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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM  10-Q
________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 13, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

Commission file number 001-16797
________________________

AAPLOGOCOLORNOTAGA391.JPG
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________

Delaware
54-2049910
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

2635 East Millbrook Road , Raleigh , North Carolina 27604
(Address of principal executive offices) (Zip Code)
 
( 540 ) 362-4911
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, $0.0001 par value
 
AAP
 
New York Stock Exchange
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
 
 
Emerging growth company
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

As of August 9, 2019 , the number of shares of the registrant’s common stock outstanding was 71,386,990 shares.
 

 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I.  FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data) (Unaudited)
 
July 13, 2019
 
December 29, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
747,719

 
$
896,527

Receivables, net
713,061

 
624,972

Inventories
4,374,933

 
4,362,547

Other current assets
126,758

 
198,408

Total current assets
5,962,471

 
6,082,454

Property and equipment, net of accumulated depreciation of $1,985,197 and $1,918,502
1,381,388

 
1,368,985

Operating lease right-of-use assets
2,360,019

 
—

Goodwill
992,432

 
990,237

Intangible assets, net
521,969

 
550,593

Other assets
49,667

 
48,379

 
$
11,267,946

 
$
9,040,648

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
3,317,972

 
$
3,172,790

Accrued expenses
587,119

 
623,141

Other current liabilities
467,314

 
90,019

Total current liabilities
4,372,405

 
3,885,950

Long-term debt
746,951

 
1,045,720

Noncurrent operating lease liabilities
2,032,350

 
—

Deferred income taxes
313,903

 
318,353

Other long-term liabilities
131,035

 
239,812

Commitments and contingencies


 


Stockholders’ equity:
 

 
 

Preferred stock, nonvoting, $0.0001 par value
—

 
—

Common stock, voting, $0.0001 par value
8

 
8

Additional paid-in capital
715,747

 
694,797

Treasury stock, at cost
(572,592
)
 
(425,954
)
Accumulated other comprehensive loss
(33,481
)
 
(44,193
)
Retained earnings
3,561,620

 
3,326,155

Total stockholders’ equity
3,671,302

 
3,550,813

 
$
11,267,946

 
$
9,040,648




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

1

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
 
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Net Sales
$
2,332,246

 
$
2,326,652

 
$
5,284,283

 
$
5,200,500

Cost of sales,  including purchasing and warehousing costs
1,322,808

 
1,315,093

 
2,970,233

 
2,916,658

Gross profit
1,009,438

 
1,011,559

 
2,314,050

 
2,283,842

Selling, general and administrative expenses
838,666

 
844,018

 
1,935,338

 
1,918,061

Operating income
170,772

 
167,541

 
378,712

 
365,781

Other, net:
 
 
 
 
 
 
 
Interest expense
(8,675
)
 
(12,855
)
 
(23,619
)
 
(30,537
)
Other income, net
4,113

 
2,785

 
1,874

 
3,243

Total other, net
(4,562
)
 
(10,070
)
 
(21,745
)
 
(27,294
)
Income before provision for income taxes
166,210

 
157,471

 
356,967

 
338,487

Provision for income taxes
41,390

 
39,635

 
89,647

 
83,925

Net income
$
124,820

 
$
117,836

 
$
267,320

 
$
254,562

 
 
 
 
 
 
 
 
Basic earnings per common share
$
1.74

 
$
1.59

 
$
3.73

 
$
3.44

Weighted average common shares outstanding
71,738

 
74,054

 
71,767

 
74,011

Diluted earnings per common share
$
1.73

 
$
1.59

 
$
3.71

 
$
3.43

Weighted average common shares outstanding
72,008

 
74,244

 
72,063

 
74,222



Condensed Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
 
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Net income
$
124,820

 
$
117,836

 
$
267,320

 
$
254,562

Other comprehensive income (loss):
 
 
 
 
 
 
 
Changes in net unrecognized other postretirement benefit (costs) income, net of tax of $25, $24, $8 and $56
(69
)
 
(67
)
 
26

 
(158
)
Currency translation adjustments
6,626

 
(7,035
)
 
10,686

 
(10,802
)
Total other comprehensive income (loss)
6,557

 
(7,102
)
 
10,712

 
(10,960
)
Comprehensive income
$
131,377

 
$
110,734

 
$
278,032

 
$
243,602




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

2

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except per share data) (Unaudited)
 
 
 
Twelve Weeks Ended July 13, 2019
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Balance, April 20, 2019
71,737

 
$
8

 
$
706,360

 
$
(560,245
)
 
$
(40,038
)
 
$
3,441,138

 
$
3,547,223

Net income
—

 
—

 
—

 
—

 
—

 
124,820

 
124,820

Total other comprehensive income
—

 
—

 
—

 
—

 
6,557

 
—

 
6,557

Issuance of shares upon the exercise of stock appreciation rights
1

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to the exercise of stock appreciation rights
—

 
—

 
(24
)
 
—

 
—

 
—

 
(24
)
Restricted stock units and deferred stock units vested
34

 
 
 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
8,441

 
—

 
—

 
—

 
8,441

Stock issued under employee stock purchase plan
6

 
—

 
970

 
—

 
—

 
—

 
970

Repurchases of common stock
(81
)
 
—

 
—

 
(12,347
)
 
—

 
—

 
(12,347
)
Cash dividends declared ($0.06 per common share)
—

 
—

 
—

 
—

 
—

 
(4,338
)
 
(4,338
)
Balance, July 13, 2019
71,697

 
$
8

 
$
715,747

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

 
$
3,671,302

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Weeks Ended July 14, 2018
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Balance, April 21, 2018
74,030

 
$
8

 
$
672,913

 
$
(149,824
)
 
$
(28,812
)
 
$
3,052,336

 
$
3,546,621

Net income
—

 
—

 
—

 
—

 
—

 
117,836

 
117,836

Total other comprehensive loss
—

 
—

 
—

 
—

 
(7,102
)
 
—

 
(7,102
)
Issuance of shares upon the exercise of stock appreciation rights
3

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to the exercise of stock appreciation rights
—

 
—

 
(211
)
 
—

 
—

 
—

 
(211
)
Restricted stock units and deferred stock units vested
44

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
 
 
4,771

 
—

 
—

 
—

 
4,771

Stock issued under employee stock purchase plan
7

 
—

 
943

 
—

 
—

 
—

 
943

Repurchases of common stock
(3
)
 
—

 
—

 
(433
)
 
—

 
—

 
(433
)
Cash dividends declared ($0.06 per common share)
—

 
—

 
—

 
—

 
—

 
(4,476
)
 
(4,476
)
Balance, July 14, 2018
74,081

 
$
8

 
$
678,416

 
$
(150,257
)
 
$
(35,914
)
 
$
3,165,696

 
$
3,657,949



3

 
Twenty-Eight Weeks Ended July 13, 2019
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 29, 2018
72,460

