10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 6, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission file number 001-16797

________________________

ADVANCE AUTO PARTS, INC.

(Exact name of registrant as specified in its charter)

________________________

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

5008 Airport Road Roanoke, VA (Address of principal executive offices)     24012 (Zip Code)

(540) 362-4911

(Registrant’s telephone number, including area code)

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 x No o

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

Indicate by check mark 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 x	Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)	Smaller reporting company o
	Emerging growth company o

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

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

As of November 9, 2018, the number of shares of the registrant’s common stock outstanding was 72,893,719 shares.

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements of Advance Auto Parts, Inc. and Subsidiaries (unaudited):	1
		Condensed Consolidated Balance Sheets as of October 6, 2018 and December 30, 2017	1
		Condensed Consolidated Statements of Operations for the Twelve and Forty Weeks Ended October 6, 2018 and October 7, 2017	2
		Condensed Consolidated Statements of Comprehensive Income for the Twelve and Forty Weeks Ended October 6, 2018 and October 7, 2017	2
		Condensed Consolidated Statements of Cash Flows for the Forty Weeks Ended October 6, 2018 and October 7, 2017	3
		Notes to the Condensed Consolidated Financial Statements	4
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 6.	Exhibits	26
SIGNATURE			S-1

PART I.  FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Advance Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data) (Unaudited)

	October 6, 2018			December 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	970,006		$	546,937
Receivables, net	698,617			606,357
Inventories	4,187,082			4,168,492
Other current assets	168,578			105,106
Total current assets	6,024,283			5,426,892
Property and equipment, net of accumulated depreciation of $1,914,153 and $1,783,383	1,335,769			1,394,138
Goodwill	992,764			994,293
Intangible assets, net	562,698			597,674
Other assets	56,839			69,304
	$	8,972,353		$	8,482,301
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,023,660		$	2,894,582
Accrued expenses	648,817			533,548
Other current liabilities	48,755			51,967
Total current liabilities	3,721,232			3,480,097
Long-term debt	1,045,398			1,044,327
Deferred income taxes	320,160			303,620
Other long-term liabilities	225,927			239,061
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	685,675			664,646
Treasury stock, at cost	(271,082		)	(144,600		)
Accumulated other comprehensive loss	(32,083		)	(24,954		)
Retained earnings	3,277,118			2,920,096
Total stockholders’ equity	3,659,636			3,415,196
	$	8,972,353		$	8,482,301

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						Forty Weeks Ended
	October 6, 2018			October 7, 2017			October 6, 2018			October 7, 2017
Net sales	$	2,274,982		$	2,182,233		$	7,475,482		$	7,336,798
Cost of sales, including purchasing and warehousing costs	1,268,055			1,234,525			4,184,713			4,125,318
Gross profit	1,006,927			947,708			3,290,769			3,211,480
Selling, general and administrative expenses	852,686			791,139			2,770,747			2,728,420
Operating income	154,241			156,569			520,022			483,060
Other, net:
Interest expense	(13,076		)	(13,314		)	(43,613		)	(45,665		)
Other income, net	5,755			745			8,998			8,727
Total other, net	(7,321		)	(12,569		)	(34,615		)	(36,938		)
Income before provision for income taxes	146,920			144,000			485,407			446,122
Provision for income taxes	31,077			48,004			115,002			155,117
Net income	$	115,843		$	95,996		$	370,405		$	291,005
Basic earnings per common share	$	1.57		$	1.30		$	5.01		$	3.94
Weighted average common shares outstanding	73,888			73,866			73,974			73,827
Diluted earnings per common share	$	1.56		$	1.30		$	4.99		$	3.93
Weighted average common shares outstanding	74,190			74,106			74,212			74,097
Dividends declared per common share	$	0.06		$	0.06		$	0.18		$	0.18

Condensed Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)

	Twelve Weeks Ended						Forty Weeks Ended
	October 6, 2018			October 7, 2017			October 6, 2018			October 7, 2017
Net income	$	115,843		$	95,996		$	370,405		$	291,005
Other comprehensive (loss) income:
Changes in net unrecognized other postretirement benefit costs, net of tax of $24, $41, $80 and $137	(69		)	(63		)	(227		)	(211		)
Currency translation adjustments	3,900			2,225			(6,902		)	15,409
Total other comprehensive income (loss)	3,831			2,162			(7,129		)	15,198
Comprehensive income	$	119,674		$	98,158		$	363,276		$	306,203

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 Cash Flows

(In thousands) (Unaudited)

	Forty Weeks Ended
	October 6, 2018			October 7, 2017
Cash flows from operating activities:
Net income	$	370,405		$	291,005
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	183,584			192,753
Share-based compensation	19,265			28,156
Loss on disposal and impairment of long-lived assets	6,267			4,692
Provision (benefit) for deferred income taxes	17,029			(25,712		)
Other	1,686			2,262
Net change in:
Receivables, net	(93,595		)	(35,760		)
Inventories	(22,862		)	116,957
Accounts payable	131,572			(170,227		)
Accrued expenses	122,779			36,564
Other assets and liabilities, net	(54,627		)	(39,685		)
Net cash provided by operating activities	681,503			401,005
Cash flows from investing activities:
Purchases of property and equipment	(105,132		)	(160,960		)
Proceeds from sales of property and equipment	1,450			6,120
Other, net	—			20
Net cash used in investing activities	(103,682		)	(154,820		)
Cash flows from financing activities:
(Decrease) increase in bank overdrafts	(11,973		)	4,676
Borrowings under credit facilities	—			534,400
Payments on credit facilities	—			(534,400		)
Dividends paid	(17,819		)	(17,828		)
Proceeds from the issuance of common stock	2,290			3,142
Tax withholdings related to the exercise of stock appreciation rights	(490		)	(6,414		)
Repurchase of common stock	(126,482		)	(3,380		)
Other, net	814			(2,095		)
Net cash used in financing activities	(153,660		)	(21,899		)
Effect of exchange rate changes on cash	(1,092		)	3,838
Net increase in cash and cash equivalents	423,069			228,124
Cash and cash equivalents, beginning of period	546,937			135,178
Cash and cash equivalents, end of period	$	970,006		$	363,302
Non-cash transactions:
Accrued purchases of property and equipment	$	11,066		$	7,860

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

3

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

As of October 6, 2018, we operated a total of 4,981 stores and 139 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 6, 2018, we served 1,229 independently owned Carquest branded stores (“independent stores”) across the same geographic locations served by our stores in addition to Mexico, the Bahamas, Turks and Caicos, the British Virgin Islands and the Pacific Islands.

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 2017 as filed with the SEC on February 21, 2018.

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

Revenue for periods through December 30, 2017 was reported under Accounting Standards Codification (“ASC”) 605, Revenue Recognition (Topic 605), as described in our accounting policies in our 2017 Form 10-K. Effective December 31, 2017, we adopted ASC 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”). The results of applying Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

ASC 606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Discounts and incentives are treated as separate performance obligations. We allocate the contract’s transaction price to each of these performance obligations separately using explicitly stated amounts or our best estimate using historical data. Additionally, we estimate and record gift card breakage as redemptions occur.

In accordance with ASC 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate possession of the merchandise or same-day delivery is made to our Professional delivery customers, which include certain independently-owned store locations. Payment terms are established for our Professional delivery customers based on pre-established credit requirements. Payment terms vary depending on the customer and generally range from 1 to 30 days. Based on the nature of receivables, no significant financing components exist. For e-commerce sales, revenue is recognized either at the time of pick-up at one of our store locations or at the time of shipment depending on the customer's order designation. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to Net sales and Cost of sales for returns based on current sales levels and our historical return experience.

We provide assurance type warranty coverage primarily on batteries, brakes and struts whereby we are required to provide replacement product at no cost or a reduced cost for a set period of time.

4

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the Condensed Consolidated Balance Sheet as of October 6, 2018. For the twelve and forty weeks ended October 6, 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was insignificant. Revenue expected to be recognized in future periods related to remaining performance obligations is insignificant.

The following table summarizes disaggregated revenue from contracts with customers by product group:

	Twelve Weeks Ended				Forty Weeks Ended
	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Percentage of Net sales, by product group:
Parts and batteries	67	%	67	%	66	%	66	%
Accessories and chemicals	19		19		20		19
Engine maintenance	13		13		13		14
Other	1		1		1		1
Total	100	%	100	%	100	%	100	%

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU is a comprehensive new accounting standard with respect to leases that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases under current GAAP. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in previous lease guidance. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those years; earlier adoption is permitted.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing entities to elect an additional transition method with which to adopt ASU 2016-02. The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the earliest comparative period presented as currently required) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. Using this transition method, we plan to adopt ASU 2016-02 at the beginning of 2019.

We are in process of implementing our leasing software solution and are continuing to identify changes to our business processes, systems and controls to support adoption of the new standard in 2019. We are evaluating the impact that the new standard will have on the condensed consolidated financial statements. While we are unable to quantify the impact at this time, we expect the adoption of the new standard to result in a material increase in the assets and liabilities in the condensed consolidated financial statements. We do not expect adoption of ASU 2016-02 to have a material impact on our condensed consolidated statements of operations as the majority of our leases will remain operating in nature. As such, the expense recognition will be similar to previously required straight-line expense treatment.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). ASU 2018-05 provides guidance on accounting for the tax effects of the U.S. Tax Cuts and Jobs Act (the “Act”) pursuant to the Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740, Income Taxes (Topic 740) within a one-year measurement period from the Act enactment date, which occurred in the financial statements for the year ended December 30, 2017. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified certain adjustments to amounts previously recorded for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings of foreign subsidiaries that resulted in a net tax benefit of $5.7 million. Our analysis under SAB 118 is complete.

5

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) to expand the scope of ASC 718, Compensation - Stock Compensation (Topic 718) (“ASU 2018-07”), to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We elected to early adopt ASU 2018-07 in the second quarter of 2018. The results of applying ASU 2018-07 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The pronouncement is effective for years, and for interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We elected to early adopt ASU 2018-15 in the third quarter of 2018 on a prospective basis. The results of applying ASU 2018-15 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

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 88% of inventories as of October 6, 2018 and December 30, 2017. Under the LIFO method, our Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the forty weeks ended October 6, 2018 and prior years. We recorded a reduction to Cost of sales of $22.0 million and of $1.0 million for the twelve weeks ended October 6, 2018 and October 7, 2017 and reductions to Cost of sales of $54.3 million and $6.5 million for the forty weeks ended October 6, 2018 and October 7, 2017 to state inventories at LIFO.

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

Inventory balances were as follows:

(in thousands)	October 6, 2018		December 30, 2017
Inventories at first in, first out (“FIFO”)	$	3,929,650	$	3,965,370
Adjustments to state inventories at LIFO	257,432		203,122
Inventories at LIFO	$	4,187,082	$	4,168,492

4. Exit Activities and Other Initiatives

Store and Supply Chain Rationalization

During the fourth quarter of 2017, the Board of Directors approved a plan to close certain underperforming stores and begin to rationalize our supply chain costs as part of our strategy to transform the enterprise. As of October 6, 2018, total charges related to these actions are expected to total up to $70.0 million, which consist of $35.0 million relating to the early termination of lease obligations, $15.0 million of inventory and supply chain asset impairment charges, $15.0 million of other facility closure costs and $5.0 million of severance.

During the twelve weeks ended October 6, 2018, we incurred $13.9 million of early termination of lease obligations charges, $1.1 million of inventory and supply chain asset impairment charges, $5.4 million of facility closure costs and $0.8 million of severance relating to the store and supply chain rationalization. Of these costs, $20.7 million are included in SG&A and $0.5 million are included in Cost of sales in the accompanying condensed consolidated statements of operations.

6

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

During the forty weeks ended October 6, 2018, we incurred $18.9 million of early termination of lease obligation charges, $7.9 million of inventory and supply chain asset impairment charges, $7.8 million of facility closure costs and $2.2 million of severance relating to the store and supply chain rationalization. Of these costs, $31.0 million are included in SG&A and $5.8 million are included in Cost of sales in the accompanying condensed consolidated statements of operations.

Total Exit Liabilities

Our total exit liabilities include liabilities recorded in connection with the initiative described above, along with liabilities associated with facility closures that have occurred as part of our normal market evaluation process. Cash payments on the closed facility lease obligations are expected to be made through 2028 and the remaining severance payments are expected to be made in 2019. Of our total exit liabilities as of October 6, 2018 and December 30, 2017, $25.7 million and $19.8 million is included in Other long-term liabilities and the remainder is included in Accrued expenses in the accompanying condensed consolidated balance sheet. A summary of our exit liabilities is presented in the following table:

(in thousands)	Closed Facility Lease Obligations			Severance			Total
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215
Reserves established	20,365			5,018			25,383
Change in estimates	95			(251		)	(156		)
Cash payments	(11,933		)	(3,149		)	(15,082		)
Balance, October 6, 2018	$	40,097		$	3,263		$	43,360
Balance, December 31, 2016	$	44,265		$	959		$	45,224
Reserves established	7,940			7,927			15,867
Change in estimates	(1,116		)	(699		)	(1,815		)
Cash payments	(19,519		)	(6,542		)	(26,061		)
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215

5. Intangible Assets

Our definite-lived intangible assets include customer relationships, favorable leases and non-compete agreements. Amortization expense was $9.4 million and $10.7 million for the twelve weeks ended October 6, 2018 and October 7, 2017 and $31.3 million and $36.3 million for the forty weeks ended October 6, 2018 and October 7, 2017.

6. Receivables, net

Receivables consist of the following:

(in thousands)	October 6, 2018			December 30, 2017
Trade	$	470,246		$	389,963
Vendor	230,422			220,510
Other	16,642			14,103
Total receivables	717,310			624,576
Less: allowance for doubtful accounts	(18,693		)	(18,219		)
Receivables, net	$	698,617		$	606,357

7

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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

Long-term debt consists of the following:

(in thousands)	October 6, 2018			December 30, 2017
Total long-term debt	$	1,045,609		$	1,044,677
Less: current portion of long-term debt	(211		)	(350		)
Long-term debt, excluding current portion	$	1,045,398		$	1,044,327
Fair value of long-term debt	$	1,071,000		$	1,109,000

Fair Value of Financial Assets and Liabilities

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

Bank Debt

As of October 6, 2018 and December 30, 2017 we had no outstanding borrowings under the revolver and borrowing availability was $896.0 million and $517.6 million based on our leverage ratio. As of October 6, 2018 and December 30, 2017, we had letters of credit outstanding of $104.0 million and $111.7 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 October 6, 2018.

Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are our customers totaling $23.7 million and $24.8 million as of October 6, 2018 and December 30, 2017. 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 $55.8 million and $62.8 million as of October 6, 2018 and December 30, 2017. We believe that the likelihood of performance under these guarantees is remote.

8. Warranty Liabilities

The following table presents changes in our warranty reserves:

	Forty Weeks Ended			Fifty-Two Weeks Ended
(in thousands)	October 6, 2018			December 30, 2017
Warranty reserve, beginning of period	$	49,024		$	47,243
Additions to warranty reserves	32,274			50,895
Reserves utilized	(35,573		)	(49,114		)
Warranty reserve, end of period	$	45,725		$	49,024

9. Share Repurchase Program

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

8

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

program. This new authorization replaced the previous $500.0 million share repurchase program that was authorized by our Board of Directors on May 14, 2012.

During the twelve and forty weeks ended October 6, 2018, we repurchased 720 thousand shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. We had $480.1 million remaining under our share repurchase program as of October 6, 2018. During the twelve and forty weeks ended October 7, 2017, we repurchased no shares of our common stock in connection with our prior share repurchase program.

10. Earnings per Share

The computation of basic and diluted earnings per share are as follows:

	Twelve Weeks Ended				Forty Weeks Ended
(in thousands, except per share data)	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Numerator
Net income applicable to common shares	$	115,843	$	95,996	$	370,405	$	291,005
Denominator
Basic weighted average common shares	73,888		73,866		73,974		73,827
Dilutive impact of share-based awards	302		240		238		270
Diluted weighted average common shares	74,190		74,106		74,212		74,097
Basic earnings per common share	$	1.57	$	1.30	$	5.01	$	3.94
Diluted earnings per common share	$	1.56	$	1.30	$	4.99	$	3.93

11. Share-Based Compensation

During the forty weeks ended October 6, 2018, we granted 230 thousand time-based restricted stock units (“RSUs”), 72 thousand performance-based RSUs and 38 thousand market-based RSUs. The general terms of the time-based, performance-based and market-based RSUs are similar to awards previously granted by us.

The weighted average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 6, 2018 were $126.32, $117.84 and $131.96 per share. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.

Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 6, 2018 was $1.7 million and $4.7 million. Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 7, 2017 was $3.1 million and $10.5 million. As of October 6, 2018, there was $52.5 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.

12. 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”).

9

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 October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	886,608	$	83,398		$	—		$	970,006
Receivables, net	—		654,001		44,616			—			698,617
Inventories	—		4,018,991		168,091			—			4,187,082
Other current assets	24,809		163,333		3,732			(23,296		)	168,578
Total current assets	24,809		5,722,933		299,837			(23,296		)	6,024,283
Property and equipment, net of accumulated depreciation	83		1,326,422		9,264			—			1,335,769
Goodwill	—		943,358		49,406			—			992,764
Intangible assets, net	—		519,989		42,709			—			562,698
Other assets, net	2,384		56,223		616			(2,384		)	56,839
Investment in subsidiaries	3,898,615		481,256		—			(4,379,871		)	—
Intercompany note receivable	1,048,924		—		—			(1,048,924		)	—
Due from intercompany, net	—		—		312,726			(312,726		)	—
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,823,263	$	200,397		$	—		$	3,023,660
Accrued expenses	—		654,607		17,506			(23,296		)	648,817
Other current liabilities	—		50,887		(2,132		)	—			48,755
Total current liabilities	—		3,528,757		215,771			(23,296		)	3,721,232
Long-term debt	1,045,398		—		—			—			1,045,398
Deferred income taxes	—		306,327		16,217			(2,384		)	320,160
Other long-term liabilities	—		224,613		1,314			—			225,927
Intercompany note payable	—		1,048,924		—			(1,048,924		)	—
Due to intercompany, net	269,781		42,945		—			(312,726		)	—
Commitments and contingencies
Stockholders' equity	3,659,636		3,898,615		481,256			(4,379,871		)	3,659,636
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353

10

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheet

As of December 30, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	23	$	482,620	$	64,317	$	(23	)	$	546,937
Receivables, net	—		567,460		38,897		—			606,357
Inventories	—		3,986,724		181,768		—			4,168,492
Other current assets	—		103,118		2,063		(75		)	105,106
Total current assets	23		5,139,922		287,045		(98		)	5,426,892
Property and equipment, net of accumulated depreciation	103		1,384,115		9,920		—			1,394,138
Goodwill	—		943,359		50,934		—			994,293
Intangible assets, net	—		551,781		45,893		—			597,674
Other assets, net	3,224		68,749		554		(3,223		)	69,304
Investment in subsidiaries	3,521,330		448,462		—		(3,969,792		)	—
Intercompany note receivable	1,048,700		—		—		(1,048,700		)	—
Due from intercompany, net	—		—		332,467		(332,467		)	—
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,657,792	$	236,790	$	—		$	2,894,582
Accrued expenses	1,134		511,841		20,648		(75		)	533,548
Other current liabilities	—		50,963		1,027		(23		)	51,967
Total current liabilities	1,134		3,220,596		258,465		(98		)	3,480,097
Long-term debt	1,044,327		—		—		—			1,044,327
Deferred income taxes	—		288,999		17,844		(3,223		)	303,620
Other long-term liabilities	—		237,019		2,042		—			239,061
Intercompany note payable	—		1,048,700		—		(1,048,700		)	—
Due to intercompany, net	112,723		219,744		—		(332,467		)	—
Commitments and contingencies
Stockholders' equity	3,415,196		3,521,330		448,462		(3,969,792		)	3,415,196
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301

11

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	2,190,822		$	115,675	$	(31,515	)	$	2,274,982
Cost of sales, including purchasing and warehousing costs	—			1,220,367			79,203		(31,515		)	1,268,055
Gross profit	—			970,455			36,472		—			1,006,927
Selling, general and administrative expenses	4,631			837,047			22,812		(11,804		)	852,686
Operating (loss) income	(4,631		)	133,408			13,660		11,804			154,241
Other, net:
Interest expense	(12,059		)	(1,018		)	1		—			(13,076		)
Other income (expense), net	16,759			(564		)	1,364		(11,804		)	5,755
Total other, net	4,700			(1,582		)	1,365		(11,804		)	(7,321		)
Income before provision for income taxes	69			131,826			15,025		—			146,920
Provision for income taxes	229			27,624			3,224		—			31,077
(Loss) income before equity in earnings of subsidiaries	(160		)	104,202			11,801		—			115,843
Equity in earnings of subsidiaries	116,003			11,801			—		(127,804		)	—
Net income	$	115,843		$	116,003		$	11,801	$	(127,804	)	$	115,843

