2021 HIGHLIGHTS
NEW YORK
STOCK
EXCHANGE
DEBUT
ANNIVERSARY
After acquiring this iconic brand a little over two years
ago, DieHard® crossed $1 billion in annual sales. In
addition to growing the brand, DieHard’s AGM battery is
the first automotive battery to receive UL validation.
$11 BILLION
TOTAL NET SALES
159 BASIS POINTS
ADJUSTED OPERATING INCOME MARGIN EXPANSION
$12.02
ADJUSTED DILUTED EPS
$822.6 MILLION
FREE CASH FLOW
$1 BILLION
CASH RETURNED TO SHAREHOLDERS THROUGH
A COMBINATION OF SHARE REPURCHASES AND
QUARTERLY CASH DIVIDENDS
CORPORATE
STORES AND
BRANCHES
DISTRIBUTION
CENTERS
BUILD AN OWNERSHIP CULTURE • GROW FASTER THAN THE MARKET
CAPITALIZE ON UNIQUE MARGIN OPPORTUNITY • SIGNIFICANT RETURN OF CASH TO SHAREHOLDERS
DRIVING TOP QUARTILE TOTAL SHAREHOLDER RETURN
Certain key metrics presented above are non-GAAP financial measures. For additional information regarding these non-GAAP financial measures, please see the discussion of
these key metrics included in the letter to our shareholders beginning on the following page. For comparative purposes, adjusted results for 2020 are provided on a 52-week basis.
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
Based on key financial measures, in 2021,
Advance delivered one of the strongest years
since becoming a public company in 2002.
At a time when we prioritized the health, safety
and wellbeing of our team members and
customers, we not only survived a difficult year,
but we thrived within it. We provided an essential
service for our customers and ensured motorists
had the right part at the right time to get back
on the road safely. Through it all, we remained
dedicated to the execution of our strategy and
maintained an unwavering commitment to our
mission: Passion for Customers...Passion for Yes!
Total Net Sales
(in billions)
Comparable
Store Sales
Operating
Income Margin
Adjusted Operating
Income Margin (2)
Diluted Earnings
Per Share
Adjusted Diluted
Earnings Per Share (2)
Operating Cash Flow
(in millions)
Free Cash Flow (3)
(in millions)
2021
2020 (1)
2019
$11.0
$10.1
$9.7
10.7%
2.4%
1.1%
7.6%
7.4%
7.0%
9.6%
8.0%
9.2%
$9.55
$7.14
$6.84
$12.02 $8.36
$9.26
$1,112 $970
$867
$823
$702
$597
(1) For comparative purposes, adjusted results for 2020 are non-GAAP measures and
are presented on a 52-week basis; GAAP and Free cash flow results are as reported. (2)
Adjusted operating income margin and adjusted diluted EPS are non-GAAP measures
and should not be a substitute for GAAP financial measures, and include Last-In First-
Out (LIFO) impacts; transformation expenses; General Parts International, Inc. (“GPI”)
amortization of acquired intangible assets; expenses related to make-whole provisions,
debt issuance costs and tender premiums resulting from the early redemption of
our 2020, 2022 and 2023 senior unsecured notes and an out-of-period correction.
Additional information of non-GAAP financial measures for 2021 and 2020 can be
found on pages 23 and 24 of “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Form 10-K included within our 2021
Annual Report. Additional information of non-GAAP financial measures for 2019 can
be found on pages 23 and 24 of “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Form 10-K included within our 2020 Annual
Report. Additionally, the impact of LIFO on the company’s results of operations were
included as a part of our non-GAAP reconciliation beginning in Q1 2021. Details of
this change can be found in our Q4 2020 Form 8-K. (3) 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 38 in our Form 10-K included within our 2021 Annual Report. Free
cash flow of $823 million, $702 million and $597 million in 2021, 2020 and 2019
can be reconciled to net cash provided by operating activities on a GAAP basis of
$1.1 billion, $970 million and $867 million by adding back purchases of property
and equipment of $290 million, $268 million and $270 million to Free cash flow.
This resulted in a year for the record books.
We delivered record comparable sales growth of
10.7%, a record $11 billion in topline sales and
a record $12.02 adjusted diluted earnings
per share(2). We also returned a record $1 billion
in cash
to shareholders
through
share
repurchases and quarterly cash dividends.
At our investor meeting in April of 2021, we
outlined our multiyear plan to drive Total
Shareholder Return (TSR). Our goal is to deliver
Top Quartile TSR from 2021-2023 within the S&P
500. We’re pleased to report that we delivered
against this objective in 2021, landing in the
84th percentile of the S&P 500. We achieved this
result with a focus on four primary “TSR Drivers.”
B U I L D A N
OW N E R S H I P C ULT U R E
In 2016, we faced extremely high turnover and
a culture accustomed to missing objectives.
We needed change and far more ownership and
accountability of results at all levels of the company.
We decided to make a multiyear investment in
our frontline team in terms of compensation
and benefits as well as in diversity, equity and
inclusion (“DEI”). Over the past few years we
made substantial investments in wages, benefits
and in our differentiated Fuel the Frontline Stock
Ownership Program. In Fuel the Frontline alone,
we’ve now invested over $60 million in over
24,000 individual grants directed at our frontline
team members. This has substantially reduced
our turnover by helping us attract and retain the
very best parts people in the industry. Separately,
we invested over $90 million cumulatively in
2020 and 2021 to help ensure the health,
safety and wellbeing of our team members and
customers in the face of a global pandemic.
Finally, we made progress within DEI, increasing
representation of women and people of color while
creating a more equitable and inclusive culture.
— continued
When we say, “Empower our people because they
are our best part,” we mean it. We fundamentally
believe that when we take care of our team
members, they in turn will take care of our
customers, and when that happens, it will drive
TSR. This is borne out by the many letters, phone
calls and emails I receive from grateful customers
that speak volumes about the ways in which our
team members effectively serve others. Here’s a
quick example. Two public school teachers were
on a road trip when their truck wouldn’t start.
After getting a jump start from another park
visitor, they arrived at the Advance Auto Parts
store in Erwin, Tennessee, where a team member
named Charlie immediately checked their battery
and cleaned their battery terminals – free of
charge, helping them get back on the road quickly
and safely. These customers wrote me a letter
and said, “Charlie was our savior. He exhibited all
the qualities of a great teacher: patience, good
listening skills and the ability to use language a
student could understand.”
While there are many things that are rewarding
about being CEO of AAP, few things are more
gratifying than hearing customers share positive
stories like this one about their experiences with
our team members. I get more and more of these
messages as we get better and better at serving
our customers. This is also supported by data.
Despite the global pandemic, our Net Promoter
Score remained positive throughout the year,
reaching our highest-ever score in December 2021.
G R O W FA S T E R T H A N
T H E M A R K E T
Throughout the year, we made significant
enhancements to address changes in how our
customers prefer to shop to drive growth. We
leveraged our diverse asset base to enhance
our competitive advantage behind strategic
investments in both digital and physical assets.
In our professional business, we continued to
provide leadership for our major customers,
securing several big wins behind the power of
DieHard®, Carquest® and our industry-leading
assortment of national, original equipment
and owned brands. We also provided training
and customized solutions for our customers
enabling personalized service models.
In DIY Omnichannel, we continued to promote
the availability of our Advance Same Day® suite
of services, which is a point of differentiation
for our company, and provides free curbside
pick-up or free home delivery in three hours
or less for most parts. We also increased
personalization in our Speed Perks loyalty
program, which helped us grow our number of
ELITE members, representing the highest tier
of customer spend, by 21%, driving share of
wallet. The recent launch of Speed Perks “Gas
Rewards” represents another reward benefit and
an example of how we plan to continue these
customer-centric initiatives in the year ahead.
four straight years of positive comp
With
sales behind us and a strengthened customer
value proposition, we are now back in new
store growth mode. In 2021, we opened 31
new corporate stores, 8 Worldpac branches
and 75 new Carquest Independent locations.
Most of these new stores are in previously
underrepresented markets, and we anticipate
opening 125-150 new stores and branches in
2022.
C A P IT A L I Z I N G O N A U N I Q U E
M A R G I N O P P O R T U N I T Y
(4)
In 2021, we delivered 159 basis points in
,
adjusted operating income margin expansion
one of the highest increases in broader retail
and the highest in our industry. This was
made possible by key initiatives implemented
in the areas of category management, supply
chain, sales and profit per store, and SG&A.
(4) Adjusted operating income margin is a non- GAAP financial measure. For
additional information regarding non-GAAP financial measures, please see the
discussion on the previous page.
— continued
Margin expansion is also about caring for our
customers by offering differentiated owned
brands they can trust and count on. Last year
we were pleased to report that DieHard crossed
the $1 billion sales mark in its second year
of distribution. Building strong owned brands
is a key element of our category management
strategy to drive margins and enable both
differentiation and pricing power. Advance is
now home to two billion-dollar owned brands
– Carquest and DieHard, and both continue to
expand into new categories.
In a year where the global supply chain made
headlines, we continued to streamline our
supply chain, leveraging this cost base on a
full year basis. We also completed cross-banner
replenishment to help ensure freight logical
availability of parts, regardless of banner, and
we continued to make progress against the
other supply chain initiatives outlined earlier
in the year. The last year also saw improved
sales and profit per store with sales per store
crossing $1.8 million dollars for the first
time. Despite all of the progress we made,
we continue to have an opportunity to further
increase margins as outlined last April.
S I G N I F I C A N T R E T U R N O F
C A S H T O S H A R E H O L D E R S
We remain conf ident in our abilit y to
generate cash from the business and are
commit ted to returning meaning ful cash
to our shareholders. During the year, we
once again increased our shareholder
dividend from $0.25 per share per quar ter
to $1.00 per share per quar ter. In 2021,
we returned over $1 billion of cash through
a combination of share repurchases and
cash dividends representing over 125% of
free cash flow returned to our shareholders
using cash generated from our business
and cash on hand. Returning cash to our
shareholders in a disciplined and consistent
manner remains a key pillar in achieving our
goals of top quartile TSR.
L O O K I N G F O R W A R D T O T H E
R O A D A H E A D
As we look ahead, we believe the prospects for
our industry and Advance remain very bright.
We believe fundamental industry drivers of
demand remain positive and throughout the
pandemic, we have been positioning Advance
for long-term success. As we look to the future,
we remain steadfast in executing against
the priorities we outlined in our April 2021
investor presentation to deliver top quartile
TSR. This includes continued topline growth
and margin expansion and returning significant
cash back to shareholders. It also includes
building on our ownership culture, which we
know is essential to the long-term health of
the company.
Impor tantly, we remained committed to
our Environmental Sustainability, Social
Responsibility and Governance, or ESG, agenda
and conducted a robust materiality assessment
to help further sharpen our ESG focus. As part
of our Social Responsibility agenda, we continue
to give back to the communities where we live
and serve. This includes our annual American
Heart Association fundraising campaign, which
netted a record $1.7 million in 2021, and once
again made Advance one of the American Heart
Association’s largest corporate fundraisers.
And through our reimagined Advance Auto
Par ts Foundation, we gif ted hundreds of
thousands of dollars to support nonprofits in
the areas of military veteran needs, health and
wellness, and education/job readiness. You
can read more about these initiatives in our
upcoming Corporate Sustainability and Social
Impact Report.
— continued
I’m so excited about the company we are
building and what’s to come in the years
ahead. We believe the industr y is poised
for continued growth and we look forward to
building on our positive momentum in 2022.
As President Abraham Lincoln famously
said, “the best way to predict the future
is to create it.” That’s an apt quote in our
uncertain times, but one thing is clear: The
work we did this past year is building a better,
stronger Advance for our team members and
customers, and an Advance that continues to
deliver value to our shareholders. Thank you
for your continued support.
Tom Greco
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
________________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2022
☐ 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)
54-2049910
(I.R.S. Employer Identification No.)
4200 Six Forks Road, Raleigh, North Carolina 27609
(Address of principal executive offices) (Zip Code)
(540) 362-4911
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value
Trading symbol Name of each exchange on which registered
AAP
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
☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of the last business day of the registrant’s most recently completed second fiscal quarter, July 17, 2021, the aggregate
market value of common stock held by non-affiliates of the registrant was $13,033,791,636, based on the last sales price on
July 17, 2021, as reported by the New York Stock Exchange.
As of February 11, 2022, the number of shares of the registrant’s common stock outstanding was 61,097,579 shares.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders, to be held on May 19,
2022, are incorporated by reference into Part III of this Form 10-K.
Part I.
Part II.
Part III.
Part IV.
Signatures
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
TABLE OF CONTENTS
Page
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risks
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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FORWARD-LOOKING STATEMENTS
Certain statements herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are usually identifiable by words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “should,”
“strategy,” “will,” or similar language. All statements other than statements of historical fact are forward-looking statements,
including, but not limited to, statements about our strategic initiatives, operational plans and objectives, expectations for
economic conditions and recovery and future business and financial performance, as well as statements regarding underlying
assumptions related thereto. Forward-looking statements reflect our views based on historical results, current information and
assumptions related to future developments. Except as may be required by law, we undertake no obligation to update any
forward-looking statements made herein. Forward-looking statements are subject to a number of risks and uncertainties that
could cause actual results to differ materially from those projected or implied by the forward-looking statements. They include,
among others, factors related to the timing and implementation of strategic initiatives, the highly competitive nature of our
industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming
and growing our business and factors related to the current global COVID-19 pandemic. Therefore, you should not place undue
reliance on those statements. Please refer to “Item 1A. Risk Factors” included in this report and other filings made by us with
the Securities and Exchange Commission (“SEC”) for a description of these and other risks and uncertainties that could cause
actual results to differ materially from those projected or implied by the forward-looking statements.
1
Item 1. Business.
PART I
Unless the context otherwise requires, “Advance,” “we,” “us,” “our,” 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 January 1, 2022 (“2021”) included 52 weeks of
operations. Fiscal year ended January 2, 2021 (“2020”) included 53 weeks of operations and fiscal year ended December 28,
2019 (“2019”) included 52 weeks of operations.
Overview
We are a leading automotive aftermarket parts provider in North America, serving both professional installers
(“professional”) and “do-it-yourself” (“DIY”) customers, as well as independently owned operators. Our stores and branches
offer a broad selection of brand name, original equipment manufacturer (“OEM”) and brand owned 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 January 1, 2022, we operated 4,706 total stores and 266 branches primarily under the trade names
“Advance Auto Parts,” “Autopart International,” “Carquest” and “Worldpac.”
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. (“GPI”), a privately held company that was a leading
distributor and supplier of original equipment and aftermarket automotive replacement products for professional markets
operating under the Carquest and Worldpac trade names.
