled€ƒProposal€No.€1€-€Election€of€Directors,„€ƒCorporate€Governance,„€ƒMeetings€and€Committees€of€the€Board,„ ƒInformation€Concerning€Our€Executive€Officers,„€ƒAudit€Committee€Report,„€and€ƒSection€16(a)€Beneficial€Ownership Reporting€Compliance„€in€our€proxy€statement€for€the€2019€annual€meeting€of€stockholders€to€be€filed€with€the€SEC€within€120 days€after€the€end€of€the€year€ended€December€29,€2018€(the€ƒ2019€Proxy€Statement„),€which€is€incorporated€herein€by reference. Item€11.€Executive€Compensation.€ See€the€information€set€forth€in€the€sections€entitled€ƒMeetings€and€Committees€of€the€Board,„€ƒCompensation€Committee Report,„€ƒCompensation€Discussion€and€Analysis,„€ƒAdditional€Information€Regarding€Executive€Compensation„€and ƒDirector€Compensation„€in€the€2019€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€sections€entitled€ƒEquity€Compensation€Plan€Information€Table„€and€ƒSecurity Ownership€of€Certain€Beneficial€Owners€and€Management„€in€the€2019€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€sections€entitled€ƒCorporate€Governance„€and€ƒMeetings€and€Committees€of€the Board„€in€the€2019€Proxy€Statement,€which€is€incorporated€herein€by€reference. Item€14.€Principal€Accountant€Fees€and€Services.€ See€the€information€set€forth€in€the€section€entitled€ƒ2018€and€2017€Audit€Fees„€in€the€2019€Proxy€Statement,€which€is incorporated€herein€by€reference. 28 PART€IV Item€15. €Exhibits,€Financial€Statement€Schedules. (a)(1)€Financial€Statements Audited€Consolidated€Financial€Statements€of€Advance€Auto€Parts,€Inc.€and€Subsidiaries€for€the years€ended€December€29,€2018,€December€30,€2017€and€December€31,€2016: Reports€of€Independent€Registered€Public€Accounting€Firm ......................................................................... Consolidated€Balance€Sheets.......................................................................................................................... Consolidated€Statements€of€Operations.......................................................................................................... Consolidated€Statements€of€Comprehensive€Income ..................................................................................... Consolidated€Statements€of€Changes€in€Stockholders(cid:129)€Equity....................................................................... Consolidated€Statements€of€Cash€Flows......................................................................................................... Notes€to€the€Consolidated€Financial€Statements ............................................................................................ 30 32 33 33 34 35 36 (2)€Financial€Statement€Schedule Schedule€II€-€Valuation€and€Qualifying€Accounts............................................................................................. 69 (3)€Exhibits Exhibit€Index..................................................................................................................................................... 70 29 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€29,€2018€and€December€30,€2017,€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€29,€2018,€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€29,€2018€and December€30,€2017,€and€the€results€of€its€operations€and€its€cash€flows€for€each€of€the€three€years€in€the€period€ended€December 29,€2018,€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€29,€2018,€based€on€criteria€established€in Internalƒ Controlƒ -ƒ Integratedƒ Frameworkƒ (2013)€ issued€ by€ the€ Committee€ of€ Sponsoring€ Organizations€ of€ the€ Treadway Commission€and€our€report€dated€February€19,€2019,€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. Charlotte,€North€Carolina February€19,€2019 We€have€served€as€the€Company(cid:129)s€auditor€since€2002. 30 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,€Inc.€and€subsidiaries€(the€ƒCompany„)€as of€December€29,€2018,€based€on€criteria€established€in€InternalƒControlƒ-ƒIntegratedƒFrameworkƒ(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€29,€2018,€based€on€criteria€established€in€Internal Controlƒ-ƒIntegratedƒFrameworkƒ(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€and€financial€statement€schedule€as€of€and€for€the€year€ended€December€29, 2018,€of€the€Company€and€our€report€dated€February€19,€2019,€expressed€an€unqualified€opinion€on€those€consolidated€financial statements€and€financial€statement€schedule.€ 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'sƒReportƒonƒInternal ControlƒoverƒFinancialƒReporting.€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(cid:129)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(cid:129)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(cid:129)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.€ Charlotte,€North€Carolina February€19,€2019 31 Advance€Auto€Parts,€Inc.€and€Subsidiaries Consolidated€Balance€Sheets (inƒthousands,ƒexceptƒperƒshareƒdata) Assets December€29, 2018 December€30, 2017 Current€assets: Cash€and€cash€equivalents Receivables,€net Inventories Other€current€assets Total€current€assets Property€and€equipment,€net€of€accumulated€depreciation€of€$1,918,502€and $1,783,383 Goodwill Intangible€assets,€net Other€assets,€net Liabilities€and€Stockholdersƒ€Equity Current€liabilities: Accounts€payable Accrued€expenses Other€current€liabilities Total€current€liabilities Long-term€debt Deferred€income€taxes Other€long-term€liabilities Commitments€and€contingencies Stockholdersƒ€equity: Preferred€stock,€nonvoting,€$0.0001€par€value, 10,000€shares€authorized;€no€shares€issued€or€outstanding Common€stock,€voting,€$0.0001€par€value,€200,000€shares€authorized; 75,831€shares€issued€and€72,460€outstanding€at€December€29,€2018 75,569€shares€issued€and€73,936€outstanding€at€December€30,€2017 Additional€paid-in€capital Treasury€stock,€at€cost,€3,371€and€1,633€shares Accumulated€other€comprehensive€loss Retained€earnings Total€stockholders(cid:129)€equity $ $ $ $ $ $ $ 896,527 624,972 4,362,547 198,408 6,082,454 1,368,985 990,237 550,593 48,379 9,040,648 3,172,790 623,141 90,019 3,885,950 1,045,720 318,353 239,812 546,937 606,357 4,168,492 105,106 5,426,892 1,394,138 994,293 597,674 69,304 8,482,301 2,894,582 533,548 51,967 3,480,097 1,044,327 303,620 239,061 … … 8 694,797 (425,954) (44,193) 3,326,155 3,550,813 9,040,648 $ 8 664,646 (144,600) (24,954) 2,920,096 3,415,196 8,482,301 The€accompanying€notes€to€the€consolidated€financial€statements€are€an€integral€part€of€these€statements. 32 Advance€Auto€Parts,€Inc.€and€Subsidiaries Consolidated€Statements€of€Operations (inƒthousands,ƒexceptƒperƒshareƒdata) Net€sales Cost€of€sales,€including€purchasing€and€warehousing€costs Gross€profit Selling,€general€and€administrative€expenses Operating€income Other,€net: Interest€expense Other€income,€net Total€other,€net Income€before€provision€for€income€taxes Provision€for€income€taxes Net€income Basic€earnings€per€common€share Weighted€average€common€shares€outstanding Diluted€earnings€per€common€share Weighted€average€common€shares€outstanding € December€29, 2018 9,580,554 $ Year€Ended December€30, 2017 9,373,784 $ December€31, 2016 9,567,679 $ 5,361,141 4,219,413 3,615,138 604,275 5,288,735 4,085,049 3,514,837 570,212 5,311,764 4,255,915 3,468,317 787,598 (56,588) 7,577 (49,011) 555,264 131,417 423,847 5.75 73,728 5.73 73,991 $ $ $ (58,801) 8,848 (49,953) 520,259 44,754 475,505 6.44 73,846 6.42 74,110 $ $ $ (59,910) 11,147 (48,763) 738,835 279,213 459,622 6.22 73,562 6.20 73,856 $ $ $ Consolidated€Statements€of€Comprehensive€Income (inƒthousands) Net€income Other€comprehensive€(loss)€income: Changes€in€net€unrecognized€other€postretirement€benefit€costs, net€of€tax€of€$103,€$126€and€$346 Currency€translation€adjustments Total€other€comprehensive€(loss)€income Comprehensive€income December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ 423,847 $ 475,505 $ 459,622 (294) (18,945) (19,239) 404,608 $ (194) 14,941 14,747 490,252 $ (534) 4,892 4,358 463,980 $ The€accompanying€notes€to€the€consolidated€financial€statements€are€an€integral€part€of€these€statements. 33 Advance€Auto€Parts,€Inc.€and€Subsidiaries Consolidated€Statements€of€Changes€in€Stockholdersƒ€Equity (inƒthousands,ƒexceptƒperƒshareƒdata) Common€Stock Shares Amount Balance,€January€2,€2016 Net€income Total€other€comprehensive€loss Issuance€of€shares€upon€the€exercise€of€stock appreciation€rights Tax€withholdings€related€to€the€exercise€of€stock appreciation€rights Tax€benefit€from€share-based€compensation,€net Restricted€stock,€restricted€stock€units€and€deferred stock€units€vested Share-based€compensation Stock€issued€under€employee€stock€purchase€plan Repurchase€of€common€stock Cash€dividends€declared€($0.24€per€common€share) Other Balance,€December€31,€2016 Net€income Cumulative€effect€of€accounting€change€from adoption€of€ASU€2016-09 Total€other€comprehensive€loss Issuance€of€shares€upon€the€exercise€of€stock appreciation€rights Tax€withholdings€related€to€the€exercise€of€stock appreciation€rights Restricted€stock€units€and€deferred€stock€units vested Share-based€compensation Stock€issued€under€employee€stock€purchase€plan Repurchase€of€common€stock Cash€dividends€declared€($0.24€per€common€share) Other Balance,€December€30,€2017 Net€income Total€other€comprehensive€loss Issuance€of€shares€upon€the€exercise€of€stock appreciation€rights Tax€withholdings€related€to€the€exercise€of€stock appreciation€rights Restricted€stock€units€and€deferred€stock€units vested Share-based€compensation Stock€issued€under€employee€stock€purchase€plan Repurchase€of€common€stock Cash€dividends€declared€($0.24€per€common€share) Other Balance,€December€29,€2018 $ 73,314 … … 149 … … 372 … 30 (116) … … 73,749 … … … 67 … 147 … 29 (56) … … 73,936 … … 11 … 215 … 36 (1,738) … … 72,460 $ 7 … … 1 … … … … … … … … 8 … … … … … … … … … … … 8 … … … … … … … … … … 8 Treasury Stock,€at cost Accumulated Other Comprehensive Loss Retained Earnings Total Stockholdersƒ Equity Additional Paid-in Capital $ 603,332 … … … (19,558) 22,325 … 20,422 4,369 … … 162 $ (119,709) $ … … … … … … … … (18,393) … … (44,059) $ 2,021,077 459,622 … $ 4,358 … … … … … … … … … … … … … … … … … (17,764) … 631,052 (138,102) (39,701) 2,462,935 … 782 … … (6,531) … 35,267 4,053 … … 23 … … … … … … … … (6,498) … … … … 14,747 … … … … … … … … 475,505 (490) … … … … … … … (17,854) … 2,460,648 459,622 4,358 1 (19,558) 22,325 … 20,422 4,369 (18,393) (17,764) 162 2,916,192 475,505 292 14,747 … (6,531) … 35,267 4,053 (6,498) (17,854) 23 664,646 (144,600) (24,954) 2,920,096 3,415,196 … … … (773) … 27,760 3,200 … … (36) … … … … … … … (281,354) … … … 423,847 (19,239) … … … … … … … … … … … … … … … (17,788) … 423,847 (19,239) … (773) … 27,760 3,200 (281,354) (17,788) (36) $ 694,797 $ (425,954) $ (44,193) $ 3,326,155 $ 3,550,813 The€accompanying€notes€to€the€consolidated€financial€statements€are€an€integral€part€of€these€statements. 34 Advance€Auto€Parts,€Inc.€and€Subsidiaries Consolidated€Statements€of€Cash€Flows (inƒthousands) Cash€flows€from€operating€activities: Net€income Adjustments€to€reconcile€net€income€to€net€cash€provided€by€operating€activities: Depreciation€and€amortization Share-based€compensation Loss€and€impairment€of€long-lived€assets Other,€net Provision€(benefit)€for€deferred€income€taxes Net€change€in: Receivables,€net Inventories Accounts€payable Accrued€expenses Other€assets€and€liabilities,€net Net€cash€provided€by€operating€activities Cash€flows€from€investing€activities: Purchases€of€property€and€equipment Proceeds€from€sales€of€property€and€equipment Other,€net Net€cash€used€in€investing€activities Cash€flows€from€financing€activities: Increase€(decrease)€in€bank€overdrafts Borrowings€under€credit€facilities Payments€on€credit€facilities Dividends€paid Proceeds€from€the€issuance€of€common€stock Tax€withholdings€related€to€the€exercise€of€stock€appreciation€rights Repurchase€of€common€stock Other,€net Net€cash€used€in€financing€activities Effect€of€exchange€rate€changes€on€cash Net€increase€in€cash€and€cash€equivalents Cash€and€cash€equivalents,€beginning€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 December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ 423,847 $ 475,505 $ 459,622 238,184 27,760 15,956 2,195 15,956 (21,471) (206,125) 285,493 93,940 (64,707) 811,028 249,260 35,267 17,106 3,123 (151,263) 36,047 167,548 (197,168) (13,295) (21,325) 600,805 258,387 20,452 5,999 (2,039) 20,213 (41,642) (144,603) (119,325) 49,341 16,898 523,303 (193,715) (189,758) (259,559) 1,888 … 11,099 20 2,212 (4,697) (191,827) (178,639) (262,044) 32,014 … … (17,819) 3,200 (773) (281,354) 817 (263,915) (5,696) 349,590 546,937 14,004 534,400 (534,400) (17,854) 4,076 (6,531) (6,498) (2,069) (14,872) 4,465 411,759 135,178 (5,573) 799,600 (959,600) (17,738) 4,532 (19,558) (18,393) (390) (217,120) 257 44,396 90,782 $ $ $ $ 896,527 $ 546,937 $ 135,178 45,322 143,213 15,365 $ $ $ 53,509 192,116 14,335 $ $ $ 55,457 225,327 21,176 The€accompanying€notes€to€the€consolidated€financial€statements€are€an€integral€part€of€these€statements. 35 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,€or€Professional,€and€ƒdo-it-yourself,„€or€DIY€customers.€The€accompanying€consolidated€financial statements€have€been€prepared€by€us€and€include€the€accounts€of€Advance€Auto€Parts,€Inc.,€its€wholly€owned€subsidiary, Advance€Stores€Company,€Incorporated€(ƒAdvance€Stores„),€and€its€subsidiaries€(collectively€referred€to€as€ƒAdvance,„€ƒwe,„ ƒus,„€or€ƒour„).€ As€of€December€29,€2018,€our€operations€are€comprised€of€4,966€stores€and€143€distribution€branches€primarily€within€the United€States,€with€additional€locations€in€Canada,€Puerto€Rico€and€the€U.S.€Virgin€Islands.€Our€stores€operate€primarily€under the€trade€names€ƒAdvance€Auto€Parts,„€ƒCarquest„€and€ƒAutopart€International,„€and€our€distribution€branches€operate€under the€ƒWorldpac„€trade€name.