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,098,475		$	122,495		$	(38,737	)	$	2,182,233
Cost of sales, including purchasing and warehousing costs	—			1,185,654			87,608			(38,737		)	1,234,525
Gross profit	—			912,821			34,887			—			947,708
Selling, general and administrative expenses	5,806			777,201			19,751			(11,619		)	791,139
Operating (loss) income	(5,806		)	135,620			15,136			11,619			156,569
Other, net:
Interest (expense) income	(11,874		)	(1,401		)	(39		)	—			(13,314		)
Other income (expense), net	17,832			(4,665		)	(803		)	(11,619		)	745
Total other, net	5,958			(6,066		)	(842		)	(11,619		)	(12,569		)
Income before provision for income taxes	152			129,554			14,294			—			144,000
(Benefit) provision for income taxes	(136		)	45,626			2,514			—			48,004
Income before equity in earnings of subsidiaries	288			83,928			11,780			—			95,996
Equity in earnings of subsidiaries	95,708			11,781			—			(107,489		)	—
Net income	$	95,996		$	95,709		$	11,780		$	(107,489	)	$	95,996

12

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,197,953		$	405,864		$	(128,335	)	$	7,475,482
Cost of sales, including purchasing and warehousing costs	—			4,035,319			277,729			(128,335		)	4,184,713
Gross profit	—			3,162,634			128,135			—			3,290,769
Selling, general and administrative expenses	14,290			2,719,172			76,634			(39,349		)	2,770,747
Operating (loss) income	(14,290		)	443,462			51,501			39,349			520,022
Other, net:
Interest expense	(40,194		)	(3,419		)	—			—			(43,613		)
Other income (expense), net	55,007			(4,766		)	(1,894		)	(39,349		)	8,998
Total other, net	14,813			(8,185		)	(1,894		)	(39,349		)	(34,615		)
Income before provision for income taxes	523			435,277			49,607			—			485,407
Provision for income taxes	1,287			103,589			10,126			—			115,002
(Loss) income before equity in earnings of subsidiaries	(764		)	331,688			39,481			—			370,405
Equity in earnings of subsidiaries	371,169			39,481			—			(410,650		)	—
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,075,603		$	432,790		$	(171,595	)	$	7,336,798
Cost of sales, including purchasing and warehousing costs	—			3,987,575			309,338			(171,595		)	4,125,318
Gross profit	—			3,088,028			123,452			—			3,211,480
Selling, general and administrative expenses	25,973			2,678,822			63,017			(39,392		)	2,728,420
Operating (loss) income	(25,973		)	409,206			60,435			39,392			483,060
Other, net:
Interest (expense) income	(40,240		)	(5,424		)	(1		)	—			(45,665		)
Other income (expense), net	67,183			(17,430		)	(1,634		)	(39,392		)	8,727
Total other, net	26,943			(22,854		)	(1,635		)	(39,392		)	(36,938		)
Income before provision for income taxes	970			386,352			58,800			—			446,122
(Benefit) provision for income taxes	(1,752		)	145,923			10,946			—			155,117
Income before equity in earnings of subsidiaries	2,722			240,429			47,854			—			291,005
Equity in earnings of subsidiaries	288,283			47,855			—			(336,138		)	—
Net income	$	291,005		$	288,284		$	47,854		$	(336,138	)	$	291,005

13

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	115,843	$	116,003	$	11,801	$	(127,804	)	$	115,843
Other comprehensive income	3,831		3,831		3,900		(7,731		)	3,831
Comprehensive income	$	119,674	$	119,834	$	15,701	$	(135,535	)	$	119,674

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	95,996	$	95,709	$	11,780	$	(107,489	)	$	95,996
Other comprehensive income	2,162		2,162		2,225		(4,387		)	2,162
Comprehensive income	$	98,158	$	97,871	$	14,005	$	(111,876	)	$	98,158

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405
Other comprehensive loss	(7,129		)	(7,129		)	(6,902		)	14,031			(7,129		)
Comprehensive income	$	363,276		$	364,040		$	32,579		$	(396,619	)	$	363,276

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	291,005	$	288,284	$	47,854	$	(336,138	)	$	291,005
Other comprehensive income	15,198		15,198		15,409		(30,607		)	15,198
Comprehensive income	$	306,203	$	303,482	$	63,263	$	(366,745	)	$	306,203

14

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—		$	656,847		$	24,656		$	—		$	681,503
Cash flows from investing activities:
Purchases of property and equipment	—			(104,065		)	(1,067		)	—			(105,132		)
Proceeds from sales of property and equipment	—			1,406			44			—			1,450
Net cash used in investing activities	—			(102,659		)	(1,023		)	—			(103,682		)
Cash flows from financing activities:
Decrease in bank overdrafts	—			(8,513		)	(3,460		)	—			(11,973		)
Dividends paid	—			(17,819		)	—			—			(17,819		)
Proceeds from the issuance of common stock	—			2,290			—			—			2,290
Tax withholdings related to the exercise of stock appreciation rights	—			(490		)	—			—			(490		)
Repurchase of common stock	—			(126,482		)	—			—			(126,482		)
Other, net	(23		)	814			—			23			814
Net cash used in financing activities	(23		)	(150,200		)	(3,460		)	23			(153,660		)
Effect of exchange rate changes on cash	—			—			(1,092		)	—			(1,092		)
Net (decrease) increase in cash and cash equivalents	(23		)	403,988			19,081			23			423,069
Cash and cash equivalents, beginning of period	23			482,620			64,317			(23		)	546,937
Cash and cash equivalents, end of period	$	—		$	886,608		$	83,398		$	—		$	970,006

15

Advance Auto Parts, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 7, 2017

(In thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	—	$	406,032		$	(5,027	)	$	—		$	401,005
Cash flows from investing activities:
Purchases of property and equipment	—		(159,769		)	(1,191		)	—			(160,960		)
Proceeds from sales of property and equipment	—		6,108			12			—			6,120
Other, net	—		480			(460		)	—			20
Net cash used in investing activities	—		(153,181		)	(1,639		)	—			(154,820		)
Cash flows from financing activities:
Increase in bank overdrafts	—		7,374			(2,698		)	—			4,676
Borrowings under credit facilities	—		534,400			—			—			534,400
Payments on credit facilities	—		(534,400		)	—			—			(534,400		)
Dividends paid	—		(17,828		)	—			—			(17,828		)
Proceeds from the issuance of common stock	—		3,142			—			—			3,142
Tax withholdings related to the exercise of stock appreciation rights	—		(6,414		)	—			—			(6,414		)
Repurchase of common stock	—		(3,380		)	—			—			(3,380		)
Other, net	1		(2,095		)	—			(1		)	(2,095		)
Net cash provided by (used in) financing activities	1		(19,201		)	(2,698		)	(1		)	(21,899		)
Effect of exchange rate changes on cash	—		—			3,838			(1		)	3,838
Net increase (decrease) in cash and cash equivalents	1		233,650			(5,526		)	(1		)	228,124
Cash and cash equivalents, beginning of period	22		78,543			56,635			(22		)	135,178
Cash and cash equivalents, end of period	$	23	$	312,193		$	51,109		$	(23	)	$	363,302

16

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 30, 2017 (filed with the Securities and Exchange Commission (“SEC”) on February 21, 2018), which we refer to as our 2017 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 report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. 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, in evaluating forward-looking statements, you should consider these risks and uncertainties, together with the important risks, uncertainties and contingencies described in our 2017 Form 10-K and other documents filed with the SEC, and you should not place undue reliance on those statements.

Management Overview

Net sales increased 4.3% in the third quarter of 2018, primarily driven by an increase in comparable store sales. We experienced improvement across all regions with stronger sales growth in our Southeast, Midwest, Appalachia, Northeast and Mid-Atlantic regions, as well as increased sales in several product categories.

Our gross margin expansion for the twelve weeks ended October 6, 2018 was primarily driven by our sales product mix, an improvement in inventory management related to a more disciplined approach to sourcing and utilizing inventory on hand and continued material cost optimization efforts. This improvement in margin was partially offset by increased supply chain costs due to higher fuel prices, as well as distribution center costs related to the new locations opened in the second half of 2017.

We generated diluted earnings per share (“diluted EPS”) of $1.56 during our third quarter of 2018 compared to $1.30 for the comparable period of 2017. When adjusted for the following non-operational items, our adjusted diluted earnings per share (“Adjusted EPS”) for the twelve weeks ended October 6, 2018 and October 7, 2017 were $1.89 and $1.43.

	Twelve Weeks Ended					Forty Weeks Ended
	October 6, 2018			October 7, 2017		October 6, 2018			October 7, 2017
GPI integration and store consolidation costs	$	0.02		$	0.02	$	0.05		$	0.20
GPI amortization of acquired intangible assets	$	0.09		$	0.08	$	0.30		$	0.26
Transformation expenses	$	0.30		$	0.03	$	0.70		$	0.28
Other income adjustment	$	—		$	—	$	—		$	(0.07	)
Impact of the U.S. Tax Cuts and Jobs Act	$	(0.08	)	$	—	$	(0.08	)	$	—

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

17

Summary of ThirdQuarter Financial Results

A high-level summary of our financial results for the third quarter of 2018 includes:

• Net sales during the third quarter of 2018 were $2.3 billion, an increase of 4.3% as compared to the third quarter of 2017, which is primarily driven by an increase in comparable store sales of 4.6%.

• Operating income for the third quarter of 2018 was $154.2 million, a decrease of $2.3 million as compared to the third quarter of 2017. As a percentage of total sales, operating income was 6.8%, a decrease of 39 basis points as compared to the third quarter of 2017, which is due higher bonus and an increase in medical expenses, partially offset by lower insurance costs.

• We generated operating cash flow of $681.5 million for the forty weeks ended October 6, 2018, an increase of 69.9% as compared to the same period in 2017, primarily due to a focus on managing working capital and an increase in net income.

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

Business Update

We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both professional installers (“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:

• Continuous improvement of our common catalog across our Professional and DIY businesses - Advance, Carquest (“CQ”), Worldpac (“WP”) and Autopart International (“AI”) that was completed in the first half of 2018.

• Development of a demand-based assortment, leveraging purchase history and look-ups from the common catalog, versus our existing push-down supply approach. This technology is a first step in moving from a supply-driven to a demand-driven assortment.

• Progression in the early development of a more efficient end-to-end supply chain to deliver our broad assortment.

• Continued movement towards optimizing our footprint by focusing on evaluating all of our assets by market to drive share, repurposing of our in-market store and asset base and optimizing our distribution centers.

• Creation of new Professional omni-channel capabilities to reach our customers in the manner that is most desirable for them, including the launch of MyAdvance.com, an interactive, easy-to-use, mobile-friendly platform where we have combined multiple online tools and capabilities into one place.

• Entered into strategic partnership with Walmart.com that will allow us to reach a much broader group of DIY customers and help drive our DIY market share growth.

• Continued focus on Worldpac branch openings in 2018 to drive Professional growth while investing in online and digital to drive DIY improvements.

Industry Update

Operating within the automotive aftermarket industry, we are influenced by a number of general macroeconomic factors, many of which are similar to those affecting the overall retail industry. During the forty weeks ended October 6, 2018, there were no changes to the factors discussed in our 2017 Form 10-K. For a complete discussion of these factors, refer to the 2017 Form 10-K.

Stores and Branches

Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate. During the forty weeks ended October 6, 2018, 18 stores and branches were opened and 81 were closed or consolidated, resulting in a total of 5,120 stores and branches as of October 6, 2018, compared to a total of 5,183 stores and branches as of December 30, 2017.

18

Results of Operations

The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated:

	Twelve Weeks Ended										$ Increase/(Decrease)			Basis Points
(in millions)	October 6, 2018					October 7, 2017
Net sales	$	2,275.0		100.0	%	$	2,182.2		100.0	%	$	92.8		—
Cost of sales	1,268.1			55.7		1,234.5			56.6		33.6			(83	)
Gross profit	1,006.9			44.3		947.7			43.4		59.2			83
Selling, general and administrative expenses	852.7			37.5		791.1			36.3		61.6			(123	)
Operating income	154.2			6.8		156.6			7.2		(2.4		)	(39	)
Interest expense	(13.1		)	(0.6	)	(13.3		)	(0.6	)	0.2			—
Other income, net	5.8			0.3		0.7			0.0		5.1			30
Provision for income taxes	31.1			1.4		48.0			2.2		(16.9		)	(80	)
Net income	$	115.8		5.1	%	$	96.0		4.4	%	$	19.8		70

Note: Table amounts may not foot due to rounding.

	Forty Weeks Ended										$ Increase/(Decrease)			Basis Points
(in millions)	October 6, 2018					October 7, 2017
Net sales	$	7,475.5		100.0	%	$	7,336.8		100.0	%	$	138.7		—
Cost of sales	4,184.7			56.0		4,125.3			56.2		59.4			(25	)
Gross profit	3,290.8			44.0		3,211.5			43.8		79.3			25
Selling, general and administrative expenses	2,770.7			37.1		2,728.4			37.2		42.3			12
Operating income	520.0			7.0		483.1			6.6		37.0			37
Interest expense	(43.6		)	(0.6	)	(45.7		)	(0.6	)	2.1			4
Other income, net	9.0			0.1		8.7			0.1		0.3			0
Provision for income taxes	115.0			1.5		155.1			2.1		(40.1		)	(58	)
Net income	$	370.4		5.0	%	$	291.0		4.0	%	$	79.4		99

Note: Table amounts may not foot due to rounding.

Net Sales

Sales increased 4.3% during the third quarter of 2018 compared to the same period of 2017 driven by an increase in comparable store sales of 4.6% for the quarter as a result of an increase in units per transaction and average ticket value. In addition, we delivered growth across both our DIY omni-channel and Professional businesses.

For the forty weeks ended October 6, 2018, comparable stores sales increased 2.0% driven by the factors discussed above and the strong performance of certain product categories as customers invested in repairs as a result of harsh winter weather.

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.

19

Gross Profit

The increase in the gross profit rate for the twelve and forty weeks ended October 6, 2018 was driven by increased Net sales by the factors previously discussed, an improvement in inventory management related to a more disciplined approach to sourcing and utilizing inventory on hand and continued material cost optimization efforts. This improvement in margin was partially offset by increased supply chain costs due to higher fuel prices, as well as distribution center costs related to the new locations opened in the second half of 2017.

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

The increase in SG&A for the twelve weeks ended October 6, 2018 was primarily driven by higher bonus and medical expenses, partially offset by lower insurance claims resulting from an increased focus on vehicle and employee safety. The increase in SG&A for the forty weeks ended October 6, 2018 was driven by similar factors.

Income Taxes

Our effective income tax rate was 21.2% and 33.3% for the twelve weeks ended October 6, 2018 and October 7, 2017 and our effective income tax rate was 23.7% and 34.8% for the forty weeks ended October 6, 2018 and October 7, 2017. The decrease in the effective tax rate for both twelve and forty weeks ended October 6, 2018 was primarily related to the reduction of the federal tax rate from 35% to 21% due to the enactment of the U.S. Tax Cuts and Jobs Act (the “Act”) in December 2017, which favorably impacted our Net income for the twelve and forty weeks ended October 6, 2018 by $20.6 million or $0.27 per diluted share and $68.0 million or $0.92 per diluted share. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified certain adjustments to amounts previously recorded for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings of foreign subsidiaries that resulted in a net tax benefit of $5.7 million. Our analysis under Staff Accounting Bulletin No. 118 is complete.

20

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) non-operational expenses associated with the integration of General Parts International, Inc. (“GPI”) and store closure and consolidation costs; (2) non-cash charges related to the acquired GPI intangibles; and (3) transformation expenses under our strategic business plan; and (4) nonrecurring impact of the Act, is useful and indicative of our base operations because the expenses vary from period to period in terms of size, nature and significance and/or relate to the integration of GPI and store closure and consolidation activity in excess of historical levels. These measures assist in comparing our current operating results with past periods and with the operational performance of other companies in our industry. The disclosure of these measures allows investors to evaluate our performance using the same measures management uses in developing internal budgets and forecasts and in evaluating management’s compensation. Included below is a description of the expenses that 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.

GPI Integration Expenses—We acquired GPI for $2.08 billion in 2014 and are in the midst of a multi-year plan to integrate the operations of GPI with Advance. This includes the integration of product brands and assortments, supply chain and information technology. The integration is being completed in phases and the nature and timing of expenses will vary from quarter to quarter over several years. The integration of product brands and assortments was primarily completed in 2015. Our focus then shifted to integrating the supply chain and information technology systems. Due to the size of the acquisition, we consider these expenses to be outside of our base business. Therefore, we believe providing additional information in the form of non-GAAP measures that exclude these costs is beneficial to the users of our financial statements in evaluating the operating performance of our base business and our sustainability once the integration is completed.

Store Closure and Consolidation Expenses—Store closure and consolidation expenses consist of expenses associated with our plans to convert and consolidate the Carquest stores acquired from GPI. The conversion and consolidation of the Carquest stores is a multi-year process that began in 2014. As of October 6, 2018, 354 Carquest stores acquired from GPI had been consolidated into existing Advance stores and 423 stores had been converted to the Advance format. While periodic store closures are common, these closures represent a significant program outside of our typical market evaluation process. We believe it is useful to provide additional non-GAAP measures that exclude these costs to provide investors greater comparability of our base business and core operating performance. We also continue to have store closures that occur as part of our normal market evaluation process and have not excluded the expenses associated with these store closures in computing our non-GAAP measures.

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

U.S. Tax Reform—On December 22, 2017, the Act was signed into law. The Act amends the Internal Revenue Code of 1986 by, among other things, permanently lowering the corporate tax rate to 21% from the existing maximum rate of 35%, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified certain adjustments to amounts previously recorded for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings foreign subsidiaries.

21

We have included a reconciliation of this information to the most comparable GAAP measures in the following table:

	Twelve Weeks Ended						Forty Weeks Ended
(in millions, except per share data)	October 6, 2018			October 7, 2017			October 6, 2018			October 7, 2017
Net income (GAAP)	$	115.8		$	96.0		$	370.4		$	291.0
Cost of sales adjustments:
Transformation expenses	0.5			—			5.8			—
SG&A adjustments:
GPI integration and store consolidation costs	1.8			3.6			4.7			23.3
GPI amortization of acquired intangible assets	8.8			9.1			29.3			30.5
Transformation expenses	28.4			3.0			63.2			35.7
Other income adjustment (1)	—			—			—			(8.9		)
Provision for income taxes on adjustments (2)	(9.7		)	(5.9		)	(25.2		)	(30.7		)
Impact of the Act	(5.7		)	—			(5.7		)	—
Adjusted net income (Non-GAAP)	$	140.0		$	105.7		$	442.5		$	341.0
Diluted earnings per share (GAAP)	$	1.56		$	1.30		$	4.99		$	3.93
Adjustments, net of tax	0.33			0.13			0.97			0.67
Adjusted EPS (Non-GAAP)	$	1.89		$	1.43		$	5.96		$	4.60

Note: Table amounts may not foot due to rounding.

⁽¹⁾  The adjustment to Other income for the forty weeks ended October 7, 2017 relates to income recognized from an indemnification agreement associated with the acquisition of GPI.

⁽²⁾  The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

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

Our share repurchase program permits the repurchase of our common stock on the open market or in privately negotiated transactions from time to time. On August 8, 2018, our Board of Directors authorized a $600.0 million share repurchase program. This new authorization replaced the previous $500.0 million share repurchase program which was authorized by our Board of Directors on May 14, 2012. For further information about our share repurchase program, see Note 9, Share Repurchase Program, included in our condensed consolidated financial statements.

22

Analysis of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:

	Forty Weeks Ended
(in millions)	October 6, 2018			October 7, 2017
Cash flows provided by operating activities	$	681.5		$	401.0
Cash flows used in investing activities	(103.7		)	(154.8		)
Cash flows used in financing activities	(153.7		)	(21.9		)
Effect of exchange rate changes on cash	(1.1		)	3.8
Net increase in Cash and cash equivalents	$	423.1		$	228.1

Note: Table amounts may not foot due to rounding.

Operating Activities

For the forty weeks ended October 6, 2018, net cash provided by operating activities increased by $280.5 million to $681.5 million compared to the comparable period of 2017. The net increase in operating cash flows compared to the prior year was primarily driven by an increase in net income and lower cash outflows resulting from our focus on working capital management.

Investing Activities

For the forty weeks ended October 6, 2018, net cash used in investing activities decreased by $51.1 million to $103.7 million compared to the comparable period of 2017. Cash used in investing activities for the forty weeks ended October 6, 2018 consisted primarily of purchases of property and equipment, which was $55.8 million lower than the comparable period of 2017 primarily driven by lower investments in new stores and the impact of disciplined capital expenditure policies implemented last year.

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 2018, we anticipate that our capital expenditures related to such investments will be up to $220.0 million, but may vary based on business conditions. During the forty weeks ended October 6, 2018, we opened 8 stores and 10 Worldpac branches compared to 43 stores and 4 branches during the comparable period of last year.