Stores and Branches
Through our integrated operating approach, we serve our professional and DIY customers through a variety of channels
ranging from traditional “brick and mortar” store locations to self-service e-commerce sites. We believe we are better able to
meet our customers’ needs by operating under several trade names, which are as follows:
Advance Auto Parts — Our 4,308 stores as of January 1, 2022 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 7,700 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 (“SKUs”),
generally consisting of a custom mix of products based on each store’s respective market. Supplementing the inventory on-
hand at our stores, less common SKUs are available in many of our larger stores (known as “HUB” stores). These
additional SKUs are typically available on a same-day or next-day basis.
Autopart International (“AI”) — Our 51 stores as of January 1, 2022 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 owned brand auto parts. AI stores offer approximately 52,000 SKUs.
Carquest — Our 347 stores as of January 1, 2022, including 148 stores in Canada, are generally located in freestanding
buildings with a primary focus on professional customers, but also serve DIY customers. The average size of a Carquest
store is approximately 7,200 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 25,000 SKUs. As of January 1, 2022,
Carquest also served 1,317 independently owned stores that operate under the Carquest name.
Worldpac — Our 266 branches as of January 1, 2022 principally serve professional customers utilizing an efficient and
sophisticated online ordering and fulfillment system. Worldpac branches are generally larger than our other store locations,
averaging approximately 19,900 square feet in size. Worldpac specializes in imported OEM parts. Worldpac’s complete
product offering includes over 273,000 SKUs for import and domestic vehicles.
2
As part of our transformation efforts, through January 1, 2022 we have converted 88 AI stores into Worldpac operations.
Certain converted AI locations will remain branded as AI going forward. Under our current strategic business plan, we plan to
continue integrating the operations of AI and Worldpac.
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’ stores and the cost of real estate. As of January 1, 2022, 4,801 stores
and branches were located in 49 U.S. states and two U.S. territories, and 171 stores and branches were located in nine Canadian
provinces.
We serve our stores and branches primarily from our principal corporate offices in Raleigh, NC and Roanoke, VA. We also
maintain store support centers in Newark, CA and Norton, MA.
Our Products
The following table shows some of the types of products that we sell by major category of items:
Parts & Batteries
Accessories & Chemicals
Batteries and battery accessories
Belts and hoses
Air conditioning chemicals and accessories
Air fresheners
Brakes and brake pads
Chassis parts
Climate control parts
Clutches and drive shafts
Engines and engine parts
Antifreeze and washer fluid
Electrical wire and fuses
Electronics
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
Floor mats, seat covers and interior accessories Oil filters
Engine Maintenance
Air filters
Fuel and oil additives
Fuel filters
Grease and lubricants
Motor oil
Part cleaners and treatments
Transmission fluid
We provide our customers with quality products that are often offered at a good, better or best recommendation
differentiated by price and quality. We accept customer returns for many new, core and warranty products.
Our Customers
Our professional customers consist primarily of customers for whom we deliver products from our store or branch
locations to their places of business, including garages, service stations and auto dealers. Our professional sales represented
approximately 58%, 57% and 60% of our sales in 2021, 2020 and 2019. We also serve 1,317 independently owned Carquest
stores with shipments directly from our distribution centers. Our DIY customers are primarily served through our stores, but 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;
Check engine light scanning;
Electrical system testing, including batteries, starters and alternators;
“How-To” video clinics;
Oil and battery recycling; and
Loaner tool programs.
3
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 products from our stores
or branch locations to their places of business.
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 January 1, 2022, we operated 52 distribution centers, ranging in size from
approximately 51,000 to 943,000 square feet with total square footage of approximately 12.2 million, including one distribution
center dedicated to reclamations.
Merchandise, Marketing and Advertising
In 2021, we purchased merchandise from over 1,200 vendors, with no single vendor accounting for more than 10% 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®, Fram®, Gates®, Meguiar’sTM, Mobil 1TM, Moog®, Monroe®, NGK®,
Prestone®, Purolator®, Trico® and Wagner®. In addition to these branded products, we stock a wide selection of high-quality
brand owned products with a goal of appealing to value-conscious customers. These lines of merchandise include chemicals,
interior automotive accessories, batteries and parts under various brand owned names such as Autocraft®, Autopart
International®, Driveworks®, Tough One® and Wearever® as well as the Carquest® brand.
On December 23, 2019, we purchased the DieHard® brand for a cash purchase price of $200.0 million. This purchase gave
us the right to sell DieHard® batteries and enables us to extend the DieHard® brand into other automotive and vehicular
categories. We granted the seller an exclusive royalty-free, perpetual license to develop, market and sell DieHard® branded
products in certain non-automotive categories.
Our marketing and advertising program is designed to drive brand awareness, consideration by consumers and
omnichannel traffic by position in the aftermarket auto parts category. We strive to exceed our customers’ expectations end-to-
end through a comprehensive online and in-store pick up experience, extensive parts assortment, quality brands, experienced
parts professionals, professional programs that are designed to build loyalty with our customers and our DIY customer loyalty
program. Our DIY campaign was developed around a multi-channel communications plan that brings together radio, television,
digital marketing, social media, sponsorships, store execution, public relations 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.
Human Capital Management
We believe our People are Our Best Part, and we have adopted six Cultural Beliefs to help us foster a culture that fully
engages our team members with our business: Speak Up, Be Accountable, Take Action, Move Forward, Grow Talent and
Champion Inclusion. Our Cultural Belief of Grow Talent highlights the importance to us of developing our team members in
their careers, and we seek to not only recruit the best talent, but also retain and promote the best talent. Through another
Cultural Belief, Champion Inclusion, we seek to fully leverage the ideas and talents of all our team members in caring for our
customers and each other. We encourage our team members to Speak Up and promote their engagement through a variety of
programs and networks within our organization.
As of January 1, 2022, we employed approximately 41,000 full-time team members and approximately 27,000 part-time
team members. Our workforce consisted of 83% of our team members employed in store-level operations, 11% employed in
distribution and 6% employed in our corporate offices. As of January 1, 2022, approximately 1% of our team members were
represented by labor unions.
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Additional information about our human capital resources can be found in our Corporate Sustainability and Social Report,
which is available on our website. Our Corporate Sustainability and Social Report is not, and will not be deemed to be, a part of
this Annual Report on Form 10-K or incorporated by reference into any of our other filings with the SEC.
Intellectual Property
We own a number of trade names, service marks and trademarks, including “Advance Auto Parts®,” “Advance Same
Day®,” “Autopart International®,” “Carquest®,” “CARQUEST Technical Institute®,” “DieHard®,” “DriverSide®,”
“MotoLogic®,” “MotoShop®,” “speedDIAL®,” “TECH-NET Professional Auto Service®” and “Worldpac®” for use in
connection with the automotive parts business. In addition, we own and have registered a number of trademarks for our owned
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.
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’Reilly Automotive, Inc.,
The Pep Boys-Manny, Moe & Jack and Auto Plus (formerly Uni-Select USA, Inc.), (ii) internet-based retailers, (iii) discount
stores and mass merchandisers that carry automotive products, (iv) wholesalers or jobbers stores, including those associated
with national parts distributors or associations, (v) independently owned stores and (vi) automobile dealers that supply parts.
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 compared with independent
retailers and jobbers that are not part of a chain or associated with other retailers or jobbers. The principal methods of
competition in our business include brand recognition, customer service, product offerings, availability, quality, price and store
location.
Environmental and Other Regulatory 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.
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We are also subject to numerous regulations including those related to labor and employment, discrimination, anti-bribery/
anti-corruption, product quality and safety standards, data privacy and taxes. Compliance with any such laws and regulations
has not had a material adverse effect on our operations to date. For more information, see the following disclosures in “Part I.
Item 1A. Risk Factors” elsewhere in this report.
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 2021. We make available free of charge through our Investor Relations
website, located at ir.advanceautoparts.com, 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
Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after we electronically file such materials
with, or furnish them to the SEC. The SEC maintains a website that contains reports, proxy statements and other information
regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s
website at www.sec.gov.
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Item 1A. Risk Factors.
You should consider carefully the risks and uncertainties described below together with the other information included in
this Annual Report on Form 10-K, including without limitation our consolidated financial statements and related notes thereto
and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting
Policies”. The occurrence of any of the following risks could materially adversely affect our business, financial condition,
results of operations, cash flows and future prospects, which could in turn materially affect the price of our common stock.
Risks Related to Our Operations and Growth Strategy
If we are unable to successfully implement our business strategy, our business, financial condition, results of operations
and cash flows could be adversely affected.
We have identified several initiatives as part of our business strategy to increase sales, expand margins, drive accelerated
growth and deliver strong relative total shareholder return. We are currently making and expect to continue to make significant
investments to pursue our strategic initiatives. If we are unable to implement our strategic initiatives efficiently and effectively,
our business, financial condition, results of operations and cash flows could be adversely affected. We could also be adversely
affected if we have not appropriately prioritized and balanced our initiatives or if we are unable to effectively manage change
throughout our organization. Implementing strategic initiatives could disrupt or reduce the efficiency of our operations and may
not provide the anticipated benefits, or may provide them on a delayed schedule or at a higher cost. These risks increase when
significant changes are undertaken.
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.
As we expand our market presence, it becomes more critical that we have consistent and effective execution across all of our
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’ 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:
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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 online 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. For example, during 2021 we experienced significant
delays associated with our planned opening of 109 new locations in California, primarily as a result of permitting challenges
related to the COVID-19 pandemic, and such delays increased our costs and resulted in significant lost sales opportunities.
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.
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Omnichannel growth in our business is complex and if we are unable to successfully maintain a relevant omnichannel
experience for our customers, our sales and results of operations could adversely be impacted.
Our business has become increasingly omnichannel as we strive to deliver a seamless shopping experience to our
customers through both online and in-store shopping experiences. Operating an e-commerce platform is a complex undertaking
and exposes us to risks and difficulties frequently experienced by internet-based businesses, including risks related to our ability
to attract and retain customers on a cost-effective basis and our ability to operate, support, expand and develop our internet
operations, website, mobile applications and software and other related operational systems. Continuing to improve our e-
commerce platform involves substantial investment of capital and resources, increasing supply chain and distribution
capabilities, attracting, developing and retaining qualified personnel with relevant subject matter expertise and effectively
managing and improving the customer experience. Omnichannel and e-commerce retail are competitive and evolving
environments. Insufficient, untimely or inadequately prioritized or ineffectively implemented investments could significantly
impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones.
Enhancing the customer experience through omnichannel programs such as buy-online-pickup-in-store, new or expanded
delivery options, the ability to shop through a mobile application or other similar programs depends in part on the effectiveness
of our inventory management processes and systems, the effectiveness of our merchandising strategy and mix, our supply chain
and distribution capabilities, and the timing and effectiveness of our marketing activities, particularly our promotions. Costs
associated with implementing omnichannel initiatives may be higher than expected, and the initiatives may not result in
increased sales, including same store sales, customer traffic, customer loyalty or other anticipated results. Website downtime
and other technology disruptions in our e-commerce platform, including interruptions due to cyber-related issues or natural
disasters, as well as supply and distribution delays and other related issues may affect the successful operation of our e-
commerce platform. If we are not able to successfully operate or improve our e-commerce platform and omnichannel business,
we may not be able to provide a relevant shopping experience or improve customer traffic, sales or margins, and our reputation,
operations, financial condition, results of operations and cash flows could be materially adversely affected.
If we are unable to successfully integrate future acquisitions into our existing operations or implement joint ventures or
other strategic relationships, it could adversely affect our business, financial condition, results of operations and cash
flows.
We expect to continue to make strategic acquisitions and enter into strategic relationships as an element of our growth
strategy. Acquisitions, joint ventures and other strategic relationships involve certain risks that could cause our growth and
profitability to differ from our expectations. The success of these acquisitions and relationships depends on a number of factors,
including, among other things:
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our ability to continue to identify and acquire suitable targets or strategic partners, or to acquire additional companies
or enter into strategic relationships, at favorable prices and/or with favorable terms;
our ability to obtain the full benefits envisioned by strategic transactions or relationships;
the risk that management’s attention may be distracted;
our ability to attract and retain key personnel;
our ability to successfully integrate the operations and systems of the acquired companies, and to achieve the strategic,
operational, financial or other anticipated synergies of the acquisition or other transaction or relationship;
the performance our of our strategic partners;
significant transaction or integration costs that may not be offset by the synergies or other benefits achieved in the near
term, or at all;
additional operational risks, such as those associated with doing business internationally or expanding operations into
new territories, geographies or channels, that may become applicable to us; and
loss contingencies that we may assume or become subject to, whether known or unknown, of acquired companies,
which could relate to past, present or future facts, events, circumstances or occurrences.
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If we experience difficulties implementing various information systems, our ability to conduct our 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 additional modules within our 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 products, 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. 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’ expectations regarding safety, innovation and quality, we could experience
lost sales, increased costs and exposure to legal and reputational risk. Our suppliers are subject to 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.
Our reliance on suppliers, including freight carriers and other third parties in our global supply chain, subjects us to
various risks and uncertainties which could adversely affect our financial results.
We source the products we sell from a wide variety of domestic and international suppliers, and place significant reliance
upon various third parties to transport, store and distribute those products to our distribution centers, stores and customers. 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.
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In addition, our suppliers, including those within our global supply chain, are impacted by global conditions that in turn
may impact our ability to source merchandise at competitive prices or timely supply product at levels adequate to meet
consumer demand. For example, the recent surges in consumer demand, shortages of raw materials and disruptions to the global
supply chain resulting from lack of carrier capacity, labor shortages, port congestion and /or closures, amongst other factors,
have negatively impacted costs and inventory availability and may continue to have a negative impact on future results and
profitability. As suppliers increase prices charged to us for products, including transportation and distribution, as a result of
these or other factors, it may negatively impact our results. If we experience transitions or changeover with any of our
significant vendors, or if they experience financial difficulties or otherwise are unable to deliver merchandise to us on a timely
basis, or at all, we could have product shortages in our stores that could adversely affect customers’ perceptions of us and cause
us to lose customers and sales.
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 engagement, 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. Our ability to attract, develop and retain an
adequate number of qualified team members depends on factors such as employee morale, our reputation, competition from
other employers, availability of qualified personnel, our ability to offer competitive compensation and benefit packages and our
ability to maintain a safe working environment. For example, during 2021, we experienced unusually low availability of
workers, which we believe was primarily attributable to COVID-19 pandemic related factors and in turn has created increased
competition in labor markets. Disruptions and heightened competition like those experienced during 2021 may increase our
costs, impact our ability to serve customers and otherwise affect our business operations. We also believe our future success
will depend in part upon our ability to attract and retain highly skilled personnel for whom the market is highly competitive,
particularly for individuals with certain types of technical skills. Failure to recruit or retain qualified employees may impair our
efficiency and effectiveness and our ability to pursue growth opportunities. Additionally, turnover in executive or other key
positions can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, cause other team
members to take on substantially more responsibility, resulting in greater workload demands and diverting attention away from
key areas of the business, or otherwise negatively impact our growth prospects or future operating results.