€In€addition,€we€served€1,231€independently€owned€Carquest€branded€stores€across€the€same geographic€locations€served€by€our€stores€in€addition€to€Mexico,€the€Bahamas,€Turks€and€Caicos,€the€British€Virgin€Islands€and the€Pacific€Islands.€ Accounting€Period€ Our€fiscal€year€ends€on€the€Saturday€nearest€the€end€of€December.€All€references€herein€for€the€years€ƒ2018,„€ƒ2017„€and ƒ2016„€represent€the€fiscal€years€ended€December€29,€2018,€December€30,€2017€and€December€31,€2016,€which€were€all€52 weeks. Basis€of€Presentation€ The€consolidated€financial€statements€include€the€accounts€of€Advance€and€its€wholly€owned€subsidiaries€prepared€in accordance€with€accounting€principles€generally€accepted€in€the€United€States€of€America€(ƒGAAP„).€All€intercompany balances€and€transactions€have€been€eliminated€in€consolidation. 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€ Cash€and€cash€equivalents€consist€of€cash€in€banks€and€money€market€funds€with€original€maturities€of€three€months€or less.€Also€included€in€cash€equivalents€are€credit€card€and€debit€card€receivables€from€banks,€which€generally€settle€in€less€than four€business€days.€ Inventory Our€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€our€merchandise€inventory€is€primarily€determined using€the€last-in,€first-out€(ƒLIFO„)€method.€Under€the€LIFO€method,€our€cost€of€sales€reflects€the€costs€of€the€most€recently purchased€inventories,€while€the€inventory€carrying€balance€represents€the€costs€relating€to€prices€paid€in€2018€and€prior€years. We€regularly€review€inventory€quantities€on-hand,€consider€whether€we€may€have€excess€inventory€based€on€our€current approach€for€managing€slower€moving€inventory€and€adjusts€the€carrying€value€as€necessary. 36 Vendor€Incentives€ We€receive€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€basis€or€shorter.€Advertising€allowances€provided€as€a€reimbursement€of€specific, incremental€and€identifiable€costs€incurred€to€promote€a€vendor(cid:129)s€products€are€included€as€an€offset€to€selling,€general€and administrative€expenses€(ƒSG&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€they€are€earned€based€on€inventory€purchases.€Total€deferred vendor€incentives€included€as€a€reduction€of€Inventories€were€$164.1€million€and€$179.2€million€as€of€December€29,€2018€and December€30,€2017. We€recognize€other€promotional€incentives€earned€under€long-term€agreements€not€specifically€related€to€volume€of purchases€as€a€reduction€to€cost€of€sales.€However,€these€incentives€are€not€deferred€as€a€reduction€of€inventory€and€are recognized€based€on€the€cumulative€net€purchases€as€a€percentage€of€total€estimated€net€purchases€over€the€life€of€the agreement.€Short-term€incentives€with€terms€less€than€one€year€are€generally€recognized€as€a€reduction€to€cost€of€sales€over€the duration€of€the€agreements.€Amounts€received€or€receivable€from€vendors€that€are€not€yet€earned€are€reflected€as€deferred revenue€in€the€accompanying€consolidated€balance€sheets.€ 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.€ Depreciation€of€land€improvements,€buildings,€furniture,€fixtures€and€equipment,€and€vehicles€is€provided€over€the estimated€useful€lives€of€the€respective€assets€using€the€straight-line€method.€Depreciation€of€building€and€leasehold improvements€is€provided€over€the€shorter€of€the€original€useful€lives€of€the€respective€assets€or€the€term€of€the€lease€using€the straight-line€method.€ Goodwill€and€Indefinite-Lived€Intangible€Assets We€perform€our€evaluation€for€the€impairment€of€goodwill€and€indefinite-lived€intangible€assets€for€our€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.€We€assess€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€the€step€one€quantitative€goodwill€impairment€test.€In€the€quantitative€goodwill€test,€€we compare€the€carrying€value€of€a€reporting€unit€to€its€fair€value.€If€the€carrying€value€of€the€reporting€unit€exceeds€the€estimated fair€value,€a€second€step€is€performed,€which€compares€the€implied€fair€value€of€goodwill€to€the€carrying€value,€to€determine€the amount€of€impairment.€Our€indefinite-lived€intangible€assets€are€tested€for€impairment€at€the€asset€group€level.€Indefinite-lived intangibles€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,€we€conclude€that€no intangible€asset€impairment€has€occurred.€If€the€carrying€value€of€the€indefinite-lived€intangible€asset€exceeds€the€fair€value,€we recognize€an€impairment€loss. Effective€in€the€third€quarter€of€2017,€we€realigned€our€three€geographic€divisions,€which€included€the€operations€of€the stores€operating€under€the€Advance€Auto€Parts,€Carquest€and€Autopart€International€trade€names,€into€two€U.S.€geographic divisions.€As€a€result€of€this€realignment€and€change€in€the€operating€structure€of€its€Carquest€Independent€and€Carquest€Canada businesses,€we€now€have€five€operating€segments,€and€defined€them€as€ƒNorthern€Division,„€ƒSouthern€Division,„€ƒCarquest Canada,„€ƒIndependents„€and€ƒWorldpac.„€As€each€operating€segment€represents€a€reporting€unit,€goodwill€was€reassigned€to the€affected€reporting€units€using€a€relative€fair€value€approach.€ 37 Valuation€of€Long-Lived€Assets We€evaluate€the€recoverability€of€our€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,€we€estimate€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).€ Self-Insurance We€are€self-insured€for€general€and€automobile€liability,€workers(cid:129)€compensation€and€health€care€claims€of€its€employees,€or Team€Members,€while€maintaining€stop-loss€coverage€with€third-party€insurers€to€limit€its€total€liability€exposure.€Expenses associated€with€these€liabilities€are€calculated€for€(i)€claims€filed,€(ii)€claims€incurred€but€not€yet€reported€and€(iii)€projected future€claims€using€actuarial€methods€followed€in€the€insurance€industry€as€well€as€our€historical€claims€experience.€We€include the€current€and€long-term€portions€of€its€self-insurance€reserves€in€Accrued€expenses€and€Other€long-term€liabilities.€ Warranty€Liabilities€ The€warranty€obligation€on€the€majority€of€merchandise€sold€by€us€with€a€manufacturer(cid:129)s€warranty€is€the€responsibility€of our€vendors.€However,€we€have€an€obligation€to€provide€customers€replacement€of€certain€merchandise€at€no€cost€or merchandise€at€a€prorated€cost€if€under€a€warranty€and€not€covered€by€the€manufacturer.€Merchandise€sold€with€warranty coverage€by€us€primarily€includes€batteries,€but€may€also€include€other€parts€such€as€brakes€and€shocks.€We€estimate€our warranty€obligation€at€the€time€of€sale€based€on€the€historical€return€experience,€sales€level€and€cost€of€the€respective€product sold.€To€the€extent€vendors€provide€upfront€allowances€in€lieu€of€accepting€the€obligation€for€warranty€claims€and€the€allowance is€in€excess€of€the€related€warranty€expense,€the€excess€is€recorded€as€a€reduction€to€cost€of€sales. Leases We€lease€certain€store€locations,€distribution€centers,€office€spaces,€equipment€and€vehicles.€The€total€amount€of€minimum rent€is€expensed€on€a€straight-line€basis€over€the€initial€term€of€the€lease€unless€external€economic€factors€exist€such€that renewals€are€reasonably€assured.€In€those€instances,€the€renewal€period€would€be€included€in€the€lease€term€for€purposes€of establishing€an€amortization€period€and€determining€if€such€lease€qualified€as€a€capital€or€operating€lease.€Differences€between the€calculated€rent€expense€and€cash€payments€are€recorded€as€a€liability€within€the€Accrued€expenses€and€Other€long-term liabilities€captions€in€the€accompanying€consolidated€balance€sheets,€based€on€the€terms€of€the€lease.€Most€leases€require€us€to pay€taxes,€maintenance,€insurance€and€certain€other€expenses€applicable€to€the€leased€premises.€Management€expects€that€in€the normal€course€of€business€leases€that€expire€will€be€renewed€or€replaced€by€other€leases. Fair€Value€Measurements€ A€three-level€valuation€hierarchy,€based€upon€observable€and€unobservable€inputs,€is€used€for€fair€value€measurements. Observable€inputs€reflect€market€data€obtained€from€independent€sources,€while€unobservable€inputs€reflect€market€assumptions based€on€the€best€evidence€available.€These€two€types€of€inputs€create€the€following€fair€value€hierarchy:€Level€1€-€Quoted prices€for€identical€instruments€in€active€markets;€Level€2€-€Quoted€prices€for€similar€instruments€in€active€markets,€quoted prices€for€identical€or€similar€instruments€in€markets€that€are€not€active€and€model-derived€valuations€whose€significant€inputs are€observable;€and€Level€3€-€Instruments€whose€significant€inputs€are€unobservable.€Financial€instruments€are€transferred€in and/or€out€of€Level€1,€2€or€3€at€the€beginning€of€the€accounting€period€in€which€there€is€a€change€in€the€valuation€inputs.€ 38 Closed€Facility€Liabilities€and€Exit€Activities We€continually€review€the€operating€performance€of€our€existing€store€locations€and€close€or€relocate€certain€stores identified€as€underperforming.€Expenses€accrued€pertaining€to€closed€facility€exit€activities€are€included€in€our€closed€facility liabilities,€within€Accrued€expenses€and€Other€long-term€liabilities€in€the€accompanying€consolidated€balance€sheets,€and recognized€in€Cost€of€sales€or€SG&A€in€the€accompanying€consolidated€statements€of€operations€at€the€time€of€facility€closure. Closed€facility€liabilities€include€the€present€value€of€the€remaining€lease€obligations€and€management(cid:129)s€estimate€of€future€costs of€insurance,€property€tax€and€common€area€maintenance€expenses,€reduced€by€the€present€value€of€estimated€revenues€from subleases€and€lease€buyouts.€ Employees€receiving€severance€benefits€as€the€result€of€a€store€closing€or€other€restructuring€activity€are€required€to€render service€until€they€are€terminated€in€order€to€receive€benefits.€Severance€benefits€are€recognized€over€the€related€service€period. Other€restructuring€costs,€including€costs€to€relocate€employees,€are€recognized€in€the€period€in€which€the€liability€is€incurred. Share-Based€Payments We€provide€share-based€compensation€to€our€eligible€Team€Members€and€Board€of€Directors.€We€are€required€to€exercise judgment€and€make€estimates€when€determining€the€(i)€fair€value€of€each€award€granted€and€(ii)€projected€number€of€awards expected€to€vest.€We€calculate€the€fair€value€of€all€share-based€awards€at€the€date€of€grant€and€use€the€straight-line€method€to amortize€this€fair€value€as€compensation€cost€over€the€requisite€service€period.€ Revenues Revenue€for€periods€through€December€30,€2017€was€reported€under€Accounting€Standards€Codification€(ƒASC„)€605, RevenueƒRecognitionƒ(Topicƒ605).€We€recognized€revenue€at€the€time€the€sale€is€made,€at€which€time€our€walk-in€customers took€immediate€possession€of€the€merchandise€or€same-day€delivery€was€made€to€our€Professional€delivery€customers,€which included€certain€independently€owned€store€locations.€For€e-commerce€sales,€revenue€was€recognized€either€at€the€time€of€pick- up€at€one€of€our€store€locations€or€at€the€time€of€shipment€depending€on€the€customer(cid:129)s€order€designation.€Sales€were€recorded net€of€discounts,€sales€incentives€and€rebates,€sales€taxes€and€estimated€returns€and€allowances.€We€estimated€the€reduction€to sales€and€cost€of€sales€for€returns€based€on€current€sales€levels€and€our€historical€return€experience.€ Effective€December€31,€2017,€we€adopted€ASC€606,€RevenueƒFromƒContractsƒWithƒCustomersƒ(Topicƒ606)€(ƒASC€606„). The€results€of€applying€Topic€606€using€the€modified€retrospective€approach€were€insignificant€and€did€not€have€a€material impact€on€our€consolidated€financial€condition,€results€of€operations,€cash€flows,€business€process,€controls€or€systems. 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€our€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.€We€allocate€the€contract(cid:129)s€transaction€price€to€each€of these€performance€obligations€separately€using€explicitly€stated€amounts€or€our€best€estimate€using€historical€data.€Additionally, we€estimate€and€record€gift€card€breakage€as€redemptions€occur. In€accordance€with€ASC€606€revenue€is€recognized€at€the€time€the€sale€is€made,€at€which€time€our€walk-in€customers€take immediate€possession€of€the€merchandise€or€same-day€delivery€is€made€to€our€Professional€delivery€customers,€which€include certain€independently-owned€store€locations.€Payment€terms€are€established€for€our€Professional€delivery€customers€based€on pre-established€credit€requirements.€Payment€terms€vary€depending€on€the€customer€and€generally€range€from€1€to€30€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€our€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. We€estimate€the€reduction€to€Net€sales€and€Cost€of€sales€for€returns€based€on€current€sales€levels€and€our€historical€return experience. We€provide€assurance€type€warranty€coverage€primarily€on€batteries,€brakes€and€struts€whereby€we€are€required€to€provide replacement€product€at€no€cost€or€a€reduced€cost€for€a€set€period€of€time. 39 The€following€table€summarizes€financial€information€for€each€of€our€product€groups.€ Percentage€of€Sales,€by€Product€Group Parts€and€Batteries Accessories€and€Chemicals Engine€Maintenance Other Total December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 66% 20% 13% 1% 100% 65% 20% 14% 1% 100% 66% 19% 14% 1% 100% Receivables,€net€consist€primarily€of€receivables€from€Professional€customers.€We€grant€credit€to€certain€Professional customers€who€meet€our€pre-established€credit€requirements.€Accounts€receivable€is€stated€at€net€realizable€value.€We€regularly review€accounts€receivable€balances€and€maintains€allowances€for€doubtful€accounts€for€estimated€losses€whenever€events€or circumstances€indicate€the€carrying€value€may€not€be€recoverable.€We€consider€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.