Financing Activities

For the forty weeks ended October 6, 2018, net cash used in financing activities was $153.7 million, an increase of $131.8 million as compared to the forty weeks ended October 7, 2017. This increase was primarily a result of returning cash to shareholders in the form of share repurchases and dividends.

Our Board of Directors has declared a $0.06 per share quarterly cash dividend since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On November 7, 2018, our Board of Directors declared a regular quarterly cash dividend of $0.06 per share to be paid on January 4, 2019 to all common shareholders of record as of December 21, 2018.

23

Long-Term Debt

As of October 6, 2018, we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by Standard & Poor’s and Moody’s are both stable. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may be limited. In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.

Critical Accounting Policies and Estimates

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

During the forty weeks ended October 6, 2018, there were no changes to the critical accounting policies discussed in our 2017 Form 10-K. For a complete discussion of our critical accounting policies, refer to the 2017 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 30, 2017. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2017 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of October 6, 2018. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended October 6, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

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 its current and former officers 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 preliminary stages. We strongly dispute the allegations of the complaint and intend to defend the case vigorously. 

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

The following table sets forth the information with respect to repurchases of our common stock for the quarter ended October 6, 2018:

(in thousands, except per share data)	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)
July 15, 2018 to August 11, 2018	3,103	$	146.30	—	$	600,000
August 12, 2018 to September 8, 2018	247,844	163.62		245,025	559,899
September 9, 2018 to October 6, 2018	474,900	168.07		474,900	480,081
Total	725,847	$	166.46	719,925	$	480,081

⁽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 $0.9 million, or an average price of $152.90 per share, during the twelve weeks ended October 6, 2018.

⁽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.

25

ITEM 6. EXHIBITS

		Incorporated by Reference			Filed
Exhibit No.	Exhibit Description	Form	Exhibit	Filing Date	Herewith
3.1	Restated Certificate of Incorporation of Advance Auto Parts, Inc., effective May 24, 2017.	10-Q	3.1	8/14/2018
3.2	Amended and Restated Bylaws of Advance Auto Parts, Inc., effective May 24, 2017.	10-Q	3.2	5/22/2018
10.1	Employment Agreement effective September 17, 2018 between Advance Auto Parts, Inc. and Jeffrey W. Shepherd				X
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Document				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				X

26

SIGNATURE

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

	ADVANCE AUTO PARTS, INC.
Date: November 13, 2018	/s/ Jeffrey W. Shepherd
	Jeffrey W. Shepherd Executive Vice President, Chief Financial Officer, Controller and Chief Accounting Officer

S-1

EX-10.1

Exhibit 10.1

EXECUTION COPY

EMPLOYMENT AGREEMENT

AGREEMENT (the “Agreement”) dated as of September 17, 2018 between Advance Auto Parts, Inc. (“Advance” or the “Company”), a Delaware corporation, its subsidiaries, predecessors, successors, affiliated corporations, companies and partnerships, and its current and former officers, directors, and agents (collectively, the “Company”) and Jeffrey W. Shepherd (the “Executive”).

The Company and the Executive agree as follows:

1.Position; Term of Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ the Executive, and the Executive agrees to serve the Company, asits Executive Vice President, Chief Financial Officer, Controller and Chief Accounting Officer (“Executive’s Position”). The parties intend that the Executive shall continue to so serve in this capacity throughout the Employment Term (as such term is defined below), but that the Company may divest the roles of Controller and Chief Accounting Officer from the Executive during the Employment Term.

The term of Executive’s employment by the Company pursuant to this Agreement shall be considered to have commenced on August 12, 2018 (“Commencement Date”) and shall end on the day prior to the first anniversary of the Commencement Date, unless sooner terminated under the provisions of Paragraph 4 below (“Employment Term”); provided, however, that commencing on the first anniversary of the Commencement Date (“Anniversary Date”) the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to the Anniversary Date, either party shall have given notice to the other that it does not wish to extend the Employment Term (a “Non-Renewal”), in which case the Employment Term shall end on the day prior to the Anniversary Date; and on each Anniversary Date thereafter the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to such Anniversary Date, either party shall have given notice of a Non-Renewal to the other, in which case the Employment Term shall end 90 days following such notice. For purposes of clarification, the provision of an Employment Term does not change Executive’s at will status as stated in Section 4(l) below nor does it entitle Executive to payment of any compensation if Executive’s employment is terminated during the Employment Term, other than as specifically provided for below.

2.Duties.

(a)    Duties and Responsibilities; Location. The Executive shall have such duties and responsibilities of the Executive’s Position and such other duties and responsibilities that are reasonably consistent with the Executive’s Position as the Company may request from time to time and Executive shall perform such duties and carry out such responsibilities to the best of the Executive’s ability for the purpose of advancing the business of the Company and its subsidiaries, if any (jointly and severally, “Related Entities”). The Executive shall observe and conform to the applicable policies and directives promulgated from time to time by the Company and its Board of Directors or by any superior officer(s) of the Company. Subject to the provisions of Subsection 2(b) below, the Executive shall devote the Executive’s full time, skill and attention during normal business hours to the business and affairs of the Company and its Related Entities, except for

1

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

holidays and vacations consistent with applicable Company policy and except for illness or incapacity. The services to be performed by the Executive hereunder may be changed from time to time at the discretion of the Company. The Company shall retain full direction and control of the means and methods by which the Executive performs the Executive’s services and of the place or places at which such services are to be rendered. Effective on the Commencement Date, the Executive’s principal office location shall be the Company’s offices located in Raleigh, North Carolina. Executive understands that, while his principal office is located in North Carolina, the Executive’s Position will entail involvement with the entire range of the Company’s operations across the United States and Canada, and may from time to time require travel throughout the United States and Canada.

(b)    Other Activities. During the Term of this Agreement, it shall not be a violation of this Agreement for the Executive to, and the Executive shall be entitled to (i) serve on corporate, civic, charitable, retail industry association or professional association boards or committees within the limitations of the Company’s Guidelines on Significant Governance Issues, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as the activities set forth in (i), (ii), and (iii) above (x) do not significantly interfere with the performance of the Executive’s duties and responsibilities as required by this Agreement and do not involve a conflict of interest with the Executive’s duties or responsibilities hereunder, (y) are in compliance with the Company’s policies and procedures in effect from time to time, including the Code of Ethics & Business Conduct and the Guidelines on Significant Governance Issues, in each case as may be amended periodically, and (z) do not violate Section 18 of this Agreement.

3. Compensation.

(a)Base Salary. During the Employment Term, the Company shall pay to the Executive a salary of $525,000.00 (Five hundred twenty-five thousand dollars) per annum, payable consistent with the Company’s standard payroll practices then in effect (“Base Salary”). Such Base Salary shall be reviewed by the Compensation Committee of Advance’s Board of Directors (hereinafter the “Compensation Committee”) at least annually, with any changes taking into account, among other factors, Company and individual performance.

(b)Bonus. The Executive shall be eligible to receive a bonus in such amounts and based upon achievement of such corporate and/or individual performance and other criteria as shall be approved by the Compensation Committee from time to time, with a target amount, if such performance and other criteria are achieved, of eighty-five percent (85%) of the Base Salary (the “Target Bonus Amount”), with a maximum payout of one hundred seventy percent (170%) of the Base Salary during the initial Term of this Agreement, which bonus shall be paid in a manner consistent with the Company’s bonus practices then in effect. The Target Bonus Amount and the maximum payout for any subsequent renewal Term of the Agreement shall be determined by the Compensation Committee. To be eligible to receive a bonus, the Executive must be employed by the Company on the date the bonus is paid.

(c)Incentive Compensation Clawback. Any compensation provided by the Company to the Executive, excepting only compensation pursuant to Section 3(a) above, shall be subject to the Company’s Incentive Compensation Clawback Policy as such policy shall be adopted, and from time to time amended, by the Board or the Compensation Committee.

2

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(d)Benefit Plans. During the Employment Term, the Executive shall be eligible to participate in all retirement and employment benefit plans and programs of the Company that are generally available to senior executives of the Company. Such participation shall be pursuant to the terms and conditions of such plans and programs, as the same shall be amended from time to time.

(e)Business Expenses. During the Employment Term, the Company shall, in accordance with policies then in effect with respect to payments of business expenses, pay or reimburse the Executive for all reasonable out-of-pocket travel and other expenses (other than ordinary commuting expenses) incurred by the Executive in performing services hereunder; provided, however, that, with respect to reimbursements, if any, not otherwise excludible from the Executive’s gross income, to the extent required to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no reimbursement of expenses incurred by the Executive during any taxable year shall be made after the last day of the following taxable year, and the right to reimbursement of such expenses shall not be subject to liquidation or exchange for another benefit. All such expenses shall be accounted for in such reasonable detail as the Company may require.

4. Termination of Employment.

(a)    Death. In the event of the death of the Executive during the Employment Term, the Executive’s employment shall be automatically terminated as of the date of death and a lump sum amount, equivalent to the Executive’s annual Base Salary and Target Bonus then in effect, shall be paid, within 60 days after the date of the Executive’s death, to the Executive’s designated beneficiary, or to the Executive’s estate or other legal representative if no beneficiary was designated at the time of the Executive’s death. In the event of the death of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right (“SAR”), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”), as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The foregoing benefit will be provided in addition to any death, disability or other benefits provided under the Company’s benefit plans and programs in which the Executive was participating at the time of his death. Except in accordance with the terms of the Company’s benefit programs and other plans and programs then in effect, after the date of the Executive’s death, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.

(b)    Disability. In the event of the Executive’s Disability as hereinafter defined, the employment of the Executive may be terminated by the Company, effective upon the Disability Termination Date (as defined below). In such event, the Company shall pay the Executive an amount equivalent to thirty percent (30%) of the Executive’s Base Salary for a one year period, which amount shall be paid in one lump sum within 45 days following the Executive’s “separation from service,” as that term is defined in Section 409A of the Code and regulations promulgated thereunder, from the Company (his “Separation From Service”), provided that the Executive or an individual duly authorized to execute legal documents on the Executive’s behalf executes and does not revoke within any applicable revocation period the release described in Section 4(k)(ii)(B). The foregoing benefit will be provided

in addition to any disability or other benefits provided

3

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

under the Company’s benefit plans in which the Executive participates. For the avoidance of doubt, participation by the Executive in the Company’s long-term and/or short-term disability insurance benefit plans is voluntary on the part of the Executive and is made available by the Company at the sole cost of the Executive. The purpose and intent of the preceding three sentences is to ensure that the Executive receives a combination of insurance benefits and Company payments following the Disability Termination Date equal to 100% of his then-applicable Base Salary for such one-year period. In the event that Executive does not elect to participate in the Company’s long-term and/or short-term disability insurance benefit plans, the Company shall not be obligated to pay the Executive any amount in excess of thirty percent (30%) of the Executive’s Base Salary. In the event of the Disability of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”), as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The Company shall also pay to the Executive a lump sum amount equivalent to the Executive’s Target Bonus Amount then in effect, which amount shall be paid in one lump sum within 45 days following the Executive’s Separation from Service, provided that the Executive or an individual duly authorized to execute legal documents on the Executive’s behalf executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii)(B). Otherwise, after the Disability Termination Date, except in accordance with the Company’s benefit programs and other plans then in effect, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.

“Disability,” for purposes of this Agreement, shall mean the Executive’s incapacity due to physical or mental illness causing the Executive’s complete and full-time absence from the Executive’s duties, as defined in Paragraph 2, for either a consecutive period of more than six months or at least 180 days within any 270-day period. The “Disability Termination Date” shall be the date on which the Company makes such determination of the Executive’s Disability.

(c)    Termination by the Company for Due Cause. Nothing herein shall prevent the Company from terminating the Executive’s employment at any time for “Due Cause” (as hereinafter defined). The Executive shall continue to receive the Base Salary provided for in this Agreement only through the period ending with the date of such termination. Any rights and benefits the Executive may have under employee benefit plans and programs of the Company shall be determined in accordance with the terms of such plans and programs. Except as provided in the two immediately preceding sentences, after termination of employment for Due Cause, the Executive shall not be entitled to any compensation or benefits from the Company or hereunder.

For purposes of this Agreement, “Due Cause” shall mean:

(i)     a material breach by the Executive of the Executive’s duties and obligations under this Agreement or violation in any material respect of any code or standard of conduct generally applicable to the officers of the Company, including, but not limited to, the Company’s Code of Ethics and Business Conduct, which, if curable, has not been cured by the Executive within 15 business days after the Executive’s receipt of notice to the Executive specifying the nature of such breach or violations;

4

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(ii)     a material violation by the Executive of the Executive’s Loyalty Obligations as provided in Paragraph 18;

(iii)     the commission by the Executive or indictment fora crime of moral turpitude or a felony involving fraud, breach of trust, or misappropriation;

(iv)     the Executive’s willfully engaging in bad faith conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; or

(v)     a determination by the Company that the Executive is in violation of the Company’s Substance Abuse Policy.

(d)    Termination by the Company Other than for Due Cause, Death or Disability. The foregoing notwithstanding, the Company may terminate the Executive’s employment for any or no reason, as it may deem appropriate in its sole discretion and judgment; provided, however, that in the event such termination is not due to Death, Disability or Due Cause, the Executive shall (i) be entitled to a Termination Payment as hereinafter defined and (ii) be sent written notice stating the termination is not due to Death, Disability or Due Cause. In the event of such termination by the Company, the Executive shall receive certain payments and benefits as set forth in this Subsection 4(d).

(i)     Termination Payment. If the Company terminates the Executive’s employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term, the term “Termination Payment” shall mean a cash payment equal to the sum of:

(A)     an amount equal to the Executive’s annual Base Salary, as in effect immediately prior to such termination (unless the termination is in connection with an action that would have enabled the Executive to terminate his employment for Good Reason pursuant to Section 4(e)(i)(A), in which case, it shall be the Base Salary in effect prior to any such material diminution of the Base Salary) (the “Termination Salary Payment”), and

(B)    an amount equal to the average value of the annual bonuses pursuant to Section 3(b)paid to Executive for the three completed fiscal years immediately prior to the date of such termination; provided, however, that if Executive has been employed by the Company for fewer than three complete fiscal years prior to the date of such termination, Executive shall receive an amount equal to the average value of the annual bonuses pursuant to Section 3(b) that the Executive has received during the period of the Executive’s employment.

(ii)     Outplacement Services. The Company shall make outplacement services available to the Executive, at a cost to the Company not to exceed $12,000, for a period of time not to exceed 12 months following the date of termination pursuant to the Company’s Executive outplacement program with the Company’s selected vendor, to include consulting, search support and administrative services.

(iii)     Medical Coverage. In addition, the Company shall provide the Executive with medical, dental and vision insurance benefits (which may also cover, if applicable,

5

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

the Executive’s spouse and eligible dependents) for three hundred sixty-five (365) days from the date of the Executive’s termination of employment or until such time as the Executive is eligible for group health coverage under another employer’s plan, whichever occurs first. In order to trigger the Company’s obligation to provide health care continuation benefits, the Executive must elect continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), upon such eligibility. The Company’s obligation shall be satisfied solely through the payment of the Executive’s COBRA premiums during the 365-day period, but only to the extent that such premiums exceed the amount that would otherwise have been payable by the Executive for coverage of the Executive and the Executive’s eligible dependents that were covered by the Company’s medical, dental, and vision insurance programs at the time of the Executive’s termination of employment had the Executive continued to be employed by the Company.

(iv) Timing of Payments. The Termination Salary Payment and Termination Bonus Payment shall be paid in one lump sum within 45 days following the date of the Executive’s Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii)(B) below.

(v) Entire Obligation. Except as provided in Subsection 4(j) of this Agreement, following the Executive’s termination of employment under this Subsection 4(d), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 6, 7, 8, 9, 10, 11, 16, 18, 19 (to the extent such policies, guidelines and codes by their terms apply post-employment) and 20). Except for the Termination Payment and as otherwise provided in accordance with the terms of the Company’s benefit programs and plans then in effect or as expressly required under applicable law, after termination by the Company of employment for other than Death, Disability or Due Cause, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.

(e)Resignation from Employment by the Executive for Good Reason. Termination by the Company without Due Cause under Subsection 4(d) shall be deemed to have occurred if the Executive elects to resign from employment for Good Reason.

(i) Good Reason.For purposes of this Agreement, “Good Reason” shall mean:

(A) a material diminution in the Executive’s “Total Direct Compensation,” which shall mean the value of the total of the Executive’s Base Salary, Target Bonus opportunity, and annual equity award taken together;

(B)     a material diminution in the Executive’s authority, duties, or responsibilities, with the exception of the divestment of the roles of Controller and Chief Accounting Officer, which Executive is fulfilling on an interim basis;

(C) the Company’s requiring the Executive to be based more than 60 miles from the Company’s office in Raleigh, North Carolina;

6

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(D)    delivery by the Company of a notice of Non-Renewal; or

(E) any other action or inaction that constitutes a material breach by the Company of the terms of this Agreement.

(ii)    Notice of Good Reason Condition.In order to be considered a resignation for Good Reason for purposes of this Agreement, the Executive must provide the Company with written notice and description of the existence of the Good Reason condition within 60 days of the initial discovery by the Executive of the existence of said Good Reason condition and the Company shall have 30 business days to cure such Good Reason condition.

(iii)    Effective Date of Resignation.The effective date of the Executive’s resignation for Good Reason must occur no longer than six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above. If Executive has not resigned for Good Reason effective within six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above, the Executive shall be deemed to have waived said Good Reason condition.

(f)    Termination by the Company Other Than For Due Cause, Death or Disability or Resignation from Employment for Good Reason Within Twelve Months After a Change in Control. If the Company terminates the Executive’s employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control (as defined below), or if the Executive elects to terminate the Executive’s employment for Good Reason prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control, then (i) the Executive shall be entitled to a Change In Control Termination Payment as hereinafter defined in lieu of the Termination Payment set forth in Subsection 4(d)(i) above, (ii) the Executive shall receive benefits as defined in Subsections 4(d)(ii) and (iii) above, and (iii) either the Company or the Executive, as the case may be, shall provide Notice of Termination pursuant to Subsection 4(j)(i) other than in the case of a Non-Renewal, which shall be communicated in accordance with Section 1.

(i)Change In Control Termination Payment. The term “Change In Control Termination Payment” shall mean a cash payment equal to the sum of:

(A)    an amount equal to two times the Executive’s annual Base Salary, as in effect immediately prior to such termination (unless the termination is due to Section 4(e)(i)(A), in which case, it shall be two times the Executive’s annual Base Salary in effect prior to any such material diminution of the Base Salary) (the “Change In Control Termination Salary Payment”), and

(B)    an amount equal to two times the Executive’s Target Bonus Amount, as in effect immediately prior to such termination (unless the termination is due to Sections 4(e)(i)(A) or (E), in which case, it shall be two times the Executive’s Target Bonus in effect prior to any such material diminution of the Target Bonus or termination of the bonus plan, respectively) (the “Change In Control Termination Bonus Payment”).

(ii)    Timing of Payments. The Change In Control Termination Salary Payment and the Change In Control Termination Bonus Payment shall be paid in lump sum

7

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

payments within 45 days following the date of the Executive’s Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii) below.

(iii)    Entire Obligation. Except as provided in Subsection 4(i) of this Agreement, following the Executive’s termination of employment under this Subsection 4(f), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 6, 7, 8, 9, 10, 11, 16, 18, 19 (to the extent such policies, guidelines and codes by their terms apply post-employment) and 20). Except for the Change In Control Termination Payment and as otherwise provided in accordance with the terms of the Company’s benefit programs and plans then in effect or as expressly required under applicable law, within twelve (12) months after a Change In Control, after termination by the Company of employment for other than Death, Disability or Due Cause or after termination by the Executive for Good Reason, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.

(iv)    Change InControl. For purposes of this Agreement, “Change In Control” shall mean the occurrence of any of the following events:

(A) a Transaction, as defined below, unless securities possessing more than 50% of the total combined voting power of the survivor’s or acquiror’s outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities immediately prior to that transaction, or

(B) any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means of a merger or consolidation, beneficial ownership (determined pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the said Exchange Act) of securities possessing more than 25% of the total combined voting power of the Company’s outstanding securities unless pursuant to a tender or exchange offer made directly to the Company’s stockholders that the Board recommends such stockholders accept, other than (i) the Company or any of its Affiliates, (ii) an employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or

(C) over a period of thirty-six (36) consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board.

8

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

For purposes of Section 4(f)(iv)(A), “Transaction” means (1) consummation of any merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) any sale or exchange of all of the Stock of the Company for cash, securities or other property, (3) any sale, transfer, or other disposition of all or substantially all of the Company’s assets to one or more other persons in a single transaction or series of related transactions or (4) any liquidation or dissolution of the Company.