We operate in a competitive labor market and there is a risk that market increases in compensation could have an adverse
effect on our profitability. Market or government regulated increases to employee hourly wage rates, along with our ability to
implement corresponding adjustments within our labor model and wage rates, could have a significant impact to the
profitability of our business. In addition, approximately 1% 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.
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, 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 subject to numerous lawsuits alleging injury as a result of exposure to
asbestos-containing products (see Note 13. Contingencies, of the Notes to the Consolidated Financial Statements included
herein).
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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, anti-bribery/anti-corruption, data privacy 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 customers, suppliers, team members and business
information and the functioning of our computer systems, website and other online 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. The cost of complying with stricter and more complex data
privacy (such as the California Consumer Privacy Act, which grants expanded rights to access and delete personal information
and opt out of certain personal information sharing), data collection and information security laws and standards could also be
significant to us. Such laws and standards may also increase our responsibility and liability in relation to personal data that we
process, and we may be required to put in place additional mechanisms ensuring compliance with privacy laws and regulations.
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 “social engineering” attacks and “phishing” 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. While we maintain insurance coverage that may, subject to policy terms and
conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover losses in any particular
situation. Any breach, damage to or interference with 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.
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, public health issues or pandemics or
the threat of any of these incidents 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.
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Terrorist attacks, war in the Middle East, geopolitical unrest or uncertainty or insurrection involving any oil producing
country could result in an abrupt increase in the price of crude oil, gasoline and diesel fuel. Such price increases would increase
the cost of doing business for us and our suppliers, and also negatively impact our customers’ 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 significant business interruptions may
make it difficult or impossible to continue operations, and any disaster recovery or crisis management plans we may employ
may not suffice in any particular situation to avoid a significant adverse impact to our business, financial condition and our
results of operations.
Risks Related to Our Industry and the Business Environment
The COVID-19 pandemic may significantly and adversely impact our business operations, demand for our products,
availability of labor, access to inventory, our exposure to litigation, financial condition, results of operations and cash
flows.
The COVID-19 pandemic significantly impacted our business as the uncertainty, volatility and disruption of a new public
health crisis emerged in 2020. In our first fiscal quarter of 2020, we experienced disruption to our normal business operations
from a number of factors, including the need to rapidly adopt new health and safety measures, significant impact to demand
driven by stay at home orders and uncertainty around regulatory, economic and market conditions. The onset of the COVID-19
pandemic also created significant volatility in our stock price and may continue to create volatility, which may not be reflective
of our actual business and competitive position. While we have taken numerous steps to mitigate the impact of the COVID-19
pandemic on our results of operations, many uncertainties could still materially impact our business, results of operations, cash
flows, and financial condition.
Uncertainty remains about the severity and duration of the COVID-19 pandemic, including whether there will be additional
“waves” or other continued periods of increases or spikes in the number of COVID-19 cases in future periods; the severity and
transmission rate of “variations” or future mutations of COVID-19; and the development, efficacy, distribution and adoption
rates of vaccines for COVID-19 and variants thereof. COVID-19 related factors could adversely impact our ability to staff our
stores or distribution centers, result in significant increased expenses related to store cleanings and team member benefits or
negatively impact the operations of our suppliers, logistics or transportation providers, and our service providers or
subcontractors. Additionally, while we have continued to prioritize the health and safety of our team members and customers as
we continue to operate during the COVID-19 pandemic, we face an increased risk of litigation related to our operating
environments and depending on the extent and severity of the COVID-19 pandemic, may incur significant increased operating
costs associated with potential increases in insurance premiums, medical claims costs, and/or workers’ compensation claims
costs, which could negatively affect our results of operations both during and after the COVID-19 pandemic.
While we have not experienced widespread store or distribution center closures, it is unknown how the current
administration, specific locales or governmental and nongovernmental authorities of jurisdictions in which we and/or our
suppliers, distributors and others that we do business with will respond to the continuation of the COVID-19 pandemic. Actions
such as quarantine or shelter-in-place measures, limitations on access to unemployment compensation, vaccination or testing
requirements, economic measures and other similar actions or requirements could cause disruption to our operations or those of
our suppliers, distributors or others that we do business with.
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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 we sell depends on many factors and may decrease due to any number of reasons, including:
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a decrease in the total number of vehicles on the road or in the number of annual miles driven or significant increase
in the use of ride sharing services, because fewer vehicles means less maintenance and repairs, and lower vehicle
mileage, which decreases the need for maintenance and repair;
the economy, because as consumers reduce their discretionary spending by deferring vehicle maintenance or repair,
sales may decline and as new car purchases increase, the number of cars requiring maintenance and repair may
decrease;
the weather, because milder weather conditions may lower the failure rates of automobile parts while extended periods
of rain and winter precipitation may cause our customers to defer elective maintenance and repair of their vehicles;
additionally, overall climate changes could create greater variability in weather events, which may result in greater
volatility for our business, or lead to other significant weather conditions that could impact our business;
the average duration of vehicle manufacturer warranties and average age of vehicles driven, because newer cars
typically require fewer repairs and will be repaired by the manufacturers’ dealer networks using dealer parts pursuant
to warranties (which have gradually increased in duration and/or mileage expiration over the recent past), while
vehicles that are seven years old and older are generally no longer covered under manufacturers’ warranties and tend
to need more maintenance and repair;
an increase in internet-based retailers, because potentially favorable prices and ease of use of purchasing parts via
other websites on the internet may decrease the need for customers to visit and purchase their aftermarket parts from
our physical stores and may cause fewer customers to order aftermarket parts on our website;
technological advances, including the rate of adoption of electric vehicles, hybrid vehicles, ride sharing services,
alternative modes of transportation, autonomously driven vehicles and future legislation related thereto, and the
increase in the quality of vehicles manufactured, because vehicles that need less frequent maintenance or have lower
part failure rates will require less frequent repairs using aftermarket parts and, in the case of electric and hybrid
vehicles, do not require or require less frequent oil changes; and
the refusal of vehicle manufacturers to make available diagnostic, repair and maintenance information to the
automotive aftermarket industry that our professional and DIY customers require to diagnose, repair and maintain
their vehicles, because this may force consumers to have a majority of diagnostic work, repairs and maintenance
performed by the vehicle manufacturers’ dealer networks.
We may be adversely affected by legal, regulatory or market responses regarding technological adaptation in the
automotive industry.
Policy makers in the U.S. may enact legislative or regulatory proposals that would impose mandatory requirements on
greenhouse gas emissions and encourage more rapid adoption of vehicles that minimize emissions. Such laws, if enacted, are
likely to impact our business in a number of ways. For example, significant increases in fuel economy requirements, new
federal or state restrictions on emissions of carbon dioxide or new federal or state incentive programs that may be imposed on
vehicles and automobile fuels could adversely affect annual miles driven, purchases of used vehicles that are likely to have a
higher need for maintenance and repair, or the relevancy of the products we sell to new vehicles coming into production. We
may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric
vehicles and other technologies that minimize emissions. Additionally, compliance with any new or more stringent laws or
regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers. Our
inability to appropriately respond to such changes, adapt our business to meet evolving demands or innovate to remain
competitive could adversely impact our business, financial condition, results of operations or cash flows.
13
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 online. 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, as well as our integrity and reputation, we
could lose customers to our competition. The products we sell are brands of our vendors and our owned 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.
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.
Our inventory and ability to meet customer expectations may be adversely impacted by factors out of our control.
For the 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 in meeting our customers’ needs for automotive products (particularly parts availability) in a timely manner
could undermine our business strategy.
Deterioration of general macroeconomic conditions, including unemployment, inflation or deflation, consumer debt
levels, and/or 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’ 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’ 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 products
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.
14
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 macroeconomic conditions or an increase in fuel costs or proposed or additional tariffs may have a
negative impact on our customers’ net worth, financial resources, disposable income or willingness or ability to pay for
accessories, maintenance or repairs for their vehicles, resulting in lower sales. An increase in fuel costs may also reduce the
overall number of miles driven by 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.
Risks Related to Our Common Stock and Financial Condition
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’ 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’s securities, securities class action litigation has often been instituted against such a company. For example, in
February 2018, following a significant decline in the price of our common stock, a putative class action was commenced
against us, for which a settlement agreement, covered by our insurance, has been preliminarily approved by the court (see “Item
3. Legal Proceedings” of this Annual Report on Form 10-K). Such litigation could result in substantial costs and a diversion of
our attention and resources, which could have an adverse effect on our business.
The amount and frequency of our share repurchases and dividend payments may fluctuate.
The amount, timing and execution of our share repurchase program may fluctuate based on our priorities for the use of cash
for other purposes such as operational spending, capital spending, acquisitions or repayment of debt. Changes in cash flows, tax
laws and our share price could also impact our share repurchase program and other capital activities. Additionally, decisions to
return capital to stockholders, including through our repurchase program or the issuance of dividends on our common stock,
remain subject to determination of our Board of Directors that any such activity is in the best interests of our stockholders and is
in compliance with all applicable laws and contractual obligations.
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.
15
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 revolving credit facility are linked directly to our
credit ratings and the interest rates on future debt we issue or incur likely would be affected by our credit ratings in effect at the
time such debt is issued or incurred. 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 and less favorable terms on our other operating
and financing arrangements, including additional debt we may issue or incur in the future. In addition, it could reduce the
attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to 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’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.
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 2021:
Location
52 locations in 32 U.S. states and four Canadian provinces
Square Footage (in thousands)
Leased
Owned
7,825
4,401
Raleigh, NC
Roanoke, VA
4,801 stores and branches in 49 U.S. states and two U.S.
territories and 171 stores and branches in nine Canadian
provinces
285
265
—
—
35,001
6,300
Distribution centers
Principal corporate offices:
Raleigh, NC
Roanoke, VA
Stores and branches
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 “Class Period”), was commenced against us
and certain of our current and former officers in the U.S. District Court for the District of Delaware. The plaintiff alleged that
the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects
during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. On February 7, 2020, the court granted in part and denied in part our motion to dismiss. On November
6, 2020, the court granted the plaintiff’s motion for class certification. On March 15, 2021, we moved for reconsideration of the
order denying in part our motion to dismiss, and on October 15, 2021, we filed a motion for summary judgment, seeking full
dismissal of the case. Following mediation, on November 5, 2021, the parties executed a confidential binding term sheet to
settle all claims and on December 23, 2021, the parties executed a settlement agreement fully documenting their agreement. The
settlement agreement received preliminary approval from the court on January 11, 2022 and remains subject to final court
approval. The settlement amount of $49.3 million will be fully covered by our insurance carriers, and the settlement is subject
to court approval.
Refer to discussion in Note 13. 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.
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is listed on the New York Stock Exchange under the symbol “AAP.”
As of February 11, 2022, there were 281 holders of record of our common stock, which does not include the number of
beneficial owners whose shares were represented by security position listings.
The following table sets forth information with respect to repurchases of our common stock for the fourth quarter ended
January 1, 2022:
Period
October 10, 2021 to November 6, 2021
November 7, 2021 to December 4, 2021
December 5, 2021 to January 1, 2022
Total
Total Number
of Shares
Purchased (1)
Average
Price Paid
per Share (1)
222.35
226.52
230.18
228.00
53,462 $
139,531 $
231,438 $
424,431 $
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
Maximum Dollar
Value that May Yet
Be Purchased
Under the
Programs (in
thousands) (2)
53,424 $
131,861 $
231,438 $
416,723
628,625
598,802
545,529
(1) The aggregate cost of repurchasing shares in connection with the net settlement of shares issued as a result of the
vesting of restricted stock units was $1.8 million, or an average price of $232.51 per share, during the 12 weeks ended
January 1, 2022.
(2) On April 19, 2021, our Board of Directors authorized an additional $1.0 billion share repurchase program. This
authorization was incremental to the $700.0 million share repurchase program that was authorized by our Board of
Directors in November 2019.
17
Stock Price Performance
The following graph shows a comparison of the cumulative total return on our common stock, the Standard & Poor’s
(“S&P”) 500 Index and the Standard & Poor’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 31, 2016, 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
$500.00
$400.00
$300.00
$200.00
$100.00
$0.00
1 / 1
2 / 3
1
6
7
0 / 1
2 / 3
1
8
9 / 1
2 / 2
1
9
8 / 1
2 / 2
1
1
2 / 2
1 / 0
0
2
1 / 2
1 / 0
0
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 31,
2016
December 30,
2017
December 29,
2018
December 28,
2019
January 2,
2021
January 1,
2022
$
$
$
100.00 $
100.00 $
100.00 $
59.07 $
121.83 $
129.10 $
92.28 $
115.49 $
143.49 $
94.13 $
153.58 $
183.63 $
94.35 $
145.95
181.35 $
233.41
265.32 $
411.30
18
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with
our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report. Our
discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the section
titled “Part 1. Item 1A. Risk Factors” elsewhere in this report. The discussion of our financial condition and changes in our
results of operations, liquidity and capital resources for 2020 compared with 2019 has been omitted from this Form 10-K, but
are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our
Form 10-K for the fiscal year ended January 2, 2021, filed with the Securities and Exchange Commission (“SEC”) on
February 22, 2021. Amounts are presented in thousands, except per share data, unless otherwise stated.
Impact of COVID-19 on Our Business
During the COVID-19 pandemic, we continue to prioritize the health, safety and wellbeing of our team members and
customers; are working to drive financial performance by preserving our cash position, scrutinized planned spending and the
prioritization of various initiatives; and will ensure that when the current period of crisis passes, our team will emerge even
stronger. During 2021, the principal impacts of the COVID-19 pandemic on our business were related to difficulty with staffing
in our distribution centers and stores as a result of direct factors, such as illness, and indirect factors, such as heightened
competition for talent in a volatile labor market and supply chain disruption. In addition, we continued to take additional
measures to help ensure the health, safety and wellbeing of our team members and customers, including investing in cleaning
materials and testing supplies.
The COVID-19 pandemic remains an evolving situation and we continue to actively monitor developments that may cause
us to take further actions as may be required by federal, state or local authorities or that we determine are in the best interests of
our team members, customers, suppliers and stockholders.
Management Overview
Net sales increased 8.8% in 2021 compared with 2020, driven by an increase in comparable store sales of 10.7%.
Comparable store sales exclude week 53 of 2020. Ongoing economic recovery throughout the year, namely in key urban
markets where miles driven were most impacted in 2020, contributed to strong recovery of our professional business and an
increase in demand in our “do-it-yourself” (“DIY”) business.