 
$
8

 
$
694,797

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

 
$
3,550,813

Net income
—

 
—

 
—

 
—

 
—

 
267,320

 
267,320

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

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
10,712

 
—

 
10,712

Issuance of shares upon the exercise of stock appreciation rights
2

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to the exercise of stock appreciation rights
—

 
—

 
(123
)
 
—

 
—

 
—

 
(123
)
Restricted stock units and deferred stock units vested
145

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
—

 
19,425

 
—

 
—

 
—

 
19,425

Stock issued under employee stock purchase plan
11

 
—

 
1,648

 
—

 
—

 
—

 
1,648

Repurchases of common stock
(921
)
 
—

 
—

 
(146,638
)
 
—

 
—

 
(146,638
)
Cash dividends declared ($0.12 per common share)
—

 
—

 
—

 
—

 
—

 
(8,690
)
 
(8,690
)
Balance, July 13, 2019
71,697

 
$
8

 
$
715,747

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

 
$
3,671,302

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-Eight Weeks Ended July 14, 2018
 
Common Stock
 
Additional
Paid-in Capital
 
Treasury Stock, at Cost
 
Accumulated Other
Comprehensive Loss
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 30, 2017
73,936

 
$
8

 
$
664,646

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

 
$
3,415,196

Net income
—

 
—

 
—

 
—

 
—

 
254,562

 
254,562

Total other comprehensive loss
—

 
—

 
—

 
—

 
(10,960
)
 
—

 
(10,960
)
Issuance of shares upon the exercise of stock appreciation rights
5

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to the exercise of stock appreciation rights
—

 
—

 
(304
)
 
—

 
—

 
—

 
(304
)
Restricted stock units and deferred stock units vested
163

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation
—

 
 
 
12,413

 
—

 
—

 
—

 
12,413

Stock issued under employee stock purchase plan
25

 
—

 
1,697

 
—

 
—

 
—

 
1,697

Repurchases of common stock
(48
)
 
—

 
—

 
(5,657
)
 
—

 
—

 
(5,657
)
Cash dividends declared ($0.12 per common share)
—

 
—

 
—

 
—

 
—

 
(8,962
)
 
(8,962
)
Other
—

 
—

 
(36
)
 
—

 
—

 
—

 
(36
)
Balance, July 14, 2018
74,081

 
$
8

 
$
678,416

 
$
(150,257
)
 
$
(35,914
)
 
$
3,165,696

 
$
3,657,949




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


4

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 
Twenty-Eight Weeks Ended
 
July 13, 2019
 
July 14, 2018
Cash flows from operating activities:
 
 
 
Net income
$
267,320

 
$
254,562

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
123,257

 
128,244

Share-based compensation
19,425

 
12,413

Loss and impairment of long-lived assets
2,297

 
4,757

Provision for deferred income taxes
2,930

 
11,195

Other
11,719

 
1,180

Net change in:
 
 
 
Receivables, net
(85,941
)
 
(59,995
)
Inventories
(5,685
)
 
2,140

Accounts payable
142,002

 
19,083

Accrued expenses
(21,272
)
 
112,214

Other assets and liabilities, net
36,109

 
(41,825
)
Net cash provided by operating activities
492,161

 
443,968

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(111,425
)
 
(61,815
)
Proceeds from sales of property and equipment
8,566

 
578

Net cash used in investing activities
(102,859
)
 
(61,237
)
Cash flows from financing activities:
 

 
 

Decrease in bank overdrafts
(70,265
)
 
(8,362
)
Redemption of senior unsecured notes
(310,047
)
 
—

Dividends paid
(13,028
)
 
(13,398
)
Proceeds from the issuance of common stock
1,648

 
1,697

Tax withholdings related to the exercise of stock appreciation rights
(123
)
 
(304
)
Repurchases of common stock
(146,638
)
 
(5,657
)
Other, net
(113
)
 
784

Net cash used in financing activities
(538,566
)
 
(25,240
)
Effect of exchange rate changes on cash
456

 
(2,179
)
Net (decrease) increase in cash and cash equivalents
(148,808
)
 
355,312

Cash and cash equivalents , beginning of period
896,527

 
546,937

Cash and cash equivalents , end of period
$
747,719

 
$
902,249

 
 
 
 
Non-cash transactions:
 
 
 
Accrued purchases of property and equipment
$
30,068

 
$
9,075




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

5
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)



1.
Nature of Operations and Basis of Presentation:

Advance Auto Parts, Inc. and subsidiaries is a leading automotive aftermarket parts provider in North America, serving both professional installers (“Professional”), and “do-it-yourself” (“DIY”), customers. The accompanying consolidated financial statements have been prepared by us and include the accounts of Advance Auto Parts, Inc., its wholly owned subsidiary, Advance Stores Company, Incorporated (“Advance Stores”), and its subsidiaries (collectively referred to as “Advance,” “we,” “us” or “our”).

As of July 13, 2019 , we operated a total of 4,912 stores and 150 Worldpac branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of July 13, 2019 , we served 1,250 independently owned Carquest branded stores across the same geographic locations served by our stores in addition to Mexico, the Bahamas, Turks and Caicos and the British Virgin Islands.

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting guidance. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for 2018 as filed with the SEC on February 19, 2019 .

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

The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. Our first quarter of the year contains sixteen weeks. Our remaining three quarters consist of twelve weeks.

2.
Significant Accounting Policies:

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
 
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Percentage of Net sales, by product group:
 
 
 
 
 
 
 
Parts and batteries
67
%
 
66
%
 
66
%
 
65
%
Accessories and chemicals
21

 
20

 
21

 
20

Engine maintenance
11

 
13

 
12

 
14

Other
1

 
1

 
1

 
1

Total
100
%
 
100
%
 
100
%
 
100
%


We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the condensed consolidated balance sheets as of July 13, 2019 and December 29, 2018 .

Recently Issued Accounting Pronouncements

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


6
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


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

The adoption of ASU 2016-02 resulted in the recording of lease assets and lease liabilities of $2.4 billion as of December 30, 2018. At the date of adoption, there was a difference between the operating lease right-of-use assets and lease liabilities recorded that included an adjustment to retained earnings, net of a $7.9 million deferred tax impact, which primarily resulted from the impairment of operating lease right-of-use assets. For the twenty-eight weeks ended July 13, 2019 , the adoption of the new standard did not have a material impact on our condensed consolidated statements of operations and condensed consolidated statements of cash flows as substantially all of our leases remained operating in nature.

3.
Inventories

Inventories are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 89% of inventories as of July 13, 2019 and December 29, 2018 . Under the LIFO method, our Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the twenty-eight weeks ended July 13, 2019 and prior years. We recorded an increase to Cost of sales of $16.5 million for the twelve weeks ended July 13, 2019 , a reduction to Cost of sales of $12.3 million for the twelve weeks ended July 14, 2018 , an increase to Cost of sales of $42.9 million for the twenty-eight weeks ended July 13, 2019 and a reduction to Cost of sales of $32.3 million for the twenty-eight weeks ended July 14, 2018 to state inventories at LIFO.