(v)     IRC 280G “Net-Best”. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (A) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the “Excise Tax”), and (B) the reduction of the amounts payable to Executive to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”) would provide Executive with a greater after tax amount than if such amounts were not reduced, then the amounts payable to Executive shall be reduced (but not below zero) to the Safe Harbor Cap. If the reduction of the amounts payable would not result in a greater after tax result to Executive, no amounts payable under this Agreement shall be reduced pursuant to this provision.

(A) Reduction of Payments. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first cash amounts payable under this Agreement (in contrast to benefit amounts), and applying any reduction to amounts payable in the following order: (A) first, any cash amounts payable to Executive as a Termination Payment or Change in Control Termination Payment under this Agreement, as applicable; (B) second, any cash amounts payable by Company for Outplacement Services on behalf of Executive under the terms of this Agreement; (C) third, any amounts payable by Company on behalf of Executive under the terms of this Agreement for continued Medical Coverage; (D) fourth, any other cash amounts payable by Company to or on behalf of Executive under the terms of this Agreement: (E) fifth, outstanding performance-based equity grants to the extent that any such grants would be subject to the Excise Tax; and (F) finally, any time-vesting equity grants to the extent that any such grants would be subject to the Excise Tax.

(B) Determinations by Accounting Firm. All determinations required to be made under this Section 4(f)(v) shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company. Notwithstanding the foregoing, in the event (A) the Board shall determine prior to the Change in Control that the Accounting Firm is precluded from performing such

9

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

services under applicable auditor independence rules or (B) the Audit Committee of the Board determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (C) the Accounting Firm is serving as accountant or auditor for the person(s) effecting the Change in Control, the Board shall appoint another nationally recognized public accounting firm reasonably acceptable to Executive to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. If Payments are reduced to the Safe Harbor Cap or the Accounting Firm determines that no Excise Tax is payable by Executive without a reduction in Payments, the Accounting Firm shall provide a written opinion to Executive to the effect that the Executive is not required to report any Excise Tax on the Executive’s federal income tax return, and that the failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph 4(f)(v)(C) below).

(C) Excess Payment/Underpayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service (the “IRS”) proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive, which are in excess of the limitations provided in this Section (referred to hereinafter as an “Excess Payment”), Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made under this Section. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent the Executive’s reasonable expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Notwithstanding the foregoing, in the event that amounts payable under this Agreement were reduced pursuant to paragraph 4(f)(v)(A) and the value of stock options is subsequently re-determined by the Accounting Firm within the context of Treasury Regulation §1.280G-1 Q/A 33 that reduces the value of the Payments attributable to such options, the Company shall promptly pay to Executive any amounts payable under this Agreement that were not previously paid solely as a result of paragraph 4(f)(v)(A) up to the Safe Harbor Cap.

10

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(g)    Voluntary Termination Without Good Reason. In the event that the Executive terminates the Executive’s employment at the Executive’s own volition prior to the expiration of the Employment Term (except as provided in Subsection 4(e) above), such termination shall constitute a “Voluntary Termination” and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Due Cause under Subsection 4(c) above.

(h)    Compliance With Code Section 409A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and operated so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Code or shall comply with the requirements of such provision; provided however that in no event shall the Company be liable to the Executive for or with respect to any taxes, penalties or interest which may be imposed upon the Executive pursuant to Section 409A. To the extent that any amount payable pursuant to Subsections 4(b), (d)(i), (d)(iii) or (f) constitutes a “deferral of compensation” subject to Section 409A (a “409A Payment”), then, if on the date of the Executive’s “separation from service,” as such term is defined in Treas. Reg. Section 1.409A-1(h)(1), from the Company (his “Separation from Service”), the Executive is a “specified employee,” as such term is defined in Treas. Reg. Section 1.409-1(i), as determined from time to time by the Company, then such 409A Payment shall not be made to the Executive earlier than the earlier of (i) six (6) months after the Executive’s Separation from Service; or (ii) the date of his death. The 409A Payments under this Agreement that would otherwise be made during such period shall be aggregated and paid in one lump sum, without interest, on the first business day following the end of the six (6) month period or following the date of the Executive’s death, whichever is earlier, and the balance of the 409A Payments, if any, shall be paid in accordance with the applicable payment schedule provided in this Section 4. To the extent any 409A Payment is conditioned on the Executive (or his legal representative) executing a release of claims, which 409A Payment would be made in a later taxable year of the Executive than the taxable year in which his Separation from Service occurs if such release were executed and delivered and became irrevocable at the last possible date allowed under this Agreement, such 409A Payment will be paid no earlier than such later taxable year. In applying Section 409A to compensation paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. The Executive hereby acknowledges that he has been advised to seek and has sought the advice of a tax advisor with respect to the tax consequences to the Executive of all payments pursuant to this Agreement, including any adverse tax consequences or penalty taxes under Code Section 409A and applicable State tax law. Executive hereby agrees to bear the entire risk of any such adverse federal and State tax consequences and penalty taxes in the event any payment pursuant to this Agreement is deemed to be subject to Code Section 409A, and that no representations have been made to the Executive relating to the tax treatment of any payment pursuant to this Agreement under Code Section 409A and the corresponding provisions of any applicable State income tax laws.

(i)    Cooperation. During the term of the Executive’s employment by the Company and for a period of one (1) year immediately following the termination of the Executive’s employment with the Company, the Executive agrees to be reasonably available to assist the Company and its representatives and agents with any business and/or litigation (or potential litigation) matters affecting or involving the Company. The Company will reimburse the Executive for all associated reasonable costs of travel.

11

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(j)    Notice of Termination, Resignation and Release. Any termination under Subsection 4(b) by the Company for Disability or Subsection 4(c) for Due Cause or by the Executive for Good Reason under Subsection 4(e) or by the Company or the Executive within twelve (12) months after a Change in Control under Subsection 4(f) or by the Executive by Voluntary Termination under Subsection 4(g) shall be communicated by Notice of Termination to the other party thereto given in accordance with Paragraph 10.

(i)     Notice of Termination. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such Notice, specifies the termination date (which date shall not be prior to the date of such notice or more than 15 days after the giving of such Notice).

(ii)     Resignation and Release. Notwithstanding anything in this Agreement to the contrary, unless the Company provides otherwise, upon termination of employment for any reason, Executive shall be deemed to have resigned as a member of the Board of Directors of the Company, if applicable, and as an officer, director, manager and employee of the Company and its Related Entities and shall execute any documents and take any actions to effect the foregoing as requested by the Company. In order to be eligible to receive any payments or benefits hereunder as a result of the termination of the Executive’s employment, in addition to fulfilling all other conditions precedent to such receipt, the Executive or the Executive’s legal representative must within 21 days (or such other period as required under applicable law) after presentation of a release in form and substance reasonably satisfactory to the Company and its legal counsel, execute said release, and within 7 days (or such other period as required under applicable law) after such execution not revoke said release, on behalf of the Executive and the Executive’s estate, heirs and representatives, releasing the Company, its Related Entities and each of the Company’s and such Related Entities’ respective officers, directors, employees, members, managers, agents, independent contractors, representatives, shareholders, successors and assigns (all of which persons and entities shall be third party beneficiaries of such release with full power to enforce the provisions thereof) from any and all claims related to the Executive’s employment with the Company; termination of the Executive’s employment; all matters alleged or which could have been alleged in a charge or complaint against the Company; any and all injuries, losses or damages to Executive, including any claims for attorney’s fees; any and all claims relating to the conduct of any employee, servant, officer, director or agent of the Company; and any and all matters, transactions or things occurring prior to the date of said release, including any and all possible claims, known or unknown, which could have been asserted against the Company or the Company’s employees, agents, servants, officers or directors. Notwithstanding the foregoing, the form of release shall except out therefrom, and acknowledge the Executive’s continuing rights with respect to, the following: (i) all vested rights that the Executive may have under all welfare, retirement and other plans and programs of the Company in which the Executive was participating at the time of his employment termination, including all equity plans and programs of the Company with respect to which equity awards were made to the Executive, (ii) all continuing rights that the Executive may have under this Agreement, and (iii) all rights that the Executive may have following the termination of his employment under the Company’s Certificate of Incorporation and Bylaws, any applicable Company insurance and any indemnity agreements to which the Executive is a party which provide for indemnification,

12

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

insurance or other, similar coverage for the Executive with respect to his actions or inactions as an officer, employee and/or member of the Board. For clarification, unless and until the Executive executes and does not, within any applicable revocation period, revoke the release, the Company shall have no obligation to make any Termination Payment to the Executive, and, even if the Executive does not execute the release, the Executive shall be bound by the post-termination provisions of this Agreement, including without limitation Section 18.

(k)Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive’s employment at any time, for any reason, the Executive shall be paid all amounts that had already been earned and accrued as of the time of termination, including but not limited to (i) any bonus that had been earned but not yet paid; and (ii) reimbursement for any business expenses accrued in accordance with Subsection 3(d).

(l)Employment at Will.The Company and Executive expressly understand and agree that nothing herein shall be construed as a guarantee of employment for any specific time, nor does it change the at will employment relationship. Either the Company or Executive may terminate the Executive’s employment under this Paragraph 4 at will, for any or no reason, subject to compliance with the applicable post-termination obligations of each contained herein.

5.        Treatment of Equity Awards Upon Change In Control. In the event of a Change in Control as defined hereinabove, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right (“SAR”), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively “Awards”) as such Awards are defined in the 2014 LTIP (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to such provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant.

6.        Successors and Assigns.

(a)Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term “Company,” as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.

(b)Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company; provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of the Executive’s legal incompetency or Death and shall not preclude the legal representative of the Executive’s estate from assigning any right hereunder to the person or persons entitled thereto under the Executive’s will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Executive’s estate. The term “beneficiaries,” as used in this Agreement, shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of the Executive’s incompetency) or the Executive’s estate.

13

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

7.        Governing Law. This Agreement shall be governed by the laws of the State of North Carolina.

8.        Entire Agreement. This Agreement, which shall include the Exhibits hereto, contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto, including without limitation any previous employment, severance or separation agreements (including any severance or change in control benefits contained therein); provided that the obligations set forth in Section 18 of this Agreement are in addition to any similar obligations Executive has to the Company or its affiliates. This Agreement may only be modified by an instrument in writing signed by both parties hereto.

9.        Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time.

10.        Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:

If to the Company:

Advance Auto Parts, Inc.

5008 Airport Road

Roanoke, VA 24012

Attn: General Counsel

With a copy to:

Advance Auto Parts, Inc.

2635 Millbrook Road

Raleigh, NC 27604

Attn: Chief Executive Officer

If to the Executive:

Jeffrey W. Shepherd

Executive’s Address Currently on File in the Company’s Records

11.        Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, excepting only the enforcement of any Loyalty Obligations arising under Paragraph 18 of this Agreement, shall be settled by arbitration in the state of North Carolina in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect in the State of North Carolina and judgment upon such award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The board of arbitrators shall consist of one arbitrator to be appointed by the Company, one by the Executive, and one by the two arbitrators so chosen. The arbitration shall be held at such place as may be agreed upon at the time by the parties to the arbitration. The cost of arbitration shall be borne as determined by the arbitrators.

12.        Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive’s estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably

14

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.

13.        Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

14.        Titles. Titles to the paragraphs and subsections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any paragraph or subsection.

15.        Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

16.        Amendment. Except as provided in Paragraph 13 above, this Agreement may not be modified or amended except by written instrument signed by all parties hereto.

17.        Independent Counsel. The Executive acknowledges that Executive has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of its terms by independent legal counsel, selected of the Executive’s own free will, and that the Executive has had the opportunity to discuss this Agreement with counsel. Executive further acknowledges that Executive has read and understands the meaning and ramifications of this Agreement and as evidence of this fact signs this Agreement below. The Executive further acknowledges that the Company has not made any representations or given any advice with respect to the tax or other consequences of this Agreement or any transactions contemplated by this Agreement to him and that the Executive has been advised of the importance of seeking independent counsel with respect to such consequences. By executing this Agreement, the Executive represents that the Executive has, after being advised of the potential conflicts between him and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel.

18.        Loyalty Obligations. The Executive agrees that, immediately upon execution of this Agreement, the following obligations (“Loyalty Obligations”) shall apply in consideration of the Executive’s employment by or continued employment with the Company:

(a)    Confidential Information.

(i)    Company Information. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees at all times during the term of the Executive’s employment and thereafter, to hold any Confidential Information of the Company or its Related Entities in strictest confidence, and not to use (except for the benefit of the Company to fulfill the Executive’s employment obligations) or to disclose to any person, firm or corporation other than the Company or those designated by it said Confidential Information without the prior authorization of the Company, except as may otherwise be required by law or legal process. The Executive agrees that “Confidential Information”

15

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

means any proprietary information prepared or maintained in any format, including technical data, trade secrets or know-how in which the Company or Related Entities have an interest, including, but not limited to, business records, contracts, research, product or service plans, products, services, customer lists and customers (including, but not limited to, vendors to the Company or Related Entities on whom the Executive called, with whom the Executive dealt or with whom the Executive became acquainted during the term of the Executive’s employment), pricing data, costs, markets, expansion plans, summaries, marketing and other business strategies, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration or marketing, financial or other business information obtained by the Executive or disclosed to the Executive by the Company or Related Entities or any other person or entity during the term of the Executive’s employment with the Company either directly or indirectly electronically, in writing, orally, by drawings, by observation of services, systems or other aspects of the business of the Company or Related Entities or otherwise. Confidential Information does not include information that: (A) was available to the public prior to the time of disclosure, whether through press releases, SEC filings or otherwise; or (B) otherwise becomes available to the public through no act or omission of the Executive or through the wrongful act of a third party.

(ii)    Third Party Information. The Executive recognizes that the Company and Related Entities have received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the part of the Company or Related Entities to maintain the confidentiality of such information and to use it only for certain limited purposes. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees at all times during the Executive’s employment and thereafter to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Executive’s work for the Company consistent with the obligations of the Company or Related Entities with such third party.

(iii)    Permitted Disclosure. Nothing in this Agreement shall prohibit or restrict the Executive  from lawfully (A) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by the Securities and Exchange Commission (“SEC”), the Department of Justice, the Equal Employment Opportunity Commission (“EEOC”), the Congress, or any other governmental or regulatory agency, entity, or official(s) or self-regulatory organization (collectively, “Governmental Authorities”) regarding a possible violation of any law, rule, or regulation; (B) responding to any inquiry or legal process directed to you individually (and not directed to the Company and/or its subsidiaries) from any such Governmental Authorities, including an inquiry about the existence of this Agreement or its underlying facts or circumstances; (C) testifying, participating or otherwise assisting in an action or proceeding by any such Governmental Authorities relating to a possible violation of law; or (D) making any other disclosures that are protected under the whistleblower provisions of any applicable law, rule, or regulation.   Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made to

16

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

Executive’s attorney in relation to a lawsuit for retaliation against Executive for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  Nor does this Agreement require Executive to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that Executive has engaged in any such conduct.

(b)    Conflicting Employment. The Executive agrees that, during the term of the Executive’s employment with the Company, the Executive will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company or Related Entities are now involved or become involved during the term of the Executive’s employment. Nor will the Executive engage in any other activities that conflict with the business of the Company or Related Entities. Furthermore the Executive agrees to devote such time as may be necessary to fulfill the Executive’s obligations to the Company and during the term of the Executive’s employment with the Company to refrain from any other occupation, consulting or other business activity without the prior approval or consent of the Company.

(c)    Returning Company Property. The Executive agrees that any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by the Executive or others pursuant to or during the Executive’s employment with the Company or otherwise shall be the property of the Company or its Related Entities and their respective successors or assigns. Upon separation of employment for any reason, or at any time during employment at the request of the Company, the Executive will deliver all material Company property to the Company or to the Company’s designee and will not keep in the Executive’s possession, recreate or deliver said property to anyone else. Upon separation of employment for any reason and upon request by the Company, the Executive agrees to sign and deliver the “Termination Certification” attached hereto as Exhibit A. Executive further agrees that at any time during employment or upon separation of employment for any reason, at the request of the Company, to reasonably cooperate with the Company to ensure that Executive does not possess any Company property or information within any PDA, personal laptop, hard drive or thumb drive, personal cloud or email account, or any other personal electronic or data storage device, including providing access to any such devices to a third party forensic vendor for purposes of removing any such property and information, at the cost of the Company and through measures designed to protect Executive’s personal information.

(d)    Notification of New Employer. In the event that the Executive leaves the employ of the Company, the Executive agrees to notify the Executive’s new employer and hereby grants consent to notification by the Company to the Executive’s new employer (whether the Executive is employed as an employee, consultant, independent contractor, director, partner, officer, advisor, Executive, volunteer or manager) about the Executive’s Loyalty Obligations specified under this Agreement.

(e)    Non-Interference. The Executive covenants and agrees that while the Executive is employed by the Company and for a period of one (1) year immediately following the termination of the Executive’s employment with the Company for any reason, the Executive shall not, without the prior written approval of the Company, directly or indirectly, either on behalf of the Executive or any other person or entity, Interfere with the Company or any of its Related Entities.

17

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(i)     For purposes of this Agreement, “Interfere” shall mean, except in the performance of the Executive’s duties and responsibilities on behalf of and for the benefit of the Company, (A) to solicit, entice, persuade, induce, influence or attempt to influence, directly or indirectly, Customers, suppliers, Employees or Independent Contractors of the Company or any of its Related Entities to restrict, reduce, sever or otherwise alter their relationship with the Company or any of its Related Entities; or (B) to hire or recruit on the Executive’s own behalf or on behalf of any other person or entity, directly or indirectly, any Employee or Independent Contractor of the Company who at any time was supervised (1) directly by the Executive or (2) by another person who was supervised directly by the Executive; or (C) whether as a direct solicitor or provider of such services, or in a direct management or direct supervisory capacity over others who solicit or provide such services, to solicit or provide services that fall within the definition of Restricted Activities as defined in Subsection 18(f)(ii) below to any Customer of the Company or its Related Entities. Nothing in this section shall be construed to prohibit the Executive from engaging in non-targeted solicitation of Employees and Independent Contractors of the Company such as advertisements to the general public.

(ii)    For purposes of this Agreement, a “Customer” shall mean any person or entity: (a) with which the Executive has engaged in material discussions regarding Restricted Activities at any time within 12 months prior to the end of the Executive’s employment; (b) whose business dealings with the Company are or were managed or supervised by the Executive as part of his duties for the Company; or (c) about which the Executive obtained Confidential Information solely as a result of the Executive’s employment with the Company. “Customer” also includes a prospective customer with which the Executive has engaged in material discussions regarding Restricted Activities at any time within 12 months prior to the end of the Executive’s employment or about which Executive obtained Confidential Information solely as a result of the Executive’s employment with the Company. “Employee or Independent Contractor” shall mean any employee or independent contractor who, at the time of the recruitment or hire by the Executive or by anyone the Executive is overseeing, is currently employed or engaged with the Company or who was employed or engaged with the Company at any time during the twelve (12) month period preceding the date of the recruitment or hire by the Executive or by anyone the Executive is overseeing.

(f)    Covenants Not to Compete

(i)     Non-Competition. The Executive understands that the Company operates across the United States and Canada. The Executive acknowledges that the Executive’s duties as Executive Vice President, Chief Financial Officer, will entail involvement with the entire range of the Company’s operations across the United States and Canada, and that the Executive’s extensive familiarity with the Company’s business and Confidential Information justifies a restriction applicable across the entire geographic footprint in which the Company provides services and does business. To the fullest extent permitted by any applicable law, the Executive covenants and agrees that during employment, and for the period of one (1) year immediately following the termination, for any reason, of the Executive’s employment with the Company (the “Non-Compete Period”), the Executive will not:

18

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

(A)     own or hold, directly or beneficially, as a shareholder, option holder, warrant holder, partner, member or other equity or security owner or holder of any company or business that derives more than 15% of its revenue from the Restricted Activities (as defined below) within the Restricted Area (as defined below), or any company or business controlling, controlled by or under common control with any company, business or division directly engaged in such Restricted Activities within the Restricted Area (any of the foregoing, a “Restricted Company”); or

(B)     engage or participate with any Restricted Company in the Restricted Activities within the Restricted Area in any capacity in which the Executive will use or disclose or could reasonably be expected to use or disclose any Confidential Information for the purpose of providing, or attempting to provide, such Restricted Company with a competitive advantage in the industry; or

(C)    engage or participate in the same or similar capacity that the Executive worked for with the Company during the last twelve (12) months of Executive’s employment with any Restricted Company in the Restricted Activities within the Restricted Area.