We generated Diluted earnings per share (“Diluted EPS”) of $9.55 during 2021 compared with $7.14 in 2020. When
adjusted for the following non-operational items, our Adjusted diluted earnings per share (“Adjusted EPS”) in 2021 was $12.02
compared with $8.36 in 2020:
Last-in, first-out (“LIFO”) impacts
Transformation expenses
General Parts International, Inc. (“GPI”)
amortization of acquired intangible assets
Other adjustments
Year Ended
January 1,
2022
January 2,
2021
$
$
$
$
1.42 $
0.73 $
0.32 $
— $
(0.15)
0.55
0.30
0.52
Refer to “Reconciliation of Non-GAAP Financial Measures” for a definition and reconciliation of Adjusted EPS and other
non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
19
A high-level summary of our financial results and other highlights from 2021 include:
•
•
•
Net sales during 2021 were $11.0 billion, an increase of 8.8% compared with 2020, which was driven by the strong
recovery in our professional business and growth in our DIY omnichannel business. Prior year Net sales included
$158.5 million attributable to the additional week in 2020. Comparable store sales in 2021 increased 10.7%, which
was a result positive comparable store sales across every region, with the Southwest and West having the strongest
growth.
Gross profit margin for 2021 was 44.8% of Net sales, an increase of 47 basis points compared with 2020. This increase
was primarily due to improvements in category management, including strategic pricing and sourcing and owned
brand expansion, partially offset by ongoing inflationary costs and unfavorable channel mix.
Operating income for 2021 was $838.7 million, an increase of $88.8 million from 2020. As a percentage of Net sales,
operating income was 7.6%, an increase of 21 basis points compared with 2020. The favorable impact in Gross profit
was partially offset by increased Selling, general and administrative (“SG&A”) costs primarily driven by inflationary
labor-related headwinds, as well as increased incentive compensation and start-up costs associated with new store
openings. This was partially offset by a year-over-year decrease in COVID-19 expenses.
• We generated cash flow from operations of $1.11 billion during 2021, an increase of 14.7% compared with 2020,
primarily due to an increase in Net income, as well as improvements related to working capital.
Refer to “Results of Operations” and “Liquidity and Capital Resources” for further details on our results.
Business and Risk 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 strategic initiatives to help build a foundation for long-term success across the
organization, which include:
•
•
•
•
•
•
Continued development of a demand-based assortment, leveraging purchase and search history from our common
catalog, versus our existing push-down supply approach.
Advancement towards optimizing our footprint by market, including consolidating our Worldpac and Autopart
International businesses, to drive share, repurpose our in-market store and asset base and streamline our distribution
network.
Continued evolution of our marketing campaigns, which focus on our customers and how we serve them every day
with care and speed and innovate to meet their needs, inclusive of the iconic DieHard® brand.
Progress in the implementation of a more efficient end-to-end supply chain to deliver our broad assortment of
inventory.
Enhancement of Advance Same Day® Curbside Pick Up, Advance Same Day® Home Delivery and our mobile
application and e-commerce performance.
Actively pursuing new store openings in 2022, including through lease acquisition opportunities as available and
appropriate, in existing markets and new markets, as well as expansion of our independent Carquest network.
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. In addition to the “Impact of COVID-19 on Our
Business” section included within Management’s Discussion and Analysis of Financial Condition and Results of Operations,
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
20
While these factors tend to fluctuate, we remain confident in the long-term growth prospects for the automotive parts
industry.
Results of Operations
The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.
(in millions)
Net sales
Cost of sales
Gross profit
SG&A
Operating income
Interest expense
Loss on debt
extinguishment
Other income
(expense), net
Provision for
income taxes
Net income
$
January 1, 2022
$ 10,998.0
6,069.2
Year Ended
2021 vs.
2020
$ Change
100.0 % $ 10,106.3 100.0 % $ 9,709.0 100.0 % $ 891.7
444.5
55.2
December 28, 2019
January 2, 2021
5,624.7
5,454.3
56.2
55.7
2020 vs.
Basis
2019
Points
$ Change
— $ 397.3
170.4
(47)
Basis
Points
—
(52)
4,928.7
4,090.0
838.7
(37.8)
44.8
37.2
7.6
(0.3)
4,481.6
3,731.7
749.9
(46.9)
44.3
36.9
7.4
(0.5)
4,254.7
3,577.6
677.2
(39.9)
43.8
36.8
7.0
(0.4)
—
—
(48.0)
(0.5)
(10.8)
(0.1)
5.0
0.0
(4.0)
0.0
11.2
0.1
447.2
358.3
88.9
9.1
48.0
9.0
47
26
21
12
48
8
226.9
154.1
72.8
(7.0)
52
8
45
(5)
(37.2)
(36)
(15.2)
(15)
(189.8)
616.1
(1.7)
5.6 % $
(158.0)
493.0
(1.6)
(150.9)
4.9 % $ 486.8
(1.6)
5.0 % $ 123.2
(31.8)
(16)
72 $
(7.1)
6.3
(1)
(14)
Note 1: Table amounts may not foot due to rounding.
Note 2: Fiscal years 2021 and 2019 included 52 weeks. Fiscal year 2020 included 53 weeks.
Net Sales
Net sales for 2021 were $11.0 billion, an increase of $891.7 million, or 8.8%, compared with 2020, which was driven by an
increase in comparable store sales of 10.7% resulting from strong recovery of our professional business and growth in our DIY
omnichannel business. We experienced positive comparable store sales across every region, with the Southwest and West
having the strongest growth. Net sales growth was less than comparable store sales due to 2020 including $158.5 million
attributable to the 53rd week.
We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for
13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned
Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once
the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated
stores in comparable store sales from the original date of opening. Net sales for the 53rd week in a year are not included in the
comparable sales calculation for that year. For example, our comparable sales results for 2021 compare the 52-week period in
2021 to weeks 1 through 52 reported in 2020. Comparable sales is intended only as supplemental information and is not a
substitute for Net sales presented in accordance with accounting principles generally accepted in the United States of America
(“GAAP”).
Gross Profit
Gross profit in 2021 was $4.93 billion, or 44.8% of Net sales, compared with $4.48 billion, or 44.3% of Net sales, in 2020,
an increase of 47 basis points. The increase in Gross profit as a percentage of Net sales was primarily due to improvements in
category management including strategic pricing and sourcing and owned brand expansion. This was partially offset by
ongoing inflationary costs and unfavorable channel mix.
As a result of changes in our LIFO reserve, an increase of $122.3 million and a benefit of $13.8 million were included in
Cost of sales in 2021 and 2020.
21
Selling, General and Administrative Expenses
SG&A for 2021 was $4.09 billion, or 37.2% of Net sales, compared with $3.73 billion, or 36.9% of Net sales, for 2020, an
increase of 26 basis points. This increase as a percentage of Net sales was primarily due to increased labor and related payroll
expenses resulting from inflationary labor-related headwinds, increased incentive compensation resulting from higher Net sales
and start-up costs associated with our new store openings, offset by a decrease in COVID-19 expenses. The additional week in
2020 contributed $53.5 million to SG&A.
Interest Expense
Interest expense for 2021 was $37.8 million, an increase of $9.1 million compared with 2020. This increase was primarily
due to the issuance of $500.0 million of our 3.900% senior unsecured notes due 2030 on April 16, 2020 and $350.0 million of
our 1.750% senior unsecured notes due 2027 on September 29, 2020. Refer to Note 6. Long-term Debt and Fair Value of
Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details.
Loss on Early Redemptions of Senior Unsecured Notes
During the fifty-three weeks ended January 2, 2021, we incurred charges of $48.0 million related to the early redemption of
our 2022 and 2023 senior unsecured notes. Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the
Notes to the Consolidated Financial Statements included herein for further details.
Provision for Income Taxes
Our Provision for income taxes for 2021 was $189.8 million compared with $158.0 million for 2020, an increase of $31.8
million primarily due to an increase in taxable income. Our effective tax rate was 23.6% for 2021 and 24.3% for 2020. During
2021, the driver of the decrease in tax expense resulted from a benefit relating to share-based awards and greater utilization of
tax credits.
22
Reconciliation of Non-GAAP Financial Measures
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial
measures not derived in accordance with GAAP. Non-GAAP financial measures, including Adjusted net income and Adjusted
EPS, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing
our operating performance, financial position or cash flows. We have presented these non-GAAP financial measures as we
believe that the presentation of our financial results that exclude: (1) LIFO impacts; (2) transformation expenses under our
strategic business plan; (3) non-cash amortization related to the acquired GPI intangible assets; and (4) other nonrecurring
adjustments, are useful and indicative of our base operations because the expenses vary from period to period in terms of size,
nature and significance and/or relate to store closure and consolidation activity in excess of historical levels. These measures
assist in comparing our current operating results with past periods and with the operational performance of other companies in
our industry. The disclosure of these measures allows investors to evaluate our performance using the same measures
management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below
is a description of the expenses we have determined are not normal, recurring cash operating expenses necessary to operate our
business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures.
LIFO Impacts — Beginning the first quarter of 2021, to assist in comparing our current operating results with the
operational performance of other companies in our industry, the impact of LIFO on our results of operations is a reconciling
item to arrive at non-GAAP financial measures.
Transformation Expenses — Costs incurred in connection with our business plan that focuses on specific transformative
activities that relate to the integration and streamlining of our operating structure across the enterprise, that we do not view to be
normal cash operating expenses. These expenses will include, but not be limited to the following:
• Restructuring costs - Costs primarily relating to the early termination of lease obligations, asset impairment charges,
other facility closure costs and team member severance in connection with our voluntary retirement program and
continued optimization of our organization.
• Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the
development of various information technology and supply chain projects in connection with our enterprise integration
initiatives.
• Other significant costs - Costs primarily relating to accelerated depreciation of various legacy information technology
and supply chain systems in connection with our enterprise integration initiatives and temporary off-site workspace for
project teams who are primarily working on the development of specific transformative activities that relate to the
integration and streamlining of our operating structure across the enterprise.
GPI Amortization of Acquired Intangible Assets — As part of our acquisition of GPI, we obtained various intangible
assets, including customer relationships, non-compete contracts and favorable lease agreements, which we expect to be subject
to amortization through 2025.
23
We have included a reconciliation of this information to the most comparable GAAP measures in the following table:
Net income (GAAP)
Cost of sales adjustments:
LIFO impacts (1)
Transformation expenses:
Other significant costs
SG&A adjustments:
Year Ended
January 1,
2022
January 2,
2021
$
616,108 $
493,021
122,303
(13,817)
2,608
3,161
GPI amortization of acquired intangible assets
27,587
27,337
Transformation expenses:
Restructuring costs
Third-party professional services
Other significant costs
Other income adjustment (2)
Provision for income taxes on adjustments (3)
Adjusted net income (Non-GAAP)
Diluted earnings per share (GAAP)
Adjustments, net of tax
$
$
27,307
24,099
8,796
—
16,765
14,117
15,965
48,022
(53,175)
(27,888)
775,633 $
576,683
9.55 $
2.47
7.14
1.22
8.36
Adjusted diluted earnings per share (Non-GAAP) $
12.02 $
(1) For the 53 weeks ended January 2, 2021, non-GAAP expenses have been adjusted to be comparable with our 2021
presentation.
(2) During 2020, we incurred charges relating to a make-whole provision and tender premiums of $46.3 million and debt
issuance costs of $1.7 million resulting from the early redemption of our 2022 and 2023 senior unsecured notes.
(3) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective
non-GAAP adjustments.
Liquidity and Capital Resources
Overview
Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory
purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives under our strategic
business plan and other operational priorities. Historically, we have used available funds to repay borrowings under our credit
facility, to periodically repurchase shares of our common stock under our stock repurchase program, to pay our quarterly cash
dividends and for acquisitions; however, given uncertainties related to the COVID-19 pandemic, our future uses of cash may
differ if our relative priorities, including the weight we place on the preservation of cash and liquidity, change. Typically, we
have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our
credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available
cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our obligations for the
next year. We also believe such funds, cash and available borrowings, together with our ability to generate cash through credit
facilities and notes offerings as needed, will be sufficient to fund our obligations long-term. Cash requirements for obligations
next year and beyond are discussed in the “Contractual and Off Balance Sheet Obligations” section below.
Share Repurchases
In April 2021 and November 2019, our Board of Directors authorized $1.0 billion and $700.0 million for our share
repurchase program. On February 8, 2022, our Board of Directors authorized an additional $1.0 billion toward the existing
share repurchase program.
24
During 2021, we repurchased 4.6 million shares of our common stock at an aggregate cost of $886.7 million, or an average
price of $192.92 per share, in connection with our share repurchase program.
We had $545.5 million remaining under our share repurchase program as of January 1, 2022. During 2020, we repurchased
3.0 million shares of our common stock at an aggregate cost of $458.5 million, or an average price of $150.65 per share, under
our share repurchase program. Refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities” for further details on our share repurchase program.
Capital Expenditures
Our primary capital requirements have been the funding of our investments in supply chain and information technology, e-
commerce and maintenance of existing stores and branches. We lease approximately 83% of our stores and branches.
Our capital expenditures were $289.6 million in 2021, an increase of $22.1 million from 2020, and was primarily related to
several information technology projects, including our finance enterprise resource planning system, as well as investments 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 in
information technology and supply chain network initiatives and existing stores and new store development (leased and owned
locations) within a given year. In 2022, we anticipate that our capital expenditures related to such investments will range from
$300 million to $350 million, but may vary with business conditions.
Analysis of Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:
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 (decrease) increase in cash and cash
equivalents
Operating Activities
$
January 1,
2022
1,112,262 $
(287,314)
(1,064,112)
5,600
Year Ended
January 2,
2021
December 28,
2019
969,688 $
(266,897)
(285,997)
(467)
866,909
(462,939)
(882,153)
321
$
(233,564) $
416,327 $
(477,862)
In 2021, Net cash provided by operating activities increased $142.6 million to $1.11 billion. The net increase in cash flows
provided by operating activities compared with the prior year was primarily driven by an increase in Net income, which was a
result of our significant Net sales growth related to the strong recovery of our professional business and growth in our DIY
omnichannel business, as well as improvements in working capital. In the current year, working capital included an increase in
cash provided by Accrued expenses and Accounts payable, partially offset by an increase in cash used by Inventories. Refer to
“Results of Operations” for further details on our results.
Investing Activities
In 2021, Net cash used in investing activities increased by $20.4 million to $287.3 million compared with 2020. Cash used
in investing activities for 2021 consisted primarily of purchases of property and equipment, which was comparable with capital
expenditures in 2020.
Financing Activities
In 2021, Net cash used in financing activities increased by $778.1 million to $1.06 billion compared with 2020, primarily
due to higher share repurchase activity of $436.5 million and an increase of quarterly dividends per share.
25
Our Board of Directors has declared a quarterly cash dividend since 2006. Any payments of dividends in the future will be
at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and
other factors deemed relevant by our Board of Directors. On February 14, 2022, our Board of Directors declared a quarterly
cash dividend of $1.50 per share to be paid on April 1, 2022 to shareholders of record as of March 18, 2022.
Long-Term Debt
As of January 1, 2022, we had a credit rating from the S&P of BBB- and from Moody’s Investor Service of Baa2. The
current outlooks by the S&P and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under
our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding
balances may increase and our access to additional financing on favorable terms may be limited. In addition, it could reduce the
attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based
on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve,
our interest rate may decrease.