€We€control€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€our€distribution€network,€including€payroll€and€benefits€costs,€occupancy€costs€and€depreciation,€in- bound€freight-related€costs€from€our€vendors,€impairment€of€inventory€resulting€from€store€closures€and€costs€associated€with moving€merchandise€inventories€from€our€distribution€centers€to€stores,€branch€locations€and€customers. € Selling,€General€and€Administrative€Expenses € SG&A€includes€payroll€and€benefits€costs€for€store€and€corporate€Team€Members,€occupancy€costs€of€store€and€corporate facilities,€depreciation€and€amortization€related€to€store€and€corporate€assets,€share-based€compensation€expense,€advertising, self-insurance,€costs€of€consolidating,€converting€or€closing€facilities,€including€early€termination€of€lease€obligations, severance€and€impairment€charges,€professional€services€and€costs€associated€with€our€Professional€delivery€program,€including payroll€and€benefit€costs,€and€transportation€expenses€associated€with€moving€merchandise€inventories€from€stores€and branches€to€customer€locations.€€ Advertising€Costs€ We€expense€advertising€costs€as€incurred.€Advertising€expense,€net€of€qualifying€vendor€promotional€funds,€was€$120.9 million,€$102.8€million€and€$97.0€million€in€2018,€2017€and€2016.€Vendor€promotional€funds,€which€reduced€advertising expense,€amounted€to€$26.9€million€and€$33.3€million€and€$29.3€million€in€2018,€2017€and€2016. Foreign€Currency€Translation The€assets€and€liabilities€of€our€foreign€operations€are€translated€into€U.S.€dollars€at€current€exchange€rates,€and€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.€Losses€from€foreign€currency€transactions, which€are€included€in€Other€income,€net,€were€$5.0€million€during€2018€and€$4.0€million€during€2017. 40 Income€Taxes€ We€account€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. We€recognize€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€on€audit,€including€resolution€of€related€appeals€or€litigation€processes,€if€any. The€second€step€requires€us€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€we€must€determine€the probability€of€various€possible€outcomes.€ We€reevaluate€these€uncertain€tax€positions€on€a€quarterly€basis€or€when€new€information€becomes€available€to management.€The€reevaluations€are€based€on€many€factors,€including€but€not€limited€to,€changes€in€facts€or€circumstances, changes€in€tax€law,€successfully€settled€issues€under€audit,€expirations€due€to€statutes€of€limitations€and€new€federal€or€state audit€activity.€Any€change€in€either€our€recognition€or€measurement€could€result€in€the€recognition€of€a€tax€benefit€or€an increase€to€the€tax€accrual.€€ Earnings€per€Share€ Basic€earnings€per€share€of€common€stock€has€been€computed€based€on€the€weighted-average€number€of€common€shares outstanding€during€the€period.€Diluted€earnings€per€share€is€calculated€by€including€the€effect€of€dilutive€securities.€Diluted earnings€per€share€of€common€stock€reflects€the€weighted-average€number€of€shares€of€common€stock€outstanding,€outstanding deferred€stock€units€and€the€impact€of€outstanding€stock€options€and€stock€appreciation€rights€(collectively€ƒshare-based awards„).€Share-based€awards€containing€performance€conditions€are€included€in€the€dilution€impact€as€those€conditions€are met.€ Segment€Information Operating€segments€are€defined€as€components€of€an€enterprise€for€which€discrete€financial€information€is€available€that€is evaluated€regularly€by€the€chief€operating€decision€maker€(ƒCODM„)€for€purposes€of€allocating€resources€and€evaluating financial€performance.€Our€CODM,€the€Chief€Executive€Officer,€reviews€financial€information€presented€on€a€consolidated basis,€accompanied€by€information€about€our€five€operating€segments,€for€purposes€of€allocating€resources€and€evaluating financial€performance. We€have€one€reportable€segment€as€the€five€operating€segments€are€aggregated€due€primarily€to€the€economic€and operational€similarities€of€each€operating€segment€as€the€stores€and€branches€have€similar€characteristics,€including€the€nature of€the€products€and€services,€customer€base€and€the€methods€used€to€distribute€products€and€provide€service€to€its€customers.€ Recently€Issued€Accounting€Pronouncements In€February€2016,€the€Financial€Accounting€Standards€Board€(ƒFASB„)€issued€Accounting€Standards€Update€(ƒASU„) 2016-02,€Leasesƒ(Topicƒ842)ƒ(ƒASU€2016-02„).€This€ASU€is€a€comprehensive€new€accounting€standard€with€respect€to€leases that€amends€various€aspects€of€existing€guidance€for€leases€and€requires€additional€disclosures€about€leasing€arrangements.€It will€require€lessees€to€recognize€lease€assets€and€lease€liabilities€for€most€leases,€including€those€leases€previously€classified€as operating€leases€under€current€GAAP.€ASU€2016-02€retains€a€distinction€between€finance€leases€and€operating€leases.€The classification€criteria€for€distinguishing€between€finance€leases€and€operating€leases€are€substantially€similar€to€the€classification criteria€for€distinguishing€between€capital€leases€and€operating€leases€in€previous€lease€guidance.€ASU€2016-02€is€effective€for annual€periods€beginning€after€December€15,€2018,€including€interim€periods€within€those€years;€earlier€adoption€is€permitted.€ 41 In€July€2018,€the€FASB€issued€ASU€2018-11,€Leasesƒ(Topicƒ842):ƒTargetedƒImprovements,€which€provides€clarifications and€improvements€to€ASU€2016-02€including€allowing€entities€to€elect€an€additional€transition€method€with€which€to€adopt ASU€2016-02.€The€approved€transition€method€enables€entities€to€apply€the€transition€requirements€in€this€ASU€at€the€effective date€of€ASU€2016-02€(rather€than€at€the€beginning€of€the€earliest€comparative€period€presented€as€currently€required)€with€the effect€of€initially€applying€ASU€2016-02€recognized€as€a€cumulative-effect€adjustment€to€retained€earnings€in€the€period€of adoption.€Consequently,€an€entity(cid:129)s€reporting€for€the€comparative€periods€presented€in€the€year€of€adoption€would€continue€to be€in€accordance€with€ASC€840,€Leasesƒ(Topicƒ840)ƒ(ƒASC€840„),€including€the€disclosure€requirements€of€ASC€840.€Using€this transition€method,€we€plan€to€adopt€ASU€2016-02€at€the€beginning€of€2019.€We€also€plan€to€elect€the€package€of€practical expedients€permitted€under€the€transition€guidance€within€the€new€standard.€In€addition,€as€a€practical€expedient€relating€to€our facility€and€vehicle€leases,€we€plan€to€not€separate€lease€components€from€nonlease€components.€This€practical€expedient€was not€elected€for€our€equipment€leases. We€are€in€process€of€finalizing€the€implementation€of€our€leasing€software€solution€and€are€continuing€to€identify€changes to€our€business€processes,€systems€and€controls€to€support€adoption€of€the€new€standard€in€2019.€We€are€evaluating€the€impact that€the€new€standard€will€have€on€the€consolidated€financial€statements.€Based€on€our€initial€evaluation,€upon€adoption€of€ASU 2016-02,€we€anticipate€recording€lease€assets€and€liabilities€of€approximately€$2.5€billion€on€our€consolidated€balance€sheet, primarily€relating€to€real€estate.€As€the€majority€of€our€leases€will€remain€operating€in€nature€and€the€expense€recognition€will be€similar€to€the€straight-line€expense€treatment€that€was€previously€required,€we€expect€an€insignificant€impact€to€our consolidated€statements€of€operations€and€cash€flows. In€March€2018,€the€FASB€issued€ASU€2018-05,€IncomeƒTaxesƒ(Topicƒ740)ƒ-ƒAmendmentsƒtoƒSECƒParagraphsƒPursuantƒto SECƒStaffƒAccountingƒBulletinƒNo.ƒ118ƒ(ƒSAB€118„).€ASU€2018-05€provides€guidance€on€accounting€for€the€tax€effects€of€the U.S.€Tax€Cuts€and€Jobs€Act€(the€ƒAct„)€pursuant€to€the€Staff€Accounting€Bulletin€No.€118,€which€allows€companies€to€complete the€accounting€under€ASC€740,€IncomeƒTaxesƒ(Topicƒ740)€within€a€one-year€measurement€period€from€the€Act€enactment€date, which€occurred€in€the€financial€statements€for€the€year€ended€December€30,€2017.€During€2018,€and€in€conjunction€with€the completion€of€our€2017€U.S.€income€tax€return,€we€identified€certain€adjustments€to€amounts€previously€estimated€for€the remeasurement€of€the€net€deferred€tax€liability€and€nonrecurring€repatriation€tax€on€accumulated€earnings€of€foreign subsidiaries€that€resulted€in€a€net€tax€benefit€of€$5.7€million€and€reflects€a€change€in€estimate.€Our€analysis€under€SAB€118€is complete. In€June€2018,€the€FASB€issued€ASU€2018-07,€Compensationƒ-ƒStockƒCompensationƒ(Topicƒ718)€to€expand€the€scope€of ASC€718,€Compensation€-€Stock€Compensation€(Topic€718)€(ƒASU€2018-07„),€to€include€share-based€payment€transactions€for acquiring€goods€and€services€from€nonemployees.€The€pronouncement€is€effective€for€fiscal€years,€and€for€interim€periods within€those€fiscal€years,€beginning€after€December€15,€2018,€with€early€adoption€permitted.€We€elected€to€early€adopt€ASU 2018-07€in€the€second€quarter€of€2018.€The€results€of€applying€ASU€2018-07€were€insignificant€and€did€not€have€a€material impact€on€our€consolidated€financial€condition,€results€of€operations,€cash€flows,€business€process,€controls€or€systems. In€August€2018,€the€FASB€issued€ASU€2018-15,€Intangiblesƒ-ƒGoodwillƒandƒOtherƒ-ƒInternal-UseƒSoftwareƒ(Subtopic 350-40),€which€aligns€the€requirements€for€capitalizing€implementation€costs€incurred€in€a€hosting€arrangement€that€is€a€service contract€with€the€requirements€for€capitalizing€implementation€costs€incurred€to€develop€or€obtain€internal-use€software€(and hosting€arrangements€that€include€an€internal-use€software€license).€The€pronouncement€is€effective€for€years,€and€for€interim periods€within€those€years,€beginning€after€December€15,€2019,€with€early€adoption€permitted.€We€elected€to€early€adopt€ASU 2018-15€in€the€third€quarter€of€2018€on€a€prospective€basis.€The€results€of€applying€ASU€2018-15€were€insignificant€and€did€not have€a€material€impact€on€our€consolidated€financial€condition,€results€of€operations,€cash€flows,€business€process,€controls€or systems. € 42 3. Inventories: We€used€the€LIFO€method€of€accounting€for€approximately€89%€and€88%€of€inventories€at€December€29,€2018€and December€30,€2017.€As€a€result€of€changes€in€the€LIFO€reserve,€we€recorded€a€decrease€to€cost€of€sales€of€$39.8€million€in 2018,€an€increase€to€cost€of€sales€of€$2.7€million€in€2017€and€a€decrease€to€cost€of€sales€of€€$40.7€million€in€2016.€ Purchasing€and€warehousing€costs€included€in€inventory€as€of€December€29,€2018€and€December€30,€2017,€were€$435.2 million€and€$429.8€million. Inventory€balances€were€as€follows: (inƒthousands) Inventories€at€first€in,€first€out€(ƒFIFO„) Adjustments€to€state€inventories€at€LIFO Inventories€at€LIFO 4. Exit€Activities€and€Other€Initiatives: 2018ƒStoreƒRationalization $ December€29, 2018 4,119,617 242,930 4,362,547 $ $ December€30, 2017 3,965,370 203,122 4,168,492 $ During€the€fourth€quarter€of€2018,€the€Board€of€Directors€approved€a€plan€to€close€certain€underperforming€stores€as€part€of our€strategy€to€transform€the€enterprise.€As€of€December€29,€2018,€total€charges€related€to€these€actions€are€expected€to€total€up to€approximately€$50€million,€which€consists€of€$35€million€relating€to€future€lease€obligations€that€will€be€amortized€over€the remaining€lease€term€upon€store€closure,€$10€million€of€other€facility€closures€costs€and€$5€million€of€severance.€€During€2018, no€stores€had€been€closed€in€connection€with€this€initiative;€however,€we€recorded€an€impairment€charge€of€$7.9€million€as€part of€our€plan€to€close€certain€underperforming€stores,€which€were€included€in€SG&A€in€the€accompanying€consolidated statements€of€operations. 2017ƒStoreƒandƒSupplyƒChainƒRationalizationƒ During€the€fourth€quarter€of€2017,€the€Board€of€Directors€approved€a€plan€to€close€certain€underperforming€stores€and begin€to€rationalize€our€supply€chain€costs€as€part€of€our€strategy€to€transform€the€enterprise.€As€of€December€29,€2018,€total charges€related€to€these€actions€are€expected€to€total€up€to€approximately€$70€million,€which€consist€of€$35€million€relating€to the€early€termination€of€lease€obligations,€$15€million€of€inventory€and€supply€chain€asset€impairment€charges,€$15€million€of other€facility€closure€costs€and€$5€million€of€severance.€ During€2018,€we€incurred€$25.5€million€of€early€termination€of€lease€obligation€charges,€$8.9€million€of€inventory€and supply€chain€asset€impairment€charges,€$13.6€million€of€facility€closure€costs€and€$3.5€million€of€severance€relating€to€the€store and€supply€chain€rationalization.€Of€these€costs,€$44.8€million€are€included€in€SG&A€and€$6.7€million€are€included€in€Cost€of sales€in€the€accompanying€consolidated€statements€of€operations.€ During€2017,€no€stores€or€distribution€centers€had€been€closed€in€connection€with€this€initiative;€however,€we€recorded€an impairment€charge€of€$6.9€million€as€part€of€our€plan€to€close€certain€underperforming€stores,€which€were€included€in€SG&A€in the€accompanying€consolidated€statements€of€operations. 43 TotalƒExitƒLiabilities Our€total€exit€liabilities€include€liabilities€recorded€in€connection€with€the€initiatives€described€above,€along€with€liabilities associated€with€facility€closures€that€have€occurred€as€part€of€our€normal€market€evaluation€process.€Cash€payments€on€the closed€facility€lease€obligations€are€expected€to€be€made€through€2028€and€the€remaining€severance€payments€are€expected€to be€made€in€2019.€Of€our€total€exit€liabilities€as€of€December€29,€2018,€$27.0€million€is€included€in€Other€long-term€liabilities and€the€remainder€is€included€in€Accrued€expenses€in€the€accompanying€consolidated€balance€sheets.€A€summary€of€our€exit liabilities€are€presented€in€the€following€table: (inƒthousands) Balance,€December€31,€2016 Reserves€established Change€in€estimates Cash€payments Balance,€December€30,€2017 Reserves€established Change€in€estimates Cash€payments Balance,€December€29,€2018 5. Goodwill€and€Intangible€Assets: Goodwill Closed€Facility Lease Obligations $ $ 44,265 7,940 (1,116) (19,519) 31,570 25,285 1,664 (16,217) 42,302 Severance 959 7,927 (699) (6,542) 1,645 6,600 (324) (4,532) 3,389 $ $ $ $ Total 45,224 15,867 (1,815) (26,061) 33,215 31,885 1,340 (20,749) 45,691 At€December€29,€2018€and€December€30,€2017,€the€carrying€amount€of€goodwill€was€$990.2€million€and€$994.3€million. The€change€in€goodwill€during€2018€and€2017€was€$4.1€million€and€$3.4€million€related€to€foreign€currency€translation. IntangibleƒAssetsƒOtherƒThanƒGoodwill Amortization€expense€was€$40.7€million,€$47.4€million€and€$48.0€million€for€2018,€2017€and€2016.