An actual valuation of inventory under the LIFO method is performed by us at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected inventory levels and costs at the end of the year.

Inventory balances were as follows:
(in thousands)
July 13, 2019
 
December 29, 2018
Inventories at first in, first out (“FIFO”)
$
4,174,944

 
$
4,119,617

Adjustments to state inventories at LIFO
199,989

 
242,930

Inventories at LIFO
$
4,374,933

 
$
4,362,547



4.
Exit Activities

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

5.
Intangible Assets

Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $7.3 million and $8.5 million for the twelve weeks ended July 13, 2019 and July 14, 2018 and $17.0 million and $21.9 million for the twenty-eight weeks ended July 13, 2019 and July 14, 2018 .


7
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


6.
Receivables, net

Receivables consist of the following:
(in thousands)
July 13, 2019
 
December 29, 2018
Trade
$
497,338

 
$
397,909

Vendor
222,377

 
228,024

Other
10,060

 
17,081

Total receivables
729,775

 
643,014

Less: allowance for doubtful accounts
(16,714
)
 
(18,042
)
Receivables, net
$
713,061

 
$
624,972



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

Long-term debt consists of the following:
(in thousands)
July 13, 2019
 
December 29, 2018
Total long-term debt
$
746,951

 
$
1,045,930

Less: current portion of long-term debt
—

 
(210
)
Long-term debt, excluding current portion
$
746,951

 
$
1,045,720

 
 
 
 
Fair value of long-term debt
$
793,000

 
$
1,074,000



Fair Value of Financial Assets and Liabilities

The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. We believe the carrying value of our other long-term debt approximates fair value. The carrying amounts of our cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.

Bank Debt

As of July 13, 2019 and December 29, 2018 we had no outstanding borrowings under the unsecured revolving credit facility (the “2017 Credit Agreement”) and borrowing availability was $1.0 billion and $998.0 million . As of July 13, 2019 and December 29, 2018 , we had no letters of credit and $2.0 million of letters of credit outstanding under the 2017 Credit Agreement.

As of July 13, 2019 and December 29, 2018 , we had letters of credit relating to our bilateral letter of credit facility outstanding of $99.9 million and $100.5 million , which generally have a term of one year or less and primarily serve as collateral for our self-insurance policies. We were in compliance with all financial covenants required by our debt arrangements as of July 13, 2019 .

Senior Unsecured Notes

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


8
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are our customers totaling $26.0 million and $24.3 million as of July 13, 2019 and December 29, 2018 . These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements is $49.0 million and $53.9 million as of July 13, 2019 and December 29, 2018 . We believe that the likelihood of performance under these guarantees is remote.

8.
Leases

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

Operating lease liabilities consist of the following:
(in thousands)
July 13, 2019
Total operating lease liabilities
$
2,481,431

Less: Current portion of operating lease liabilities
(449,081
)
Noncurrent operating lease liabilities
$
2,032,350



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

Total lease cost is included in Cost of sales and selling, general and administrative expenses (“SG&A”) in the accompanying condensed consolidated statements of operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
(in thousands)
July 13, 2019
 
July 13, 2019
Operating lease cost
$
124,765

 
$
284,811

Variable lease cost
32,856

 
82,546

Total lease cost
$
157,621

 
$
367,357



The future maturity of lease liabilities are as follows:
(in thousands)
July 13, 2019
Remainder of 2019
$
230,520

2020
560,102

2021
458,167

2022
362,804

2023
317,640

Thereafter
968,831

Total lease payments
$
2,898,064

Less: Imputed interest
(416,633
)
Total operating lease liabilities
$
2,481,431




9
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Operating lease payments include $149.5 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $26.1 million of legally binding minimum lease payments for leases signed, but not yet commenced.

The weighted-average remaining lease term and weighted-average discount rate for our operating leases are 7.2 years and 4.1% as of July 13, 2019 . We calculated the weighted-average discount rates using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.

Other information relating to our lease liabilities is as follows:
 
Twenty-Eight Weeks Ended
(in thousands)
July 13, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
278,323

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


Operating leases
$
201,856



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

2020
481,812

2021
416,895

2022
349,470

2023
270,116

Thereafter
837,441

 
$
2,876,275



9.
Warranty Liabilities

The following table presents changes in our warranty reserves:
 
Twenty-Eight Weeks Ended
 
Fifty-Two Weeks Ended
(in thousands)
July 13, 2019
 
December 29, 2018
Warranty reserve, beginning of period
$
45,280

 
$
49,024

Additions to warranty reserves
23,248

 
43,200

Reserves utilized
(23,211
)
 
(46,944
)
Warranty reserve, end of period
$
45,317

 
$
45,280


  
10.
Share Repurchase Program

Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time. On August 8, 2018, our Board of Directors authorized a $600.0 million share repurchase program.


10
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


During the twelve weeks ended July 13, 2019 and July 14, 2018 , we purchased 0.1 million and no shares of our common stock under the share repurchase program. The shares repurchased during the twelve weeks ended July 13, 2019 were at an aggregate cost of $10.9 million , or an average price of $151.58 per share. During the twenty-eight weeks ended July 13, 2019 and July 14, 2018 , we repurchased 0.9 million shares and no shares of our common stock under our share repurchase program. The shares repurchased during the twenty-eight weeks ended July 13, 2019 were at an aggregate cost of $138.1 million , or an average price of $158.98 per share. We had $189.1 million remaining under our share repurchase program as of July 13, 2019 .

On August 7, 2019 , our Board of Directors authorized a $400.0 million share repurchase program, which replaced the remaining portion of our $600.0 million share repurchase program authorized in August 2018.

11.
Earnings per Share

The computation of basic and diluted earnings per share are as follows:   
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
(in thousands, except per share data)
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Numerator
 
 
 
 
 
 
 
Net income applicable to common shares
$
124,820


$
117,836

 
$
267,320

 
$
254,562

Denominator
 
 
 
 
 

 
 
Basic weighted average common shares
71,738

 
74,054

 
71,767

 
74,011

Dilutive impact of share-based awards
270

 
190

 
296

 
211

Diluted weighted average common shares
72,008

 
74,244

 
72,063

 
74,222

 
 
 
 
 
 

 
 
Basic earnings per common share
$
1.74

 
$
1.59

 
$
3.73

 
$
3.44

Diluted earnings per common share
$
1.73

 
$
1.59

 
$
3.71

 
$
3.43



12.
Share-Based Compensation

During the twenty-eight weeks ended July 13, 2019 , we granted 225 thousand time-based restricted stock units (“RSUs”), 55 thousand performance-based RSUs and 28 thousand market-based RSUs. The general terms of the time-based, performance-based and market-based RSUs are similar to awards previously granted by us.