With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and
unconditional guarantee, Advance Stores, a wholly owned subsidiary of the Issuer, serves as the guarantor (“Guarantor
Subsidiary”). The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several,
and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. Our captive insurance
subsidiary, an insignificant wholly owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes.
For additional information on transactions entered into relating to Long-term debt during the fifty-two weeks ended
January 1, 2022, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated
Financial Statements included herein.
Contractual and Off Balance Sheet Obligations
We enter into operating leases for certain store locations, distribution centers, office spaces, 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. As of January 1, 2022, our operating lease obligations were $2.80 billion. As of January 1, 2022, our long-term
debt, consisting of senior unsecured notes with varying maturities through 2030, was $1.04 billion. Interest payable related to
long-term debt was $219.9 million as of January 1, 2022. As part of our normal operations, we enter into purchase
commitments primarily for the purchase of goods or services that are enforceable, legally binding and specify all significant
terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. As of January 1, 2022, our purchase commitments were $70.3 million.
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.
Vendor Incentives
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. Advertising allowances provided as a reimbursement of specific, incremental
and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred.
Volume rebates and vendor promotional allowances that do not meet the requirements for offsetting in SG&A and that are
earned based on inventory purchases are initially recorded as a reduction to inventory. These deferred amounts are recorded as a
reduction to Cost of sales as the inventory is sold.
26
Vendor promotional allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to
promote a vendor’s products are included as an offset to SG&A when the cost is incurred if the fair value of that benefit can be
reasonably estimated. Certain of 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. Periodic assessments of the accruals are performed to determine the
appropriateness of the estimate and are adjusted for accordingly.
Amounts received or receivable from vendors that are not yet earned are reflected as deferred revenue. Our 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.
Self-Insurance Reserves
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’
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 Other 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 January 1, 2022 would result in a change in expense of
approximately $13.4 million for 2021.
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 “Recently Issued Accounting Pronouncements” in Note
2. Significant Accounting Policies, of 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 January 1, 2022 and January 2, 2021, 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 2021 and 2020, foreign currency transactions did not significantly impact Net income.
Item 8. Financial Statements and Supplementary Data.
This information is included in “Item 15. Exhibits, Financial Statement Schedules” of this annual report and is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
27
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)), are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. Internal controls over financial reporting, no matter how
well designed, have inherent limitations, including the possibility of human error and the override of controls. Therefore, even
those systems determined to be effective can provide only “reasonable assurance” with respect to the reliability of financial
reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness may
vary over time.
Evaluation of Disclosure Controls and Procedures
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 January 1, 2022. Based on this evaluation, our principal executive
officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
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 “reasonable 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 “reasonable 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 January 1, 2022, management, including our principal executive officer and principal financial officer, assessed the
effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on this assessment, management has determined that our internal control over financial reporting as of January 1, 2022 is
effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the quarter ended January 1, 2022 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm
Our internal control over financial reporting as of January 1, 2022 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, which also audited our consolidated financial statements for the year ended
January 1, 2022, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of our
internal control over financial reporting as of January 1, 2022.
Item 9B. Other Information.
None.
28
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
29
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
For a discussion of our directors, executive officers and corporate governance, see the information set forth in the sections
and subsections entitled “Proposal No. 1 - Election of Directors,” “Corporate Governance,” “Information Concerning our
Executive Officers,” “Audit Committee Report,” and “Delinquent Section 16(a) Reports,” “Code of Ethics and Business
Conduct” and “Code of Ethics for Finance Professionals” in our proxy statement for the 2022 annual meeting of stockholders to
be filed with the SEC within 120 days after the end of the year ended January 1, 2022 (the “2022 Proxy Statement”), which is
incorporated herein by reference.
Item 11. Executive Compensation.
See the information set forth in the sections entitled “Compensation Committee Report,” “Compensation Discussion and
Analysis,” “Compensation Program Risk Assessment,” “Additional Information Regarding Executive Compensation” and
“Director Compensation” in the 2022 Proxy Statement, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
See the information set forth in the subsections entitled “Equity Compensation Plan Information” and “Security Ownership
of Certain Beneficial Owners and Management” in the 2022 Proxy Statement, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See the information set forth in the subsections entitled “Related Party Transactions” and “Board Independence and
Structure” in the 2022 Proxy Statement, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
See the information set forth in the subsection entitled “2021 and 2020 Audit Fees” in the 2022 Proxy Statement, which is
incorporated herein by reference.
30
Item 15. Exhibits, Financial Statement Schedules.
PART IV
(1) Financial Statements
Audited Consolidated Financial Statements of Advance Auto Parts, Inc. and Subsidiaries for the
years ended January 1, 2022, January 2, 2021 and December 28, 2019:
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits
Exhibit Index
32
35
36
36
37
38
39
60
61
31
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 January 1, 2022 and January 2, 2021, 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 January 1, 2022, 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 January 1, 2022 and
January 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 1,
2022, 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 January 1, 2022, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 15, 2022, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
32
Vendor Incentives - Refer to Note 2 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company receives incentives in the form of reductions in amounts owed to and/or payments due from vendors related to
volume rebates and other promotions. Volume rebates and vendor promotional allowances are earned based on inventory
purchases and initially recorded as a reduction to inventory, except for allowances provided as reimbursement of specific,
incremental and identifiable costs incurred to promote a vendor’s products that are offset in selling, general and administrative
expenses. The deferred amounts are recorded as a reduction in cost of sales as the inventory is sold. Total deferred vendor
incentives included as a reduction of inventories were $82.4 million as of January 1, 2022.
The Company purchases inventory from a significant number of vendors, with no single vendor accounting for more than 10%
of purchases. While many of these incentives are under long-term agreements in excess of one year, others are negotiated on
an annual basis or shorter. Accordingly, auditing vendor incentives was challenging due to the extent of audit effort required to
evaluate whether the vendor incentives were recorded in accordance with the terms of the vendor agreements.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to whether the vendor incentives were recorded in accordance with the terms of the vendor
agreements included the following, among others:
• We tested the effectiveness of controls over the process that ensures that all vendor agreements are communicated to
accounting.
• We tested the effectiveness of controls over the recording of vendor incentives as a reduction in inventories, and
subsequently as a reduction in cost of sales as the related inventory was sold.
• We selected a sample of vendor incentives earned during the year and deferred at year-end and recalculated, using the
terms of the vendor agreement, both the amount recorded as deferred vendor incentives as a reduction in inventories
and the amount recognized in earnings as a reduction in cost of sales.
• We selected a sample of vendors from the Company’s inventory purchases made during the year and from vendor
incentives recorded as a reduction in cost of sales and confirmed directly with the vendor that the agreement obtained
from the Company and used in the determination of recording vendor incentives as a reduction in cost of sales was
the most recent for the applicable period between the parties.
• We tested the amount of the income by developing an expectation based on the historical amounts recorded as a
percentage of total cost of sales and compared our expectation to the amount recorded.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 15, 2022
We have served as the Company’s auditor since 2002.
33
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 “Company”) as
of January 1, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January 1, 2022, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended January 1, 2022,
of the Company and our report dated February 15, 2022, 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's
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 15, 2022
34
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $2,403,567 and $2,189,165
Operating lease right-of-use assets
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Other current liabilities
Total current liabilities
Long-term debt
Non-current operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ 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;
76,663 shares issued and 62,009 outstanding at January 1, 2022
76,305 shares issued and 66,361 outstanding at January 2, 2021
Additional paid-in capital
Treasury stock, at cost, 14,654 and 9,944 shares
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
January 1,
2022
January 2,
2021
$
601,428 $
782,785
4,659,018
232,245
6,275,476
1,528,311
834,992
749,999
4,538,199
146,811
6,270,001
1,462,602
2,671,810
993,744
651,217
73,651
2,379,987
993,590
681,127
52,329
$ 12,194,209 $ 11,839,636
$
3,922,007 $
777,051
481,249
5,180,307
1,034,320
2,337,651
410,606
103,034
9,065,918
3,640,639
606,804
496,472
4,743,915
1,032,984
2,014,499
342,445
146,281
8,280,124
—
—
8
845,407
(2,300,288)
(22,627)
8
783,709
(1,394,080)
(26,759)
4,196,634
3,559,512
$ 12,194,209 $ 11,839,636
4,605,791
3,128,291
The accompanying notes to the consolidated financial statements are an integral part of these statements.
35
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Net sales
Cost of sales, including purchasing and warehousing costs
Gross profit
Selling, general and administrative expenses
Operating income
Other, net:
Interest expense
Loss on early redemptions of senior unsecured notes
Other income (expense), 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
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
$ 10,997,989 $ 10,106,321 $
9,709,003
6,069,241
4,928,748
4,090,031
838,717
5,624,707
4,481,614
3,731,707
749,907
5,454,257
4,254,746
3,577,566
677,180
(37,791)
—
4,999
(32,792)
805,925
(46,886)
(48,022)
(3,984)
(98,892)
651,015
(39,898)
(10,756)
11,220
(39,434)
637,746
(189,817)
(157,994)
(150,850)
616,108 $
493,021 $
486,896
9.62 $
7.17 $
64,028
68,748
9.55 $
7.14 $
64,509
69,003
6.87
70,869
6.84
71,165
$
$
$
Fiscal years 2021 and 2019 included 52 weeks. Fiscal year 2020 included 53 weeks.
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income:
Changes in net unrecognized other postretirement benefit costs,
net of tax of $93, $54 and $67
Currency translation adjustments
Total other comprehensive income
Comprehensive income
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
$
616,108 $
493,021 $
486,896
(264)
(152)
4,396
4,132
7,962
7,810
(142)
9,766
9,624
$
620,240 $
500,831 $
496,520
Fiscal years 2021 and 2019 included 52 weeks. Fiscal year 2020 included 53 weeks.
The accompanying notes to the consolidated financial statements are an integral part of these statements.
36
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except per share data)
Balance, December 29, 2018
72,460 $
8 $
694,797 $
(425,954) $
(44,193) $
3,326,155 $
3,550,813
Common Stock
Shares
Amount
Additional
Paid-in Capital
Treasury
Stock, at cost
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Stockholders’
Equity
Net income
Cumulative effect of accounting change from
adoption of ASU 2016-02
Total other comprehensive income
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 28, 2019
Net income
Total other comprehensive income
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 ($1.00 per common share)
Other
Balance, January 2, 2021
Net income
Total other comprehensive income
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 ($3.25 per common share)
Other
—
—
—
192
—
23
(3,448)
—
5
69,232
—
—
234
—
20
(3,125)
—
—
66,361
—
—
331
—
23
(4,710)
—
4
—
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
—
37,438
3,334
—
—
(386)
735,183
—
—
—
45,271
3,270
—
—
(15)
—
—
—
—
—
—
(498,435)
—
—
—
—
9,624
—
—
—
—
—
—
(924,389)
(34,569)
—
—
—
—
—
(469,691)
—
—
—
7,810
—
—
—
—
—
—
783,709
(1,394,080)
(26,759)
—
—
—
63,067
3,074
—
—
(4,443)
—
—
—
—
—
(906,208)
—
—
—
4,132
—
—
—
—
—
—
486,896
486,896
(23,165)
—
—
—
—
—
(17,038)
—
3,772,848
493,021
—
—
—
—
—
(69,235)
—
4,196,634
616,108
—
—
—
—
—
(206,951)
—
(23,165)
9,624
—
37,438
3,334
(498,435)
(17,038)
(386)
3,549,081
493,021
7,810
—
45,271
3,270
(469,691)
(69,235)
(15)
3,559,512
616,108
4,132
—
63,067
3,074
(906,208)
(206,951)
(4,443)
Balance, January 1, 2022
62,009 $
8 $
845,407 $
(2,300,288) $
(22,627) $
4,605,791 $
3,128,291
The accompanying notes to the consolidated financial statements are an integral part of these statements.
37
Advance Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
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
Loss on early redemption of senior unsecured notes
Provision for deferred income taxes
Other, net
Net change in:
Receivables, net
Inventories
Accounts payable
Accrued expenses
Other assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchase of an indefinite-lived intangible asset
Proceeds from sales of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Decrease in bank overdrafts
Redemption of senior unsecured note
Borrowings under credit facilities
Payments on credit facilities
Proceeds from issuance of senior unsecured notes, net
Dividends paid
Proceeds from the issuance of common stock
Repurchases 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
Supplemental cash flow information:
Interest paid
Income tax payments
Non-cash transactions:
Accrued purchases of property and equipment
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
$
616,108 $
493,021 $
486,896
259,933
63,067
8,949
—
68,202
(7,985)
(32,652)
(120,272)
281,064
109,983
(134,135)
1,112,262
(289,639)
—
2,325
(287,314)
—
—
—
—
—
(160,925)
3,074
(906,208)
(53)
(1,064,112)
5,600
(233,564)
834,992
601,428 $
250,081
45,271
4,727
48,022
8,136
1,467
(59,014)
(101,449)
216,488
78,507
(15,569)
969,688
(267,576)
(230)
909
(266,897)
—
(602,568)
500,000
(500,000)
847,092
(56,347)
3,270
(469,691)
(7,753)
(285,997)
(467)
416,327
418,665
834,992 $
238,371
37,438
6,671
10,756
23,148
1,681
(62,837)
(63,130)
245,785
(72,288)
14,418
866,909
(270,129)
(201,519)
8,709
(462,939)
(59,339)
(310,047)
—
—
—
(17,185)
3,334
(498,435)
(481)
(882,153)
321
(477,862)
896,527
418,665
36,372 $
177,317 $
34,011 $
146,073 $
41,099
108,163
14,369 $
4,963 $
26,201
$
$
$
$
The accompanying notes to the consolidated financial statements are an integral part of these statements.
38
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
1. Nature of Operations and Basis of Presentation:
Description of Business
Advance Auto Parts, Inc. and subsidiaries is a leading automotive aftermarket parts provider in North America, serving
both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers. The accompanying consolidated financial
statements have been prepared by us and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiaries,
Advance Stores Company, Incorporated (“Advance Stores”) and Neuse River Insurance Company, Inc., and their subsidiaries
(collectively referred to as “Advance,” “we,” “us” or “our”).
As of January 1, 2022, we operated a total of 4,706 stores and 266 branches primarily within the United States, with
additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of January 1, 2022, we served 1,317
independently owned Carquest branded stores across the same geographic locations served by our stores and branches in
addition to Mexico and various Caribbean islands. Our stores operate primarily under the trade names “Advance Auto Parts,”
“Carquest” and “Autopart International,” and our branches operate under the “Worldpac” trade name.
Accounting Period
Our fiscal year ends on the Saturday closest to December 31st. All references herein for the years “2021,” “2020” and
“2019” represent the fiscal year ended January 1, 2022, which consisted of 52 weeks, fiscal year ended January 2, 2021, which
consisted of 53 weeks, and fiscal year ended December 28, 2019, which consisted of 52 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of Advance prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). 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. Additionally, credit card and debit card receivables from banks, which generally settle in less than four business days, are
included in cash equivalents.