€A€summary€of€the composition€of€the€gross€carrying€amounts€and€accumulated€amortization€of€acquired€intangible€assets€are€presented€in€the following€table: (inƒthousands) Amortized€intangible€assets: Customer€relationships Favorable€leases Non-compete€and€other December€29,€2018 December€30,€2017 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net (148,889) $ 200,268 14,348 $ 351,203 32,512 $ $ 349,157 27,139 $ 37,875 414,171 (12,791) (36,974) (198,654) 901 215,517 54,929 438,644 (116,909) $ 234,294 (14,959) 17,553 (46,389) (178,257) 8,540 260,387 Indefinite-lived€intangible€assets: Brands,€trademark€and€tradenames Total€intangible€assets 335,076 $ 749,247 $ … 335,076 (198,654) $ 550,593 337,287 $ 775,931 $ … 337,287 (178,257) $ 597,674 44 FutureƒAmortizationƒExpense The€table€below€shows€expected€amortization€expense€for€the€next€five€years€and€thereafter€for€acquired€intangible€assets recorded€as€of€December€29,€2018: Year (inƒthousands) Amount 2019 $ 2020 2021 2022 2023 Thereafter $ 32,475 32,277 31,727 31,574 28,616 58,848 215,517 6.€ Receivables,€net: Receivables,€net€consist€of€the€following: (inƒthousands) December€29, 2018 December€30, 2017 Trade Vendor Other Total€receivables Less:€allowance€for€doubtful€accounts Receivables,€net $ $ 397,909 228,024 17,081 643,014 (18,042) 624,972 $ $ 389,963 220,510 14,103 624,576 (18,219) 606,357 7. Long-term€Debt€and€Fair€Value€of€Financial€Instruments:€ Long-term€debt€consists€of€the€following:€ (inƒthousands) 5.75%€Senior€Unsecured€Notes€(net€of€unamortized€discount€and€debt€issuance costs€of€$802€and€$1,403€at€December€29,€2018€and€December€30,€2017)€due May€1,€2020 4.50%€Senior€Unsecured€Notes€(net€of€unamortized€discount€and€debt€issuance costs€of€$833€and€$1,108€at€December€29,€2018€and€December€30,€2017)€due January€15,€2022 4.50%€Senior€Unsecured€Notes€(net€of€unamortized€discount€and€debt€issuance costs€of€$2,645€and€$3,162€at€December€29,€2018€and€December€30,€2017)€due December€1,€2023 Other Less:€Current€portion€of€long-term€debt Long-term€debt,€excluding€current€portion Fair€value€of€long-term€debt December€29, 2018 December€30, 2017 $ 299,198 $ 298,597 299,167 298,892 447,355 210 1,045,930 (210) 1,045,720 1,074,000 $ $ 446,838 350 1,044,677 (350) 1,044,327 1,109,000 $ $ 45 FairƒValueƒofƒFinancialƒAssetsƒandƒLiabilities The€fair€value€of€our€senior€unsecured€notes€was€determined€using€Level€2€inputs€based€on€quoted€market€prices.€We believe€the€carrying€value€of€its€other€long-term€debt€approximates€fair€value.€The€carrying€amounts€of€our€cash€and€cash equivalents,€receivables,€accounts€payable€and€accrued€expenses€approximate€their€fair€values€due€to€the€relatively€short-term nature€of€these€instruments. BankƒDebt On€January€31,€2017,€we€entered€into€a€new€credit€agreement€that€provides€a€$1.0€billion€unsecured€revolving€credit facility€(the€ƒ2017€Credit€Agreement„)€with€Advance€Stores,€as€Borrower,€the€lenders€party€thereto,€and€Bank€of€America, N.A.,€as€the€administrative€agent€and€replaces€a€prior€credit€agreement€entered€into€in€2013.€The€2017€Credit€Agreement provides€for€the€issuance€of€letters€of€credit€with€a€sublimit€of€$200.0€million.€We€may€request€that€the€total€revolving commitment€be€increased€by€an€amount€not€exceeding€$250.0€million€during€the€term€of€the€2017€Credit€Agreement.€Voluntary prepayments€and€voluntary€reductions€of€the€revolving€loan€balance,€if€any,€are€permitted€in€whole€or€in€part,€at€our€option,€in minimum€principal€amounts€as€specified€in€the€2017€Credit€Agreement.€The€2017€Credit€Agreement€terminates€in€January 2022;€however,€we€may€request€one€or€two€one-year€extensions€of€the€termination€date€prior€to€the€first€or€second€anniversary of€the€closing€date. On€January€31,€2018,€we€entered€into€Amendment€No.€1€to€the€2017€Credit€Agreement€(the€ƒAmendment„),€among Advance€Stores,€as€Borrower,€the€lenders€party€thereto,€and€Bank€of€America,€N.A.,€Administrative€Agent.€The€Amendment:€(i) provided€for€LIBOR€replacement€rates€in€the€event€that€LIBOR€is€unavailable€in€the€future;€(ii)€modified€the€definitions€of€the financial€covenants€(and€the€testing€level€relating€thereto)€with€respect€to€a€maximum€leverage€ratio€and€a€minimum€coverage ratio€that€we€are€required€to€comply€with;€and€(iii)€extended€the€termination€date€of€the€2017€Credit€Agreement€from€January 31,€2022€until€January€31,€2023.€We€have€the€option€to€make€one€additional€written€request€of€the€lenders€to€extend€the termination€date€then€in€effect€for€one€additional€year. As€of€December€29,€2018,€we€had€no€outstanding€borrowings€under€the€revolver€and€borrowing€availability€was€$998.0 million€based€on€our€leverage€ratio.€As€of€December€29,€2018,€we€had€letters€of€credit€outstanding€of€$100.5€million,€which generally€have€a€term€of€one€year€or€less€and€primarily€serve€as€collateral€for€our€self-insurance€policies. Interest€on€any€borrowings€on€the€revolver€will€be€based€at€our€option,€on€an€adjusted€LIBOR,€plus€a€margin,€or€an alternate€base€rate,€plus€a€margin.€After€an€initial€interest€period,€we€may€elect€to€convert€a€particular€borrowing€to€a€different type.€The€initial€margins€per€annum€for€the€revolving€loan€are€1.10%€for€the€adjusted€LIBOR€and€0.10%€for€alternate€base€rate borrowings.€A€facility€fee€of€0.15%€per€annum€is€charged€on€the€total€revolving€facility€commitment,€payable€quarterly€in arrears.€Under€the€terms€of€the€2017€Credit€Agreement,€the€interest€rate€spread€and€facility€fee€are€based€on€our€credit€rating. The€interest€rate€spread€ranges€from€0.91%€to€1.50%€for€adjusted€LIBOR€borrowings€and€0.00%€to€0.50%€for€alternate€base rate€borrowings.€ The€2017€Credit€Agreement€contains€customary€covenants€restricting€the€ability€of:€(a)€Advance€Stores€and€its€subsidiaries to,€among€other€things,€(i)€create,€incur€or€assume€additional€debt€(only€with€respect€to€subsidiaries€of€Advance€Stores),€(ii) incur€liens,€(iii)€guarantee€obligations,€and€(iv)€change€the€nature€of€its€business€conducted€by€itself€and€its€subsidiaries;€(b) Advance,€Advance€Stores€and€their€subsidiaries€to,€among€other€things€(i)€enter€into€certain€hedging€arrangements,€(ii)€enter into€restrictive€agreements€limiting€their€ability€to€incur€liens€on€any€of€their€property€or€assets,€pay€distributions,€repay€loans, or€guarantee€indebtedness€of€their€subsidiaries;€and€(c)€Advance,€among€other€things,€to€change€the€holding€company€status€of Advance.€Advance€Stores€is€required€to€comply€with€financial€covenants€with€respect€to€a€maximum€leverage€ratio€and€a minimum€coverage€ratio.€The€2017€Credit€Agreement€also€provides€for€customary€events€of€default,€including€non-payment defaults,€covenant€defaults€and€cross-defaults€of€Advance€Stores(cid:129)€other€material€indebtedness.€We€were€in€compliance€with€our financial€covenants€with€respect€to€the€2017€Credit€Agreement€as€of€December€29,€2018. 46 On€January€10,€2019,€we€entered€into€Amendment€No.€2€to€the€2017€Credit€Agreement€(the€ƒ€Second€Amendment„), among€Advance€Stores€Company,€Incorporated,€as€Borrower,€Advance€Auto€Parts,€Inc.,€as€Parent,€the€banks,€financial institutions€and€other€institutional€lenders€parties€thereto€and€Bank€of€America,€N.A.,€as€Administrative€Agent.€The€Second Amendment:€(i)€added€a€new€definition€of€"Insurance€Subsidiary"€to€the€2017€Credit€Agreement€meaning€each€wholly€owned subsidiary€of€Parent€that€is€maintained€as€a€special€purpose€self-insurance€subsidiary€and€any€of€its€subsidiaries;€(ii)€provided that€an€Insurance€Subsidiary€does€not€serve€as€a€Guarantor€of€the€2017€Credit€Agreement;€and€(iii)€provided€that€Insurance Subsidiaries€are€permitted€to€incur€intercompany€indebtedness.€Insurance€Subsidiaries€will€not€be€required€to€serve€as Guarantors€of€the€Parent's€unsecured€notes€so€long€as€they€are€not€guarantors€of€the€2017€Credit€Agreement. SeniorƒUnsecuredƒNotes Our€4.50%€senior€unsecured€notes€were€issued€in€December€2013€at€99.69%€of€the€principal€amount€of€$450.0€million€and are€due€December€1,€2023€(the€ƒ2023€Notes„).€The€2023€Notes€bear€interest€at€a€rate€of€4.50%€per€year€payable€semi-annually in€arrears€on€June€1€and€December€1€of€each€year.€Our€4.50%€senior€unsecured€notes€were€issued€in€January€2012€at€99.968% of€the€principal€amount€of€$300.0€million€and€are€due€January€15,€2022€(the€ƒ2022€Notes„).€The€2022€Notes€bear€interest€at€a rate€of€4.50%€per€year€payable€semi-annually€in€arrears€on€January€15€and€July€15€of€each€year.€Our€5.75%€senior€unsecured notes€were€issued€in€April€2010€at€99.587%€of€the€principal€amount€of€$300.0€million€and€are€due€May€1,€2020€(the€ƒ2020 Notes„€or€collectively€with€the€2023€Notes€and€the€2022€Notes,€ƒthe€Notes„).€The€2020€Notes€bear€interest€at€a€rate€of 5.75%€per€year€payable€semi-annually€in€arrears€on€May€1€and€November€1€of€each€year.€Advance€served€as€the€issuer€of€the Notes€with€certain€of€Advance(cid:129)s€domestic€subsidiaries€currently€serving€as€subsidiary€guarantors.€The€terms€of€the€Notes€are governed€by€an€indenture€(as€amended,€supplemented,€waived€or€otherwise€modified,€the€ƒIndenture„)€among€Advance,€the subsidiary€guarantors€from€time€to€time€party€thereto€and€Wells€Fargo€Bank,€National€Association,€as€Trustee. We€may€redeem€some€or€all€of€the€Notes€at€any€time€or€from€time€to€time,€at€the€redemption€price€described€in€the Indenture.€In€addition,€in€the€event€of€a€Change€of€Control€Triggering€Event€(as€defined€in€the€Indenture€for€the€Notes),€we€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.€The€Notes€are€currently€fully€and€unconditionally€guaranteed,€jointly€and€severally,€on€an unsubordinated€and€unsecured€basis€by€each€of€the€subsidiary€guarantors.€We€will€be€permitted€to€release€guarantees€without the€consent€of€holders€of€the€Notes€under€the€circumstances€described€in€the€Indenture:€(i)€upon€the€release€of€the€guarantee€of our€other€debt€that€resulted€in€the€affected€subsidiary€becoming€a€guarantor€of€this€debt;€(ii)€upon€the€sale€or€other€disposition€of all€or€substantially€all€of€the€stock€or€assets€of€the€subsidiary€guarantor;€or€(iii)€upon€our€exercise€of€our€legal€or€covenant defeasance€option.€ The€Indenture€contains€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€Indenture€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€10€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€Indenture€also€contains€covenants€limiting€the€ability€of€us€and€our subsidiaries€to€incur€debt€secured€by€liens€and€to€enter€into€sale€and€lease-back€transactions.€ On€January€29,€2019,€we€notified€Wells€Fargo€Bank,€N.A.,€as€trustee,€of€our€intent€to€redeem€all€$300.0€million€aggregate principal€amount€of€our€outstanding€5.75%€Notes€due€2020€(the€ƒ2020€Notes„)€at€a€redemption€price€of€approximately€$1,035 per€$1,000€principal€amount€of€the€2020€Notes,€plus€accrued€and€unpaid€interest,€if€any,€to€the€expected€redemption€date€of February€28,€2019. 47 FutureƒPayments As€of€December€29,€2018,€the€aggregate€future€annual€maturities€of€long-term€debt€instruments€are€as€follows: Year (inƒthousands) Amount $ 2019 2020 2021 2022 2023 Thereafter 210 300,000 … 300,000 450,000 … $ 1,050,210 DebtƒGuaranteesƒ We€are€a€guarantor€of€loans€made€by€banks€to€various€independently€owned€Carquest-branded€stores€that€are€customers€of ours€totaling€$24.3€million€as€of€December€29,€2018.€These€loans€are€collateralized€by€security€agreements€on€merchandise inventory€and€other€assets€of€the€borrowers.€The€approximate€value€of€the€inventory€collateralized€by€these€agreements€is€$53.9 million€as€of€December€29,€2018.€We€believe€that€the€likelihood€of€performance€under€these€guarantees€is€remote. 8. Property€and€Equipment: € Property€and€equipment€consists€of€the€following: (inƒthousands) Useful€Lives December€29, 2018 December€30, 2017 Land€and€land€improvements Buildings Building€and€leasehold€improvements Furniture,€fixtures€and€equipment Vehicles Construction€in€progress Less€-€Accumulated€depreciation Property€and€equipment,€net 0€-€10€years $ 30€-€40€years 3€-€30€years 3€-€20€years 2€-€13€years $ $ 453,511 488,977 504,518 1,740,960 14,636 84,885 3,287,487 (1,918,502) 1,368,985 $ 451,261 478,235 490,635 1,675,522 16,587 65,281 3,177,521 (1,783,383) 1,394,138 Depreciation€expense€relating€to€Property€and€equipment€was€$201.6€million,€$206.9€million€and€$216.0€million€for€2018, 2017€and€2016.€We€capitalized€$13.0€million,€$11.2€million€and€$13.0€million€incurred€for€the€development€of€internal€use computer€software€during€2018,€2017€and€2016.€These€costs€are€currently€classified€in€the€Construction€in€progress€category above,€but€once€placed€into€service€within€the€Furniture,€fixtures€equipment€category,€these€costs€will€be€depreciated€on€the straight-line€method€over€three€to€eleven€years. In€2018,€2017€and€2016,€we€recognized€impairment€losses€of€$13.4€million,€$13.3€million€and€$2.8€million,€on€various store€and€corporate€assets. 48 9. Accrued€Expenses: € Accrued€expenses€consist€of€the€following: (inƒthousands) December€29, 2018 December€30, 2017 Payroll€and€related€benefits $ 129,909 $ Taxes€payable Self-insurance€reserves Warranty€reserves Capital€expenditures Transportation Other 119,203 70,962 45,280 15,365 28,872 213,550 Total€accrued€expenses $ 623,141 $ The€following€table€presents€changes€in€our€warranty€reserves: 92,106 112,930 65,463 49,024 14,335 25,476 174,214 533,548 (inƒthousands) Warranty€reserves,€beginning€of€period Additions€to€warranty€reserves Reserves€utilized Warranty€reserves,€end€of€period 10. Stock€Repurchase€Program: December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ $ 49,024 43,200 (46,944) 45,280 $ $ 47,243 50,895 (49,114) 49,024 $ $ 44,479 46,903 (44,139) 47,243 Our€stock€repurchase€program€allow€us€to€repurchase€our€common€stock€on€the€open€market€or€in€privately€negotiated transactions€from€time€to€time.