The weighted average fair values of the time-based, performance-based and market-based RSUs granted during the twenty-eight weeks ended July 13, 2019 were $159.34 , $159.80 and $165.70 per share. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.

Total income tax benefit related to share-based compensation expense for the twelve and twenty-eight weeks ended July 13, 2019 was $2.3 million and $5.0 million . Total income tax benefit related to share-based compensation expense for the twelve and twenty-eight weeks ended July 14, 2018 was $1.2 million and $3.0 million . As of July 13, 2019 , there was $76.5 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted average period of 1.7 years .

13.
Condensed Consolidating Financial Statements

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


11
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Set forth below are condensed consolidating financial statements presenting the financial position, results of operations, and cash flows of (i) Advance, (ii) the Guarantor Subsidiaries, (iii) the Non-Guarantor Subsidiaries, and (iv) the eliminations necessary to arrive at consolidated information for Advance. Investments in subsidiaries of Advance are presented under the equity method. The statement of operations eliminations relate primarily to the sale of inventory from a Non-Guarantor Subsidiary to a Guarantor Subsidiary. The balance sheet eliminations relate primarily to the elimination of intercompany receivables and payables and subsidiary investment accounts.

Condensed Consolidating Balance Sheet
As of July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
690,002

 
$
57,717

 
$
—

 
$
747,719

Receivables, net
—

 
663,858

 
49,203

 
—

 
713,061

Inventories
—

 
4,189,502

 
185,431

 
—

 
4,374,933

Other current assets
1,403

 
119,472

 
5,883

 
—

 
126,758

Total current assets
1,403

 
5,662,834

 
298,234

 
—

 
5,962,471

Property and equipment, net of accumulated depreciation
66

 
1,372,713

 
8,609

 
—

 
1,381,388

Operating lease right-of-use assets
—

 
2,317,564

 
42,455

 
—

 
2,360,019

Goodwill
—

 
943,364

 
49,068

 
—

 
992,432

Intangible assets, net
—

 
481,450

 
40,519

 
—

 
521,969

Other assets, net
1,694

 
49,060

 
610

 
(1,697
)
 
49,667

Investment in subsidiaries
4,214,313

 
519,888

 
—

 
(4,734,201
)
 
—

Intercompany note receivable
749,283

 
—

 
—

 
(749,283
)
 
—

Due from intercompany, net
—

 
237,570

 
307,650

 
(545,220
)
 
—

 
$
4,966,759

 
$
11,584,443

 
$
747,145

 
$
(6,030,401
)
 
$
11,267,946

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
3,122,680

 
$
195,292

 
$
—

 
$
3,317,972

Accrued expenses
3,286

 
559,756

 
24,077

 
—

 
587,119

Other current liabilities
—

 
508,720

 
(41,406
)
 
—

 
467,314

Total current liabilities
3,286

 
4,191,156

 
177,963

 
—

 
4,372,405

Long-term debt
746,951

 
—

 
—

 
—

 
746,951

Noncurrent operating lease liabilities
—

 
1,999,384

 
32,966

 
—

 
2,032,350

Deferred income taxes
—

 
299,269

 
16,328

 
(1,694
)
 
313,903

Other long-term liabilities
—

 
131,038

 
—

 
(3
)
 
131,035

Intercompany note payable
—

 
749,283

 
—

 
(749,283
)
 
—

Due to intercompany, net
545,220

 
—

 
—

 
(545,220
)
 
—

Commitments and contingencies

 

 

 

 

Stockholders' equity
3,671,302

 
4,214,313

 
519,888

 
(4,734,201
)
 
3,671,302

 
$
4,966,759

 
$
11,584,443

 
$
747,145

 
$
(6,030,401
)
 
$
11,267,946




12
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


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

 
$
785,605

 
$
110,922

 
$
—

 
$
896,527

Receivables, net
—

 
590,269

 
34,703

 
—

 
624,972

Inventories
—

 
4,182,973

 
179,574

 
—

 
4,362,547

Other current assets
3,103

 
191,318

 
3,987

 
—

 
198,408

Total current assets
3,103

 
5,750,165

 
329,186

 
—

 
6,082,454

Property and equipment, net of accumulated depreciation
77

 
1,359,980

 
8,928

 
—

 
1,368,985

Goodwill
—

 
943,364

 
46,873

 
—

 
990,237

Intangible assets, net
—

 
510,586

 
40,007

 
—

 
550,593

Other assets, net
2,408

 
47,815

 
564

 
(2,408
)
 
48,379

Investment in subsidiaries
3,945,862

 
474,772

 
—

 
(4,420,634
)
 
—

Intercompany note receivable
1,048,993

 
—

 
—

 
(1,048,993
)
 
—

Due from intercompany, net
—

 
102,886

 
297,580

 
(400,466
)
 
—

 
$
5,000,443

 
$
9,189,568

 
$
723,138

 
$
(5,872,501
)
 
$
9,040,648

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
—

 
$
2,954,632

 
$
218,158

 
$
—

 
$
3,172,790

Accrued expenses
3,444

 
603,460

 
16,237

 
—

 
623,141

Other current liabilities
—

 
91,994

 
(1,975
)
 
—

 
90,019

Total current liabilities
3,444

 
3,650,086

 
232,420

 
—

 
3,885,950

Long-term debt
1,045,720

 
—

 
—

 
—

 
1,045,720

Deferred income taxes
—

 
306,127

 
14,634

 
(2,408
)
 
318,353

Other long-term liabilities
—

 
238,500

 
1,312

 
—

 
239,812

Intercompany note payable
—

 
1,048,993

 
—

 
(1,048,993
)
 
—

Due to intercompany, net
400,466

 
—

 
—

 
(400,466
)
 
—

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Stockholders' equity
3,550,813

 
3,945,862

 
474,772

 
(4,420,634
)
 
3,550,813

 
$
5,000,443

 
$
9,189,568

 
$
723,138

 
$
(5,872,501
)
 
$
9,040,648




13
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,234,054

 
$
126,967

 
$
(28,775
)
 
$
2,332,246

Cost of sales,  including purchasing and warehousing costs
—

 
1,268,783

 
82,800

 
(28,775
)
 
1,322,808

Gross profit
—

 
965,271

 
44,167

 
—

 
1,009,438

Selling, general and administrative expenses
5,852

 
817,938

 
22,678

 
(7,802
)
 
838,666

Operating (loss) income
(5,852
)
 
147,333

 
21,489

 
7,802

 
170,772

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(7,949
)
 
(529
)
 
(197
)
 
—

 
(8,675
)
Other income (expense), net
14,062

 
(3,695
)
 
1,548

 
(7,802
)
 
4,113

Total other, net
6,113

 
(4,224
)
 
1,351

 
(7,802
)
 
(4,562
)
Income before provision for income taxes
261

 
143,109

 
22,840

 
—

 
166,210

Provision for income taxes
422

 
35,507

 
5,461

 
—

 
41,390

(Loss) income before equity in earnings of subsidiaries
(161
)
 