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 (“LIFO”) 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 2021 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 adjust the carrying value as necessary.
39
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 or more frequent basis. Advertising allowances provided as a reimbursement of
specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to selling, general
and administrative expenses (“SG&A”) when the cost is incurred. Volume rebates and allowances that do not meet the
requirements for offsetting in SG&A are recorded as a reduction to inventory as they are earned based on inventory purchases.
Total deferred vendor incentives recorded as a reduction of Inventories were $82.4 million and $141.9 million as of January 1,
2022 and January 2, 2021.
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 Other Indefinite-Lived Intangible Assets
We perform our evaluation for the impairment of goodwill and other 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 a quantitative goodwill impairment test. In the quantitative goodwill impairment test, we
compare the carrying value of a reporting unit to its fair value. If the fair value of the reporting unit is lower than its carrying
amount, goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value. Our
other indefinite-lived intangible assets are tested for impairment at the asset group level. Other indefinite-lived intangible assets
are evaluated by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to
generate. If the fair value based on the future discounted cash flows exceeds the carrying value, 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 have four operating segments, defined as “Advance Auto Parts/Carquest U.S.,” “Carquest Canada,” “Independents”
and “Worldpac.” As each operating segment represents a reporting unit, goodwill is assigned to each reporting unit.
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).
40
Self-Insurance
We are self-insured for general and automobile liability, workers’ compensation and health care claims of our employees,
or team members, while maintaining stop-loss coverage with third-party insurers to limit our 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 self-insurance reserves in Accrued expenses and Other long-term liabilities in the
accompanying Consolidated Balance Sheets.
Leases
We lease certain store locations, distribution centers, office spaces, equipment and vehicles. We recognize lease expense on
a straight-line basis over the initial term of the lease unless external economic factors exist such that renewals are reasonably
certain. In those instances, the renewal period would be included in the lease term to determine the period in which to recognize
the lease expense. Most leases require us to pay nonlease components, such as taxes, maintenance, insurance and other certain
costs applicable to the leased asset. For leases related to our store locations, distribution centers, office spaces and vehicles, we
account for lease and nonlease components as a single amount.
Effective December 30, 2018, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU
2016-02”), using the alternative transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements.
Using the alternative transition method, we applied the transition requirements at the effective date of ASU 2016-02 with the
impact of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the first quarter
of 2019. We elected the package of practical expedients permitted under the transition guidance within the new standard.
The adoption of ASU 2016-02 resulted in the recording of operating lease assets and lease liabilities of $2.4 billion as of
December 30, 2018. At the date of adoption, there was a difference between the operating lease right-of-use assets and lease
liabilities recorded that included an adjustment to retained earnings, net of a $7.9 million deferred tax impact, which primarily
resulted from the impairment of operating lease right-of-use assets.
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.
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
Accounting Standards Codification 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”), defines a
performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit
of account. The majority of 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’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.
41
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 one 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.
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
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
67 %
20
12
1
100 %
66 %
21
12
1
100 %
67 %
21
11
1
100 %
Receivables, net, consists primarily of receivables from professional customers and is stated at net realizable value. We
grant credit to certain professional customers who meet our pre-established credit requirements. We regularly review accounts
receivable balances and maintain allowances for credit losses estimated 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 benefits costs; and transportation expenses associated with moving merchandise inventories from stores and
branches to customer locations.
Preopening Expenses
Preopening expenses, which consists primarily of payroll and occupancy costs related to the opening of new stores, are
expensed as incurred.
42
Advertising Costs
We expense advertising costs as incurred. Advertising expense, net of qualifying vendor promotional funds, was $178.0
million, $132.3 million and $117.3 million in 2021, 2020 and 2019.
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. Foreign currency transactions, which is
included in Other income, net, was income of $1.7 million in 2021 and a loss of $6.9 million and $1.7 million in 2020 and
2019.
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 (collectively “share-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 (“CODM”) 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 four operating segments, for purposes of allocating resources and evaluating
financial performance.
We have one reportable segment as the four operating segments are aggregated primarily due 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 offered, customer base and the methods used to distribute products and provide services to its
customers.
43
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standard Board issued ASU 2019-12, Income Taxes (Topic 740): Simplifying
the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 was
effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The adoption of this new
standard did not have a material impact on our consolidated financial condition, results of operations or cash flows.
During the first quarter of 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which required us to measure all expected credit
losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable
supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on
financial assets, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on our consolidated
financial statements.
3.
Inventories:
We used the LIFO method of accounting for approximately 89.8% of Inventories at January 1, 2022 and 88.3% of
Inventories at January 2, 2021. As a result of changes in the LIFO reserve, we recorded an increase to Cost of sales of $122.3
million in 2021, a decrease to Cost of sales of $13.8 million in 2020 and an increase to Cost of sales of $101.3 million in 2019.
Purchasing and warehousing costs included in Inventories as of January 1, 2022 and January 2, 2021 were $515.3 million
and $464.7 million.
Inventory balances were as follows:
Inventories at first-in, first-out (“FIFO”)
Adjustments to state inventories at LIFO
Inventories at LIFO
4. Goodwill and Other Intangible Assets, Net:
Goodwill
January 1,
2022
4,625,900 $
33,118
4,659,018 $
January 2,
2021
4,382,779
155,420
4,538,199
$
$
At January 1, 2022 and January 2, 2021, the carrying amount of Goodwill in the accompanying Consolidated Balance
Sheets was $993.7 million and $993.6 million. The change in Goodwill during 2021 and 2020 was $0.2 million and $1.4
million, and related to foreign currency translation.
44
Other Intangible Assets, Net
Amortization expense was $31.1 million, $31.6 million and $31.7 million for 2021, 2020 and 2019. A summary of the
composition of the gross carrying amounts and accumulated amortization of acquired other intangible assets are presented in the
following table:
January 1, 2022
January 2, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
351,136 $
(239,302) $ 111,834 $ 351,056 $
(209,440) $ 141,616
38,257
389,393
(37,844)
413
38,492
(37,632)
860
(277,146) 112,247
389,548
(247,072) 142,476
Amortized intangible assets:
Customer relationships
Non-compete and other
Indefinite-lived intangible assets:
Brands, trademark and trade names
538,970
—
538,970
538,651
—
538,651
Total intangible assets
$
928,363 $
(277,146) $ 651,217 $ 928,199 $
(247,072) $ 681,127
Future Amortization Expense
The expected amortization expense for the next five years and thereafter for acquired intangible assets recorded as of
January 1, 2022 is as follows:
Year
Amount
2022 $
2023
2024
2025
2026
Thereafter
$
29,854
27,608
27,356
27,305
84
40
112,247
5. Receivables, net:
Receivables, net, consists of the following:
Trade
Vendor
Other
Total receivables
Less: allowance for credit losses
Receivables, net
January 1,
2022
January 2,
2021
$
506,725 $
201,933
84,289
792,947
449,403
278,180
34,345
761,928
(10,162)
(11,929)
$
782,785 $
749,999
45
6. Long-term Debt and Fair Value of Financial Instruments:
Long-term debt consists of the following:
4.50% Senior Unsecured Notes (net of unamortized discount and debt issuance
costs of $453 and $683 at January 1, 2022 and January 2, 2021) due
December 1, 2023
1.75% Senior Unsecured Notes (net of unamortized discount and debt issuance
costs of $3,618 and $4,145 at January 1, 2022 and January 2, 2021) due
October 1, 2027
3.90% Senior Unsecured Notes (net of unamortized discount and debt issuance
costs of $5,022 and $5,600 at January 1, 2022 and January 2, 2021) due April
15, 2030
Long-term debt, excluding current portion
Fair value of long-term debt
Fair Value of Financial Assets and Liabilities
January 1,
2022
January 2,
2021
$
193,220 $
192,990
346,382
345,854
494,718
494,140
$
$
1,034,320 $
1,032,984
1,092,000 $
1,145,000
The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The
carrying amounts of our Cash and cash equivalents, Receivables, net, Accounts payable and Accrued expenses approximate
their fair values due to the relatively short-term nature of these instruments.
Bank Debt
On January 31, 2017, we entered into a five-year credit agreement that provided a $1.0 billion unsecured revolving credit
facility (the “2017 Credit Agreement”) with Advance Stores, as Borrower, the lenders party thereto, and Bank of America,
N.A., as the Administrative Agent, and replaced a prior credit agreement entered into in 2013. The 2017 Credit Agreement
provided for the issuance of letters of credit with a sublimit of $200.0 million. On January 31, 2018, we entered into
Amendment No. 1 to the 2017 Credit Agreement, which provided for LIBOR replacement rates in the event that LIBOR is
unavailable in the future, modified the definitions of the financial covenants and extended the termination date of the 2017
Credit Agreement from January 31, 2022 until January 31, 2023. On January 10, 2019, we entered into Amendment No. 2 to
the 2017 Credit Agreement, which added a new definition of "Insurance Subsidiary" to the 2017 Credit Agreement, provided
that an Insurance Subsidiary does not serve as a Guarantor of the 2017 Credit Agreement and provided that Insurance
Subsidiaries are permitted to incur intercompany indebtedness.
On November 9, 2021, we entered into a new credit agreement that provides a $1.2 billion unsecured revolving credit
facility (the “2021 Credit Agreement”) with Advance Auto Parts, Inc., as Borrower, the lenders party thereto, and Bank of
America, N.A., as the Administrative Agent, and replaced the 2017 Credit Agreement. The revolver under the 2021 Credit
Agreement replaced the revolver under the previous credit agreement. The new revolver 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 $500.0 million during the term of the 2021 Credit Agreement.
As of January 1, 2022, we had no outstanding borrowings under the 2021 Credit Agreement and borrowing availability was
$1.2 billion. Under the 2021 Credit Agreement, we had no letters of credit outstanding as of January 1, 2022. As of January 2,
2021, we had no outstanding borrowings under the 2017 Credit Agreement and borrowing availability was $1.0 billion. Under
the 2017 Credit Agreement, we had no letters of credit outstanding as of January 2, 2021.
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 1.00% for the adjusted LIBOR and 0.00% for alternate base rate
borrowings. A facility fee of 0.125% per annum is charged on the total revolving facility commitment, payable quarterly in
arrears. Under the terms of the 2021 Credit Agreement, the interest rate spread and facility fee are based on our credit rating.
The interest rate spread ranges from 0.795% to 1.30% for adjusted LIBOR borrowings and 0.00% to 0.30% for alternate base
rate borrowings. The facility fee ranges from 0.08% to 0.20%.
46
The 2021 Credit Agreement contains customary covenants restricting the ability of: (a) Advance Auto Parts, Inc. and its
subsidiaries to, among other things, (i) create, incur or assume additional debt (only with respect to subsidiaries of Advance
Auto Parts, Inc.), (ii) incur liens, (iii) guarantee obligations, and (iv) change the nature of their business; (b) Advance Auto
Parts, Inc., Advance Stores and their subsidiaries to, among other things (i) enter into certain hedging arrangements, (ii) enter
into restrictive agreements limiting their ability to incur liens on any of their property or assets, pay distributions, repay loans,
or guarantee indebtedness of their subsidiaries; and (c) Advance Auto Parts, Inc., among other things, to change its holding
company status. Advance is also required to comply with financial covenants with respect to a maximum leverage ratio and a
minimum coverage ratio. The 2021 Credit Agreement also provides for customary events of default, including non-payment
defaults, covenant defaults and cross-defaults of Advance’s other material indebtedness. We were in compliance with our
financial covenants with respect to the 2021 Credit Agreement as of January 1, 2022.
As of January 1, 2022 and January 2, 2021, we had $92.0 million and $100.0 million of bilateral letters of credit issued
separately from the 2021 Credit Agreement and the 2017 Credit Agreement, none of which were drawn upon. These bilateral
letters of credit generally have a term of one year or less and primarily serve as collateral for our self-insurance policies.
Senior Unsecured Notes
Our 4.50% senior unsecured notes due December 1, 2023 (the “2023 Notes”) were issued in December 2013 at 99.69% of
the principal amount of $450.0 million. The 2023 Notes bear interest, payable semi-annually in arrears on June 1 and December
1, at a rate of 4.50% per year.
On April 16, 2020, we issued $500.0 million aggregate principal amount of senior unsecured notes (the “Original Notes”).
The Original Notes were issued at 99.65% of the principal amount and mature April 15, 2030. The Original Notes bear interest,
payable semi-annually in arrears on April 15 and October 15, at a rate of 3.90% per year.
On July 28, 2020, we completed an exchange offer whereby the Original Notes in the aggregate principal amount of
$500.0 million, which were not registered under the Securities Act of 1933, as amended (the “Securities Act”), were exchanged
for a like principal amount of 3.90% senior unsecured notes due 2030 (the “Exchange Notes” or “2030 Notes”), which have
been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except that the
Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration
rights agreement provisions applicable to the Original Notes.
On September 16, 2020, we redeemed all $300.0 million aggregate principal amount of our outstanding 2022 Notes. In
connection with this early redemption, we incurred charges relating to a make-whole provision and debt issuance costs of
$15.8 million and $0.3 million.
On September 29, 2020, we issued $350.0 million aggregate principal amount of senior unsecured notes (the “2027
Notes”). The 2027 Notes were issued at 99.67% of the principal amount, are due October 1, 2027 and bear interest at 1.75% per
year, payable semi-annually in arrears on April 1 and October 1 of each year. In connection with the 2027 Notes offering, we
incurred $2.9 million of debt issuance costs.
Pursuant to a cash tender offer that was completed on September 29, 2020, we repurchased $256.3 million of our 2023
Notes with the net proceeds from the 2027 Notes. In connection with this tender offer, we incurred charges relating to tender
premiums and debt issuance costs of $30.5 million and $1.4 million.
Our 2023 Notes, 2027 Notes and 2030 Notes are collectively referred to herein as our “senior unsecured notes” or the
“Notes”. The terms of the 2023 Notes and 2027 Notes are governed by an indenture dated as of April 29, 2010 (as amended,
supplemented, waived or otherwise modified, the “2010 Indenture”) among Advance Auto Parts, Inc., the subsidiary guarantors
from time to time party thereto and Wells Fargo Bank, National Association, as Trustee. The terms of the 2030 Notes are
governed by an indenture dated as of April 16, 2020 (as amended, supplemented, waived or otherwise modified, the “2020
Indenture” and together with the 2010 Indenture, the “Indentures”) among Advance Auto Parts, Inc., the subsidiary guarantors
from time to time party thereto and Wells Fargo Bank, National Association, as Trustee.
47
We may redeem some or all of the senior unsecured notes at any time or from time to time, at the redemption prices
described in the Indentures. In addition, in the event of a Change of Control Triggering Event (as defined in the Indentures), 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. Currently, the Notes are fully and unconditionally guaranteed, jointly and severally, on
an unsubordinated and unsecured basis by Advance Stores.