€On€August€8,€2018,€our€Board€of€Directors€authorized€a€$600.0€million€stock€repurchase program.€€This€new€authorization€replaced€the€previous€$500.0€million€stock€repurchase€program€that€was€authorized€by€our Board€of€Directors€on€May€14,€2012.€ During€2018,€we€repurchased€1.7€million€shares€of€its€common€stock€at€an€aggregate€cost€of€$272.8€million,€or€an€average price€of€$163.17€per€share,€in€connection€with€our€stock€repurchase€program.€We€had€$327.2€million€remaining€under€our€stock repurchase€program€as€of€December€29,€2018.€During€2017,€we€repurchased€no€shares€of€our€common€stock€under€our€stock repurchase€program.€ Subsequent€to€December€29,€2018,€we€have€repurchased€0.8€million€shares€of€common€stock€at€an€aggregate€cost€of€$127.2 million,€or€$159.65€per€share,€through€our€stock€repurchase€program. 49 11. Earnings€per€Share: € The€computation€of€basic€and€diluted€earnings€per€share€is€as€follows:ƒ (inƒthousands,ƒexceptƒperƒshareƒdata) Numerator Net€income€applicable€to€common€shares Denominator Basic€weighted€average€common€shares Dilutive€impact€of€share-based€awards Diluted€weighted€average€common€shares December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ 423,847 $ 475,505 $ 459,622 73,728 263 73,991 73,846 264 74,110 73,562 294 73,856 6.22 6.20 Basic€earnings€per€common€share Diluted€earnings€per€common€share $ $ 5.75 5.73 $ $ 6.44 6.42 $ $ € 12. Income€Taxes: € U.S.ƒTaxƒReform On€December€22,€2017,€the€U.S.€Tax€Cuts€and€Jobs€Act€(the€ƒAct„)€was€signed€into€law.€The€Act€amends€the€Internal Revenue€Code€by,€among€other€things,€permanently€lowering€the€corporate€tax€rate€to€21%€from€the€existing€maximum€rate€of 35%,€implementing€a€territorial€tax€system€and€imposing€a€transition€tax€on€deemed€repatriated€earnings€of€foreign€subsidiaries. We€are€required€to€remeasure€deferred€income€tax€assets€and€liabilities€in€the€reporting€period€of€enactment.€The€remeasurement of€the€our€net€deferred€income€tax€liability€resulted€in€a€$155.1€million€income€tax€benefit€in€2017.€In€2017,€we€also€recorded€an estimated€charge€of€$11.3€million€to€income€tax€expense€primarily€for€the€nonrecurring€repatriation€tax€on€accumulated earnings€of€foreign€subsidiaries€and€it€is€our€intention€to€bring€back€the€accumulated€foreign€earnings€held€as€cash€in€the€near term.€Prospectively,€any€future€foreign€earnings€will€be€utilized€to€grow€and€support€our€foreign€operations€and€will€be€treated as€being€indefinitely€reinvested€outside€the€U.S.€ During€2018,€in€conjunction€with€the€completion€of€our€2017€U.S.€income€tax€return,€we€identified€a€change€in€estimate€to amounts€previously€estimated€in€2017€for€the€remeasurement€of€the€net€deferred€tax€liability€and€nonrecurring€repatriation€tax on€accumulated€earnings€of€foreign€subsidiaries€that€resulted€in€a€net€tax€benefit€of€$5.7€million.€Our€analysis€under€Staff Accounting€Bulletin€No.€118€is€complete. 50 ProvisionƒforƒIncomeƒTaxes Provision€for€income€taxes€consists€of€the€following: (inƒthousands) Current Deferred Total 2018 Federal State Foreign 2017 Federal State Foreign 2016 Federal State Foreign $ $ $ $ $ $ 72,598 $ 14,745 $ 19,571 23,292 115,461 146,855 31,352 17,810 196,017 209,499 29,345 20,156 259,000 $ $ $ $ $ 87,343 23,010 21,064 $ 131,417 3,439 (2,228) 15,956 (146,741) $ (3,437) (1,085) (151,263) $ 17,989 $ 1,366 858 20,213 $ 114 27,915 16,725 44,754 227,488 30,711 21,014 279,213 The€provision€for€income€taxes€differed€from€the€amount€computed€by€applying€the€federal€statutory€income€tax€rate€due to: (inƒthousands) Income€before€provision€for€income€taxes€at€statutory€U.S.€federal income€tax€rate€(21%€for€2018€and€35%€for€2017€and€2016) State€income€taxes,€net€of€federal€income€tax€benefit Impact€of€the€Act Other,€net December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ $ 116,605 18,178 (5,655) 2,289 131,417 $ $ 182,091 18,145 (143,756) (11,726) 44,754 $ $ 258,592 19,962 … 659 279,213 51 DeferredƒIncomeƒTaxƒAssetsƒ(Liabilities) Temporary€differences€that€give€rise€to€significant€deferred€income€tax€assets€(liabilities)€are€as€follows:€ Deferred€income€tax€assets: (inƒthousands) December€29, 2018 December€30, 2017 Accrued€expenses€not€currently€deductible€for€tax $ 40,066 $ Share-based€compensation Accrued€medical€and€workers€compensation Net€operating€loss€carryforwards Straight-line€rent 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 Total€deferred€income€tax€liabilities Net€deferred€income€tax€liabilities 7,780 34,430 7,423 21,091 8,390 119,180 (8,694) 110,486 (92,505) (196,772) (139,562) (428,839) (318,353) $ $ 38,200 9,556 33,697 6,701 21,733 2,973 112,860 (3,778) 109,082 (98,186) (169,478) (145,038) (412,702) (303,620) As€of€December€29,€2018€and€December€30,€2017,€our€net€operating€loss€(ƒNOL„)€carryforwards€related€to€state€NOLs€of $195.0€million€and€$177.8€million.€These€NOLs€may€be€used€to€reduce€future€taxable€income€and€expire€periodically€through 2037.€Due€to€uncertainties€related€to€the€realization€of€these€NOLs€in€certain€jurisdictions,€we€have€recorded€a€valuation allowance€of€$3.8€million€and€$3.8€million€as€of€December€29,€2018€and€December€30,€2017.€In€addition,€we€have€recorded€a $4.9€million€valuation€allowance€on€foreign€tax€credit€carryforwards.€The€amount€of€deferred€income€tax€assets€realizable, however,€could€change€in€the€future€if€projections€of€future€taxable€income€change.€ We€have€not€recorded€deferred€taxes€when€earnings€from€foreign€operations€are€considered€to€be€indefinitely€invested outside€of€the€U.S.€As€of€December€29,€2018,€these€accumulated€net€earnings€generated€by€our€foreign€operations€were approximately€$12.1€million,€which€did€not€include€earnings€deemed€to€be€repatriated€as€part€of€the€Act.€It€is€not€practicable€to determine€the€income€tax€liability€that€would€be€payable€if€such€earnings€were€repatriated. UnrecognizedƒTaxƒBenefits The€following€table€summarizes€the€activity€of€our€gross€unrecognized€tax€benefits: (inƒthousands) 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 December€29, 2018 December€30, 2017 December€31, 2016 $ $ 22,665 5,435 (1,356) 5,425 (14) (1,331) 30,824 $ $ 13,946 8,077 (2,331) 5,644 (1,496) (1,175) 22,665 $ $ 13,841 8,274 (1,600) 2,105 (6,894) (1,780) 13,946 52 As€of€December€29,€2018,€December€30,€2017€and€December€31,€2016,€the€entire€amount€of€unrecognized€tax€benefits,€if recognized,€would€reduce€our€annual€effective€tax€rate.€During€2018,€we€recorded€a€gain€relating€to€income€tax-related€interest and€penalties€of€$0.9€million€due€to€uncertain€tax€positions€included€in€Provision€for€income€taxes€in€the€accompanying consolidated€statements€of€operations.€During€2017€and€2016,€we€recorded€expenses€relating€to€income€tax-related€interest€and penalties€of€$1.7€million€and€$1.9€million€due€to€uncertain€tax€positions€included€in€Provision€for€income€taxes€in€the accompanying€consolidated€statements€of€operations.€As€of€December€29,€2018€and€December€30,€2017,€we€recorded€a€liability for€potential€interest€of€$3.3€million€and€$4.2€million€and€for€potential€penalties€of€$0.1€million€and€$0.1€million.€We€did€not provide€for€any€penalties€associated€with€tax€contingencies€unless€considered€probable€of€assessment.€We€do€not€expect€our unrecognized€tax€benefits€to€change€significantly€over€the€next€12€months.€With€few€exceptions,€we€are€no€longer€subject€to U.S.€federal,€state€and€local€or€non-U.S.€income€tax€examinations€by€tax€authorities€for€years€before€2014. 13. Lease€and€Other€Commitments: € Initial€terms€for€facility€leases€are€typically€5€to€10€years,€with€renewal€options€at€5€year€intervals,€and€may€include€rent escalation€clauses.€As€of€December€29,€2018,€future€minimum€lease€payments€due€under€non-cancelable€operating€leases€with lease€terms€extending€through€the€year€2059€are€as€follows: Year (inƒthousands) Amount 2019 2020 2021 2022 2023 Thereafter $ $ 520,541 481,812 416,895 349,470 270,116 837,441 2,876,275 NetƒRentƒExpense The€following€table€summarizes€net€rent€expense:€ (inƒthousands) December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 Minimum€facility€rentals $ 484,291 $ 483,178 $ Equipment€rentals Vehicle€rentals Less:€Sub-lease€income OtherƒCommitments 23,635 53,015 560,941 (7,141) 553,800 $ 24,786 32,670 540,634 (7,144) 533,490 $ $ 473,596 26,897 47,251 547,744 (7,379) 540,365 We€have€entered€into€certain€arrangements€which€require€the€future€purchase€of€goods€or€services.€Our€obligations primarily€consist€of€payments€for€the€purchase€of€hardware,€software€and€maintenance.€As€of€December€29,€2018,€future payments€amount€to€$101.5€million€and€are€not€accrued€in€our€consolidated€balance€sheet. 53 14. Contingencies:€ We€are€currently€and€from€time€to€time€subject€to€litigation,€claims€and€other€disputes,€including€legal€and€regulatory proceedings,€arising€in€the€normal€course€of€business.€We€record€a€loss€contingency€liability€when€a€loss€is€considered€probable and€the€amount€can€be€reasonably€estimated.€Although€the€final€outcome€of€these€legal€matters€cannot€be€determined,€based€on the€facts€presently€known,€it€is€management(cid:129)s€opinion€that€the€final€outcome€of€any€pending€matters€will€not€have€a€material adverse€effect€on€our€consolidated€financial€position,€results€of€operations€or€cash€flows. Our€Western€Auto€subsidiary,€together€with€other€defendants€(including€Advance€and€other€of€its€subsidiaries),€has€been named€as€a€defendant€in€lawsuits€alleging€injury€as€a€result€of€exposure€to€asbestos-containing€products.€The€plaintiffs€have alleged€that€certain€products€contained€asbestos€and€were€manufactured,€distributed€and/or€sold€by€the€various€defendants. Many€of€the€cases€pending€against€us€are€in€the€early€stages€of€litigation.€While€the€damages€claimed€against€the€defendants€in some€of€these€proceedings€are€substantial,€we€believe€many€of€these€claims€are€at€least€partially€covered€by€insurance€and historically€asbestos€claims€against€us€have€been€inconsistent€in€fact€patterns€alleged€and€immaterial.€We€do€not€believe€the cases€currently€pending€will€have€a€material€adverse€effect€on€our€financial€position,€results€of€operations€or€cash€flows.€ 15. Benefit€Plans: 401(k)ƒPlan€ We€maintain€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€our€discretion. Company€contributions€to€these€plans€were€$15.0€million,€$14.2€million€and€$13.9€million€in€2018,€2017€and€2016.€ DeferredƒCompensationƒ We€maintain€a€non-qualified€deferred€compensation€plan€for€certain€Team€Members.€This€plan€provides€for€a€minimum€and maximum€deferral€percentage€of€the€Team€Member(cid:129)s€base€salary€and€bonus,€as€determined€by€the€Retirement€Plan€Committee. We€established€and€maintained€a€deferred€compensation€liability€for€this€plan.€As€of€December€29,€2018€and€December€30, 2017,€these€liabilities€were€$12.2€million€and€$16.8€million. € 16. Share-Based€Compensation: Overview We€grant€share-based€compensation€awards€to€our€Team€Members€and€members€of€our€Board€of€Directors€as€provided€for under€our€2014€Long-Term€Incentive€Plan€(ƒ2014€LTIP„),€which€was€approved€by€our€shareholders€on€May€14,€2014.€In€2018, 2017€and€2016,€we€granted€share-based€compensation€in€the€form€of€stock€appreciation€rights€(ƒSARs„),€restricted€stock€units (ƒRSUs„)€or€deferred€stock€units€(ƒDSUs„).€Our€grants,€which€have€three€methods€of€measuring€fair€value,€generally€include€a time-based€service,€a€performance-based€or€a€market-based€portion,€which€collectively€represent€the€target€award. At€December€29,€2018,€there€were€5.3€million€shares€of€common€stock€available€for€future€issuance€under€the€2014€LTIP based€on€management(cid:129)s€current€estimate€of€the€probable€vesting€outcome€for€performance-based€awards.€We€issue€new€shares of€common€stock€upon€exercise€of€SARs.€Shares€forfeited€and€shares€withheld€for€payment€of€taxes€due€become€available€for reissuance€and€are€included€in€availability.€Availability€also€includes€shares€that€became€available€for€reissuance€in€connection with€the€exercise€of€SARs.€ 54 The€fair€value€of€each€SAR€granted€was€estimated€on€the€date€of€grant€using€the€Black-Scholes€option-pricing€model€with the€following€weighted€average€assumptions: Black-Scholes€Option€Valuation€Assumptions Risk-free€interest€rate€(1) Expected€dividend€yield Expected€stock€price€volatility€(2) Expected€life€of€awards€(in€months)€(3) 2016 1.2% 0.2% 27.7% 55 € (1) (2) (3) The€risk-free€interest€rate€is€based€on€the€U.S.€Treasury€constant€maturity€interest€rate€having€a€term€consistent€with the€expected€life€of€the€award.€ Expected€volatility€is€determined€using€a€blend€of€historical€and€implied€volatility. The€expected€life€of€our€awards€represents€the€estimated€period€of€time€until€exercise€and€is€based€on€historical experience€of€previously€granted€awards. As€no€time-based€and€performance-based€SARs€were€granted€in€2018€or€2017,€the€Black-Scholes€model€was€not€utilized and€no€assumptions€were€created. For€time-based€and€performance-based€RSUs,€the€fair€value€of€each€award€was€determined€based€on€the€market€price€of our€stock€on€the€date€of€grant€adjusted€for€expected€dividends€during€the€vesting€period,€as€applicable.€ The€fair€value€of€each€market-based€RSU€was€determined€using€a€Monte€Carlo€simulation€model.€The€model€uses€multiple input€variables€that€determined€the€probability€of€satisfying€the€market€condition€requirements€as€follows: Monte€Carlo€Simulation€Model€Assumptions Risk-free€interest€rate€(1) Expected€dividend€yield Expected€stock€price€volatility€(2) 2018 2017 2.4% 0.2% 34.0% 1.6% 0.2% 26.2% € (1) (2) The€risk-free€interest€rate€is€based€on€the€U.S.