(ii)    Restricted Activities/Restricted Area. For purposes of this Agreement, the term “Restricted Activities” means: (1) the retail, commercial and/or wholesale sale, rental, and/or distribution of parts, accessories, supplies (including, but not limited to, paint), equipment and/or maintenance items for automobiles, light and heavy duty trucks (both commercial and non-commercial), off-road equipment, buses, recreational vehicles, and/or agricultural equipment, and/or (2) the provision of any automotive-related service (including, but not limited to, shop management, inventory control, and/or vehicle repair software or marketing) to auto repair shops, garages, specialty-service providers (e.g. any business that specializes in automotive oil changes, painting, tires, mufflers, brakes, transmission, and/or body work) and/or service centers, including, but not limited to painting, collision or body service centers. The term “Restricted Area” means: (1) the United States of America and Canada, including their territories and possessions; (2) the United States of America; (3) in any location where a Customer is located if that Customer is purchasing products or services from the Company from that location as of the end of the Executive’s employment; (4) the area within which Executive was assigned during the last 6 months of his employment with the Company. In the event it is determined by judicial action that any portion of the Restricted Area is unenforceable, the geographic scope of the restriction shall be limited to any/all of the preceding as a court of competent jurisdiction shall deem reasonable and enforceable.

(iii)    Association with Restricted Company. In the event that the Executive intends to associate (whether as an employee, consultant, independent contractor, officer, manager, advisor, partner, Executive, volunteer or director) with any Restricted Company during the Non-Compete Period, the Executive must provide information in writing to the Company relating to the activities proposed to be engaged in by the Executive for such Restricted Company. All such current associations are set forth on Exhibit B to this Agreement. In the event that the Company consents in writing to the Executive’s engagement in such activity, the engaging in such activity by the Executive shall be

19

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

conclusively deemed not to be a violation of this Subsection 18(f). Such consent is not intended and shall not be deemed to be a waiver or nullification of the covenant of non-competition of the Executive or other similarly bound Executives.

(iv)        Limitations. Nothing in this section shall be construed to limit Executive’s ability to own a de minimis share of stock (defined as less than 5% of the outstanding common stock) of a publicly traded corporation, regardless of whether such entity is competitive with the Company. Nothing in this section shall be construed to limit the Executive’s ability after separation to take a position with a company that competes with the Company which has multiple divisions or business units, so long as the Executive’s employment with the competitor is not within the division or business unit that engages in Restricted Activities, and so long as the confidentiality and other provisions of this Agreement are adhered to in all respects.

(g)    Non-Disparagement. Except as otherwise provided in Section 18(a)(iii) of this Agreement, the Executive agrees that while the Executive is employed by the Company and at all times following the termination of the Executive’s employment with the Company for any reason, the Executive will not take any action or make any statement which disparages the Company or its practices or which disrupts or impairs its normal operations, such that it causes a material adverse impact to the Company.

(h)    Effect of Non-Payment of Benefits; Clawback. The Executive’s post-termination of employment obligations under this Paragraph 18 shall cease upon the Company’s failure to make any payments or benefits hereunder as a result of the termination of the Executive’s employment when due if within 15 days after written notice from the Executive to the Company of such failure, the Company does not make the required payment. In the event that the Executive materially violates Subsection 18(e) or 18(f), and does not cure such violation (if it can be cured) within five (5) days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the applicable period under Subsection 18(e) or 18(f), and the denominator of which is the total number of days in the applicable period under such Section. In the event that the Executive materially violates Subsection 18(a), 18(c) or 18(g), and does not cure such violation (if it can be cured) within five days after written notice of such failure, the Executive agrees that calculation of the harm to the Company from such violation would be uncertain and not capable of being readily ascertained, and that as a reasonable estimation of the harm to the Company from such violation the Executive shall repay to the Company a portion of the Termination Payment paid to the Executive pursuant to Section 4(d)(i) equal to a fraction, the numerator of which is the number of days left in the one (1) year period immediately following the termination and the denominator of which is 365. The Executive further agrees that in addition to Executive’s repayment obligations with respect to breaches of Subsection 18(a), 18(c), 18(e), 18(f), or 18(g), the Company shall have the right to seek equitable relief pursuant to Subsection 18(i) hereunder.

(i)    Specific Enforcement; Remedies Cumulative. The Executive acknowledges that the Company and Related Entities, as the case may be, will be irreparably injured if the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) and 18(g) hereof are not specifically enforced and the Executive agrees that the terms of such provisions (including without limitation the periods set

20

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

forth in Subsections 18(e), 18(f) and 18(g)) are reasonable and appropriate. If the Executive commits, or the Company has evidence based on which it reasonably believes the Executive threatens to commit, a material breach of any of the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof, the Company and/or Related Entities, as the case may be, shall have the right and remedy, in addition to and not in limitation of any other remedy that may be available at law or in equity, to have the provisions of Subsections 18(a), 18(b), 18(c), 18(e), 18(f) or 18(g) hereof specifically enforced by any court having jurisdiction through immediate injunctive and other equitable relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and/or Related Entities and that money damages will not provide an adequate remedy therefore. Such injunction shall be available without the posting of any bond or other security, and the Executive hereby consents to the issuance of such injunction.

(j)    Re-Set of Period for Non-Competition and Non-Interference. In the event that a legal or equitable action is commenced with respect to any of the provisions of Subsections 18(e) or 18(f) hereof and the Executive has not complied, in all material respects, with the provisions in such subsections with respect to which such action has been commenced, then the one-year period, as described in such subsections not so complied with by the Executive, shall be extended from its original expiration date, day-for-day, for each day that the Executive is found to have not complied, in all material respects, with such subsections.

(k)    Jurisdiction and Venue.WITH RESPECT TO THE ENFORCEMENT OF ANY AND ALL LOYALTY OBLIGATIONS ARISING UNDER PARAGRAPH 18, THE SUBSECTIONS 18(k) AND 18(l) OF THIS AGREEMENT SHALL APPLY. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FOLLOWING COURTS IN MATTERS RELATED TO THIS PARAGRAPH 18 AND AGREE NOT TO COMMENCE ANY SUIT, ACTION OR PROCEEDING RELATING THERETO EXCEPT IN ANY OF SUCH COURTS: THE STATE COURTS OF THE STATE OF NORTH CAROLINA, THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE CITY OF RALEIGH, NORTH CAROLINA.

(l)    Executive Acknowledgments. The Executive acknowledges and agrees that (i) any and all loyalty obligations arising under Paragraph 18 were discussed with, and accepted by, the Executive prior to the commencement of the Executive’s employment as Executive Vice President, Chief Financial Officer; (ii) the loyalty obligations arising under Paragraph 18 constitute a material inducement to the Company to enter into this Agreement and to agree to employ the Executive on the terms and conditions stated herein; (iii) the loyalty obligations arising under Paragraph 18 are reasonable in time, territory, and scope, and in all other respects; (iv) should any part or provision of any covenant be held invalid, void, or unenforceable in any court of competent jurisdiction, such invalidity, voidness, or unenforceability shall not render invalid, void, or unenforceable any other part or provision of this Agreement; and (v) if any portion of the foregoing provisions is found to be invalid or unenforceable by a court of competent jurisdiction because its duration, territory, definition of activities, or definition of information covered is considered to be invalid or unreasonable in scope, the invalid or unreasonable terms shall be redefined to carry out the Executive’s and the Company’s intent in agreeing to these restrictive covenants. These restrictive covenants shall be construed as agreements independent of any other provision in this Agreement and the existence of any claim or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the loyalty obligations arising under Paragraph 18.

21

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

19.        Adherence to Company Policies. The Executive agrees to adhere diligently to all established Company policies and procedures, including but not limited to the Company’s Guidelines on Significant Governance Issues, Code of Ethics and Business Conduct and, if applicable, the Code of Ethics for Financial Professionals. The Executive agrees that if the Executive does not adhere to any of the provisions of such Guidelines and Codes, the Executive will be in breach of the provisions hereof.

20.        Representations. The Executive agrees to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. The Executive represents that Executive’s performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by the Executive in confidence or in trust prior to the Executive’s employment by the Company. The Executive has not entered into, and the Executive agrees the Executive will not enter into, any oral or written agreement in conflict herewith and the Executive’s employment by the Company and the Executive’s services to the Company will not violate the terms of any oral or written agreement to which the Executive is a party.

21.        Binding Effect of Execution. The Company and the Executive agree that this Agreement shall not bind or be enforceable by or against either party until this Agreement has been duly executed by both the Executive and the Company.

[SIGNATURE PAGE FOLLOWS]

22

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above.

Advance Auto Parts, Inc.

By:_________________________________ (SEAL)

Print Name:__________________________

Title:________________________________

Address: 5008 Airport Road

               Roanoke, VA 24012

Executive

Name: Jeffrey W. Shepherd

Signature: ____________________________

Current Address:

23

Employment Agreement – Jeffrey W. Shepherd – EXECUTION COPY – September 2018

EXECUTION COPY

EXHIBIT A

TERMINATION CERTIFICATION

This is to certify that I do not have in my possession, nor have I failed to return, any Confidential Information, including but not limited to, material devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to the Company.

I further certify that I have, to the best of my knowledge, complied in all material respects with all the terms of my Employment Agreement with the Company.

Date:________________________________

____________________________________

Executive’s Signature

____________________________________

Executive’s Name (Print)

EXECUTION COPY

EXHIBIT B

LIST OF ASSOCIATIONS WITH RESTRICTED COMPANIES

____ None

____ Additional Sheets Attached

Signature of the Executive: _________________________________

Print Name of the Executive: ________________________________

Date:

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas R. Greco, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2018

/s/ Thomas R. Greco

Thomas R. Greco

President and Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey W. Shepherd, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 13, 2018

/s/ Jeffrey W. Shepherd

Jeffrey W. Shepherd

Executive Vice President, Chief Financial Officer,

Controller and Chief Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas R. Greco, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 6, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-Q. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date:	November 13, 2018	By:	/s/ Thomas R. Greco
		Name:	Thomas R. Greco
		Title:	President and Chief Executive Officer and Director

I, Jeffrey W. Shepherd, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 6, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-Q. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date:	November 13, 2018	By:	/s/ Jeffrey W. Shepherd
		Name:	Jeffrey W. Shepherd
		Title:	Executive Vice President, Chief Financial Officer, Controller and Chief Accounting Officer

XML

Document and Entity Information Document Document - shares	9 Months Ended
	Oct. 06, 2018	Nov. 09, 2018
Document Information [Line Items]
Entity Registrant Name	Advance Auto Parts Inc
Entity Central Index Key	0001158449
Current Fiscal Year End Date	--12-29
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Oct. 06, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		72,893,719
Entity Small Business	false
Entity Emerging Growth Company	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Oct. 06, 2018	Dec. 30, 2017
Current assets:
Cash and cash equivalents	$ 970,006	$ 546,937
Receivables, net	698,617	606,357
Inventories	4,187,082	4,168,492
Other current assets	168,578	105,106
Total current assets	6,024,283	5,426,892
Property and equipment, net of accumulated depreciation of $1,914,153 and $1,783,383	1,335,769	1,394,138
Goodwill	992,764	994,293
Intangible assets, net	562,698	597,674
Other assets	56,839	69,304
Assets, Total	8,972,353	8,482,301
Current liabilities:
Accounts payable	3,023,660	2,894,582
Accrued expenses	648,817	533,548
Other current liabilities	48,755	51,967
Total current liabilities	3,721,232	3,480,097
Long-term debt	1,045,398	1,044,327
Deferred income taxes	320,160	303,620
Other long-term liabilities	225,927	239,061
Commitments and Contingencies
Stockholders' equity:
Preferred stock, nonvoting, $0.0001 par value	0	0
Common stock, voting, $0.0001 par value	8	8
Additional paid-in capital	685,675	664,646
Treasury stock, at cost	(271,082)	(144,600)
Accumulated other comprehensive loss	(32,083)	(24,954)
Retained earnings	3,277,118	2,920,096
Total stockholders’ equity	3,659,636	3,415,196
Liabilities and Stockholders' Equity, Total	$ 8,972,353	$ 8,482,301

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Oct. 06, 2018	Dec. 30, 2017
Statement of Financial Position [Abstract]
Accumulated Depreciation, Property and Equipment	$ 1,914,153	$ 1,783,383
Preferred Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Common Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Income Statement [Abstract]
Net sales	$ 2,274,982	$ 2,182,233	$ 7,475,482	$ 7,336,798
Cost of sales, including purchasing and warehousing costs	1,268,055	1,234,525	4,184,713	4,125,318
Gross profit	1,006,927	947,708	3,290,769	3,211,480
Selling, general and administrative expenses	852,686	791,139	2,770,747	2,728,420
Operating income	154,241	156,569	520,022	483,060
Other, net:
Interest expense	(13,076)	(13,314)	(43,613)	(45,665)
Other income, net	5,755	745	8,998	8,727
Total other, net	(7,321)	(12,569)	(34,615)	(36,938)
Income before provision for income taxes	146,920	144,000	485,407	446,122
Provision for income taxes	31,077	48,004	115,002	155,117
Net income	$ 115,843	$ 95,996	$ 370,405	$ 291,005
Basic earnings per common share	$ 1.57	$ 1.30	$ 5.01	$ 3.94
Weighted average common shares outstanding	73,888	73,866	73,974	73,827
Diluted earnings per common share	$ 1.56	$ 1.30	$ 4.99	$ 3.93
Weighted average common shares outstanding	74,190	74,106	74,212	74,097
Dividends declared per common share	$ 0.06	$ 0.06	$ 0.18	$ 0.18

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Net income	$ 115,843	$ 95,996	$ 370,405	$ 291,005
Other comprehensive (loss) income:
Changes in net unrecognized other postretirement benefit costs, net of tax of $24, $41, $80 and $137	(69)	(63)	(227)	(211)
Currency translation adjustments	3,900	2,225	(6,902)	15,409
Total other comprehensive income (loss)	3,831	2,162	(7,129)	15,198
Comprehensive income	$ 119,674	$ 98,158	$ 363,276	$ 306,203

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) [Abstract]
Changes in net unrecognized postretirement benefit costs, Tax	$ 24	$ 41	$ 80	$ 137

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017
Cash flows from operating activities:
Net income	$ 370,405	$ 291,005
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	183,584	192,753
Share-based compensation	19,265	28,156
Loss on disposal and impairment of long-lived assets	6,267	4,692
Provision (benefit) for deferred income taxes	17,029	(25,712)
Other	1,686	2,262
Net change in:
Receivables, net	(93,595)	(35,760)
Inventories	(22,862)	116,957
Accounts payable	131,572	(170,227)
Accrued expenses	122,779	36,564
Other assets and liabilities, net	(54,627)	(39,685)
Net cash provided by operating activities	681,503	401,005
Cash flows from investing activities:
Purchases of property and equipment	(105,132)	(160,960)
Proceeds from sales of property and equipment	1,450	6,120
Other, net	0	20
Net cash used in investing activities	(103,682)	(154,820)
Cash flows from financing activities:
(Decrease) increase in bank overdrafts	(11,973)	4,676
Borrowings under credit facilities	0	534,400
Payments on credit facilities	0	(534,400)
Dividends paid	(17,819)	(17,828)
Proceeds from the issuance of common stock	2,290	3,142
Tax withholdings related to the exercise of stock appreciation rights	(490)	(6,414)
Repurchase of common stock	(126,482)	(3,380)
Other, net	814	(2,095)
Net cash used in financing activities	(153,660)	(21,899)
Effect of exchange rate changes on cash	(1,092)	3,838
Net increase in cash and cash equivalents	423,069	228,124
Cash and cash equivalents, beginning of period	546,937	135,178
Cash and cash equivalents, end of period	970,006	363,302
Non-cash transactions:
Accrued purchases of property and equipment	$ 11,066	$ 7,860

XML

Nature of Operations and Basis of Presentation

9 Months Ended

Oct. 06, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Basis of Presentation

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

As of October 6, 2018, we operated a total of 4,981 stores and 139 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 6, 2018, we served 1,229 independently owned Carquest branded stores (“independent stores”) across the same geographic locations served by our stores in addition to Mexico, the Bahamas, Turks and Caicos, the British Virgin Islands and the Pacific Islands.

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 2017 as filed with the SEC on February 21, 2018.

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.

XML

Significant Accounting Policies

9 Months Ended

Oct. 06, 2018

Accounting Policies [Abstract]

Significant Accounting Policies

Significant Accounting Policies:

Revenues

Revenue for periods through December 30, 2017 was reported under Accounting Standards Codification (“ASC”) 605, Revenue Recognition (Topic 605), as described in our accounting policies in our 2017 Form 10-K. Effective December 31, 2017, we adopted ASC 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”). The results of applying Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

ASC 606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Discounts and incentives are treated as separate performance obligations. We allocate the contract’s transaction price to each of these performance obligations separately using explicitly stated amounts or our best estimate using historical data. Additionally, we estimate and record gift card breakage as redemptions occur.

In accordance with ASC 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate possession of the merchandise or same-day delivery is made to our Professional delivery customers, which include certain independently-owned store locations. Payment terms are established for our Professional delivery customers based on pre-established credit requirements. Payment terms vary depending on the customer and generally range from 1 to 30 days. Based on the nature of receivables, no significant financing components exist. For e-commerce sales, revenue is recognized either at the time of pick-up at one of our store locations or at the time of shipment depending on the customer's order designation. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to Net sales and Cost of sales for returns based on current sales levels and our historical return experience.

We provide assurance type warranty coverage primarily on batteries, brakes and struts whereby we are required to provide replacement product at no cost or a reduced cost for a set period of time.

We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the Condensed Consolidated Balance Sheet as of October 6, 2018. For the twelve and forty weeks ended October 6, 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was insignificant. Revenue expected to be recognized in future periods related to remaining performance obligations is insignificant.

The following table summarizes disaggregated revenue from contracts with customers by product group:

	Twelve Weeks Ended				Forty Weeks Ended
	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Percentage of Net sales, by product group:
Parts and batteries	67	%	67	%	66	%	66	%
Accessories and chemicals	19		19		20		19
Engine maintenance	13		13		13		14
Other	1		1		1		1
Total	100	%	100	%	100	%	100	%

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU is a comprehensive new accounting standard with respect to leases that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases under current GAAP. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in previous lease guidance. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those years; earlier adoption is permitted.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing entities to elect an additional transition method with which to adopt ASU 2016-02. The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the earliest comparative period presented as currently required) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. Using this transition method, we plan to adopt ASU 2016-02 at the beginning of 2019.

We are in process of implementing our leasing software solution and are continuing to identify changes to our business processes, systems and controls to support adoption of the new standard in 2019. We are evaluating the impact that the new standard will have on the condensed consolidated financial statements. While we are unable to quantify the impact at this time, we expect the adoption of the new standard to result in a material increase in the assets and liabilities in the condensed consolidated financial statements. We do not expect adoption of ASU 2016-02 to have a material impact on our condensed consolidated statements of operations as the majority of our leases will remain operating in nature. As such, the expense recognition will be similar to previously required straight-line expense treatment.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). ASU 2018-05 provides guidance on accounting for the tax effects of the U.S. Tax Cuts and Jobs Act (the “Act”) pursuant to the Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740, Income Taxes (Topic 740) within a one-year measurement period from the Act enactment date, which occurred in the financial statements for the year ended December 30, 2017. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified certain adjustments to amounts previously recorded for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings of foreign subsidiaries that resulted in a net tax benefit of $5.7 million. Our analysis under SAB 118 is complete.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) to expand the scope of ASC 718, Compensation - Stock Compensation (Topic 718) (“ASU 2018-07”), to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We elected to early adopt ASU 2018-07 in the second quarter of 2018. The results of applying ASU 2018-07 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The pronouncement is effective for years, and for interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We elected to early adopt ASU 2018-15 in the third quarter of 2018 on a prospective basis. The results of applying ASU 2018-15 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

XML

Inventories

9 Months Ended

Oct. 06, 2018

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 88% of inventories as of October 6, 2018 and December 30, 2017. Under the LIFO method, our Cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the forty weeks ended October 6, 2018 and prior years. We recorded a reduction to Cost of sales of $22.0 million and of $1.0 million for the twelve weeks ended October 6, 2018 and October 7, 2017 and reductions to Cost of sales of $54.3 million and $6.5 million for the forty weeks ended October 6, 2018 and October 7, 2017 to state inventories at LIFO.

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

Inventory balances were as follows:

(in thousands)	October 6, 2018		December 30, 2017
Inventories at first in, first out (“FIFO”)	$	3,929,650	$	3,965,370
Adjustments to state inventories at LIFO	257,432		203,122
Inventories at LIFO	$	4,187,082	$	4,168,492

XML

Exit Activities and Other Initiatives

9 Months Ended

Oct. 06, 2018

Restructuring and Related Activities [Abstract]

Exit Activities

Exit Activities and Other Initiatives

Store and Supply Chain Rationalization

During the fourth quarter of 2017, the Board of Directors approved a plan to close certain underperforming stores and begin to rationalize our supply chain costs as part of our strategy to transform the enterprise. As of October 6, 2018, total charges related to these actions are expected to total up to $70.0 million, which consist of $35.0 million relating to the early termination of lease obligations, $15.0 million of inventory and supply chain asset impairment charges, $15.0 million of other facility closure costs and $5.0 million of severance.