107,602

 
17,379

 
—

 
124,820

Equity in earnings of subsidiaries
124,981

 
17,379

 
—

 
(142,360
)
 
—

Net income
$
124,820

 
$
124,981

 
$
17,379

 
$
(142,360
)
 
$
124,820


Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended July 14, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
2,231,229

 
$
138,070

 
$
(42,647
)
 
$
2,326,652

Cost of sales,  including purchasing and warehousing costs
—

 
1,263,912

 
93,828

 
(42,647
)
 
1,315,093

Gross profit
—

 
967,317

 
44,242

 
—

 
1,011,559

Selling, general and administrative expenses
4,848

 
827,733

 
23,241

 
(11,804
)
 
844,018

Operating (loss) income
(4,848
)
 
139,584

 
21,001

 
11,804

 
167,541

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(12,059
)
 
(796
)
 
—

 
—

 
(12,855
)
Other income (expense), net
16,991

 
(1,211
)
 
(1,191
)
 
(11,804
)
 
2,785

Total other, net
4,932

 
(2,007
)
 
(1,191
)
 
(11,804
)
 
(10,070
)
Income before provision for income taxes
84

 
137,577

 
19,810

 
—

 
157,471

(Benefit) provision for income taxes
(204
)
 
35,512

 
4,327

 
—

 
39,635

Income before equity in earnings of subsidiaries
288

 
102,065

 
15,483

 
—

 
117,836

Equity in earnings of subsidiaries
117,548

 
15,483

 
—

 
(133,031
)
 
—

Net income
$
117,836

 
$
117,548

 
$
15,483

 
$
(133,031
)
 
$
117,836






14
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Condensed Consolidating Statement of Operations
For the Twenty-Eight Weeks Ended July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
5,086,755

 
$
274,257

 
$
(76,729
)
 
$
5,284,283

Cost of sales,  including purchasing and warehousing costs
—

 
2,867,323

 
179,639

 
(76,729
)
 
2,970,233

Gross profit
—

 
2,219,432

 
94,618

 
—

 
2,314,050

Selling, general and administrative expenses
17,970

 
1,895,083

 
54,087

 
(31,802
)
 
1,935,338

Operating (loss) income
(17,970
)
 
324,349

 
40,531

 
31,802

 
378,712

Other, net:

 

 

 

 


Interest expense
(21,464
)
 
(1,933
)
 
(222
)
 
—

 
(23,619
)
Other income (expense), net
40,274

 
(10,586
)
 
3,988

 
(31,802
)
 
1,874

Total other, net
18,810

 
(12,519
)
 
3,766

 
(31,802
)
 
(21,745
)
Income before provision for income taxes
840

 
311,830

 
44,297

 
—

 
356,967

Provision for income taxes
1,722

 
77,801

 
10,124

 
—

 
89,647

(Loss) income before equity in earnings of subsidiaries
(882
)
 
234,029

 
34,173

 
—

 
267,320

Equity in earnings of subsidiaries
268,202

 
34,173

 
—

 
(302,375
)
 
—

Net income
$
267,320

 
$
268,202

 
$
34,173

 
$
(302,375
)
 
$
267,320



Condensed Consolidating Statement of Operations
For the Twenty-Eight Weeks Ended July 14, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
5,007,131

 
$
290,190

 
$
(96,821
)
 
$
5,200,500

Cost of sales,  including purchasing and warehousing costs
—

 
2,814,953

 
198,526

 
(96,821
)
 
2,916,658

Gross profit
—

 
2,192,178

 
91,664

 
—

 
2,283,842

Selling, general and administrative expenses
9,658

 
1,882,123

 
53,823

 
(27,543
)
 
1,918,061

Operating (loss) income
(9,658
)
 
310,055

 
37,841

 
27,543

 
365,781

Other, net:
 
 
 
 
 
 
 
 
 
Interest expense
(28,137
)
 
(2,400
)
 
—

 
—

 
(30,537
)
Other income (expense), net
38,248

 
(4,204
)
 
(3,258
)
 
(27,543
)
 
3,243

Total other, net
10,111

 
(6,604
)
 
(3,258
)
 
(27,543
)
 
(27,294
)
Income before provision for income taxes
453

 
303,451

 
34,583

 
—

 
338,487

Provision for income taxes
1,059

 
75,964

 
6,902

 
—

 
83,925

(Loss) income before equity in earnings of subsidiaries
(606
)
 
227,487

 
27,681

 
—

 
254,562

Equity in earnings of subsidiaries
255,168

 
27,681

 
—

 
(282,849
)
 
—

Net income
$
254,562

 
$
255,168

 
$
27,681

 
$
(282,849
)
 
$
254,562



15
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)




Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
124,820

 
$
124,981

 
$
17,379

 
$
(142,360
)
 
$
124,820

Other comprehensive income
6,557

 
6,557

 
6,626

 
(13,183
)
 
6,557

Comprehensive income
$
131,377

 
$
131,538

 
$
24,005

 
$
(155,543
)
 
$
131,377



Condensed Consolidating Statement of Comprehensive Income
For the Twelve Weeks Ended July 14, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
117,836

 
$
117,548

 
$
15,483

 
$
(133,031
)
 
$
117,836

Other comprehensive loss
(7,102
)
 
(7,102
)
 
(7,035
)
 
14,137

 
(7,102
)
Comprehensive income
$
110,734

 
$
110,446

 
$
8,448

 
$
(118,894
)
 
$
110,734


Condensed Consolidating Statement of Comprehensive Income
For the Twenty-Eight Weeks Ended July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
267,320

 
$
268,202

 
$
34,173

 
$
(302,375
)
 
$
267,320

Other comprehensive income
10,712

 
10,712

 
10,686

 
(21,398
)
 
10,712

Comprehensive income
$
278,032

 
$
278,914

 
$
44,859

 
$
(323,773
)

$
278,032



Condensed Consolidating Statement of Comprehensive Income
For the Twenty-Eight Weeks Ended July 14, 2018
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income
$
254,562

 
$
255,168

 
$
27,681

 
$
(282,849
)
 
$
254,562

Other comprehensive loss
(10,960
)
 
(10,960
)
 
(10,802
)
 
21,762

 
(10,960
)
Comprehensive income
$
243,602

 
$
244,208

 
$
16,879

 
$
(261,087
)
 
$
243,602




16
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Condensed Consolidating Statement of Cash Flows
For the Twenty-Eight Weeks Ended July 13, 2019
(in thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
—

 
$
495,853

 
$
(3,692
)
 
$
—

 
$
492,161

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
—

 
(110,974
)
 
(451
)
 
—

 
(111,425
)
Proceeds from sales of property and equipment
—

 
8,565

 
1

 
—

 
8,566

Net cash used in investing activities
—

 
(102,409
)
 