€Treasury€constant€maturity€interest€rate€having€term€consistent€with€the vesting€period€of€the€award.€ Expected€volatility€is€determined€based€on€historical€volatility€over€a€matching€look-back€period€and€is€consistent with€the€correlation€coefficients€between€our€stock€prices€and€our€peer€group. As€no€market-based€RSUs€were€granted€in€2016,€the€Monte€Carlo€simulation€model€was€not€utilized€and€no€assumptions were€created. Additionally,€we€estimated€a€liquidity€discount€of€14.5%€using€the€Chaffe€Protective€Put€Method€to€adjust€the€fair€value€for the€post-vest€restrictions. Time-BasedƒAwards Our€outstanding€time-vested€awards€consist€of€SARs€and€RSUs.€The€SARs€generally€vest€over€a€three-year€period€in€equal annual€installments€beginning€on€the€first€anniversary€of€the€grant€date.€The€SARs€granted€are€non-qualified,€terminate€on€the seventh€anniversary€of€the€grant€date€and€contain€no€post-vesting€restrictions€other€than€normal€trading€black-out€periods prescribed€by€our€corporate€governance€policies.€The€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.€ 55 The€following€table€summarizes€activity€for€time-vested€SARs€and€RSUs€in€2018:€ (inƒthousands,ƒexceptƒperƒshareƒdata) Outstanding€SARs€/€Nonvested RSUs€at€December€30,€2017 Granted Exercised Vested Forfeited Outstanding€SARs€/€Nonvested RSUs€at€December€29,€2018 Vested€and€expected€to€vest Outstanding€and€exercisable Weighted- Average Exercise Price Number of€Awards 113 $ 126.07 … (26) … (4) … 71.06 … 71.94 83 83 14 $ $ $ 145.91 145.91 74.55 SARs RSUs Weighted- Average Remaining Contractual Term€(in years) Aggregate Intrinsic Value Number€of Awards Weighted- Average Grant€Date Fair€Value $ 346 259 … (125) (70) 135.58 130.12 … 140.62 124.55 410 $ 132.49 3.71 3.71 0.98 $ $ $ 1,172 … 1,172 The€aggregate€intrinsic€value€of€time-vested€SARs€and€performance-based€SARs€is€based€on€our€closing€stock€price€of $155.46€as€of€the€last€trading€day€of€2018.€The€fair€value€of€time-based€RSUs€and€performance-based€RSUs€is€determined based€on€the€market€price€of€our€common€stock€on€the€date€of€grant.€ The€following€table€summarizes€certain€information€concerning€activity€for€time-vested€SARs€and€RSUs: (inƒthousands,ƒexceptƒperƒshareƒdata) SARs: Weighted€average€fair€value€of€grants Aggregate€intrinsic€value€of€SARs€exercised RSUs: Weighted€average€fair€value€of€grants Total€grant€date€fair€value€of€RSUs€vested Performance-BasedƒAwards Year€Ended December€29, 2018 December€30, 2017 December€31, 2016 $ $ $ $ … $ $ 1,898 … $ $ 11,455 43.64 31,450 130.12 17,527 $ $ 131.01 13,578 $ $ 155.51 16,089 Our€outstanding€performance-based€awards€consist€of€SARs€and€RSUs.€Performance€awards€generally€may€vest€following a€three-year€period€subject€to€our€achievement€of€certain€financial€goals€as€specified€in€the€grant€agreements.€Depending€on€our 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.€The€performance€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.€We€also€grant€broad- based€incentive€awards€to€store€and€field€team€members€that€vested€over€a€one-year€service€period€based€on€the€achievement€of performance€goals. 56 The€number€of€performance-based€awards€outstanding€is€reflected€in€the€following€tables€based€on€the€number€of€awards that€we€believed€were€probable€of€vesting€at€December€29,€2018.€Performance-based€SARs€and€performance-based€RSU(cid:129)s granted€during€2018€are€presented€as€grants€in€the€table€at€their€respective€target€levels.€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€29,€2018.€ Compensation€expense€for€performance-based€awards€of€$5.4€million,€$13.6€million,€and€$0.8€million€in€2018,€2017€and 2016,€was€determined€based€on€management(cid:129)s€estimate€of€the€probable€vesting€outcome.€ € The€following€table€summarizes€activity€for€performance-based€SARs€and€RSUs€in€2018: SARs RSUs Weighted- Average Remaining Contractual Term€(in years) Weighted- Average Exercise Price $ 90.90 Aggregate Intrinsic Value Number of€Awards Weighted- Average Grant€Date Fair€Value (inƒthousands,ƒexceptƒperƒshareƒdata) Outstanding€SARs€/€Nonvested RSUs€at€December€30,€2017 Granted Change€in€units€based€on performance Exercised Vested Forfeited Number of€Awards 29 … … (12) … (2) Outstanding€SARs€/€Nonvested RSUs€at€December€29,€2018 Vested€and€expected€to€vest Outstanding€and€exercisable 15 15 15 $ $ $ … … 85.92 … 84.80 96.04 96.04 96.04 1.51 1.51 1.51 $ $ $ 838 … 838 $ 125 115 (41) … (56) (18) 156.36 119.08 147.09 … 163.42 124.85 125 $ 126.19 The€following€table€summarizes€certain€information€concerning€activity€for€performance-based€SARs€and€RSUs: (inƒthousands,ƒexceptƒperƒshareƒdata) SARs: Weighted€average€fair€value€of€grants Aggregate€intrinsic€value€of€SARs€exercised RSUs: Weighted€average€fair€value€of€grants Total€grant€date€fair€value€of€RSUs€vested December€29, 2018 Year€Ended December€30, 2017 December€31, 2016 $ $ $ $ … $ 610 $ … $ $ 5,221 36.78 11,556 119.08 9,224 $ $ 146.42 7,823 $ $ 163.76 13,512 As€of€December€29,€2018,€the€maximum€potential€payout€under€our€currently€outstanding€performance-based€SARs€and RSUs€was€310€thousand€and€228€thousand€units.€ Market-BasedƒAwards Our€outstanding€market-based€awards€consist€of€RSUs.€Market-based€RSU(cid:129)s€vesting€depends€on€our€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. 57 At€the€beginning€of€2018,€24€thousand€market-based€RSUs€were€outstanding.€During€2018,€a€total€of€38€thousand€market- based€RSUs€were€granted€at€a€weighted€average€fair€value€of€$131.48€per€unit€and€9€thousand€market-based€RSUs€were forfeited€at€a€weighted€average€fair€value€of€$137.58.€ At€the€beginning€of€2017,€zero€market-based€RSUs€were€outstanding.€During€2017,€a€total€of€27€thousand€market-based RSUs€were€granted€at€a€weighted€average€fair€value€of€$139.33€per€unit€and€3€thousand€market-based€RSUs€were€forfeited€at€a weighted€average€fair€value€of€$145.83.€ OtherƒConsiderations Total€income€tax€benefit€related€to€share-based€compensation€expense€for€2018,€2017€and€2016€was€$6.8€million,€$15.3 million€and€$7.5€million. As€of€December€29,€2018,€there€was€$53.0€million€of€unrecognized€compensation€expense€related€to€all€share-based awards€that€was€expected€to€be€recognized€over€a€weighted€average€period€of€1.7€years. DeferredƒStockƒUnits We€grant€share-based€awards€annually€to€our€Board€of€Directors€in€connection€with€its€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€(ƒDSU€Plan„).€Each€DSU€is€equivalent€to€one€share€of€our€common€stock and€will€be€distributed€in€common€shares€after€the€director(cid:129)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. We€granted€15€thousand€DSUs€in€2018.€The€weighted€average€fair€value€of€DSUs€granted€during€2018,€2017€and€2016€was $127.14,€$125.34,€and€$146.30.€The€DSUs€are€awarded€at€a€price€equal€to€the€market€price€of€our€underlying€stock€on€the€date of€the€grant.€For€2018,€2017€and€2016,€we€recognized€$1.9€million,€$1.5€million€and€$0.9€million€of€share-based€compensation expense€for€these€DSU€grants.€ EmployeeƒStockƒPurchaseƒPlan We€also€offer€an€employee€stock€purchase€plan€(ƒESPP„).€Under€the€ESPP,€eligible€Team€Members€may€elect€salary deferrals€to€purchase€our€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€29,€2018,€there€were€1.0€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:€ (inƒthousands) Balance,€January€2,€2016 2016€activity Balance,€December€31,€2016 2017€activity Balance,€December€30,€2017 2018€activity Balance,€December€29,€2018 Unrealized€Gain (Loss)€on Postretirement€Plan 2,486 $ (534) 1,952 (194) 1,758 (294) 1,464 $ $ $ Foreign€Currency Translation Accumulated€Other Comprehensive (Loss)€Income (46,545) $ 4,892 (41,653) 14,941 (26,712) (18,945) (45,657) $ (44,059) 4,358 (39,701) 14,747 (24,954) (19,239) (44,193) 58 18. Condensed€Consolidating€Financial€Statements: Certain€100%€wholly€owned€domestic€subsidiaries€of€Advance,€including€its€Material€Subsidiaries€(as€defined€in€the€2017 Credit€Agreement)€serve€as€guarantors€of€Advance(cid:129)s€senior€unsecured€notes€(ƒGuarantor€Subsidiaries„).€The€subsidiary guarantees€related€to€Advance(cid:129)s€senior€unsecured€notes€are€full€and€unconditional,€joint€and€several€and€there€are€no€restrictions on€the€ability€of€Advance€to€obtain€funds€from€its€Guarantor€Subsidiaries.€Certain€of€Advance(cid:129)s€wholly€owned€subsidiaries, including€all€of€its€foreign€subsidiaries,€do€not€serve€as€guarantors€of€Advance(cid:129)s€senior€unsecured€notes€(ƒNon-Guarantor Subsidiaries„).€ Set€forth€below€are€condensed€consolidating€financial€statements€presenting€the€financial€position,€results€of€operations, and€cash€flows€of€(i)€Advance,€(ii)€the€Guarantor€Subsidiaries,€(iii)€the€Non-Guarantor€Subsidiaries,€and€(iv)€the€eliminations necessary€to€arrive€at€consolidated€information€for€Advance.€Investments€in€subsidiaries€of€Advance€are€presented€under€the equity€method.€The€statement€of€operations€eliminations€relate€primarily€to€the€sale€of€inventory€from€a€Non-Guarantor Subsidiary€to€a€Guarantor€Subsidiary.€The€balance€sheet€eliminations€relate€primarily€to€the€elimination€of€intercompany receivables€and€payables€and€subsidiary€investment€accounts.€ 59 The€following€tables€present€condensed€consolidating€balance€sheets,€condensed€consolidating€statements€of€operations, comprehensive€income€and€cash€flows,€and€should€be€read€in€conjunction€with€the€consolidated€financial€statements€herein.€ Condensed€Consolidating€Balance€Sheet As€of€December€29,€2018 (inƒthousands) Assets Advance Auto€Parts, Inc. Guarantor Subsidiaries Non- Guarantor Subsidiaries Eliminations Consolidated Current€assets: Cash€and€cash€equivalents $ 785,605 $ 110,922 $ Receivables,€net Inventories Other€current€assets Total€current€assets Property€and€equipment,€net€of accumulated€depreciation Goodwill Intangible€assets,€net Other€assets,€net Investment€in€subsidiaries Intercompany€note€receivable Due€from€intercompany,€net Liabilities€and€Stockholders'€Equity Current€liabilities: Accounts€payable Accrued€expenses Other€current€liabilities Total€current€liabilities Long-term€debt Deferred€income€taxes Other€long-term€liabilities Intercompany€note€payable Due€to€intercompany,€net Commitments€and€contingencies Stockholders'€equity … $ … … 3,103 3,103 77 … … 2,408 3,945,862 590,269 4,182,973 191,318 5,750,165 1,359,980 943,364 510,586 47,815 474,772 1,048,993 … $ 5,000,443 … 102,886 $ 9,189,568 $ … $ … … … … … … … (2,408) (4,420,634) (1,048,993) (400,466) $ (5,872,501) $ 34,703 179,574 3,987 329,186 8,928 46,873 40,007 564 … … 297,580 723,138 $ … $ 2,954,632 603,460 91,994 3,650,086 3,444 … 3,444 1,045,720 … … … 306,127 238,500 … 1,048,993 400,466 … $ 218,158 $ 16,237 (1,975) 232,420 … 14,634 1,312 … … … $ … … … … (2,408) … (1,048,993) (400,466) 896,527 624,972 4,362,547 198,408 6,082,454 1,368,985 990,237 550,593 48,379 … … … 9,040,648 3,172,790 623,141 90,019 3,885,950 1,045,720 318,353 239,812 … … 3,550,813 $ 5,000,443 3,945,862 $ 9,189,568 474,772 $ 723,138 (4,420,634) $ (5,872,501) $ 3,550,813 9,040,648 60 Condensed€Consolidating€Balance€Sheet As€of€December€30,€2017€ (inƒthousands) Assets Advance Auto€Parts, Inc. Guarantor Subsidiaries Non- Guarantor Subsidiaries Eliminations Consolidated Current€assets: Cash€and€cash€equivalents $ $ 482,620 $ 64,317 $ Receivables,€net Inventories Other€current€assets Total€current€assets Property€and€equipment,€net€of accumulated€depreciation Goodwill Intangible€assets,€net Other€assets,€net Investment€in€subsidiaries Intercompany€note€receivable Due€from€intercompany,€net Liabilities€and€Stockholders'€Equity Current€liabilities: Accounts€payable Accrued€expenses Other€current€liabilities Total€current€liabilities Long-term€debt Deferred€income€taxes Other€long-term€liabilities Intercompany€note€payable Due€to€intercompany,€net Commitments€and€contingencies Stockholders'€equity 23 … … … 23 103 … … 3,224 3,521,330 567,460 3,986,724 103,118 5,139,922 1,384,115 943,359 551,781 68,749 448,462 1,048,700 … $ 4,573,380 … … $ 8,536,388 $ (23) $ … … (75) (98) … … … (3,223) (3,969,792) (1,048,700) (332,467) $ (5,354,280) $ 38,897 181,768 2,063 287,045 9,920 50,934 45,893 554 … … 332,467 726,813 $ … $ 2,657,792 511,841 50,963 3,220,596 1,134 … 1,134 1,044,327 … … … 112,723 … 288,999 237,019 1,048,700 219,744 $ 236,790 $ 20,648 1,027 258,465 … 17,844 2,042 … … … $ (75) (23) (98) … (3,223) … (1,048,700) (332,467) 546,937 606,357 4,168,492 105,106 5,426,892 1,394,138 994,293 597,674 69,304 … … … 8,482,301 2,894,582 533,548 51,967 3,480,097 1,044,327 303,620 239,061 … … 3,415,196 $ 4,573,380 3,521,330 $ 8,536,388 448,462 $ 726,813 (3,969,792) $ (5,354,280) $ 3,415,196 8,482,301 61 Condensed€Consolidating€Statement€of€Operations For€the€Year€Ended€December€29,€2018€ (inƒthousands) Net€sales Cost€of€sales,€including€purchasing€and $ warehousing€costs Gross€profit Selling,€general€and€administrative€expenses Operating€(loss)€income Other,€net: Interest€(expense)€income Other€income€(expense),€net Total€other,€net Income€before€provision€for€income€taxes Provision€for€income€taxes (Loss)€income€before€equity€in€earnings€of subsidiaries Equity€in€earnings€of€subsidiaries Advance Auto€Parts, Inc. Guarantor Subsidiaries … $ 9,225,772 Non- Guarantor Subsidiaries Eliminations Consolidated 9,580,554 $ (165,101) $ 519,883 $ … … 20,235 (20,235) (52,253) 73,174 20,921 686 2,519 (1,833) 425,680 5,169,076 4,056,696 3,547,645 509,051 (4,336) (6,961) (11,297) 497,754 117,015 380,739 44,941 357,166 162,717 98,412 64,305 1 (7,482) (7,481) 56,824 11,883 44,941 … (165,101) … (51,154) 51,154 … (51,154) (51,154) … … … (470,621) (470,621) $ 5,361,141 4,219,413 3,615,138 604,275 (56,588) 7,577 (49,011) 555,264 131,417 423,847 … 423,847 Net€income $ 423,847 $ 425,680 $ 44,941 $ Condensed€Consolidating€Statement€of€Operations For€the€Year€Ended€December€30,€2017€ (inƒthousands) Net€sales Cost€of€sales,€including€purchasing€and $ warehousing€costs Gross€profit Selling,€general€and€administrative€expenses Operating€(loss)€income Other,€net: Interest€(expense)€income Other€income€(expense),€net Total€other,€net Income€before€provision€for€income€taxes Provision€for€income€taxes Income€before€equity€in€earnings€of subsidiaries Equity€in€earnings€of€subsidiaries Advance Auto€Parts, Inc. Guarantor Subsidiaries … $ 9,034,790 Non- Guarantor Subsidiaries Eliminations Consolidated 9,373,784 $ (211,456) $ 550,450 $ … … 30,478 (30,478) (52,305) 83,840 31,535 1,057 641 416 475,089 5,107,063 3,927,727 3,453,406 474,321 (6,496) (17,729) (24,225) 450,096 32,623 417,473 57,616 393,128 157,322 82,155 75,167 … (6,061) (6,061) 69,106 11,490 57,616 … (211,456) … (51,202) 51,202 … (51,202) (51,202) … … … (532,705) (532,705) $ 5,288,735 4,085,049 3,514,837 570,212 (58,801) 8,848 (49,953) 520,259 44,754 475,505 … 475,505 Net€income $ 475,505 $ 475,089 $ 57,616 $ 62 Condensed€Consolidating€Statement€of€Operations For€the€Year€Ended€December€31,€2016 (inƒthousands) Net€sales Cost€of€sales,€including€purchasing€and $ warehousing€costs Gross€profit Selling,€general€and€administrative€expenses Operating€(loss)€income Other,€net: Interest€(expense)€income Other€income€(expense),€net Total€other,€net Income€before€provision€for€income€taxes Provision€for€income€taxes (Loss)€income€before€equity€in€earnings€of subsidiaries Equity€in€earnings€of€subsidiaries Advance Auto€Parts, Inc. Guarantor Subsidiaries … $ 9,254,477 Non- Guarantor Subsidiaries Eliminations Consolidated 9,567,679 $ (243,545) $ 556,747 $ … … 28,695 (28,695) (52,081) 81,683 29,602 907 1,588 (681) 460,303 5,171,953 4,082,524 3,402,323 680,201 (7,897) (19,558) (27,455) 652,746 260,155 392,591 67,712 383,356 173,391 92,287 81,104 68 4,010 4,078 85,182 17,470 67,712 … (243,545) … (54,988) 54,988 … (54,988) (54,988) … … … (528,015) (528,015) $ 5,311,764 4,255,915 3,468,317 787,598 (59,910) 11,147 (48,763) 738,835 279,213 459,622 … 459,622 Net€income $ 459,622 $ 460,303 $ 67,712 $ 63 Condensed€Consolidating€Statement€of€Comprehensive€Income For€the€Year€Ended€December€29,€2018 (inƒthousands) Net€income Other€comprehensive€loss: Changes€in€net€unrecognized€other postretirement€benefit€costs Currency€translation€adjustments Equity€in€other€comprehensive€loss€of subsidiaries Total€other€comprehensive€loss Comprehensive€income Advance Auto€Parts, Inc. 423,847 $ Guarantor Subsidiaries 425,680 $ Non- Guarantor Subsidiaries Eliminations Consolidated 423,847 $ (470,621) $ 44,941 $ … … (294) … (19,239) (19,239) 404,608 $ (18,945) (19,239) 406,441 $ $ … (18,945) … (18,945) 25,996 … … 38,184 38,184 (432,437) $ $ (294) (18,945) … (19,239) 404,608 Condensed€Consolidating€Statement€of€Comprehensive€Income For€the€Year€Ended€December€30,€2017€ (inƒthousands) Net€income Other€comprehensive€income: Changes€in€net€unrecognized€other postretirement€benefit€costs Currency€translation€adjustments Equity€in€other€comprehensive€income€of subsidiaries Total€other€comprehensive€income Comprehensive€income Advance Auto€Parts, Inc. 475,505 $ Guarantor Subsidiaries 475,089 $ Non- Guarantor Subsidiaries Eliminations Consolidated 475,505 $ (532,705) $ 57,616 $ … … (194) … 14,747 14,747 490,252 $ 14,941 14,747 489,836 $ $ … 14,941 … 14,941 72,557 … … (194) 14,941 (29,688) (29,688) (562,393) $ $ … 14,747 490,252 Condensed€Consolidating€Statement€of€Comprehensive€Income For€the€Year€Ended€December€31,€2016 (inƒthousands) Net€income Other€comprehensive€income: Changes€in€net€unrecognized€other postretirement€benefit€costs Currency€translation€adjustments Advance Auto€Parts, Inc. 459,622 $ Guarantor Subsidiaries 460,303 $ … … (534) … Equity€in€other€comprehensive€income€of subsidiaries Other€comprehensive€income Comprehensive€income 4,358 4,358 463,980 $ 4,892 4,358 464,661 $ $ 64 Non- Guarantor Subsidiaries Eliminations Consolidated 459,622 $ (528,015) $ 67,712 $ … 4,892 … 4,892 72,604 … … (534) 4,892 (9,250) (9,250) (537,265) $ $ … 4,358 463,980 Condensed€Consolidating€Statement€of€Cash€Flows For€the€Year€Ended€December€29,€2018 (inƒthousands) Advance Auto€Parts, Inc. Net€cash€provided€by€operating€activities Cash€flows€from€investing€activities: Purchases€of€property€and€equipment $ Proceeds€from€sales€of€property€and equipment Other,€net Net€cash€used€in€investing€activities Cash€flows€from€financing€activities: Increase€(decrease)€in€bank€overdrafts Dividends€paid Proceeds€from€the€issuance€of€common stock Tax€withholdings€related€to€the€exercise€of stock€appreciation€rights Repurchase€of€common€stock Other,€net Net€cash€used€in€financing€activities Effect€of€exchange€rate€changes€on€cash Net€(decrease)€increase€in€cash€and€cash equivalents Cash€and€cash€equivalents,€beginning€of period Cash€and€cash€equivalents,€end€of€period $ Guarantor Subsidiaries 753,948 … $ Non- Guarantor Subsidiaries Eliminations Consolidated 811,028 $ 57,080 … $ $ … … … … … … … … … (23) (23) … (23) (192,156) (1,559) 1,842 … (190,314) 35,280 (17,819) 3,200 (773) (281,354) 817 (260,649) … 46 … (1,513) (3,266) … … … … … (3,266) (5,696) 302,985 46,605 … … … … … … … … … 23 23 … 23 23 … $ 482,620 785,605 $ 64,317 110,922 $ (23) … $ (193,715) 1,888 … (191,827) 32,014 (17,819) 3,200 (773) (281,354) 817 (263,915) (5,696) 349,590 546,937 896,527 65 Condensed€Consolidating€Statement€of€Cash€Flows For€the€Year€Ended€December€30,€2017€ (inƒthousands) Advance Auto€Parts, Inc. Net€cash€provided€by€operating€activities Cash€flows€from€investing€activities: Purchases€of€property€and€equipment $ Proceeds€from€sales€of€property€and equipment Other,€net Net€cash€used€in€investing€activities Cash€flows€from€financing€activities: Increase€(decrease)€in€bank€overdrafts Borrowings€under€credit€facilities Payments€on€credit€facilities Dividends€paid Proceeds€from€the€issuance€of€common stock Tax€withholdings€related€to€the€exercise€of stock€appreciation€rights Repurchase€of€common€stock Other,€net Net€cash€provided€by€(used€in) financing€activities Effect€of€exchange€rate€changes€on€cash Net€increase€in€cash€and€cash€equivalents Cash€and€cash€equivalents,€beginning€of period Cash€and€cash€equivalents,€end€of€period $ Guarantor Subsidiaries 593,091 … $ Non- Guarantor Subsidiaries Eliminations Consolidated 600,805 $ … $ 7,714 $ … … … … … … … … … … … 1 1 … 1 22 23 (187,993) (1,765) 11,085 480 (176,428) 16,290 534,400 (534,400) (17,854) 4,076 (6,531) (6,498) (2,069) (12,586) … 404,077 14 (460) (2,211) (2,286) … … … … … … … (2,286) 4,465 7,682 … … … … … … … … … … … (1) (1) … (1) (189,758) 11,099 20 (178,639) 14,004 534,400 (534,400) (17,854) 4,076 (6,531) (6,498) (2,069) (14,872) 4,465 411,759 78,543 482,620 $ $ 56,635 64,317 $ (22) (23) $ 135,178 546,937 66 Condensed€Consolidating€Statement€of€Cash€Flows For€the€Year€Ended€December€31,€2016€ (inƒthousands) Advance Auto€Parts, Inc. Guarantor Subsidiaries Non- Guarantor Subsidiaries Eliminations Consolidated $ 14 $ 491,180 $ 32,109 $ … $ 523,303 Net€cash€provided€by€operating€activities Cash€flows€from€investing€activities: Purchases€of€property€and€equipment Proceeds€from€sales€of€property€and equipment Other,€net Net€cash€used€in€investing€activities Cash€flows€from€financing€activities: Decrease€in€bank€overdrafts Borrowings€under€credit€facilities Payments€on€credit€facilities Dividends€paid Proceeds€from€the€issuance€of€common stock Tax€withholdings€related€to€the€exercise€of stock€appreciation€rights Repurchase€of€common€stock Other,€net Net€cash€used€in€financing€activities Effect€of€exchange€rate€changes€on€cash Net€increase€in€cash€and€cash€equivalents Cash€and€cash€equivalents,€beginning€of period Cash€and€cash€equivalents,€end€of€period $ … … … … … … … … … … … … … … 14 8 22 (257,159) (2,400) 2,210 (4,697) (259,646) (4,902) 799,600 (959,600) (17,738) 4,532 (19,558) (18,393) (390) (216,449) … 15,085 2 … (2,398) (657) … … … … … … … (657) 257 29,311 … … … … (14) … … … … … … … (14) … (14) (259,559) 2,212 (4,697) (262,044) (5,573) 799,600 (959,600) (17,738) 4,532 (19,558) (18,393) (390) (217,120) 257 44,396 63,458 78,543 $ 27,324 56,635 $ $ (8) (22) $ 90,782 135,178 67 19. Quarterly€Financial€Data€(unaudited): The€following€table€summarizes€quarterly€financial€data€for€2018€and€2017: 2018 First Second Third Fourth (inƒthousands,ƒexceptƒperƒshareƒdata) (16ƒweeks) (12ƒweeks) (12ƒweeks) (12ƒweeks) Net€sales Gross€profit Net€income Basic€earnings€per€common€share Diluted€earnings€per€common€share 2017 (inƒthousands,ƒexceptƒperƒshareƒdata) Net€sales Gross€profit Net€income Basic€earnings€per€common€share Diluted€earnings€per€common€share $ $ $ $ $ $ $ $ $ $ 2,873,848 1,272,284 136,727 1.85 1.84 First (16ƒweeks) 2,890,838 1,270,684 107,960 1.46 1.46 $ $ $ $ $ $ $ $ $ $ 2,326,652 1,011,559 117,836 1.59 1.59 Second (12ƒweeks) 2,263,727 993,088 87,049 1.18 1.17 $ $ $ $ $ $ $ $ $ $ 2,274,982 1,006,927 115,843 1.57 1.56 Third (12ƒweeks) 2,182,233 947,708 95,996 1.30 1.30 $ $ $ $ $ $ $ $ $ $ 2,105,072 928,643 53,441 0.74 0.74 Fourth (12ƒweeks) 2,036,986 873,569 184,500 2.50 2.49 Quarterly€and€year-to-date€computations€of€per€share€amounts€are€made€independently.€Therefore,€the€sum€of€per€share amounts€for€the€quarters€may€not€be€equal€to€the€per€share€amount€for€the€year.€ 68 Advance€Auto€Parts,€Inc. Schedule€II€-€Valuation€and€Qualifying€Accounts (inƒthousands) Allowance€for€doubtful€accounts€receivable December€31,€2016 December€30,€2017 December€29,€2018 Balance€at Beginning€of Period $ $ $ 25,758 29,164 18,219 $ $ $ Charges€to Expenses Deductions Balance€at End€of Period 24,597 20,110 18,445 $ $ $ (21,191) (1) $ (31,055) (1) $ (18,622) (1) $ 29,164 18,219 18,042 (1) Accounts€written€off€during€the€period.€These€amounts€did€not€impact€our€statement€of€operations€for€any€year€presented. 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. 69 Exhibit€No. Exhibit€Description EXHIBIT€INDEX 2.1 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 10.1 10.2 Agreement€and€Plan€of€Merger€by€and€among€Advance Auto€Parts,€Inc.,€Generator€Purchase,€Inc.,€General€Parts International,€Inc.€and€Shareholder€Representative Services€LLC€(as€the€Shareholder€Representative),€Dated as€of€October€15,€2013 Restated€Certificate€of€Incorporation€of€Advance€Auto Parts,€Inc.€(ƒAdvance€Auto„)€(as€amended€effective€as€of May€24,€2017). Amended€and€Restated€Bylaws€of€Advance€Auto., effective€May€24,€2017 Indenture,€dated€as€of€April€29,€2010,€among€Advance Auto€Parts,€Inc.,€each€of€the€Subsidiary€Guarantors€from time€to€time€party€thereto€and€Wells€Fargo€Bank,€National Association,€as€Trustee. First€Supplemental€Indenture,€dated€as€of€April€29,€2010, among€Advance€Auto€Parts,€Inc.,€each€of€the€Subsidiary Guarantors€from€time€to€time€party€thereto€and€Wells Fargo€Bank,€National€Association,€as€Trustee. Second€Supplemental€Indenture€dated€as€of€May€27,€2011 to€the€Indenture€dated€as€of€April€29,€2010€among€Advance Auto€Parts,€Inc.€as€Issuer,€each€of€the€Subsidiary Guarantors€from€time€to€time€party€thereto€and€Wells Fargo€Bank,€National€Association,€as€Trustee. Third€Supplemental€Indenture€dated€as€of€January€17, 2012€among€Advance€Auto€Parts,€Inc.,€each€of€the Subsidiary€Guarantors€from€time€to€time€party€thereto€and Wells€Fargo€Bank,€National€Association,€as€Trustee. Fourth€Supplemental€Indenture,€dated€as€of€December€21, 2012€among€Advance€Auto€Parts,€Inc.,€each€of€the Subsidiary€Guarantors€from€time€to€time€party€thereto€and Wells€Fargo€Bank,€National€Association,€as€Trustee. Fifth€Supplemental€Indenture,€dated€as€of€April€19,€2013 among€Advance€Auto€Parts,€Inc.,€each€of€the€Subsidiary Guarantors€from€time€to€time€party€thereto€and€Wells Fargo€Bank,€National€Association,€as€Trustee. Sixth€Supplemental€Indenture,€dated€as€of€December€3, 2013,€among€Advance€Auto€Parts,€Inc.,€each€of€the Subsidiary€Guarantors€from€time€to€time€party€thereto€and Wells€Fargo€Bank,€National€Association,€as€Trustee. Form€of€5.750%€Note€due€2020. Form€of€4.500%€Note€due€2022. Form€of€4.500%€Note€due€2023. Seventh€Supplemental€Indenture,€dated€as€of€February€28, 2014,€among€Advance€Auto€Parts,€Inc.,€each€of€the Subsidiary€Guarantors€from€time€to€time€party€thereto€and Wells€Fargo€Bank,€National€Association,€as€Trustee. Form€of€Indemnification€Agreement€between€Advance Auto€Parts€and€each€of€its€Directors. Advance€Auto€Parts,€Inc.€2004€Long-Term€Incentive€Plan (amended€as€of€April€17,€2008). 70 Incorporated€by€Reference Filed Form Exhibit Filing€Date Herewith 10-K 2.1 2/25/2014 10-Q 3.1 8/14/2018 10-Q 8-K 3.2 5/22/2018 4.1 4/29/2010 8-K 4.2 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 8-K 8-K 8-K 10-Q 8-K 10-Q 4.3 4.5 4.7 4.11 4/29/2010 1/17/2012 12/9/2013 5/28/2014 10.19 5/20/2004 10.19 5/29/2008 Exhibit€No. Exhibit€Description 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 Advance€Auto€Parts,€Inc.€Deferred€Stock€Unit€Plan€for Non-Employee€Directors€and€Selected€Executives€(as amended€January€1,€2008),€including€First€Amendment€to the€Advance€Auto€Parts,€Inc.€Deferred€Stock€Unit€Plan€for Non-Employee€Directors€and€Selected€Executives€(as amended€and€restated€effective€as€of€January€1,€2009)€and Second€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Stock€Unit€Plan€for€Non-Employee€Directors€and Selected€Executives€(as€amended€and€restated€effective€as of€January€1,€2010). Amended€and€Restated€Advance€Auto€Parts,€Inc. Employee€Stock€Purchase€Plan. Advance€Auto€Parts,€Inc.€Deferred€Compensation€Plan€(as amended€January€1,€2008),€including€First€Amendment€to the€Advance€Auto€Parts,€Inc.€Deferred€Compensation€Plan (as€amended€and€restated€effective€as€of€January€1,€2009) and€Second€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Compensation€Plan€(as€amended€and€restated effective€as€of€January€1,€2010). Advance€Auto€Parts,€Inc.€Executive€Incentive€Plan. Attachment€C€to€Employment€Agreement€effective€June€4, 2008€between€Advance€Auto€Parts,€Inc.€and€Michael€A. Norona. Form€of€Advance€Auto€Parts,€Inc.