During the twelve weeks ended October 6, 2018, we incurred $13.9 million of early termination of lease obligations charges, $1.1 million of inventory and supply chain asset impairment charges, $5.4 million of facility closure costs and $0.8 million of severance relating to the store and supply chain rationalization. Of these costs, $20.7 million are included in SG&A and $0.5 million are included in Cost of sales in the accompanying condensed consolidated statements of operations.

During the forty weeks ended October 6, 2018, we incurred $18.9 million of early termination of lease obligation charges, $7.9 million of inventory and supply chain asset impairment charges, $7.8 million of facility closure costs and $2.2 million of severance relating to the store and supply chain rationalization. Of these costs, $31.0 million are included in SG&A and $5.8 million are included in Cost of sales in the accompanying condensed consolidated statements of operations.

Total Exit Liabilities

Our total exit liabilities include liabilities recorded in connection with the initiative described above, along with liabilities associated with facility closures that have occurred as part of our normal market evaluation process. Cash payments on the closed facility lease obligations are expected to be made through 2028 and the remaining severance payments are expected to be made in 2019. Of our total exit liabilities as of October 6, 2018 and December 30, 2017, $25.7 million and $19.8 million is included in Other long-term liabilities and the remainder is included in Accrued expenses in the accompanying condensed consolidated balance sheet. A summary of our exit liabilities is presented in the following table:

(in thousands)	Closed Facility Lease Obligations			Severance			Total
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215
Reserves established	20,365			5,018			25,383
Change in estimates	95			(251		)	(156		)
Cash payments	(11,933		)	(3,149		)	(15,082		)
Balance, October 6, 2018	$	40,097		$	3,263		$	43,360
Balance, December 31, 2016	$	44,265		$	959		$	45,224
Reserves established	7,940			7,927			15,867
Change in estimates	(1,116		)	(699		)	(1,815		)
Cash payments	(19,519		)	(6,542		)	(26,061		)
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215

XML

Intangible Assets

9 Months Ended

Oct. 06, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Our definite-lived intangible assets include customer relationships, favorable leases and non-compete agreements. Amortization expense was $9.4 million and $10.7 million for the twelve weeks ended October 6, 2018 and October 7, 2017 and $31.3 million and $36.3 million for the forty weeks ended October 6, 2018 and October 7, 2017.

XML

Receivables, net

9 Months Ended

Oct. 06, 2018

Receivables [Abstract]

Receivables, net

Receivables, net

Receivables consist of the following:

(in thousands)	October 6, 2018			December 30, 2017
Trade	$	470,246		$	389,963
Vendor	230,422			220,510
Other	16,642			14,103
Total receivables	717,310			624,576
Less: allowance for doubtful accounts	(18,693		)	(18,219		)
Receivables, net	$	698,617		$	606,357

XML

Long-term Debt and Fair Value of Financial Instruments

9 Months Ended

Oct. 06, 2018

Debt Disclosure [Abstract]

Long-term Debt and Fair Value of Financial Instruments

Long-term Debt and Fair Value of Financial Instruments

Long-term debt consists of the following:

(in thousands)	October 6, 2018			December 30, 2017
Total long-term debt	$	1,045,609		$	1,044,677
Less: current portion of long-term debt	(211		)	(350		)
Long-term debt, excluding current portion	$	1,045,398		$	1,044,327
Fair value of long-term debt	$	1,071,000		$	1,109,000

Fair Value of Financial Assets and Liabilities

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

Bank Debt

As of October 6, 2018 and December 30, 2017 we had no outstanding borrowings under the revolver and borrowing availability was $896.0 million and $517.6 million based on our leverage ratio. As of October 6, 2018 and December 30, 2017, we had letters of credit outstanding of $104.0 million and $111.7 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 October 6, 2018.

Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are our customers totaling $23.7 million and $24.8 million as of October 6, 2018 and December 30, 2017. 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 $55.8 million and $62.8 million as of October 6, 2018 and December 30, 2017. We believe that the likelihood of performance under these guarantees is remote.

XML

Warranty Liabilities

9 Months Ended

Oct. 06, 2018

Product Warranties Disclosures [Abstract]

Warranty Liabilities

Warranty Liabilities

The following table presents changes in our warranty reserves:

	Forty Weeks Ended			Fifty-Two Weeks Ended
(in thousands)	October 6, 2018			December 30, 2017
Warranty reserve, beginning of period	$	49,024		$	47,243
Additions to warranty reserves	32,274			50,895
Reserves utilized	(35,573		)	(49,114		)
Warranty reserve, end of period	$	45,725		$	49,024

XML

Share Repurchase Program

9 Months Ended

Oct. 06, 2018

Stock Repurchases: [Abstract]

Treasury Stock

Share Repurchase Program

Our share repurchase program permits the repurchase of our common stock on the open market or in privately negotiated transactions from time to time. On August 8, 2018, our Board of Directors authorized a $600.0 million share repurchase program. This new authorization replaced the previous $500.0 million share repurchase program that was authorized by our Board of Directors on May 14, 2012.

During the twelve and forty weeks ended October 6, 2018, we repurchased 720 thousand shares of our common stock at an aggregate cost of $119.9 million, or an average price of $166.57 per share, in connection with our share repurchase program. We had $480.1 million remaining under our share repurchase program as of October 6, 2018. During the twelve and forty weeks ended October 7, 2017, we repurchased no shares of our common stock in connection with our prior share repurchase program.

XML

Earnings per Share

9 Months Ended

Oct. 06, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Earnings per Share

The computation of basic and diluted earnings per share are as follows:

	Twelve Weeks Ended				Forty Weeks Ended
(in thousands, except per share data)	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Numerator
Net income applicable to common shares	$	115,843	$	95,996	$	370,405	$	291,005
Denominator
Basic weighted average common shares	73,888		73,866		73,974		73,827
Dilutive impact of share-based awards	302		240		238		270
Diluted weighted average common shares	74,190		74,106		74,212		74,097
Basic earnings per common share	$	1.57	$	1.30	$	5.01	$	3.94
Diluted earnings per common share	$	1.56	$	1.30	$	4.99	$	3.93

XML

Share-Based Compensation

9 Months Ended

Oct. 06, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-Based Compensation

During the forty weeks ended October 6, 2018, we granted 230 thousand time-based restricted stock units (“RSUs”), 72 thousand performance-based RSUs and 38 thousand market-based RSUs. The general terms of the time-based, performance-based and market-based RSUs are similar to awards previously granted by us.

The weighted average fair values of the time-based, performance-based and market-based RSUs granted during the forty weeks ended October 6, 2018 were $126.32, $117.84 and $131.96 per share. For time-based and performance-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.

Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 6, 2018 was $1.7 million and $4.7 million. Total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 7, 2017 was $3.1 million and $10.5 million. As of October 6, 2018, there was $52.5 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.

XML

Condensed Consolidating Financial Statements

9 Months Ended

Oct. 06, 2018

Condensed Consolidating Financial Statements [Abstract]

Condensed Consolidating Financial Statements

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”).

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 October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	886,608	$	83,398		$	—		$	970,006
Receivables, net	—		654,001		44,616			—			698,617
Inventories	—		4,018,991		168,091			—			4,187,082
Other current assets	24,809		163,333		3,732			(23,296		)	168,578
Total current assets	24,809		5,722,933		299,837			(23,296		)	6,024,283
Property and equipment, net of accumulated depreciation	83		1,326,422		9,264			—			1,335,769
Goodwill	—		943,358		49,406			—			992,764
Intangible assets, net	—		519,989		42,709			—			562,698
Other assets, net	2,384		56,223		616			(2,384		)	56,839
Investment in subsidiaries	3,898,615		481,256		—			(4,379,871		)	—
Intercompany note receivable	1,048,924		—		—			(1,048,924		)	—
Due from intercompany, net	—		—		312,726			(312,726		)	—
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,823,263	$	200,397		$	—		$	3,023,660
Accrued expenses	—		654,607		17,506			(23,296		)	648,817
Other current liabilities	—		50,887		(2,132		)	—			48,755
Total current liabilities	—		3,528,757		215,771			(23,296		)	3,721,232
Long-term debt	1,045,398		—		—			—			1,045,398
Deferred income taxes	—		306,327		16,217			(2,384		)	320,160
Other long-term liabilities	—		224,613		1,314			—			225,927
Intercompany note payable	—		1,048,924		—			(1,048,924		)	—
Due to intercompany, net	269,781		42,945		—			(312,726		)	—
Commitments and contingencies
Stockholders' equity	3,659,636		3,898,615		481,256			(4,379,871		)	3,659,636
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353

Condensed Consolidating Balance Sheet

As of December 30, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	23	$	482,620	$	64,317	$	(23	)	$	546,937
Receivables, net	—		567,460		38,897		—			606,357
Inventories	—		3,986,724		181,768		—			4,168,492
Other current assets	—		103,118		2,063		(75		)	105,106
Total current assets	23		5,139,922		287,045		(98		)	5,426,892
Property and equipment, net of accumulated depreciation	103		1,384,115		9,920		—			1,394,138
Goodwill	—		943,359		50,934		—			994,293
Intangible assets, net	—		551,781		45,893		—			597,674
Other assets, net	3,224		68,749		554		(3,223		)	69,304
Investment in subsidiaries	3,521,330		448,462		—		(3,969,792		)	—
Intercompany note receivable	1,048,700		—		—		(1,048,700		)	—
Due from intercompany, net	—		—		332,467		(332,467		)	—
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,657,792	$	236,790	$	—		$	2,894,582
Accrued expenses	1,134		511,841		20,648		(75		)	533,548
Other current liabilities	—		50,963		1,027		(23		)	51,967
Total current liabilities	1,134		3,220,596		258,465		(98		)	3,480,097
Long-term debt	1,044,327		—		—		—			1,044,327
Deferred income taxes	—		288,999		17,844		(3,223		)	303,620
Other long-term liabilities	—		237,019		2,042		—			239,061
Intercompany note payable	—		1,048,700		—		(1,048,700		)	—
Due to intercompany, net	112,723		219,744		—		(332,467		)	—
Commitments and contingencies
Stockholders' equity	3,415,196		3,521,330		448,462		(3,969,792		)	3,415,196
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	2,190,822		$	115,675	$	(31,515	)	$	2,274,982
Cost of sales, including purchasing and warehousing costs	—			1,220,367			79,203		(31,515		)	1,268,055
Gross profit	—			970,455			36,472		—			1,006,927
Selling, general and administrative expenses	4,631			837,047			22,812		(11,804		)	852,686
Operating (loss) income	(4,631		)	133,408			13,660		11,804			154,241
Other, net:
Interest expense	(12,059		)	(1,018		)	1		—			(13,076		)
Other income (expense), net	16,759			(564		)	1,364		(11,804		)	5,755
Total other, net	4,700			(1,582		)	1,365		(11,804		)	(7,321		)
Income before provision for income taxes	69			131,826			15,025		—			146,920
Provision for income taxes	229			27,624			3,224		—			31,077
(Loss) income before equity in earnings of subsidiaries	(160		)	104,202			11,801		—			115,843
Equity in earnings of subsidiaries	116,003			11,801			—		(127,804		)	—
Net income	$	115,843		$	116,003		$	11,801	$	(127,804	)	$	115,843

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,098,475		$	122,495		$	(38,737	)	$	2,182,233
Cost of sales, including purchasing and warehousing costs	—			1,185,654			87,608			(38,737		)	1,234,525
Gross profit	—			912,821			34,887			—			947,708
Selling, general and administrative expenses	5,806			777,201			19,751			(11,619		)	791,139
Operating (loss) income	(5,806		)	135,620			15,136			11,619			156,569
Other, net:
Interest (expense) income	(11,874		)	(1,401		)	(39		)	—			(13,314		)
Other income (expense), net	17,832			(4,665		)	(803		)	(11,619		)	745
Total other, net	5,958			(6,066		)	(842		)	(11,619		)	(12,569		)
Income before provision for income taxes	152			129,554			14,294			—			144,000
(Benefit) provision for income taxes	(136		)	45,626			2,514			—			48,004
Income before equity in earnings of subsidiaries	288			83,928			11,780			—			95,996
Equity in earnings of subsidiaries	95,708			11,781			—			(107,489		)	—
Net income	$	95,996		$	95,709		$	11,780		$	(107,489	)	$	95,996

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,197,953		$	405,864		$	(128,335	)	$	7,475,482
Cost of sales, including purchasing and warehousing costs	—			4,035,319			277,729			(128,335		)	4,184,713
Gross profit	—			3,162,634			128,135			—			3,290,769
Selling, general and administrative expenses	14,290			2,719,172			76,634			(39,349		)	2,770,747
Operating (loss) income	(14,290		)	443,462			51,501			39,349			520,022
Other, net:
Interest expense	(40,194		)	(3,419		)	—			—			(43,613		)
Other income (expense), net	55,007			(4,766		)	(1,894		)	(39,349		)	8,998
Total other, net	14,813			(8,185		)	(1,894		)	(39,349		)	(34,615		)
Income before provision for income taxes	523			435,277			49,607			—			485,407
Provision for income taxes	1,287			103,589			10,126			—			115,002
(Loss) income before equity in earnings of subsidiaries	(764		)	331,688			39,481			—			370,405
Equity in earnings of subsidiaries	371,169			39,481			—			(410,650		)	—
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,075,603		$	432,790		$	(171,595	)	$	7,336,798
Cost of sales, including purchasing and warehousing costs	—			3,987,575			309,338			(171,595		)	4,125,318
Gross profit	—			3,088,028			123,452			—			3,211,480
Selling, general and administrative expenses	25,973			2,678,822			63,017			(39,392		)	2,728,420
Operating (loss) income	(25,973		)	409,206			60,435			39,392			483,060
Other, net:
Interest (expense) income	(40,240		)	(5,424		)	(1		)	—			(45,665		)
Other income (expense), net	67,183			(17,430		)	(1,634		)	(39,392		)	8,727
Total other, net	26,943			(22,854		)	(1,635		)	(39,392		)	(36,938		)
Income before provision for income taxes	970			386,352			58,800			—			446,122
(Benefit) provision for income taxes	(1,752		)	145,923			10,946			—			155,117
Income before equity in earnings of subsidiaries	2,722			240,429			47,854			—			291,005
Equity in earnings of subsidiaries	288,283			47,855			—			(336,138		)	—
Net income	$	291,005		$	288,284		$	47,854		$	(336,138	)	$	291,005

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	115,843	$	116,003	$	11,801	$	(127,804	)	$	115,843
Other comprehensive income	3,831		3,831		3,900		(7,731		)	3,831
Comprehensive income	$	119,674	$	119,834	$	15,701	$	(135,535	)	$	119,674

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	95,996	$	95,709	$	11,780	$	(107,489	)	$	95,996
Other comprehensive income	2,162		2,162		2,225		(4,387		)	2,162
Comprehensive income	$	98,158	$	97,871	$	14,005	$	(111,876	)	$	98,158

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405
Other comprehensive loss	(7,129		)	(7,129		)	(6,902		)	14,031			(7,129		)
Comprehensive income	$	363,276		$	364,040		$	32,579		$	(396,619	)	$	363,276

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	291,005	$	288,284	$	47,854	$	(336,138	)	$	291,005
Other comprehensive income	15,198		15,198		15,409		(30,607		)	15,198
Comprehensive income	$	306,203	$	303,482	$	63,263	$	(366,745	)	$	306,203

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—		$	656,847		$	24,656		$	—		$	681,503
Cash flows from investing activities:
Purchases of property and equipment	—			(104,065		)	(1,067		)	—			(105,132		)
Proceeds from sales of property and equipment	—			1,406			44			—			1,450
Net cash used in investing activities	—			(102,659		)	(1,023		)	—			(103,682		)
Cash flows from financing activities:
Decrease in bank overdrafts	—			(8,513		)	(3,460		)	—			(11,973		)
Dividends paid	—			(17,819		)	—			—			(17,819		)
Proceeds from the issuance of common stock	—			2,290			—			—			2,290
Tax withholdings related to the exercise of stock appreciation rights	—			(490		)	—			—			(490		)
Repurchase of common stock	—			(126,482		)	—			—			(126,482		)
Other, net	(23		)	814			—			23			814
Net cash used in financing activities	(23		)	(150,200		)	(3,460		)	23			(153,660		)
Effect of exchange rate changes on cash	—			—			(1,092		)	—			(1,092		)
Net (decrease) increase in cash and cash equivalents	(23		)	403,988			19,081			23			423,069
Cash and cash equivalents, beginning of period	23			482,620			64,317			(23		)	546,937
Cash and cash equivalents, end of period	$	—		$	886,608		$	83,398		$	—		$	970,006

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 7, 2017

(In thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	—	$	406,032		$	(5,027	)	$	—		$	401,005
Cash flows from investing activities:
Purchases of property and equipment	—		(159,769		)	(1,191		)	—			(160,960		)
Proceeds from sales of property and equipment	—		6,108			12			—			6,120
Other, net	—		480			(460		)	—			20
Net cash used in investing activities	—		(153,181		)	(1,639		)	—			(154,820		)
Cash flows from financing activities:
Increase in bank overdrafts	—		7,374			(2,698		)	—			4,676
Borrowings under credit facilities	—		534,400			—			—			534,400
Payments on credit facilities	—		(534,400		)	—			—			(534,400		)
Dividends paid	—		(17,828		)	—			—			(17,828		)
Proceeds from the issuance of common stock	—		3,142			—			—			3,142
Tax withholdings related to the exercise of stock appreciation rights	—		(6,414		)	—			—			(6,414		)
Repurchase of common stock	—		(3,380		)	—			—			(3,380		)
Other, net	1		(2,095		)	—			(1		)	(2,095		)
Net cash provided by (used in) financing activities	1		(19,201		)	(2,698		)	(1		)	(21,899		)
Effect of exchange rate changes on cash	—		—			3,838			(1		)	3,838
Net increase (decrease) in cash and cash equivalents	1		233,650			(5,526		)	(1		)	228,124
Cash and cash equivalents, beginning of period	22		78,543			56,635			(22		)	135,178
Cash and cash equivalents, end of period	$	23	$	312,193		$	51,109		$	(23	)	$	363,302

XML

Significant Accounting Policies (Policies)

9 Months Ended

Oct. 06, 2018

Accounting Policies [Abstract]

Revenues

Revenues

Revenue for periods through December 30, 2017 was reported under Accounting Standards Codification (“ASC”) 605, Revenue Recognition (Topic 605), as described in our accounting policies in our 2017 Form 10-K. Effective December 31, 2017, we adopted ASC 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”). The results of applying Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

ASC 606 defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of our contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Discounts and incentives are treated as separate performance obligations. We allocate the contract’s transaction price to each of these performance obligations separately using explicitly stated amounts or our best estimate using historical data. Additionally, we estimate and record gift card breakage as redemptions occur.

In accordance with ASC 606 revenue is recognized at the time the sale is made, at which time our walk-in customers take immediate possession of the merchandise or same-day delivery is made to our Professional delivery customers, which include certain independently-owned store locations. Payment terms are established for our Professional delivery customers based on pre-established credit requirements. Payment terms vary depending on the customer and generally range from 1 to 30 days. Based on the nature of receivables, no significant financing components exist. For e-commerce sales, revenue is recognized either at the time of pick-up at one of our store locations or at the time of shipment depending on the customer's order designation. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to Net sales and Cost of sales for returns based on current sales levels and our historical return experience.

We provide assurance type warranty coverage primarily on batteries, brakes and struts whereby we are required to provide replacement product at no cost or a reduced cost for a set period of time.

We had no material contract assets, contract liabilities or costs to obtain and fulfill contracts recorded on the Condensed Consolidated Balance Sheet as of October 6, 2018. For the twelve and forty weeks ended October 6, 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was insignificant. Revenue expected to be recognized in future periods related to remaining performance obligations is insignificant.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU is a comprehensive new accounting standard with respect to leases that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require lessees to recognize lease assets and lease liabilities for most leases, including those leases previously classified as operating leases under current GAAP. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in previous lease guidance. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those years; earlier adoption is permitted.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides clarifications and improvements to ASU 2016-02 including allowing entities to elect an additional transition method with which to adopt ASU 2016-02. The approved transition method enables entities to apply the transition requirements in this ASU at the effective date of ASU 2016-02 (rather than at the beginning of the earliest comparative period presented as currently required) with the effect of initially applying ASU 2016-02 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. Using this transition method, we plan to adopt ASU 2016-02 at the beginning of 2019.