The Indentures contain customary provisions for events of default including for: (i) failure to pay principal or interest when
due and payable; (ii) failure to comply with covenants or agreements in the Indentures or the Notes and failure to cure or obtain
a waiver of such default upon notice; (iii) a default under any debt for money borrowed by us or any of our subsidiaries that
results in acceleration of the maturity of such debt, or failure to pay any such debt within any applicable grace period after final
stated maturity, in an aggregate amount greater than $25.0 million without such debt having been discharged or acceleration
having been rescinded or annulled within ten days after receipt by us of notice of the default by the Trustee or holders of not
less than 25% in aggregate principal amount of the Notes then outstanding; and (iv) events of bankruptcy, insolvency or
reorganization affecting us and certain of its subsidiaries. In the case of an event of default, the principal amount of the Notes
plus accrued and unpaid interest may be accelerated. The Indentures also contain covenants limiting our ability to incur debt
secured by liens and to enter into certain sale and lease-back transactions.
Future Payments
As of January 1, 2022, the aggregate future annual maturities of long-term debt instruments are as follows:
Year
Amount
2022 $
2023
2024
2025
2026
—
193,673
—
—
—
Thereafter
850,000
$
1,043,673
Debt Guarantees
We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are customers of
ours totaling $31.7 million as of January 1, 2022. 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 $86.9
million as of January 1, 2022. We believe that the likelihood of performance under these guarantees is remote.
7. Property and Equipment:
Property and equipment consists of the following:
Useful Lives
January 1,
2022
January 2,
2021
Land and land improvements
0 - 10 years $
471,101 $
Buildings
Building and leasehold improvements
Furniture, fixtures and equipment
Vehicles
Construction in progress
Less: Accumulated depreciation
Property and equipment, net
30 - 40 years
3 - 15 years
3 - 20 years
3 years
48
528,558
602,515
469,640
514,199
560,070
2,196,099
1,969,011
14,593
119,012
14,574
124,273
3,931,878
3,651,767
(2,403,567)
(2,189,165)
$
1,528,311 $
1,462,602
Depreciation expense relating to Property and equipment was $228.8 million, $218.5 million and $206.7 million for 2021,
2020 and 2019. We capitalized $63.2 million, $58.4 million and $29.1 million incurred for the development of internal use
computer software during 2021, 2020 and 2019. These costs were classified in the Construction in progress category above, but
once placed into service within the Furniture, fixtures and equipment category, these costs will be depreciated on the straight-
line method over three to ten years.
In 2021, 2020 and 2019, we recognized impairment losses of $1.4 million, $0.2 million and $2.3 million, primarily on store
and corporate assets.
8. Leases and Other Commitments:
Leases
Substantially all of our leases are for facilities and vehicles. The initial term for facilities are typically five to ten years,
with renewal options at five-year intervals, with the exercise of lease renewal options at our sole discretion. Our vehicle and
equipment leases are typically three to six years. Our lease agreements do not contain any material residual value guarantees or
material restrictive covenants.
Operating lease liabilities consist of the following:
Total operating lease liabilities
January 1,
2022
2,802,772 $
January 2,
2021
2,477,087
$
Less: Current portion of operating lease liabilities
(465,121)
(462,588)
Non-current operating lease liabilities
$
2,337,651 $
2,014,499
The current portion of operating lease liabilities is included in Other current liabilities in the accompanying Consolidated
Balance Sheets.
Total lease cost is included in Cost of sales and SG&A in the accompanying Consolidated Statements of Operations and is
recorded net of immaterial sublease income. Total lease cost is comprised of the following:
Operating lease cost
Variable lease cost
Total lease cost
Year Ended
January 1,
2022
January 2,
2021
$
$
538,323 $
148,130
686,453 $
526,005
142,546
668,551
49
The future maturity of lease liabilities are as follows:
Year
Amount
2022 $
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Total operating lease
540,102
515,875
446,140
406,333
306,149
923,000
3,137,599
(334,827)
liabilities $
2,802,772
Operating lease payments include $68.7 million related to options to extend lease terms that are reasonably certain of being
exercised and exclude $110.7 million of legally binding lease payments for leases signed, but not yet commenced.
The weighted average remaining lease term and weighted average discount rate for our operating leases are 7.3 years and
3.0% as of January 1, 2022. We calculated the weighted average discount rates using incremental borrowing rates, which equal
the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.
Other information relating to our lease liabilities are as follows:
Year Ended
January 1,
2022
January 2,
2021
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from operating leases
$
514,053 $
575,186
Right-of-use assets obtained in exchange for
lease obligations:
Operating leases
$
726,326 $
424,393
Other Commitments
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 January 1, 2022, future payments
of these arrangements were $70.3 million and are not accrued in our Consolidated Balance Sheet.
50
9. Accrued Expenses:
Accrued expenses consist of the following:
Payroll and related benefits
Inventory related accruals
Taxes payable
Self-insurance reserves
Accrued rebates
Accrued professional services/legal
Capital expenditures
Other
January 1,
2022
January 2,
2021(1)
$
207,984 $
154,388
113,439
111,380
53,424
35,611
18,448
14,369
222,396
87,492
100,487
63,990
26,096
11,072
4,963
158,316
606,804
Total accrued expenses
777,051 $
(1) Amounts have been reclassified to conform with 2021 presentation.
$
10. Share Repurchase Program:
In April 2021 and November 2019, our Board of Directors authorized $1.0 billion and $700.0 million for our share
repurchase program. Our share repurchase program permits the repurchase of our common stock on the open market and in
privately negotiated transactions from time to time. On February 8, 2022, our Board of Directors authorized an additional $1.0
billion toward the existing share repurchase program.
During 2021, we repurchased 4.6 million shares of our common stock at an aggregate cost of $886.7 million, or an average
price of $192.92 per share, in connection with our share repurchase program. We had $545.5 million remaining under our share
repurchase program as of January 1, 2022. During 2020, we repurchased 3.0 million shares of our common stock at an
aggregate cost of $458.5 million, or an average price of $150.65 per share, under our share repurchase program.
11. Earnings per Share:
The computations of basic and diluted earnings per share are as follows:
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
Numerator
Net income applicable to common shares
$
616,108 $
493,021 $
486,896
Denominator
Basic weighted average common shares
Dilutive impact of share-based awards
Diluted weighted average common shares (1)
64,028
481
64,509
68,748
255
69,003
Basic earnings per common share
Diluted earnings per common share
$
$
9.62 $
9.55 $
7.17 $
7.14 $
70,869
296
71,165
6.87
6.84
(1) For 2021, 2020 and 2019, restricted stock units (“RSUs”) excluded from the diluted calculation as their inclusion would
have been anti-dilutive were 9 thousand, 119 thousand and 115 thousand.
51
12. Income Taxes:
Provision for Income Taxes
Provision for income taxes consists of the following:
2021
Federal
State
Foreign
2020
Federal
State
Foreign
2019
Federal
State
Foreign
Current
Deferred
Total
$
$
$
$
$
78,814 $
55,467 $
134,281
21,420
21,381
11,747
988
33,167
22,369
121,615 $
68,202 $
189,817
112,096 $
7,718 $
119,814
23,779
13,983
1,066
(648)
24,845
13,335
149,858 $
8,136 $
157,994
84,490 $
13,618 $
26,924
16,288
8,117
1,413
98,108
35,041
17,701
$
127,702 $
23,148 $
150,850
The provision for income taxes differed from the amount computed by applying the federal statutory income tax rate due
to:
January 1,
2022
Year Ended
January 2,
2021
December 28,
2019
Income before provision for income taxes at
statutory U.S. federal income tax rate (21%
for 2021, 2020 and 2019)
State income taxes, net of federal income tax
benefit
Other, net
$
169,244 $
136,713 $
133,927
26,177
(5,604)
18,610
2,671
27,682
(10,759)
Provision for income taxes
$
189,817 $
157,994 $
150,850
52
Deferred Income Tax Assets (Liabilities)
Temporary differences that give rise to significant deferred income tax assets (liabilities) are as follows:
January 1,
2022
January 2,
2021
Deferred income tax assets:
Accrued expenses not currently deductible for
tax
$
38,133 $
Share-based compensation
Accrued medical and workers compensation
Net operating loss carryforwards
Operating lease liabilities
Other, net
Total deferred income tax assets before valuation
allowances
Less: Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Property and equipment
Inventories
Intangible assets
Operating lease right-of-use assets
12,431
9,408
3,828
690,405
6,986
761,191
(3,015)
758,176
(132,592)
(231,632)
(139,089)
(665,469)
53,433
10,541
14,825
4,348
630,267
3,514
716,928
(3,183)
713,745
(123,402)
(187,559)
(140,094)
(605,135)
Total deferred income tax liabilities
(1,168,782)
(1,056,190)
Net deferred income tax liabilities
$
(410,606) $
(342,445)
As of January 1, 2022 and January 2, 2021, our net operating loss (“NOL”) carryforwards comprised of state NOLs of
$110.5 million and $137.9 million. These NOLs may be used to reduce future taxable income and expire periodically through
2038. Due to uncertainties related to the realization of these NOLs in certain jurisdictions, as well as other credits available to
us, we have recorded a valuation allowance of $3.0 million and $3.2 million as of January 1, 2022 and January 2, 2021. 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 January 1, 2022 and January 2, 2021, these accumulated net earnings generated by our foreign
operations were approximately $75.5 million and $41.2 million, which did not include earnings deemed to be repatriated as part
of the U.S. Tax Cuts and Jobs Act. It is not practicable to determine the income tax liability that would be payable if such
earnings were repatriated.
53
Unrecognized Tax Benefits
The following table summarizes the activity of our gross unrecognized tax benefits:
January 1,
2022
January 2,
2021
December 28,
2019
Unrecognized tax benefits, beginning of period
$
25,127 $
29,762 $
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
484
(849)
2,240
(2,993)
(4,870)
1,808
—
1,528
—
(7,971)
Unrecognized tax benefits, end of period
$
19,139 $
25,127 $
30,824
4,243
(2,277)
3,741
(331)
(6,438)
29,762
As of January 1, 2022, January 2, 2021 and December 28, 2019, the entire amount of unrecognized tax benefits, if
recognized, would reduce our annual effective tax rate. During 2021 and 2020, we recorded gains for income tax-related
interest and penalties of $0.7 million and $0.2 million due to uncertain tax positions included in the Provision for income taxes
in the accompanying Consolidated Statements of Operations. During 2019, we recorded an expense for income tax-related
interest and penalties of $1.6 million due to uncertain tax positions included in the Provision for income taxes in the
accompanying Consolidated Statements of Operations. As of January 1, 2022 and January 2, 2021, we recorded a liability for
potential interest of $3.3 million and $4.7 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 2017.
13. 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 pending legal matters cannot be determined, based
on the facts presently known, it is management’s opinion that the final outcome of any pending matters will not have a material
adverse effect on our consolidated financial position, results of operations or cash flows.
On February 6, 2018, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired
their securities between November 14, 2016 and August 15, 2017, inclusive (the “Class Period”), was commenced against us
and certain of our current and former officers in the U.S. District Court for the District of Delaware. The plaintiff alleged that
the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects
during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. On February 7, 2020, the court granted in part and denied in part our motion to dismiss. On November
6, 2020, the court granted the plaintiff’s motion for class certification. On March 15, 2021, we moved for reconsideration of the
order denying in part our motion to dismiss, and on October 15, 2021, we filed a motion for summary judgment, seeking full
dismissal of the case. Following mediation, on November 5, 2021, the parties executed a confidential binding term sheet to
settle all claims and on December 23, 2021, the parties executed a settlement agreement fully documenting their agreement. The
settlement agreement received preliminary approval from the court on January 11, 2022 and remains subject to final court
approval. The settlement amount of $49.3 million, which was reflected in Receivables, net, and Accrued expenses on the
Consolidated Balance Sheet as of January 1, 2022, will be fully covered by our insurance carriers, and the settlement is subject
to court approval.
54
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.
14. Benefit Plans:
401(k) Plan
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 $27.3 million, $21.3 million and $17.9 million in 2021, 2020 and 2019.
Deferred Compensation
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’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 January 1, 2022 and January 2, 2021, these
liabilities were $15.0 million and $16.1 million.
15. 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 (“2014 LTIP”), which was approved by our stockholders on May 14, 2014. In 2021,
2020 and 2019, we granted share-based compensation in the form of restricted stock units (“RSUs”) or deferred stock units
(“DSUs”). 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.
In 2021, we also granted options to purchase common stock to certain employees under our 2014 LTIP. The options are
granted at an exercise price equal to the closing market price of Advance's common stock on the date of the grant, expire after
ten years and vest one-third annually over three years. We record compensation expense for the grant date fair value of the
option awards evenly over the vesting period.
At January 1, 2022, there were 4.4 million shares of common stock available for future issuance under the 2014 LTIP
based on management’s current estimate of the probable vesting outcome for performance-based awards. Shares forfeited and
shares withheld for payment of taxes due become available for reissuance and are included in availability.
Restricted Stock Units
For time-based RSUs, the fair value of each award was determined based on the market price of our common stock on the
date of grant. Time-based RSUs generally vest over a three-year period in equal annual installments beginning on the first
anniversary of the grant date. During the vesting period, holders of RSUs are entitled to receive dividend equivalents, but are
not entitled to voting rights.
For performance-based RSUs, the fair value of each award was determined based on the market price of our common stock
on the date of grant. Performance-based 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.
Performance-based RSUs generally do not have dividend equivalent rights and do not have voting rights until the shares are
earned and issued following the applicable performance period. The number of performance-based awards outstanding is based
on the number of awards that we believed were probable of vesting at January 1, 2022.
55
Performance-based RSUs granted during 2021 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 January 1, 2022. Compensation expense for performance-based awards of $22.8 million,
$9.4 million, and $7.8 million in 2021, 2020 and 2019, was determined based on management’s estimate of the probable
vesting outcome.
For market-based RSUs, the fair value of each award was determined using a Monte Carlo simulation model. The model
uses multiple input variables that determined the probability of satisfying the market condition requirements as follows:
Risk-free interest rate (1)
Expected dividend yield
Expected stock price volatility (2)
2021
2020
2019
0.3%
—%
36.0%
0.9%
0.8%
34.0%
2.5%
0.2%
33.5%
(1) The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate having a term consistent with the
vesting period of the award.
(2) Expected volatility is determined based on historical volatility over a matching look-back period and is consistent with
the correlation coefficients between our stock prices and our peer group.
Additionally, we estimated a liquidity discount of 10.7% using the Finnerty Model to adjust the fair value for the post-vest
restrictions. Vesting of market-based RSUs 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.