(450
)
 
—

 
(102,859
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Decrease in bank overdrafts
—

 
(20,746
)
 
(49,519
)
 
—

 
(70,265
)
Redemption of senior unsecured notes
—

 
(310,047
)
 
—

 
—

 
(310,047
)
Dividends paid
—

 
(13,028
)
 
—

 
—

 
(13,028
)
Proceeds from the issuance of common stock
—

 
1,648

 
—

 
—

 
1,648

Tax withholdings related to the exercise of stock appreciation rights
—

 
(123
)
 
—

 
—

 
(123
)
Repurchases of common stock
—

 
(146,638
)
 
—

 
—

 
(146,638
)
Other, net
—

 
(113
)
 
—

 
—

 
(113
)
Net cash used in financing activities
—

 
(489,047
)
 
(49,519
)
 
—

 
(538,566
)
Effect of exchange rate changes on cash
—

 
—

 
456

 
—

 
456

Net decrease in cash and cash equivalents
—

 
(95,603
)
 
(53,205
)
 
—

 
(148,808
)
Cash and cash equivalents , beginning of period
—

 
785,605

 
110,922

 
—

 
896,527

Cash and cash equivalents , end of period
$
—

 
$
690,002

 
$
57,717

 
$
—

 
$
747,719




17
Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


Condensed Consolidating Statement of Cash Flows
For the Twenty-Eight Weeks Ended July 14, 2018
(In thousands)
Advance Auto Parts, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net cash provided by operating activities
$
—

 
$
435,890

 
$
8,078

 
$
—

 
$
443,968

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
—

 
(61,337
)
 
(478
)
 
—

 
(61,815
)
Proceeds from sales of property and equipment
—

 
534

 
44

 
—

 
578

Net cash used in investing activities
—

 
(60,803
)
 
(434
)
 
—

 
(61,237
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Decrease in bank overdrafts
—

 
(6,760
)
 
(1,602
)
 
—

 
(8,362
)
Dividends paid
—

 
(13,398
)
 
—

 
—

 
(13,398
)
Proceeds from the issuance of common stock
—

 
1,697

 
—

 
—

 
1,697

Tax withholdings related to the exercise of stock appreciation rights
—

 
(304
)
 
—

 
—

 
(304
)
Repurchases of common stock
—

 
(5,657
)
 
—

 
—

 
(5,657
)
Other, net
—

 
784

 
—

 
—

 
784

Net cash used in financing activities
—

 
(23,638
)
 
(1,602
)
 
—

 
(25,240
)
Effect of exchange rate changes on cash
—

 
—

 
(2,179
)
 
—

 
(2,179
)
Net increase in cash and cash equivalents
—

 
351,449

 
3,863

 
—

 
355,312

Cash and cash equivalents , beginning of period
23

 
482,620

 
64,317

 
(23
)
 
546,937

Cash and cash equivalents , end of period
$
23

 
$
834,069

 
$
68,180

 
$
(23
)
 
$
902,249




18

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 29, 2018 (filed with the Securities and Exchange Commission (“SEC”) on February 19, 2019 ), which we refer to as our 2018 Form 10-K, and our unaudited condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report.

Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements are usually identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “projection,” “should,” “strategy,” “will,” or similar expressions. These statements are based upon assessments and assumptions of management in light of historical results and trends, current conditions and potential future developments that often involve judgment, estimates, assumptions and projections. Forward-looking statements reflect current views about our plans, strategies and prospects, which are based on information currently available as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Please refer to the risk factors discussed in "Item 1a. Risk Factors" in the Company's most recent Annual Report on Form 10-K, as updated by our Quarterly Report on Form 10-Q and other filings made by the Company with the SEC for additional factors that could materially affect the Company’s actual results. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements.

Management Overview

Net sales increased 0.2% in the second quarter of 2019 as compared to the same period of prior year, while comparable store sales were flat, with our strongest performance occurring in the West Coast, Carolinas and Midwest regions. We experienced volatility throughout most of the second quarter of 2019 primarily due to the unfavorable weather trends, which impacted both channel and product mix of our products being sold during the period and resulted in a higher proportion of lower margin products sold.

We generated diluted earnings per share (“diluted EPS”) of $1.73 during our second quarter of 2019 compared to $1.59 for the comparable period of 2018 . When adjusted for the following non-operational items, our adjusted diluted earnings per share (“Adjusted EPS”) for the twelve weeks ended July 13, 2019 and July 14, 2018 were $2.00 and $1.97 .
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
 
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Transformation expenses
$
0.20

 
$
0.28

 
$
0.35

 
$
0.40

GPI integration and store closure and consolidation expenses
—

 
0.01

 
—

 
0.03

GPI amortization of acquired intangible assets
0.07

 
0.09

 
0.15

 
0.21

Other adjustments
—

 
—

 
0.25

 
—


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


19

Summary of Second Quarter Financial Results

A high-level summary of our financial results for the second quarter of 2019 includes:
 
•
Net sales during the second quarter of 2019 were $2.3 billion , an increase of 0.2% as compared to the second quarter of 2018 , primarily driven by growth in our Professional business.
•
Gross profit margin for the second quarter of 2019 was 43.3% , a decrease of 20 basis points as compared to the second quarter of 2018 . This decrease was driven primarily by lower product margin related to lower DIY sales as a percentage of net sales, as well as planned investments in supply chain wages. These decreases were partially offset by continued improvements in utilization and management of on-hand inventory. In addition, material costs have increased due to both inflation and tariff related costs; however, these costs were offset by pricing actions.
•
We generated cash flow from operations of $492.2 million for the twenty-eight weeks ended July 13, 2019 , an increase of 10.9% as compared to the same period in 2018 , primarily due to an increase in net income and working capital efficiency.

Refer to “Results of Operations” and “ Liquidity and Capital Resources” for further details of our income statement and cash flow results.

Business and Risks Update

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

•
Development of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach. This technology is a first step in moving from a supply-driven to a demand-driven assortment.
•
Continued movement towards optimizing our footprint by market to drive share, repurposing our in-market store and asset base and optimizing our distribution centers.
•
Progress in the development of a more efficient end-to-end supply chain to deliver our broad assortment.
•
Continued success of DIY omni-channel capabilities, including the launch of our partnership with Walmart.com.
•
Continued expansion of our TechNet program, which is a business solutions partnership program designed to help independently owned repair facilities grow their business and develop customer loyalty while maintaining their own identities and serving their local communities.
•
Launched our new Speed Perks 2.0 program to improve customer loyalty and traffic.
•
Initiated the roll out of our NextGen network throughout stores to increase the speed and reliability of the tools our Front Line Team Members use on a daily basis.
•
Pursuing a pilot program with UPS to include select stores as part of their Access Point network, which would provide customers additional locations to pick-up or drop-off UPS packages.
•
Continued focus on Worldpac branch openings in 2019 to drive Professional growth while investing in online and digital to drive DIY improvements.