We are in process of implementing our leasing software solution and are continuing to identify changes to our business processes, systems and controls to support adoption of the new standard in 2019. We are evaluating the impact that the new standard will have on the condensed consolidated financial statements. While we are unable to quantify the impact at this time, we expect the adoption of the new standard to result in a material increase in the assets and liabilities in the condensed consolidated financial statements. We do not expect adoption of ASU 2016-02 to have a material impact on our condensed consolidated statements of operations as the majority of our leases will remain operating in nature. As such, the expense recognition will be similar to previously required straight-line expense treatment.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). ASU 2018-05 provides guidance on accounting for the tax effects of the U.S. Tax Cuts and Jobs Act (the “Act”) pursuant to the Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740, Income Taxes (Topic 740) within a one-year measurement period from the Act enactment date, which occurred in the financial statements for the year ended December 30, 2017. During the third quarter of 2018, and in conjunction with the completion of our 2017 U.S. income tax return, we identified certain adjustments to amounts previously recorded for the remeasurement of the net deferred tax liability and nonrecurring repatriation tax on accumulated earnings of foreign subsidiaries that resulted in a net tax benefit of $5.7 million. Our analysis under SAB 118 is complete.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718) to expand the scope of ASC 718, Compensation - Stock Compensation (Topic 718) (“ASU 2018-07”), to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We elected to early adopt ASU 2018-07 in the second quarter of 2018. The results of applying ASU 2018-07 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The pronouncement is effective for years, and for interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We elected to early adopt ASU 2018-15 in the third quarter of 2018 on a prospective basis. The results of applying ASU 2018-15 were insignificant and did not have a material impact on our consolidated financial condition, results of operations, cash flows, business process, controls or systems.

XML

Significant Accounting Policies (Tables)

9 Months Ended

Oct. 06, 2018

Accounting Policies [Abstract]

Revenue from External Customers by Products and Services

The following table summarizes disaggregated revenue from contracts with customers by product group:

	Twelve Weeks Ended				Forty Weeks Ended
	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Percentage of Net sales, by product group:
Parts and batteries	67	%	67	%	66	%	66	%
Accessories and chemicals	19		19		20		19
Engine maintenance	13		13		13		14
Other	1		1		1		1
Total	100	%	100	%	100	%	100	%

XML

Inventories (Tables)

9 Months Ended

Oct. 06, 2018

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory balances were as follows:

(in thousands)	October 6, 2018		December 30, 2017
Inventories at first in, first out (“FIFO”)	$	3,929,650	$	3,965,370
Adjustments to state inventories at LIFO	257,432		203,122
Inventories at LIFO	$	4,187,082	$	4,168,492

XML

Exit Activities and Other Initiatives (Tables)

9 Months Ended

Oct. 06, 2018

Restructuring and Related Activities [Abstract]

Schedule of Restructuring Reserve by Type of Cost

A summary of our exit liabilities is presented in the following table:

(in thousands)	Closed Facility Lease Obligations			Severance			Total
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215
Reserves established	20,365			5,018			25,383
Change in estimates	95			(251		)	(156		)
Cash payments	(11,933		)	(3,149		)	(15,082		)
Balance, October 6, 2018	$	40,097		$	3,263		$	43,360
Balance, December 31, 2016	$	44,265		$	959		$	45,224
Reserves established	7,940			7,927			15,867
Change in estimates	(1,116		)	(699		)	(1,815		)
Cash payments	(19,519		)	(6,542		)	(26,061		)
Balance, December 30, 2017	$	31,570		$	1,645		$	33,215

XML

Receivables, net (Tables)

9 Months Ended

Oct. 06, 2018

Receivables [Abstract]

Schedule of Accounts Receivable

Receivables consist of the following:

(in thousands)	October 6, 2018			December 30, 2017
Trade	$	470,246		$	389,963
Vendor	230,422			220,510
Other	16,642			14,103
Total receivables	717,310			624,576
Less: allowance for doubtful accounts	(18,693		)	(18,219		)
Receivables, net	$	698,617		$	606,357

XML

Long-term Debt and Fair Value of Financial Instruments (Tables)

9 Months Ended

Oct. 06, 2018

Debt Disclosure [Abstract]

Schedule of Debt

Long-term debt consists of the following:

(in thousands)	October 6, 2018			December 30, 2017
Total long-term debt	$	1,045,609		$	1,044,677
Less: current portion of long-term debt	(211		)	(350		)
Long-term debt, excluding current portion	$	1,045,398		$	1,044,327
Fair value of long-term debt	$	1,071,000		$	1,109,000

XML

Warranty Liabilities (Tables)

9 Months Ended

Oct. 06, 2018

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability

The following table presents changes in our warranty reserves:

	Forty Weeks Ended			Fifty-Two Weeks Ended
(in thousands)	October 6, 2018			December 30, 2017
Warranty reserve, beginning of period	$	49,024		$	47,243
Additions to warranty reserves	32,274			50,895
Reserves utilized	(35,573		)	(49,114		)
Warranty reserve, end of period	$	45,725		$	49,024

XML

Earnings per Share (Tables)

9 Months Ended

Oct. 06, 2018

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The computation of basic and diluted earnings per share are as follows:

	Twelve Weeks Ended				Forty Weeks Ended
(in thousands, except per share data)	October 6, 2018		October 7, 2017		October 6, 2018		October 7, 2017
Numerator
Net income applicable to common shares	$	115,843	$	95,996	$	370,405	$	291,005
Denominator
Basic weighted average common shares	73,888		73,866		73,974		73,827
Dilutive impact of share-based awards	302		240		238		270
Diluted weighted average common shares	74,190		74,106		74,212		74,097
Basic earnings per common share	$	1.57	$	1.30	$	5.01	$	3.94
Diluted earnings per common share	$	1.56	$	1.30	$	4.99	$	3.93

XML

Condensed Consolidating Financial Statements (Tables)

9 Months Ended

Oct. 06, 2018

Condensed Consolidating Financial Statements [Abstract]

Condensed Consolidating Balance Sheet

Condensed Consolidating Balance Sheet

As of October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	886,608	$	83,398		$	—		$	970,006
Receivables, net	—		654,001		44,616			—			698,617
Inventories	—		4,018,991		168,091			—			4,187,082
Other current assets	24,809		163,333		3,732			(23,296		)	168,578
Total current assets	24,809		5,722,933		299,837			(23,296		)	6,024,283
Property and equipment, net of accumulated depreciation	83		1,326,422		9,264			—			1,335,769
Goodwill	—		943,358		49,406			—			992,764
Intangible assets, net	—		519,989		42,709			—			562,698
Other assets, net	2,384		56,223		616			(2,384		)	56,839
Investment in subsidiaries	3,898,615		481,256		—			(4,379,871		)	—
Intercompany note receivable	1,048,924		—		—			(1,048,924		)	—
Due from intercompany, net	—		—		312,726			(312,726		)	—
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,823,263	$	200,397		$	—		$	3,023,660
Accrued expenses	—		654,607		17,506			(23,296		)	648,817
Other current liabilities	—		50,887		(2,132		)	—			48,755
Total current liabilities	—		3,528,757		215,771			(23,296		)	3,721,232
Long-term debt	1,045,398		—		—			—			1,045,398
Deferred income taxes	—		306,327		16,217			(2,384		)	320,160
Other long-term liabilities	—		224,613		1,314			—			225,927
Intercompany note payable	—		1,048,924		—			(1,048,924		)	—
Due to intercompany, net	269,781		42,945		—			(312,726		)	—
Commitments and contingencies
Stockholders' equity	3,659,636		3,898,615		481,256			(4,379,871		)	3,659,636
	$	4,974,815	$	9,050,181	$	714,558		$	(5,767,201	)	$	8,972,353

Condensed Consolidating Balance Sheet

As of December 30, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	23	$	482,620	$	64,317	$	(23	)	$	546,937
Receivables, net	—		567,460		38,897		—			606,357
Inventories	—		3,986,724		181,768		—			4,168,492
Other current assets	—		103,118		2,063		(75		)	105,106
Total current assets	23		5,139,922		287,045		(98		)	5,426,892
Property and equipment, net of accumulated depreciation	103		1,384,115		9,920		—			1,394,138
Goodwill	—		943,359		50,934		—			994,293
Intangible assets, net	—		551,781		45,893		—			597,674
Other assets, net	3,224		68,749		554		(3,223		)	69,304
Investment in subsidiaries	3,521,330		448,462		—		(3,969,792		)	—
Intercompany note receivable	1,048,700		—		—		(1,048,700		)	—
Due from intercompany, net	—		—		332,467		(332,467		)	—
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	2,657,792	$	236,790	$	—		$	2,894,582
Accrued expenses	1,134		511,841		20,648		(75		)	533,548
Other current liabilities	—		50,963		1,027		(23		)	51,967
Total current liabilities	1,134		3,220,596		258,465		(98		)	3,480,097
Long-term debt	1,044,327		—		—		—			1,044,327
Deferred income taxes	—		288,999		17,844		(3,223		)	303,620
Other long-term liabilities	—		237,019		2,042		—			239,061
Intercompany note payable	—		1,048,700		—		(1,048,700		)	—
Due to intercompany, net	112,723		219,744		—		(332,467		)	—
Commitments and contingencies
Stockholders' equity	3,415,196		3,521,330		448,462		(3,969,792		)	3,415,196
	$	4,573,380	$	8,536,388	$	726,813	$	(5,354,280	)	$	8,482,301

Condensed Consolidating Statement of Operations

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	2,190,822		$	115,675	$	(31,515	)	$	2,274,982
Cost of sales, including purchasing and warehousing costs	—			1,220,367			79,203		(31,515		)	1,268,055
Gross profit	—			970,455			36,472		—			1,006,927
Selling, general and administrative expenses	4,631			837,047			22,812		(11,804		)	852,686
Operating (loss) income	(4,631		)	133,408			13,660		11,804			154,241
Other, net:
Interest expense	(12,059		)	(1,018		)	1		—			(13,076		)
Other income (expense), net	16,759			(564		)	1,364		(11,804		)	5,755
Total other, net	4,700			(1,582		)	1,365		(11,804		)	(7,321		)
Income before provision for income taxes	69			131,826			15,025		—			146,920
Provision for income taxes	229			27,624			3,224		—			31,077
(Loss) income before equity in earnings of subsidiaries	(160		)	104,202			11,801		—			115,843
Equity in earnings of subsidiaries	116,003			11,801			—		(127,804		)	—
Net income	$	115,843		$	116,003		$	11,801	$	(127,804	)	$	115,843

Condensed Consolidating Statement of Operations

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,098,475		$	122,495		$	(38,737	)	$	2,182,233
Cost of sales, including purchasing and warehousing costs	—			1,185,654			87,608			(38,737		)	1,234,525
Gross profit	—			912,821			34,887			—			947,708
Selling, general and administrative expenses	5,806			777,201			19,751			(11,619		)	791,139
Operating (loss) income	(5,806		)	135,620			15,136			11,619			156,569
Other, net:
Interest (expense) income	(11,874		)	(1,401		)	(39		)	—			(13,314		)
Other income (expense), net	17,832			(4,665		)	(803		)	(11,619		)	745
Total other, net	5,958			(6,066		)	(842		)	(11,619		)	(12,569		)
Income before provision for income taxes	152			129,554			14,294			—			144,000
(Benefit) provision for income taxes	(136		)	45,626			2,514			—			48,004
Income before equity in earnings of subsidiaries	288			83,928			11,780			—			95,996
Equity in earnings of subsidiaries	95,708			11,781			—			(107,489		)	—
Net income	$	95,996		$	95,709		$	11,780		$	(107,489	)	$	95,996

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,197,953		$	405,864		$	(128,335	)	$	7,475,482
Cost of sales, including purchasing and warehousing costs	—			4,035,319			277,729			(128,335		)	4,184,713
Gross profit	—			3,162,634			128,135			—			3,290,769
Selling, general and administrative expenses	14,290			2,719,172			76,634			(39,349		)	2,770,747
Operating (loss) income	(14,290		)	443,462			51,501			39,349			520,022
Other, net:
Interest expense	(40,194		)	(3,419		)	—			—			(43,613		)
Other income (expense), net	55,007			(4,766		)	(1,894		)	(39,349		)	8,998
Total other, net	14,813			(8,185		)	(1,894		)	(39,349		)	(34,615		)
Income before provision for income taxes	523			435,277			49,607			—			485,407
Provision for income taxes	1,287			103,589			10,126			—			115,002
(Loss) income before equity in earnings of subsidiaries	(764		)	331,688			39,481			—			370,405
Equity in earnings of subsidiaries	371,169			39,481			—			(410,650		)	—
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405

Condensed Consolidating Statement of Operations

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	7,075,603		$	432,790		$	(171,595	)	$	7,336,798
Cost of sales, including purchasing and warehousing costs	—			3,987,575			309,338			(171,595		)	4,125,318
Gross profit	—			3,088,028			123,452			—			3,211,480
Selling, general and administrative expenses	25,973			2,678,822			63,017			(39,392		)	2,728,420
Operating (loss) income	(25,973		)	409,206			60,435			39,392			483,060
Other, net:
Interest (expense) income	(40,240		)	(5,424		)	(1		)	—			(45,665		)
Other income (expense), net	67,183			(17,430		)	(1,634		)	(39,392		)	8,727
Total other, net	26,943			(22,854		)	(1,635		)	(39,392		)	(36,938		)
Income before provision for income taxes	970			386,352			58,800			—			446,122
(Benefit) provision for income taxes	(1,752		)	145,923			10,946			—			155,117
Income before equity in earnings of subsidiaries	2,722			240,429			47,854			—			291,005
Equity in earnings of subsidiaries	288,283			47,855			—			(336,138		)	—
Net income	$	291,005		$	288,284		$	47,854		$	(336,138	)	$	291,005

Condensed Consolidating Statement of Comprehensive Income

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	115,843	$	116,003	$	11,801	$	(127,804	)	$	115,843
Other comprehensive income	3,831		3,831		3,900		(7,731		)	3,831
Comprehensive income	$	119,674	$	119,834	$	15,701	$	(135,535	)	$	119,674

Condensed Consolidating Statement of Comprehensive Income

For the Twelve Weeks ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	95,996	$	95,709	$	11,780	$	(107,489	)	$	95,996
Other comprehensive income	2,162		2,162		2,225		(4,387		)	2,162
Comprehensive income	$	98,158	$	97,871	$	14,005	$	(111,876	)	$	98,158

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income	$	370,405		$	371,169		$	39,481		$	(410,650	)	$	370,405
Other comprehensive loss	(7,129		)	(7,129		)	(6,902		)	14,031			(7,129		)
Comprehensive income	$	363,276		$	364,040		$	32,579		$	(396,619	)	$	363,276

Condensed Consolidating Statement of Comprehensive Income

For the Forty Weeks Ended October 7, 2017

(in thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net income	$	291,005	$	288,284	$	47,854	$	(336,138	)	$	291,005
Other comprehensive income	15,198		15,198		15,409		(30,607		)	15,198
Comprehensive income	$	306,203	$	303,482	$	63,263	$	(366,745	)	$	306,203

Condensed Consolidating Statement of Cash Flows

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 6, 2018

(in thousands)	Advance Auto Parts, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—		$	656,847		$	24,656		$	—		$	681,503
Cash flows from investing activities:
Purchases of property and equipment	—			(104,065		)	(1,067		)	—			(105,132		)
Proceeds from sales of property and equipment	—			1,406			44			—			1,450
Net cash used in investing activities	—			(102,659		)	(1,023		)	—			(103,682		)
Cash flows from financing activities:
Decrease in bank overdrafts	—			(8,513		)	(3,460		)	—			(11,973		)
Dividends paid	—			(17,819		)	—			—			(17,819		)
Proceeds from the issuance of common stock	—			2,290			—			—			2,290
Tax withholdings related to the exercise of stock appreciation rights	—			(490		)	—			—			(490		)
Repurchase of common stock	—			(126,482		)	—			—			(126,482		)
Other, net	(23		)	814			—			23			814
Net cash used in financing activities	(23		)	(150,200		)	(3,460		)	23			(153,660		)
Effect of exchange rate changes on cash	—			—			(1,092		)	—			(1,092		)
Net (decrease) increase in cash and cash equivalents	(23		)	403,988			19,081			23			423,069
Cash and cash equivalents, beginning of period	23			482,620			64,317			(23		)	546,937
Cash and cash equivalents, end of period	$	—		$	886,608		$	83,398		$	—		$	970,006

Condensed Consolidating Statement of Cash Flows

For the Forty Weeks Ended October 7, 2017

(In thousands)	Advance Auto Parts, Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	—	$	406,032		$	(5,027	)	$	—		$	401,005
Cash flows from investing activities:
Purchases of property and equipment	—		(159,769		)	(1,191		)	—			(160,960		)
Proceeds from sales of property and equipment	—		6,108			12			—			6,120
Other, net	—		480			(460		)	—			20
Net cash used in investing activities	—		(153,181		)	(1,639		)	—			(154,820		)
Cash flows from financing activities:
Increase in bank overdrafts	—		7,374			(2,698		)	—			4,676
Borrowings under credit facilities	—		534,400			—			—			534,400
Payments on credit facilities	—		(534,400		)	—			—			(534,400		)
Dividends paid	—		(17,828		)	—			—			(17,828		)
Proceeds from the issuance of common stock	—		3,142			—			—			3,142
Tax withholdings related to the exercise of stock appreciation rights	—		(6,414		)	—			—			(6,414		)
Repurchase of common stock	—		(3,380		)	—			—			(3,380		)
Other, net	1		(2,095		)	—			(1		)	(2,095		)
Net cash provided by (used in) financing activities	1		(19,201		)	(2,698		)	(1		)	(21,899		)
Effect of exchange rate changes on cash	—		—			3,838			(1		)	3,838
Net increase (decrease) in cash and cash equivalents	1		233,650			(5,526		)	(1		)	228,124
Cash and cash equivalents, beginning of period	22		78,543			56,635			(22		)	135,178
Cash and cash equivalents, end of period	$	23	$	312,193		$	51,109		$	(23	)	$	363,302

XML

Nature of Operations and Basis of Presentation (Details)	Oct. 06, 2018 store
Stores [Member]
Basis of Presentation [Line Items]
Number of Stores	4,981
Branches [Member]
Basis of Presentation [Line Items]
Number of Stores	139
Independently owned Carquest store locations [Member]
Basis of Presentation [Line Items]
Number of Stores	1,229

XML

Significant Accounting Policies (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Accounting Policies [Abstract]
Provision for income taxes related to the Act, remeasurement period benefit	$ 5.7		$ 5.7
Revenue from External Customer [Line Items]
Percentage Of Sales By Product Group	100.00%	100.00%	100.00%	100.00%
Parts and Batteries [Member]
Revenue from External Customer [Line Items]
Percentage Of Sales By Product Group	67.00%	67.00%	66.00%	66.00%
Accessories and Chemicals [Member]
Revenue from External Customer [Line Items]
Percentage Of Sales By Product Group	19.00%	19.00%	20.00%	19.00%
Engine Maintenance [Member]
Revenue from External Customer [Line Items]
Percentage Of Sales By Product Group	13.00%	13.00%	13.00%	14.00%
Other [Member]
Revenue from External Customer [Line Items]
Percentage Of Sales By Product Group	1.00%	1.00%	1.00%	1.00%

XML

Inventories (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017	Dec. 30, 2017
Inventory [Line Items]
Percentage of LIFO Inventory	88.00%		88.00%		88.00%
Inventory, LIFO Reserve, Effect on Income, Net	$ 22,000	$ 1,000	$ 54,300	$ 6,500
Inventories at FIFO	3,929,650		3,929,650		$ 3,965,370
Adjustments to state inventories at LIFO	257,432		257,432		203,122
Inventories at LIFO	$ 4,187,082		$ 4,187,082		$ 4,168,492

XML

Exit Activities and Other Initiativies (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Oct. 06, 2018	Oct. 06, 2018	Dec. 29, 2018	Dec. 30, 2017
Restructuring Reserve [Roll Forward]
Restructuring Reserve, beginning of period		$ 33,215	$ 33,215	$ 45,224
Reserves established		25,383		15,867
Change in estimates		(156)		(1,815)
Cash payments		(15,082)		(26,061)
Restructuring Reserve, end of period	$ 43,360	43,360		33,215
Closed Facility Lease Obligations [Member]
Restructuring Reserve [Roll Forward]
Restructuring Reserve, beginning of period		31,570	31,570	44,265
Reserves established		20,365		7,940
Change in estimates		95		(1,116)
Cash payments		(11,933)		(19,519)
Restructuring Reserve, end of period	40,097	40,097		31,570
Closed Facility Lease Obligations [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	13,900	18,900
Severance [Member]
Restructuring Reserve [Roll Forward]
Restructuring Reserve, beginning of period		1,645	1,645	959
Reserves established		5,018		7,927
Change in estimates		(251)		(699)
Cash payments		(3,149)		(6,542)
Restructuring Reserve, end of period	3,263	3,263		1,645
Severance [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	800	2,200
Impairment [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	1,100	7,900
Other facility closure costs [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	5,400	7,800
Other Noncurrent Liabilities [Member]
Restructuring Reserve [Roll Forward]
Restructuring Reserve, beginning of period		19,800	19,800
Restructuring Reserve, end of period	25,700	25,700		$ 19,800
Scenario, Forecast [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost			70,000
Scenario, Forecast [Member] | Closed Facility Lease Obligations [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost			35,000
Scenario, Forecast [Member] | Severance [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost			5,000
Scenario, Forecast [Member] | Impairment [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost			15,000
Scenario, Forecast [Member] | Other facility closure costs [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost			$ 15,000
Selling, General and Administrative Expenses [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	20,700	31,000
Cost of Sales [Member] | StoreAndSupplyChainRationaization [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring and Related Cost, Incurred Cost	$ 500	$ 5,800