The following table summarizes activity for time-based, performance-based and market-based RSUs in 2021:
Time-Based
Performance-Based
Market-Based
Number
of
Awards
Weighted
Average
Grant Date
Fair Value
Number
of
Awards
Weighted
Average
Grant Date
Fair Value
Number
of
Awards
Weighted
Average
Grant Date
Fair Value
540 $
246 $
— $
(242) $
(78) $
466 $
142.47
183.41
—
142.77
155.50
162.33
162 $
129.74
— $
122 $
(68) $
(19) $
197 $
—
144.04
117.14
139.95
142.25
89 $
63 $
— $
(28) $
(12) $
112 $
146.34
204.97
—
131.08
180.24
179.66
Nonvested at January 2, 2021
Granted
Change in units based on performance
Vested (1)
Forfeited
Nonvested at January 1, 2022
(1) The vested shares of market-based RSUs were not exercised due to low multiplier effect for 2018 awards.
56
The following table summarizes certain information concerning activity for time-based, performance-based and market-
based RSUs:
Year Ended
January 1,
2022
January 2,
2021
December 28,
2019
Time-based:
Weighted average fair value of RSUs granted
Total grant date fair value of RSUs vested
Performance-based:
Weighted average fair value of RSUs granted
Total grant date fair value of RSUs vested
Market-based:
Weighted average fair value of RSUs granted
Total grant date fair value of RSUs vested
$
$
$
$
$
$
183.41 $
34,555 $
137.47 $
30,231 $
— $
130.03 $
7,987 $
1,123 $
157.31
21,955
159.80
2,666
204.97 $
145.04 $
165.70
3,650 $
2,646 $
—
As of January 1, 2022, the maximum potential payout under our currently outstanding performance-based and market-
based RSUs were 223 thousand and 224 thousand units.
Stock Options
In 2021, we granted 124 thousand stock options where the weighted average fair value of stock options granted was $47.19
per share. The fair value was estimated on the date of grant by applying the Black-Scholes-Merton option-pricing valuation
model.
The following table includes summary information for stock options as of January 1, 2022:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
Number of
Awards
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
— $
124 $
— $
(13) $
111 $
— $
—
176.50
—
176.50
176.50
—
9.2
—
$
$
7,029
—
57
The following table presents the weighted average assumptions used in determining the fair value of options granted:
Risk-free interest rate (1)
Expected life (2)
Expected volatility (3)
Expected dividend yield (4)
Fifty-Two
Weeks Ended
January 1,
2022
1.02%
6 years
35.78%
2.48%
(1) The risk-free interest rate is based on the yield in effect at grant for zero-coupon U.S. Treasury notes with maturities
equivalent to the expected term of the stock options.
(2) The expected term represents the period of time options granted are expected to be outstanding. As we do not have
sufficient historical data, we utilized the simplified method provided by the SEC to calculate the expected term as the
average of the contractual term and vesting period.
(3) Expected volatility is the measure of the amount by which the stock price has fluctuated or is expected to fluctuate. We
utilized historical trends and the implied volatility of our publicly traded financial instruments in developing the
volatility estimate for our stock options.
(4) The expected dividend yield is calculated based on our expected quarterly dividend and the three month average stock
price as of the grant date.
Other Considerations
Total income tax benefit related to share-based compensation expense for 2021, 2020 and 2019 was $15.2 million, $11.5
million and $9.4 million.
As of January 1, 2022, there was $71.5 million of unrecognized compensation expense related to all share-based awards
that is expected to be recognized over a weighted average period of 1.47 years.
Deferred Stock Units
We grant share-based awards annually to our Board of Directors in connection with our annual meeting of stockholders.
These awards are granted in the form of DSUs as provided for in the Advance Auto Parts, Inc. Deferred Stock Unit Plan for
Non-Employee Directors and Selected Executives (“DSU Plan”). Each DSU is equivalent to one share of our common stock
and will be distributed in common shares after the director’s service on the Board ends. DSUs granted vest over a one-year
service period. Additionally, the DSU Plan provides for the deferral of compensation earned in the form of (i) an annual retainer
for directors, and (ii) wages for certain highly compensated team members. These DSUs are settled in common stock with the
participants at a future date, or over a specified time period, as elected by the participants in accordance with the DSU Plan.
We granted 10 thousand DSUs in 2021. The weighted average fair value of DSUs granted during 2021, 2020 and 2019 was
$191.24, $130.14, and $156.47. The DSUs are awarded at a price equal to the market price of our underlying common stock on
the date of the grant. For 2021, 2020 and 2019, we recognized $1.6 million, $1.6 million and $1.9 million of share-based
compensation expense for these DSU grants.
Employee Stock Purchase Plan
We also offer an employee stock purchase plan (“ESPP”). 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 January 1, 2022, there were 0.9 million shares available to be issued under the ESPP.
58
16. Accumulated Other Comprehensive Loss:
Accumulated other comprehensive loss, net of tax, consisted of the following:
Unrealized
Gain (Loss) on
Postretirement
Plan
Foreign
Currency
Translation
Accumulated
Other
Comprehensive
(Loss) Income
Balance, December 29, 2018
$
1,464 $
(45,657) $
(44,193)
2019 activity
Balance, December 28, 2019
2020 activity
Balance, January 2, 2021
2021 activity
Balance, January 1, 2022
(142)
1,322
(152)
1,170
(264)
9,766
9,624
(35,891)
(34,569)
7,962
7,810
(27,929)
(26,759)
4,396
4,132
$
906 $
(23,533) $
(22,627)
59
Advance Auto Parts, Inc.
Schedule II - Valuation and Qualifying Accounts
(in thousands)
Allowance for credit losses
December 28, 2019
January 2, 2021
January 1, 2022
Balance at
Beginning of
Period
Charges to
Expenses
Deductions(1)
Balance at
End of Period
$
$
$
18,042 $
14,249 $
11,929 $
11,949 $
14,933 $
11,125 $
(15,742) $
(17,253) $
(12,892) $
14,249
11,929
10,162
(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.
60
EXHIBIT INDEX
Exhibit No. Exhibit Description
3.1
3.2
4.0
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
Restated Certificate of Incorporation of Advance Auto
Parts, Inc. (“Advance Auto”) (as amended effective as of
May 24, 2017).
Amended and Restated Bylaws of Advance Auto Parts,
Inc., effective May 24, 2017.
Description of Securities Registered under Section 12 of
the Securities Exchange Act of 1934, as amended.
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 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.
Indenture, dated as of April 16, 2020 by and among
Advance Auto Parts, Inc., each of the subsidiary
guarantors party thereto and Wells Fargo Bank, National
Association, as trustee.
Eighth Supplemental Indenture, dated as of September 29,
2020, among Advance Auto Parts, Inc. each of the
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).
61
Incorporated by Reference
Filed
Form
Exhibit
Filing Date Herewith
10-Q
3.1
8/14/2018
10-Q
3.2
8/18/2020
10-K
4.0
2/18/2020
8-K
4.1
4/29/2010
8-K
10.45
6/3/2011
8-K
4.4
1/17/2012
8-K
4.5 12/21/2012
8-K
4.6
4/19/2013
8-K
4.7
12/9/2013
8-K
8-K
10-Q
4.5
4.7
1/17/2012
12/9/2013
4.11
5/28/2014
8-K
4.1
4/17/2020
8-K
4.6
9/30/2020
8-K
10.19
5/20/2004
10-Q
10.19
5/29/2008
Exhibit No. Exhibit Description
10.2
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).
Form of Advance Auto Parts, Inc. SAR Award Agreement
under 2004 Long-Term Incentive Plan.
Form of Advance Auto Parts, Inc. SARs Award
Agreement and Restricted Stock Unit Award Agreement.
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
Stock Unit Plan for Non-Employee Directors and Selected
Executives (As Amended and Restated Effective as of
January 1, 2008).
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.
Employment Agreement effective August 21, 2016
between Advance Auto Parts, Inc. and Robert B. Cushing.
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. SARs Award
Agreement.
Advance Auto Parts, Inc. 2017 Amended and Restated
Executive Incentive Plan.
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.
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. 2014 Long-Term Incentive Plan
(as amended effective August 7, 2018).
62
Incorporated by Reference
Filed
Form
Exhibit
Filing Date Herewith
10-K
10.17
3/1/2011
10-K
10.33
2/28/2012
10-K
10.48
2/25/2014
10-K
10.52
3/3/2015
10-K
10.54
3/3/2015
10-Q
10.1
5/31/2016
10-Q
10.2
5/31/2016
10-K
10.50
2/28/2017
10-K
10.55
2/28/2017
10-K
10.56
2/28/2017
10-K
10.58
2/28/2017
DEF14A Appendix A
4/6/2017
10-K
10.58
2/21/2018
10-Q
10.1 11/13/2018
10-K
10.53
2/9/2019
10-K
10.54
2/9/2019
10-K
10.55
2/9/2019
10-K
10.56
2/9/2019
10-K
10.57
2/9/2019
Incorporated by Reference
Filed
Form
Exhibit
Filing Date Herewith
10-K
10.58
2/9/2019
10-K
10.45
2/22/2021
10-Q
10-Q
10-Q
8-K
10.1
6/2/2021
10.2
6/2/2021
10.3
6/2/2021
10.1 11/15/2021
8-K
10.2 11/15/2021
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Exhibit No. Exhibit Description
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
21.1
22.1
23.1
31.1
31.2
32.1
2018 Restricted Stock Unit Award Agreement
(Performance-Based) between Advance Auto Parts, Inc.
and Rueben E. Slone dated November 19, 2018.
Advance Auto Parts, Inc. Deferred Compensation
Program, as amended and restated effective January 1,
2021.
Form of 2021 Advance Auto Parts, Inc. Time-Based
Restricted Stock Unit Award Agreement.
Form of 2021 Advance Auto Parts, Inc. Performance-
Based Restricted Stock Unit Award Agreement.
Form of 2021 Advance Auto Parts, Inc. Nonqualified
Stock Option Award Agreement.
Credit Agreement, dated as of November 9, 2021, 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 November 9, 2021,
among Advance Auto Parts, Inc., the guarantors from time
to time party thereto and Bank of America, N.A, as
administrative agent for the lenders.
Employment Agreement effective March 15, 2021
between Advance Auto Parts, Inc. and Michael C.
Creedon, Jr.
Description of Non-Employee Director Compensation.
Subsidiaries of Advance Auto Parts, Inc.
List of Issuers and its Guarantor Subsidiaries.
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
101.LAB
101.PRE
104.1
XBRL Taxonomy Extension Calculation Linkbase
Document.
XBRL Taxonomy Extension Definition Linkbase
Document.
XBRL Taxonomy Extension Labels Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase
Document.
Cover Page Interactive Data File (Embedded within the
Inline XBRL document and included in Exhibit).
63
Item 16. Form 10-K Summary.
None.
64
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 15, 2022
ADVANCE AUTO PARTS, INC.
By:
/s/ Jeffrey W. Shepherd
Jeffrey W. Shepherd
Executive Vice President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Thomas R. Greco
President and Chief Executive Officer and Director
February 15, 2022
Thomas R. Greco
(Principal Executive Officer)
/s/ Jeffrey W. Shepherd
Jeffrey W. Shepherd
/s/ William J. Pellicciotti, Jr.
William J. Pellicciotti, Jr.
/s/ Eugene I. Lee, Jr.
Eugene I. Lee, Jr.
/s/ Carla J. Bailo
Carla J. Bailo
/s/ John F. Ferraro
John F. Ferraro
/s/ Jeffrey J. Jones II
Jeffrey J. Jones II
/s/ Douglas A. Pertz
Douglas A. Pertz
/s/ Sherice R. Torres
Sherice R. Torres
/s/ Nigel Travis
Nigel Travis
/s/ Arthur L. Valdez Jr.
Arthur L. Valdez Jr.
Executive Vice President, Chief Financial Officer
February 15, 2022
(Principal Financial Officer)
Senior Vice President, Controller and Chief Accounting Officer
February 15, 2022
(Principal Accounting Officer)
Chairman and Director
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
Director
Director
Director
Director
Director
Director
Director
65
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S H A R E H O L D E R I N F O R M A T I O N
Corporate Office:
4200 Six Forks Road
Raleigh, North Carolina 27609
919-227-5466
Internet Site:
www.AdvanceAutoParts.com
Annual Meeting:
May 19, 2022 at 8:30 a.m. ET
www.virtualshareholdermeeting.com/AAP2022
There will be no physical location for this year’s meeting.
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,
4200 Six Forks Road, Raleigh, North Carolina 27609 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
E X E C U T I V E T E A M
Thomas R. Greco*
President and
Chief Executive Officer
Michael C. Creedon, Jr.*
Executive Vice President,
U.S. Stores
Robert B. Cushing*
Executive Vice President,
Professional
Tammy M. Finley*
Executive Vice President,
General Counsel and
Corporate Secretary
Jason B. McDonell*
Executive Vice President,
Merchandising, Marketing
and eCommerce
Natalie S. Schechtman*
Executive Vice President,
Chief Human Resources Officer
Dena R. Lamar
Vice President, Chief Diversity,
Equity and Inclusion Officer
* Denotes Executive Officer
Jeffrey W. Shepherd*
Executive Vice President,
Chief Financial Officer
Reuben E. Slone*
Executive Vice President,
Supply Chain
Sri R. Donthi
Executive Vice President,
Chief Technology Officer
Elisabeth L. Eisleben
Senior Vice President,
Communications, Investor
Relations and Community Affairs
Robert V. Speranza
Senior Vice President,
Strategy and Transformation
Herman L. Word, Jr.
Division President,
Carquest North America
William J. Pellicciotti Jr.*
Senior Vice President, Controller
and Chief Accounting Officer
since January 2022
Arthur L. Valdez Jr. ^
Executive Vice President,
Chief Supply Chain & Logistics
Officer of Target Corporation
Joan M. Hilson
Chief Financial & Strategy Officer,
Signet Jewelers, Ltd.
since March 2022
B O A R D O F D I R E C T O R S
Eugene I. Lee, Jr.
Chairman and Chief Executive
Officer, Darden Restaurants
Inc.; Chair of the Board,
Advance Auto Parts, Inc.
Jeffrey J. Jones II † ◊
President, Chief Executive
Officer and Board Member,
H&R Block, Inc.; Compensation
Committee Chair
Carla J. Bailo ^ ◊
President and Chief Executive
Officer of the Center for
Automotive Research
John F. Ferraro ^
Past Global Chief Operating
Officer, Ernst & Young; Audit
Committee Chair
Thomas R. Greco
President and
Chief Executive Officer, Advance
Auto Parts, Inc.
Douglas A. Pertz † ◊
President and
Chief Executive Officer,
The Brink’s Company
Sherice R. Torres †
Chief Marketing Officer, Circle
Internet Financial, LLC
Nigel Travis † ◊
Retired Chief Executive Officer
and Former Chairman of the
Board, Dunkin’ Brands Group, Inc.;
Nominating and Corporate
Governance Committee Chair
^ Audit Committee
† Compensation Committee
◊ Nominating and Corporate Governance Committee
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