Industry Update

Operating within the automotive aftermarket industry, we are influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. During the twenty-eight weeks ended July 13, 2019 , there were no changes to the factors discussed in our 2018 Form 10-K. For a complete discussion of these factors, refer to the 2018 Form 10-K.

Stores and Branches

Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the twenty-eight weeks ended July 13, 2019 , 12 stores and branches were opened and 59 were closed or consolidated, resulting in a total of 5,062 stores and branches as of July 13, 2019 , compared to a total of 5,109 stores and branches as of December 29, 2018 .


20

Results of Operations

The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated:
 
Twelve Weeks Ended
 
$ Increase/(Decrease)
 
Basis Points
(in millions)
July 13, 2019
 
July 14, 2018
 
 
Net sales
$
2,332.2

 
100.0
 %
 
$
2,326.7

 
100.0
 %
 
$
5.5

 
—

Cost of sales
1,322.8

 
56.7

 
1,315.1

 
56.5

 
7.7

 
20

Gross profit
1,009.4

 
43.3

 
1,011.6

 
43.5

 
(2.2
)
 
(20
)
Selling, general and administrative expenses
838.7

 
36.0

 
844.0

 
36.3

 
(5.3
)
 
(32
)
Operating income
170.8

 
7.3

 
167.5

 
7.2

 
3.3

 
12

Interest expense
(8.7
)
 
(0.4
)
 
(12.9
)
 
(0.6
)
 
4.2

 
18

Other income, net
4.1

 
0.2

 
2.8

 
0.1

 
1.3

 
6

Provision for income taxes
41.4

 
1.8

 
39.6

 
1.7

 
1.8

 
7

Net income
$
124.8

 
5.4
 %
 
$
117.8

 
5.1
 %
 
$
7.0

 
29

 
Twenty-Eight Weeks Ended
 
$ Increase/(Decrease)
 
Basis Points
(in millions)
July 13, 2019
 
July 14, 2018
 
 
Net sales
$
5,284.3

 
100.0
 %
 
$
5,200.5

 
100.0
 %
 
$
83.8

 
—

Cost of sales
2,970.2

 
56.2

 
2,916.7

 
56.1

 
53.5

 
12

Gross profit
2,314.1

 
43.8

 
2,283.8

 
43.9

 
30.3

 
(12
)
Selling, general and administrative expenses
1,935.3

 
36.6

 
1,918.1

 
36.9

 
17.2

 
26

Operating income
378.7

 
7.2

 
365.8

 
7.0

 
12.9

 
13

Interest expense
(23.6
)
 
(0.4
)
 
(30.5
)
 
(0.6
)
 
6.9

 
14

Other income, net
1.9

 
0.0

 
3.2

 
0.1

 
(1.3
)
 
(3
)
Provision for income taxes
89.6

 
1.7

 
83.9

 
1.6

 
5.7

 
8

Net income
$
267.3

 
5.1
 %
 
$
254.6

 
4.9
 %
 
$
12.7

 
16

Note: Table amounts may not foot due to rounding.

Net Sales

Net sales increase d 0.2% during the second quarter of 2019 compared to the same period of 2018 , primarily driven by growth in our Professional business. Comparable store sales were flat during the second quarter of 2019 compared to the same period of 2018 .

For the twenty-eight weeks ended July 13, 2019 , Net sales increase d 1.6% compared to the same period of 2018 , primarily driven by a 1.5% increase in comparable stores sales due to improved performance of certain product categories, specifically parts and batteries and accessories and chemicals. These improvements were partially offset by a decline in engine maintenance related products.

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.

21


Gross Profit

The decrease in gross profit for the twelve weeks ended July 13, 2019 was primarily driven by lower product margin related to lower DIY sales as a percentage of net sales, as well as planned investments in supply chain wages. These decreases were partially offset by continued improvements in utilization and management of on-hand inventory.

The increase in gross profit for the twenty-eight weeks ended July 13, 2019 was primarily driven by an increase in comparable store sales and continued inventory management. These improvements were partially offset by factors discussed above. In addition, we made an out-of-period correction in the sixteen weeks ended April 20, 2019, which increased Cost of sales by $13.0 million , related to received not invoiced inventory.

Selling, general and administrative expenses (“SG&A”)

SG&A for the twelve weeks ended July 13, 2019 was essentially flat due to a continued increase in professional services costs related to our IT and supply chain investments and an increase in marketing costs, which were offset by expense reductions directly correlated to our lower incident rate and claims that we attribute to continued focus on employee safety.

The increase in SG&A for the twenty-eight weeks ended July 13, 2019 was primarily driven by increases in minimum wages, planned merit increases, professional services related to our IT and supply chain investments and an increase in transportation costs, partially offset by expense reductions discussed above.


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 accounting principles generally accepted in the United States of America (“GAAP”). Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. We have presented these non-GAAP financial measures as we believe that the presentation of our financial results that exclude (1) transformation expenses under our strategic business plan; (2) non-operational expenses associated with the integration of General Parts International, Inc. (“GPI”) and store closure and consolidation; (3) non-cash charges related to the acquired GPI intangible assets; and (4) other non-recurring adjustments is useful and indicative of our base operations because the expenses vary from period to period in terms of size, nature and significance and/or relate to the integration of GPI and store closure and consolidation activity in excess of historical levels. These measures assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry. The disclosure of these measures allows investors to evaluate our performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses we have determined are not normal, recurring cash operating expenses necessary to operate our business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures.

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

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


23

We have included a reconciliation of this information to the most comparable GAAP measures in the following table:
 
 
Twelve Weeks Ended
 
Twenty-Eight Weeks Ended
(in thousands, except per share data)
 
July 13, 2019
 
July 14, 2018
 
July 13, 2019
 
July 14, 2018
Net income (GAAP)
 
$
124,820

 
$
117,836

 
$
267,320

 
$
254,562

Cost of sales adjustments:
 
 
 
 
 
 
 
 
Transformation expenses
 
—

 
5,327

 
281

 
5,327

Other adjustment (1)
 
—

 
—

 
13,010

 
—

SG&A adjustments:
 
 
 
 
 
 
 
 
Transformation expenses
 
19,316

 
22,974

 
33,247

 
34,853

GPI integration and store closure and consolidation expenses
 
—

 
716

 
—

 
2,938

GPI amortization of acquired intangible assets
 
6,336

 
8,750

 
14,795

 
20,466

Other income adjustment (2)
 
—

 
—

 
10,756

 
—

Provision for income taxes on adjustments (3)
 
(6,413
)
 
(9,442
)
 
(18,022
)
 
(15,896
)
Adjusted net income (Non-GAAP)
 
$
144,059

 
$
146,161

 
$
321,387

 
$
302,250

 
 
 
 


 
 
 


Diluted earnings per share (GAAP)
 
$
1.73

 
$
1.59

 
$
3.71

 
$
3.43

Adjustments, net of tax
 
0.27

 
0.38

 
0.75

 
0.64

Adjusted EPS (Non-GAAP)
 
$
2.00

 
$
1.97

 
$
4.46

 
$
4.07


(1)  
During the sixteen weeks ended April 20, 2019, we made an out-of-period correction, which increased Cost of sales by $13.0 million , related to received not invoiced inventory.
(2)  
During the sixteen weeks ended April 20, 2019, we incurred charges relating to a make-whole provision and debt issuance costs of $10.1 million and $0.7 million resulting from the early redemption of our 2020 Notes. For further information, see Note 7, Long-term Debt and Fair Value of Financial Instruments , included in our condensed consolidated financial statements.
(3)  
The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

Liquidity and Capital Resources

Overview

Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes and funding of initiatives under our strategic business plan. In addition, we may use available funds for acquisitions, to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our stock repurchase programs and for the payment of quarterly cash dividends. Historically, we have funded these requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and 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 primary obligations for the next year.