XML

Intangible Asset (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization Expense	$ 9.4	$ 10.7	$ 31.3	$ 36.3

XML

Receivables, net (Details) - USD ($) $ in Thousands	Oct. 06, 2018	Dec. 30, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables	$ 717,310	$ 624,576
Less: Allowance for doubtful accounts	(18,693)	(18,219)
Receivables, net	698,617	606,357
Trade Accounts Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables	470,246	389,963
Accounts Receivable, Vendor [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables	230,422	220,510
Accounts Receivable, Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables	$ 16,642	$ 14,103

XML

Long-term Debt and Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Oct. 06, 2018	Dec. 30, 2017
Debt Instrument [Line Items]
Total long-term debt	$ 1,045,609	$ 1,044,677
Less: Current portion of long-term debt (included in Other current liabilities)	(211)	(350)
Long-term debt, excluding current portion	1,045,398	1,044,327
Fair value of long-term debt	1,071,000	1,109,000
Letters of Credit Outstanding, Amount	104,000	111,700
Line of Credit Facility, Remaining Borrowing Capacity	896,000	517,600
Guarantor Obligations, Maximum Exposure	23,700	24,800
Guarantor Obligation, Collateral Amount	55,800	62,800
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt, Long-term and Short-term, Combined Amount	$ 0	$ 0

XML

Warranty Liabilities (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Oct. 06, 2018	Dec. 30, 2017
Movement in Standard Product Warranty Accrual [Roll Forward]
Warranty reserve, beginning of period	$ 49,024	$ 47,243
Additions to warranty reserves	32,274	50,895
Reserves utilized	(35,573)	(49,114)
Warranty reserve, end of period	$ 45,725	$ 49,024

XML

Share Repurchase Program (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017	Aug. 08, 2018	May 14, 2012
Class of Stock [Line Items]
Stock Repurchase Program, Authorized Amount					$ 600.0	$ 500.0
Treasury Stock, Shares, Acquired as Part of Authorized Plan	720	0	720	0
Payments for Repurchase of Common Stock	$ 0.1		$ 119.9
Acquired, Average Cost Per Share, Acquired as Part of Plan	$ 166.57		$ 166.57
Share Repurchase Program, Remaining Authorized Repurchase Amount	$ 480.1		$ 480.1

XML

Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Net income applicable to common shares	$ 115,843	$ 95,996	$ 370,405	$ 291,005
Basic weighted average shares	73,888	73,866	73,974	73,827
Dilutive impact of share-based awards	302	240	238	270
Diluted weighted average shares	74,190	74,106	74,212	74,097
Basic earnings per share	$ 1.57	$ 1.30	$ 5.01	$ 3.94
Diluted earnings per share	$ 1.56	$ 1.30	$ 4.99	$ 3.93

XML

Share-Based Compensation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation			$ 19,265	$ 28,156
Share-based Compensation, Tax Benefit from Compensation Expense	$ 1,700	$ 3,100	4,700	$ 10,500
Share-based Compensation, Cost Not yet Recognized	$ 52,500		$ 52,500
Share-based Compensation, Cost Not yet Recognized, Period for Recognition			1 year 8 months 12 days
Performance-based RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants in Period			72
Weighted Average Grant Date Fair Value			$ 117.84
Market-based RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants in Period			38
Weighted Average Grant Date Fair Value			$ 131.96
Time-based RSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grants in Period			230
Weighted Average Grant Date Fair Value			$ 126.32

XML

Condensed Consolidating Balance Sheet (Details) - USD ($) $ in Thousands	Oct. 06, 2018	Dec. 30, 2017	Oct. 07, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 970,006	$ 546,937	$ 363,302	$ 135,178
Receivables, net	698,617	606,357
Inventories	4,187,082	4,168,492
Other current assets	168,578	105,106
Total current assets	6,024,283	5,426,892
Property and equipment, net of accumulated depreciation	1,335,769	1,394,138
Goodwill	992,764	994,293
Intangible assets, net	562,698	597,674
Other assets, net	56,839	69,304
Investment in subsidiaries	0	0
Intercompany note receivable	0	0
Due from intercompany, net	0	0
Assets, Total	8,972,353	8,482,301
Current liabilities:
Accounts payable	3,023,660	2,894,582
Accrued expenses	648,817	533,548
Other current liabilities	48,755	51,967
Total current liabilities	3,721,232	3,480,097
Long-term debt	1,045,398	1,044,327
Deferred income taxes	320,160	303,620
Other long-term liabilities	225,927	239,061
Intercompany note payable	0	0
Due to intercompany, net	0	0
Commitments and contingencies
Stockholders' equity	3,659,636	3,415,196
Liabilities and Stockholders' Equity, Total	8,972,353	8,482,301
Parent Company [Member]
Current assets:
Cash and cash equivalents	0	23	23	22
Receivables, net	0	0
Inventories	0	0
Other current assets	24,809	0
Total current assets	24,809	23
Property and equipment, net of accumulated depreciation	83	103
Goodwill	0	0
Intangible assets, net	0	0
Other assets, net	2,384	3,224
Investment in subsidiaries	3,898,615	3,521,330
Intercompany note receivable	1,048,924	1,048,700
Due from intercompany, net	0	0
Assets, Total	4,974,815	4,573,380
Current liabilities:
Accounts payable	0	0
Accrued expenses	0	1,134
Other current liabilities	0	0
Total current liabilities	0	1,134
Long-term debt	1,045,398	1,044,327
Deferred income taxes	0	0
Other long-term liabilities	0	0
Intercompany note payable	0	0
Due to intercompany, net	269,781	112,723
Commitments and contingencies
Stockholders' equity	3,659,636	3,415,196
Liabilities and Stockholders' Equity, Total	4,974,815	4,573,380
Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	886,608	482,620	312,193	78,543
Receivables, net	654,001	567,460
Inventories	4,018,991	3,986,724
Other current assets	163,333	103,118
Total current assets	5,722,933	5,139,922
Property and equipment, net of accumulated depreciation	1,326,422	1,384,115
Goodwill	943,358	943,359
Intangible assets, net	519,989	551,781
Other assets, net	56,223	68,749
Investment in subsidiaries	481,256	448,462
Intercompany note receivable	0	0
Due from intercompany, net	0	0
Assets, Total	9,050,181	8,536,388
Current liabilities:
Accounts payable	2,823,263	2,657,792
Accrued expenses	654,607	511,841
Other current liabilities	50,887	50,963
Total current liabilities	3,528,757	3,220,596
Long-term debt	0	0
Deferred income taxes	306,327	288,999
Other long-term liabilities	224,613	237,019
Intercompany note payable	1,048,924	1,048,700
Due to intercompany, net	42,945	219,744
Commitments and contingencies
Stockholders' equity	3,898,615	3,521,330
Liabilities and Stockholders' Equity, Total	9,050,181	8,536,388
Non-Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	83,398	64,317	51,109	56,635
Receivables, net	44,616	38,897
Inventories	168,091	181,768
Other current assets	3,732	2,063
Total current assets	299,837	287,045
Property and equipment, net of accumulated depreciation	9,264	9,920
Goodwill	49,406	50,934
Intangible assets, net	42,709	45,893
Other assets, net	616	554
Investment in subsidiaries	0	0
Intercompany note receivable	0	0
Due from intercompany, net	312,726	332,467
Assets, Total	714,558	726,813
Current liabilities:
Accounts payable	200,397	236,790
Accrued expenses	17,506	20,648
Other current liabilities	(2,132)	1,027
Total current liabilities	215,771	258,465
Long-term debt	0	0
Deferred income taxes	16,217	17,844
Other long-term liabilities	1,314	2,042
Intercompany note payable	0	0
Due to intercompany, net	0	0
Commitments and contingencies
Stockholders' equity	481,256	448,462
Liabilities and Stockholders' Equity, Total	714,558	726,813
Consolidation, Eliminations [Member]
Current assets:
Cash and cash equivalents	0	(23)	$ (23)	$ (22)
Receivables, net	0	0
Inventories	0	0
Other current assets	(23,296)	(75)
Total current assets	(23,296)	(98)
Property and equipment, net of accumulated depreciation	0	0
Goodwill	0	0
Intangible assets, net	0	0
Other assets, net	(2,384)	(3,223)
Investment in subsidiaries	(4,379,871)	(3,969,792)
Intercompany note receivable	(1,048,924)	(1,048,700)
Due from intercompany, net	(312,726)	(332,467)
Assets, Total	(5,767,201)	(5,354,280)
Current liabilities:
Accounts payable	0	0
Accrued expenses	(23,296)	(75)
Other current liabilities	0	(23)
Total current liabilities	(23,296)	(98)
Long-term debt	0	0
Deferred income taxes	(2,384)	(3,223)
Other long-term liabilities	0	0
Intercompany note payable	(1,048,924)	(1,048,700)
Due to intercompany, net	(312,726)	(332,467)
Commitments and contingencies
Stockholders' equity	(4,379,871)	(3,969,792)
Liabilities and Stockholders' Equity, Total	$ (5,767,201)	$ (5,354,280)

XML

Condensed Consolidated Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Condensed Income Statements, Captions [Line Items]
Net sales	$ 2,274,982	$ 2,182,233	$ 7,475,482	$ 7,336,798
Cost of sales, including purchasing and warehousing costs	1,268,055	1,234,525	4,184,713	4,125,318
Gross profit	1,006,927	947,708	3,290,769	3,211,480
Selling, general and administrative expenses	852,686	791,139	2,770,747	2,728,420
Operating income (loss)	154,241	156,569	520,022	483,060
Other, net:
Interest (expense) income	(13,076)	(13,314)	(43,613)	(45,665)
Other income (expense), net	5,755	745	8,998	8,727
Total other, net	(7,321)	(12,569)	(34,615)	(36,938)
Income before provision for income taxes	146,920	144,000	485,407	446,122
Provision (benefit) for income taxes	31,077	48,004	115,002	155,117
Income (loss) before equity in earnings of subsidiaries	115,843	95,996	370,405	291,005
Equity in earnings of subsidiaries	0	0	0	0
Net income	115,843	95,996	370,405	291,005
Parent Company [Member]
Condensed Income Statements, Captions [Line Items]
Net sales	0	0	0	0
Cost of sales, including purchasing and warehousing costs	0	0	0	0
Gross profit	0	0	0	0
Selling, general and administrative expenses	4,631	5,806	14,290	25,973
Operating income (loss)	(4,631)	(5,806)	(14,290)	(25,973)
Other, net:
Interest (expense) income	(12,059)	(11,874)	(40,194)	(40,240)
Other income (expense), net	16,759	17,832	55,007	67,183
Total other, net	4,700	5,958	14,813	26,943
Income before provision for income taxes	69	152	523	970
Provision (benefit) for income taxes	229	(136)	1,287	(1,752)
Income (loss) before equity in earnings of subsidiaries	(160)	288	(764)	2,722
Equity in earnings of subsidiaries	116,003	95,708	371,169	288,283
Net income	115,843	95,996	370,405	291,005
Guarantor Subsidiaries [Member]
Condensed Income Statements, Captions [Line Items]
Net sales	2,190,822	2,098,475	7,197,953	7,075,603
Cost of sales, including purchasing and warehousing costs	1,220,367	1,185,654	4,035,319	3,987,575
Gross profit	970,455	912,821	3,162,634	3,088,028
Selling, general and administrative expenses	837,047	777,201	2,719,172	2,678,822
Operating income (loss)	133,408	135,620	443,462	409,206
Other, net:
Interest (expense) income	(1,018)	(1,401)	(3,419)	(5,424)
Other income (expense), net	(564)	(4,665)	(4,766)	(17,430)
Total other, net	(1,582)	(6,066)	(8,185)	(22,854)
Income before provision for income taxes	131,826	129,554	435,277	386,352
Provision (benefit) for income taxes	27,624	45,626	103,589	145,923
Income (loss) before equity in earnings of subsidiaries	104,202	83,928	331,688	240,429
Equity in earnings of subsidiaries	11,801	11,781	39,481	47,855
Net income	116,003	95,709	371,169	288,284
Non-Guarantor Subsidiaries [Member]
Condensed Income Statements, Captions [Line Items]
Net sales	115,675	122,495	405,864	432,790
Cost of sales, including purchasing and warehousing costs	79,203	87,608	277,729	309,338
Gross profit	36,472	34,887	128,135	123,452
Selling, general and administrative expenses	22,812	19,751	76,634	63,017
Operating income (loss)	13,660	15,136	51,501	60,435
Other, net:
Interest (expense) income	1	(39)	0	(1)
Other income (expense), net	1,364	(803)	(1,894)	(1,634)
Total other, net	1,365	(842)	(1,894)	(1,635)
Income before provision for income taxes	15,025	14,294	49,607	58,800
Provision (benefit) for income taxes	3,224	2,514	10,126	10,946
Income (loss) before equity in earnings of subsidiaries	11,801	11,780	39,481	47,854
Equity in earnings of subsidiaries	0	0	0	0
Net income	11,801	11,780	39,481	47,854
Consolidation, Eliminations [Member]
Condensed Income Statements, Captions [Line Items]
Net sales	(31,515)	(38,737)	(128,335)	(171,595)
Cost of sales, including purchasing and warehousing costs	(31,515)	(38,737)	(128,335)	(171,595)
Gross profit	0	0	0	0
Selling, general and administrative expenses	(11,804)	(11,619)	(39,349)	(39,392)
Operating income (loss)	11,804	11,619	39,349	39,392
Other, net:
Interest (expense) income	0	0	0	0
Other income (expense), net	(11,804)	(11,619)	(39,349)	(39,392)
Total other, net	(11,804)	(11,619)	(39,349)	(39,392)
Income before provision for income taxes	0	0	0	0
Provision (benefit) for income taxes	0	0	0	0
Income (loss) before equity in earnings of subsidiaries	0	0	0	0
Equity in earnings of subsidiaries	(127,804)	(107,489)	(410,650)	(336,138)
Net income	$ (127,804)	$ (107,489)	$ (410,650)	$ (336,138)

XML

Condensed Consolidating Comprehensive Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017	Oct. 06, 2018	Oct. 07, 2017
Condensed Consolidating Comprehensive Income Statement [Line Items]
Net income	$ 115,843	$ 95,996	$ 370,405	$ 291,005
Other Comprehensive Income (Loss)	3,831	2,162	(7,129)	15,198
Comprehensive income	119,674	98,158	363,276	306,203
Parent Company [Member]
Condensed Consolidating Comprehensive Income Statement [Line Items]
Net income	115,843	95,996	370,405	291,005
Other Comprehensive Income (Loss)	3,831	2,162	(7,129)	15,198
Comprehensive income	119,674	98,158	363,276	306,203
Guarantor Subsidiaries [Member]
Condensed Consolidating Comprehensive Income Statement [Line Items]
Net income	116,003	95,709	371,169	288,284
Other Comprehensive Income (Loss)	3,831	2,162	(7,129)	15,198
Comprehensive income	119,834	97,871	364,040	303,482
Non-Guarantor Subsidiaries [Member]
Condensed Consolidating Comprehensive Income Statement [Line Items]
Net income	11,801	11,780	39,481	47,854
Other Comprehensive Income (Loss)	3,900	2,225	(6,902)	15,409
Comprehensive income	15,701	14,005	32,579	63,263
Consolidation, Eliminations [Member]
Condensed Consolidating Comprehensive Income Statement [Line Items]
Net income	(127,804)	(107,489)	(410,650)	(336,138)
Other Comprehensive Income (Loss)	(7,731)	(4,387)	14,031	(30,607)
Comprehensive income	$ (135,535)	$ (111,876)	$ (396,619)	$ (366,745)

XML

Condensed Consolidating Statement of Cash Flows (Details) - USD ($) $ in Thousands	9 Months Ended
	Oct. 06, 2018	Oct. 07, 2017
Condensed Cash Flow Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	$ 681,503	$ 401,005
Net cash used in investing activities
Purchases of property and equipment	(105,132)	(160,960)
Proceeds from sales of property and equipment	1,450	6,120
Other, net	0	20
Net cash used in investing activities	(103,682)	(154,820)
Net cash provided by (used in) financing activities
Increase (decrease) in bank overdrafts	(11,973)	4,676
Borrowings under credit facilities	0	534,400
Payments on credit facilities	0	(534,400)
Dividends paid	(17,819)	(17,828)
Proceeds from the issuance of common stock	2,290	3,142
Tax withholdings related to the exercise of stock appreciation rights	(490)	(6,414)
Repurchase of common stock	(126,482)	(3,380)
Other, net	814	(2,095)
Net Cash Provided by (Used in) Financing Activities	(153,660)	(21,899)
Effect of exchange rate changes on cash	(1,092)	3,838
Cash and Cash Equivalents, Period Increase (Decrease)	423,069	228,124
Cash and cash equivalents, beginning of period	546,937	135,178
Cash and cash equivalents, end of period	970,006	363,302
Parent Company [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	0	0
Net cash used in investing activities
Purchases of property and equipment	0	0
Proceeds from sales of property and equipment	0	0
Other, net		0
Net cash used in investing activities	0	0
Net cash provided by (used in) financing activities
Increase (decrease) in bank overdrafts	0	0
Borrowings under credit facilities		0
Payments on credit facilities		0
Dividends paid	0	0
Proceeds from the issuance of common stock	0	0
Tax withholdings related to the exercise of stock appreciation rights	0	0
Repurchase of common stock	0	0
Other, net	(23)	1
Net Cash Provided by (Used in) Financing Activities	(23)	1
Effect of exchange rate changes on cash	0	0
Cash and Cash Equivalents, Period Increase (Decrease)	(23)	1
Cash and cash equivalents, beginning of period	23	22
Cash and cash equivalents, end of period	0	23
Guarantor Subsidiaries [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	656,847	406,032
Net cash used in investing activities
Purchases of property and equipment	(104,065)	(159,769)
Proceeds from sales of property and equipment	1,406	6,108
Other, net		480
Net cash used in investing activities	(102,659)	(153,181)
Net cash provided by (used in) financing activities
Increase (decrease) in bank overdrafts	(8,513)	7,374
Borrowings under credit facilities		534,400
Payments on credit facilities		(534,400)
Dividends paid	(17,819)	(17,828)
Proceeds from the issuance of common stock	2,290	3,142
Tax withholdings related to the exercise of stock appreciation rights	(490)	(6,414)
Repurchase of common stock	(126,482)	(3,380)
Other, net	814	(2,095)
Net Cash Provided by (Used in) Financing Activities	(150,200)	(19,201)
Effect of exchange rate changes on cash	0	0
Cash and Cash Equivalents, Period Increase (Decrease)	403,988	233,650
Cash and cash equivalents, beginning of period	482,620	78,543
Cash and cash equivalents, end of period	886,608	312,193
Non-Guarantor Subsidiaries [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	24,656	(5,027)
Net cash used in investing activities
Purchases of property and equipment	(1,067)	(1,191)
Proceeds from sales of property and equipment	44	12
Other, net		(460)
Net cash used in investing activities	(1,023)	(1,639)
Net cash provided by (used in) financing activities
Increase (decrease) in bank overdrafts	(3,460)	(2,698)
Borrowings under credit facilities		0
Payments on credit facilities		0
Dividends paid	0	0
Proceeds from the issuance of common stock	0	0
Tax withholdings related to the exercise of stock appreciation rights	0	0
Repurchase of common stock	0	0
Other, net	0	0
Net Cash Provided by (Used in) Financing Activities	(3,460)	(2,698)
Effect of exchange rate changes on cash	(1,092)	3,838
Cash and Cash Equivalents, Period Increase (Decrease)	19,081	(5,526)
Cash and cash equivalents, beginning of period	64,317	56,635
Cash and cash equivalents, end of period	83,398	51,109
Consolidation, Eliminations [Member]
Condensed Cash Flow Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	0	0
Net cash used in investing activities
Purchases of property and equipment	0	0
Proceeds from sales of property and equipment	0	0
Other, net		0
Net cash used in investing activities	0	0
Net cash provided by (used in) financing activities
Increase (decrease) in bank overdrafts	0	0
Borrowings under credit facilities		0
Payments on credit facilities		0
Dividends paid	0	0
Proceeds from the issuance of common stock	0	0
Tax withholdings related to the exercise of stock appreciation rights	0	0
Repurchase of common stock	0	0
Other, net	23	(1)
Net Cash Provided by (Used in) Financing Activities	23	(1)
Effect of exchange rate changes on cash	0	(1)
Cash and Cash Equivalents, Period Increase (Decrease)	23	(1)
Cash and cash equivalents, beginning of period	(23)	(22)
Cash and cash equivalents, end of period	$ 0	$ (23)