€Restricted€Stock€Award Agreement€dated€November€17,€2008. Form€of€Advance€Auto€Parts,€Inc.€SAR€Award€Agreement under€2004€Long-Term€Incentive€Plan. Form€of€Advance€Auto€Parts,€Inc.€Restricted€Stock€Award Agreement€under€2004€Long-Term€Incentive€Plan. Supplement€No.€1€to€Guarantee€Agreement. Third€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Compensation€Plan€(Effective€as€of€January€1, 2013). Third€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Stock€Unit€Plan€for€Non-Employee€Directors€and Selected€Executives€(Effective€as€of€January€1,€2013). Form€of€Advance€Auto€Parts,€Inc.€SARs€Award€Agreement and€Restricted€Stock€Unit€Award€Agreement€under€2004 Long-Term€Incentive€Plan. Form€of€Advance€Auto€Parts,€Inc.€Restricted€Stock€Unit Agreement€dated€March€1,€2013. Credit€Agreement,€dated€as€of€December€5,€2013,€among Advance€Auto€Parts,€Inc.€Advance€Stores€Company, Incorporated,€the€lenders€party€thereto,€and€JPMorgan Chase€Bank,€N.A.,€as€Administrative€Agent. Guarantee€Agreement,€dated€as€of€December€5,€2013, among€Advance€Auto€Parts,€Inc.€Advance€Stores Company,€Incorporated,€the€other€lenders€from€time€to time€party€lenders€party€thereto€and€JPMorgan€Chase Bank,€N.A.,€as€Administrative€Agent€for€the€lenders. Supplement€No.€1€to€Guarantee€Agreement. First€Amendment€to€the€Advance€Auto€Parts,€Inc. Employee€Stock€Purchase€Plan€(As€amended€and€Restated Effective€as€of€May€15,€2012). Form€of€Advance€Auto€Parts,€Inc.€SARs€Award€Agreement and€Restricted€Stock€Unit€Award€Agreement. 71 Incorporated€by€Reference Filed Form Exhibit Filing€Date Herewith 10-K 10.17 3/1/2011 DEF€14A Appendix€C 4/16/2012 10-K 10.19 3/1/2011 DEF€14A Appendix€B 4/11/2007 6/4/2008 10.35 8-K 8-K 10-K 10-K 8-K 10-K 10.39 11/21/2008 10.33 2/28/2012 10.34 2/28/2012 10.1 12/21/2012 2/25/2013 10.33 10-K 10.34 2/25/2013 10-K 10.36 2/25/2013 8-K 8-K 10.38 3/7/2013 10.1 12/9/2013 8-K 10.2 12/9/2013 10-K 10-K 10.45 10.46 2/25/2014 2/25/2014 10-K 10.48 2/25/2014 Exhibit€No. Exhibit€Description 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38 10.39 Second€Amendment€to€the€Advance€Auto€Parts,€Inc. Employee€Stock€Purchase€Plan€(As€amended€and€Restated Effective€as€of€May€15,€2012). Fourth€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Compensation€Plan€(As€Amended€and€Restated Effective€as€of€January€1,€2008). Fourth€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Stock€Unit€Plan€for€Non-Employee€Directors€and Selected€Executives€(As€Amended€and€Restated€Effective as€of€January€1,€2008). Fifth€Amendment€to€the€Advance€Auto€Parts,€Inc.€Deferred Compensation€Plan€(As€Amended€and€Restated€Effective as€of€January€1,€2008). Fifth€Amendment€to€the€Advance€Auto€Parts,€Inc.€Deferred Stock€Unit€Plan€for€Non-Employee€Directors€and€Selected Executives€(As€Amended€and€Restated€Effective€as€of January€1,€2008). Agreement,€dated€as€of€November€11,€2015,€by€and€among Advance€Auto€Parts,€Inc.€and€Starboard. Restricted€Stock€Unit€Award€Agreement€between€Advance Auto€Parts,€Inc.€and€John€C.€Brouillard€dated€December€1, 2015. Employment€Agreement€effective€March€28,€2016 between€Advance€Auto€Parts,€Inc.€and€Thomas€Greco. First€Amendment€to€Employment€Agreement€effective April€2,€2016€between€Advance€Auto€Parts,€Inc.€and Thomas€R.€Greco. 2016€Restricted€Stock€Unit€Award€Agreement€(Sign-On Award€-€Performance-Based)€between€Advance€Auto Parts,€Inc.€and€Thomas€Greco€dated€April€14,€2016. 2016€Restricted€Stock€Unit€Award€Agreement€(Sign-on Award€-€Time-Based)€between€Advance€Auto€Parts,€Inc. and€Thomas€Greco€dated€April€14,€2016. 2016€time-Based€SARs€Award€Agreement€(Stock€Settled€- Inducement€Award)€between€Advance€Auto€Parts,€Inc.€and Thomas€Greco€dated€April€14,€2016. Form€of€Performance-Based€SARs€Award€Agreement between€Advance€Auto€Parts,€Inc.€and€Thomas€Greco. Form€of€Restricted€Stock€Unit€Award€Agreement€between Advance€Auto€Parts,€Inc.€and€Thomas€Greco. Employment€Agreement€effective€October€3,€2016 between€Advance€Auto€Parts,€Inc.€and€Thomas€B.€Okray. Credit€Agreement,€dated€as€January€31,€2017,€among Advance€Auto€Parts,€Inc.,€Advance€Stores€Company, Incorporated,€the€lenders€party€thereto,€and€Bank€of America,€N.A.,€as€Administrative€Agent. Guarantee€Agreement,€dated€as€of€January€31,€2017, among€Advance€Auto€Parts,€Inc.,€Advance€Stores Company,€Incorporated,€the€other€guarantors€from€time€to time€party€thereto€and€Bank€of€America,€N.A.,€as administrative€agent€for€the€lenders. Employment€Agreement€effective€August€21,€2016 between€Advance€Auto€Parts,€Inc.€and€Robert€B.€Cushing. 2016€Restricted€Stock€Unit€Award€Agreement€(Time- Based)€between€Advance€Auto€Parts,€Inc.€and€Thomas€B. Okray€dated€November€21,€2016. 72 Incorporated€by€Reference Filed Form Exhibit Filing€Date Herewith 10-K 10.50 3/3/2015 10-K 10.51 3/3/2015 10-K 10.52 3/3/2015 10-K 10.53 3/3/2015 10-K 10.54 3/3/2015 8-K 10-K 10.1 11/13/2015 10.58 3/1/2016 10-Q 10.1 5/31/2016 10-Q 10.2 5/31/2016 10-Q 10.3 5/31/2016 10-Q 10-Q 10-Q 10-Q 10-Q 8-K 10.4 10.5 5/31/2016 5/31/2016 10.6 5/31/2016 10.7 5/31/2016 10.1 11/15/2016 10.1 2/6/2017 8-K 10.2 2/6/2017 10-K 10-K 10.50 2/28/2017 10.52 2/28/2017 Exhibit€No. Exhibit€Description 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 10.48 10.49 10.50 10.51 10.52 10.53 10.54 10.55 10.56 10.57 10.58 2016€Restricted€Stock€Unit€Award€Agreement (Performance-Based)€between€Advance€Auto€Parts,€Inc. and€Robert€B.€Cushing€dated€September€7,€2016. Sixth€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Compensation€Plan€(As€Amended€and€Restated Effective€as€of€January€1,€2008). Sixth€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Stock€Unit€Plan€for€Non-Employee€Directors€and Selected€Executives€(As€Amended€and€Restated€Effective as€of€January€1,€2008). Seventh€Amendment€to€the€Advance€Auto€Parts,€Inc. Deferred€Stock€Unit€Plan€for€Non-Employee€Directors€and Selected€Executives€(As€Amended€and€Restated€Effective as€of€January€1,€2008). Form€of€2015€Advance€Auto€Parts,€Inc.€Restricted€Stock Unit€Award€Agreement. Form€of€2015€Advance€Auto€Parts,€Inc.€SARs€Award Agreement. Advance€Auto€Parts,€Inc.€2017€Amended€and€Restated Executive€Incentive€Plan Amendment€No.€1€to€Credit€Agreement,€dated€as€of January€31,€2018,€among€Advance€Auto€Parts,€Inc., Advance€Stores€Company,€Incorporated,€the€lenders€party thereto,€and€Bank€of€America,€N.A.,€as€Administrative Agent. 7th€Amendment€to€Advance€Auto€Parts,€Inc.€Deferred Compensation€Plan€(As€Amended€and€Restated€Effective as€of€January€1,€2008). 8th€Amendment€to€Advance€Auto€Parts,€Inc.€Deferred Stock€Unit€Plan€for€Non-Employee€Directors€and€Selected Executives€(As€Amended€and€Restated€Effective€as€of January€1,€2008). Employment€Agreement€effective€September€17,€2018 between€Advance€Auto€Parts,€Inc.€and€Jeffrey€W. Shepherd. Amendment€No.€2€to€the€Credit€Agreement,€dated€as€of January€10,€2019,€among€Advance€Auto€Parts,€Inc., Advance€Stores€Company,€Incorporated,€the€lenders€party thereto,€and€Bank€of€America,€N.A.,€as€Administrative Agent. Employment€Agreement€effective€February€6,€2018 between€Advance€Auto€Parts,€Inc.€and€Michael€T. Broderick. Employment€Agreement€effective€October€3,€2018 between€Advance€Auto€Parts,€Inc.€and€Reuben€E.€Slone. Form€of€2017€Advance€Auto€Parts,€Inc.€Performance- Based€Restricted€Stock€Unit€Award€Agreement. Form€of€2018€Advance€Auto€Parts,€Inc.€Performance- Based€Restricted€Stock€Unit€Award€Agreement. Form€of€2018€Advance€Auto€Parts,€Inc.€Time-Based Restricted€Stock€Unit€Award€Agreement. Advance€Auto€Parts,€Inc.€2004€Long-Term€Incentive€Plan (as€amended€effective€August€7,€2018). 2018€Restricted€Stock€Unit€Award€Agreement (Performance-Based)€between€Advance€Auto€Parts,€Inc. and€Rueben€E.€Slone€dated€November€19,€2018. 21.1 Subsidiaries€of€Advance€Auto€Parts,€Inc. 73 Incorporated€by€Reference Filed Form Exhibit Filing€Date Herewith 10-K 10.53 2/28/2017 10-K 10.54 2/28/2017 10-K 10.55 2/28/2017 10-K 10.56 2/28/2017 10-K 10-K 10.57 2/28/2017 10.58 2/28/2017 DEF14A Appendix€A 4/6/2017 8-K 10.1 2/6/2018 10-K 10.57 2/21/2018 10-K 10.58 2/21/2018 10-Q 10.1 11/13/2018 8-K 10.1 10/15/2018 X X X X X X X X Exhibit€No. Exhibit€Description 23.1 31.1 31.2 32.1 Consent€of€Deloitte€&€Touche€LLP. Certification€of€Chief€Executive€Officer€Pursuant€to Section€302€of€the€Sarbanes-Oxley€Act€of€2002. Certification€of€Chief€Financial€Officer€Pursuant€to Section€302€of€the€Sarbanes-Oxley€Act€of€2002. Certifications€of€Chief€Executive€Officer€and€Chief Financial€Officer€Pursuant€to€Section€906€of€the€Sarbanes- Oxley€Act€of€2002. 101.INS XBRL€Instance€Document 101.SCH XBRL€Taxonomy€Extension€Schema€Document 101.CAL 101.DEF XBRL€Taxonomy€Extension€Calculation€Linkbase Document XBRL€Taxonomy€Extension€Definition€Linkbase Document 101.LAB XBRL€Taxonomy€Extension€Labels€Linkbase€Document 101.PRE XBRL€Taxonomy€Extension€Presentation€Linkbase Document Item€16.€Form€10-K€Summary.€ None. Incorporated€by€Reference Filed Form Exhibit Filing€Date Herewith X X X X X X X X X X 74 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.€ Dated: February€19,€2019 ADVANCE€AUTO€PARTS,€INC. By: /s/€Jeffrey€W.€Shepherd Jeffrey€W.€Shepherd ExecutiveƒViceƒPresident,ƒChiefƒFinancialƒOfficer, ControllerƒandƒChiefƒAccountingƒOfficer 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/€Thomas€R.€Greco President€and€Chief€Executive€Officer€and€Director February€19,€2019 Thomas€R.€Greco (Principal€Executive€Officer) /s/€Jeffrey€W.€Shepherd Jeffrey€W.€Shepherd Executive€Vice€President,€Chief€Financial€Officer,€Controller€and Chief€Accounting€Officer February€19,€2019 (Principal€Financial€and€Accounting€Officer) /s/€Jeffrey€C.€Smith Chairman€and€Director February€19,€2019 Jeffrey€C.€Smith /s/€John€F.€Bergstrom Director John€F.€Bergstrom /s/€Brad€W.€Buss Brad€W.€Buss /s/€Fiona€P.€Dias Fiona€P.€Dias /s/€John€F.€Ferraro John€F.€Ferraro Director Director Director /s/€Adriana€Karaboutis Director Adriana€Karaboutis /s/€Eugene€I.€Lee,€Jr. Director Eugene€I.€Lee,€Jr. /s/€Nigel€Travis Nigel€Travis /s/€Douglas€A.€Pertz Douglas€A.€Pertz /s/€Jeffrey€J.€Jones€II Jeffrey€J.€Jones€II Director Director Director /s/€Sharon€L.€McCollam Director Sharon€L.€McCollam 75 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 February€19,€2019 S H A R E H O L D E R I N F O R M A T I O N Corporate Office: 2635 East Millbrook Road Raleigh, NC 27604 877-238-2623 Internet Site: www.AdvanceAutoParts.com Annual Meeting: May 15, 2019 at 8:30 a.m. ET Advance Auto Parts Customer Support Center University Building 4709 Hargrove Road Raleigh, North Carolina 27616 Registrar and Transfer Agent: Computershare P.O. Box 505000 Louisville, Kentucky 40233-5000 or 462 South 4th Street, Suite 1600 Louisville, Kentucky 40202 866-865-6327 Foreign Shareholders: 201-680-6578 TDD for Hearing Impaired: 800-490-1493 Internet Site: www.computershare.com/investor Common Stock: Ticker Symbol: AAP Listing: New York Stock Exchange Independent Registered Public Accounting Firm: Deloitte & Touche LLP Duke Energy Building 550 South Tryon Street, Suite 2500 Charlotte, North Carolina 28202 SEC FORM 10-K: Shareholders may obtain free of charge a copy of the Advance Auto Parts Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) by writing to the Investor Relations Department, 2635 East Millbrook Road, Raleigh, North Carolina 27604 or by accessing the Company’s website at www.AdvanceAutoParts.com. 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 http://www.sec.gov. E X E C U T I V E T E A M S E N I O R L E A D E R S H I P T E A M * Executive Officers Thomas R. Greco* President and Chief Executive Officer Michael T. Broderick* Executive Vice President, Merchandising and Store Operations Support Robert B. Cushing* Executive Vice President, Professional Tammy M. Finley* Executive Vice President, General Counsel and Corporate Secretary Natalie S. Rothman Schechtman* Executive Vice President, Human Resources Michael C. Creedon, Jr. Division President, North Jeffrey W. Shepherd* Executive Vice President, Chief Financial Officer, Controller and Chief Accounting Officer Reuben E. Slone* Executive Vice President, Supply Chain Maria R. Ayres Division President, South Sri Donthi Executive Vice President, Chief Technology Officer Yogesh Jashnani Senior Vice President, Marketing, Insights and Analytics David L. McCartney President, Carquest North America B O A R D O F D I R E C T O R S ‡Committee Chair Jeffrey C. Smith Chair of the Board, Advance Auto Parts, Inc., and Managing Member, Chief Executive Officer and Chief Investment Officer, Starboard Value LP John F. Ferraro (3‡) Executive Vice President, Strategy and Sales, Aquilon Energy Services Past Global Chief Operating Officer, Ernst & Young John F. Bergstrom (2‡) Chairman and Chief Executive Officer, Bergstrom Corporation Brad W. Buss (1‡) Retired Chief Financial Officer, SolarCity Corporation Fiona P. Dias (3) Principal Digital Partner, Ryan Retail Consulting Thomas R. Greco President and Chief Executive Officer, Advance Auto Parts, Inc. Jeffrey J. Jones II** (2) President and Chief Executive Officer, H&R Block, Inc. Adriana Karaboutis (1) Chief Information and Digital Officer, National Grid PLC Eugene I. Lee, Jr. (2) President and Chief Executive Officer, Darden Restaurants, Inc. Sharon L. McCollam** (1) Retired Chief Administrative and Chief Financial Officer, Best Buy Co. Inc. Douglas A. Pertz (3) President and Chief Executive Officer, The Brink’s Company Nigel Travis (3) Chairman of the Board and Retired Chief Executive Officer, Dunkin’ Brands Group, Inc. Committee Membership: 1 – Audit 2 – Compensation 3 – Nominating and Corporate Governance ** Mr. Jones and Ms. McCollam joined the Board of Directors as of February 11, 2019. 2 6 3 5 E A S T M I L L B RO O K RO A D | R A L E I G H , N C 2 7 6 0 4 | 8 7 7 . 2 3 8 . 2 6 2 3 | A DVA N C E A U T O PA R T S . C O M

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