Share Repurchase Program

On August 8, 2018, our Board of Directors authorized a $600.0 million share repurchase program. During the twelve weeks ended July 13, 2019 and July 14, 2018 , we purchased 0.1 million and no shares of our common stock under the share repurchase program. The shares repurchased during the twelve weeks ended July 13, 2019 were at an aggregate cost of $10.9 million , or an average price of $151.58 per share. During the twenty-eight weeks ended July 13, 2019 and July 14, 2018 , we repurchased 0.9 million shares and no shares of our common stock under our share repurchase program. The shares repurchased during the twenty-eight weeks ended July 13, 2019 were at an aggregate cost of $138.1 million , or an average price of $158.98 per share. We had $189.1 million remaining under our share repurchase program as of July 13, 2019 .


24

On August 7, 2019 , our Board of Directors authorized a $400.0 million share repurchase program, which replaced the remaining portion of our $600.0 million share repurchase program authorized in August 2018.

Analysis of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:
 
Twenty-Eight Weeks Ended
(in thousands)
July 13, 2019
 
July 14, 2018
Cash flows provided by operating activities
$
492,161

 
$
443,968

Cash flows used in investing activities
(102,859
)
 
(61,237
)
Cash flows used in financing activities
(538,566
)
 
(25,240
)
Effect of exchange rate changes on cash
456

 
(2,179
)
Net (decrease) increase in Cash and cash equivalents
$
(148,808
)
 
$
355,312


Operating Activities

For the twenty-eight weeks ended July 13, 2019 , net cash provided by operating activities increase d by $48.2 million to $492.2 million compared to the comparable period of 2018 . The net increase in operating cash flows compared to the prior year was primarily driven by an increase in net income and our focus on managing and improving our working capital.

Investing Activities

For the twenty-eight weeks ended July 13, 2019 , net cash used in investing activities increase d by $41.7 million to $102.9 million compared to the comparable period of 2018 . Cash used in investing activities for the twenty-eight weeks ended July 13, 2019 consisted primarily of purchases of property and equipment, which was $49.6 million higher than the comparable period of 2018 primarily driven by investments made in supply chain, e-commerce and store improvements, as well as information technology as we remain focused on the complete back office integration throughout the enterprise.

Our primary capital requirements relate to the funding of our new store developments and investments in our supply chain network and information technology. We lease approximately 84% of our stores. Our future capital requirements will depend in large part on the number and timing of new store developments (leased and owned locations) within a given year and the investments we make in our supply chain network and information technology. In 2019 , we anticipate that our capital expenditures related to such investments will range from $250 million to $300 million, but may vary based on business conditions. During the twenty-eight weeks ended July 13, 2019 , we opened 5 stores and 7 Worldpac branches compared to 7 stores and 4 Worldpac branches during the comparable period of last year.

Financing Activities

For the twenty-eight weeks ended July 13, 2019 , net cash used in financing activities was $538.6 million , an increase of $513.3 million as compared to the twenty-eight weeks ended July 14, 2018 . This increase was primarily a result of returning cash to shareholders in the form of share repurchases and dividends, as well as on February 28, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 2020 Notes. We incurred charges relating to a make-whole provision and debt issuance costs of $10.1 million and $0.7 million resulting from the early redemption of our 2020 Notes.

Our Board of Directors has declared a $0.06 per share quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On August 7, 2019 , our Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on October 4, 2019 to all common shareholders of record as of September 20, 2019 .


25

Long-Term Debt

As of July 13, 2019 , we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa2 . The current outlooks by Standard & Poor’s and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may be limited. In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.

Critical Accounting Policies and Estimates

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

During the twenty-eight weeks ended July 13, 2019 , there were no changes to the critical accounting policies discussed in our 2018 Form 10-K. For a complete discussion of our critical accounting policies, refer to the 2018 Form 10-K.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our exposure to market risk since December 29, 2018 . Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2018 Form 10-K.

ITEM 4.
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the override of controls. Therefore, even those systems determined to be effective can provide only “reasonable assurance” with respect to the reliability of financial reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness may vary over time.

Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of July 13, 2019 . Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended July 13, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART II.  OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS

On February 6, 2018, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between November 14, 2016 and August 15, 2017, inclusive (the “Class Period”), was commenced against us and certain of our current and former officers and directors in the United States District Court, District of Delaware. The plaintiff alleges that the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.  The case is still in its early stages, with a motion to dismiss pending before the court. We strongly dispute the allegations of the complaint and intend to defend the case vigorously. 


ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth the information with respect to repurchases of our common stock for the quarter ended July 13, 2019 :  
 
 
Total Number of Shares Purchased (1)
 
Average Price Paid per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
April 21, 2019 to May 18, 2019
 
63

 
$
167.53

 
—

 
$
200,000

May 19, 2019 to June 15, 2019
 
9,170

 
156.65

 
—

 
200,000

June 16, 2019 to July 13, 2019
 
71,909

 
151.58

 
71,909

 
189,101

Total
 
81,142

 
$
152.16

 
71,909

 
$
189,101


(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 $1.4 million , or an average price of $156.72 per share, during the twelve weeks ended July 13, 2019 .
(2)  
Our share repurchase program authorizing the repurchase of up to $600.0 million in common stock was authorized by our Board of Directors on August 8, 2018 and publicly announced on August 14, 2018 .

27

ITEM 6.
EXHIBITS  
 
 
Incorporated by Reference
Filed
Exhibit No.
Exhibit Description
Form
Exhibit
Filing Date
Herewith
10-Q
3.1
8/14/2018
 
10-Q
3.2
5/22/2018
 
 
 
 
X
 
 
 
X
 
 
 
X
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
X
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
X




28

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
ADVANCE AUTO PARTS, INC.
 
 
 
Date: August 13, 2019
 
/s/ Andrew E. Page
 
 
Andrew E. Page
Senior Vice President, Controller and Chief Accounting Officer


29
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