What changed in ADVANCE AUTO PARTS INC's 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of ADVANCE AUTO PARTS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.
+186 added−186 removedSource: 10-K (2024-03-12) vs 10-K (2023-02-28)
Top changes in ADVANCE AUTO PARTS INC's 2024 10-K
186 paragraphs added · 186 removed · 131 edited across 6 sections
- Item 7. Management's Discussion & Analysis+70 / −66 · 49 edited
- Item 3. Legal Proceedings+35 / −51 · 26 edited
- Item 5. Market for Registrant's Common Equity+43 / −30 · 22 edited
- Item 1. Business+33 / −34 · 29 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+4 / −4 · 4 edited
Item 1. Business
Business — how the company describes what it does
29 edited+4 added−5 removed28 unchanged
Item 1. Business
Business — how the company describes what it does
29 edited+4 added−5 removed28 unchanged
2023 filing
2024 filing
Biggest changeOur Corporate Sustainability and Social Report is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated by reference into any of our other filings with the Securities and Exchange Commission (“SEC”). 4 Table of Contents ` Intellectual Property We own a number of trade names, service marks and trademarks, including “Advance Auto Parts ® ,” “Advance Same Day ® ,” “Autopart International ® ,” “Carquest ® ,” “CARQUEST Technical Institute ® ,” “DieHard ® ,” “DriverSide ® ,” “MotoLogic ® ,” “MotoShop ® ,” “speedDIAL ® ,” “TECH-NET Professional Auto Service ® ” and “Worldpac ® ” for use in connection with the automotive parts business.
Biggest changeIntellectual Property We own a number of trade names, service marks and trademarks, including “Advance Auto Parts ® ,” “Advance Same Day ® ,” “Autopart International ® ,” “Carquest ® ,” “CARQUEST Technical Institute ® ,” “DieHard ® ,” “DriverSide ® ,” “MotoLogic ® ,” “MotoShop ® ,” “speedDIAL ® ,” “TECH-NET Professional Auto Service ® ” and “Worldpac ® ” for use in connection with the automotive parts business.
Item 1. Business. Unless the context otherwise requires, “Advance,” “we,” “us,” “our,” and similar terms refer to Advance Auto Parts, Inc., its subsidiaries and their respective operations on a consolidated basis. Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31 st of each year.
Item 1. Business. Unless the context otherwise requires, “Advance,” “we,” “us,” “our,” and similar terms refer to Advance Auto Parts, Inc., its subsidiaries and their respective operations on a consolidated basis. Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31 st each year.
Through another Cultural Belief, Champion Inclusion, we seek to fully leverage the ideas and talents of all our team members in caring for our customers and each other. We encourage our team members to Speak Up and promote their engagement through a variety of programs and networks within our organization.
Through another Cultural Belief, Champion Inclusion, we seek to fully leverage the ideas and talents of all team members in caring for our customers and each other. We encourage our team members to Speak Up and promote their engagement through a variety of programs and networks within our organization.
Human Capital Management We believe our People are Our Best Part, and we have adopted six Cultural Beliefs to help us foster a culture that fully engages our team members with our business: Speak Up, Be Accountable, Take Action, Move Forward, Grow Talent and Champion Inclusion.
Human Capital Management We believe our People are Our Best Part, and we have adopted six Cultural Beliefs to help foster a culture that fully engages our team members with our business: Speak Up, Be Accountable, Take Action, Move Forward, Grow Talent and Champion Inclusion.
We accept customer returns for many new, core and warranty products. Customer returns have historically been immaterial. Our Customers Our professional customers consist primarily of customers for whom we deliver products from our store or branch locations to their places of business, including garages, service stations and auto dealers.
We accept customer returns for many new, core and warranty products. Customer returns have historically been immaterial. Our Customers Our professional customers consist primarily of customers for whom we deliver products from our store or branch locations to their places of business, including garages, service stations and auto dealerships.
Our professional customers can conveniently place their orders electronically, including through MyAdvance.com and Technet, by phone or in-store, and we deliver products from our stores or branch locations to their places of business. 3 Table of Contents ` Supply Chain Our supply chain consists of a network of distribution centers, hubs, stores, and branches that enable us to provide same-day or next-day availability to our customers.
Our professional customers can conveniently place their orders electronically, including through MyAdvance.com, by phone or in-store, and we deliver products from our stores or branch locations to their places of business. Supply Chain Our supply chain consists of a network of distribution centers, hubs, stores and branches that enable us to provide same-day or next-day availability to our customers.
Compliance with any such laws and regulations has not had a material adverse effect on our operations to date. For more information, see the following disclosures in “ Part I. Item 1A. Risk Factors ” elsewhere in this report. 5 Table of Contents ` Available Information Our Internet address is www.AdvanceAutoParts.com.
Compliance with any such laws and regulations has not had a material adverse effect on our operations to date. For more information, see the following disclosures in “ Part I. Item 1A. Risk Factors ” elsewhere in this report. Available Information Our internet address is www.AdvanceAutoParts.com.
Our website and the information contained therein or linked thereto are not part of this Annual Report on Form 10-K for 2022.
Our website and the information contained therein or linked thereto are not part of this Annual Report on Form 10-K for 2023.
Through our integrated operating approach, we serve our professional and DIY customers through a variety of channels ranging from traditional “brick and mortar” store locations to self-service e-commerce sites.
We serve our professional and DIY customers through a variety of channels ranging from traditional “brick and mortar” store locations to self-service e-commerce sites.
We believe we are better able to meet our customers’ needs by operating under several trade names, which are as follows: Advance Auto Parts — Our 4,440 stores, inclusive of 328 hubs, as of December 31, 2022 are generally located in freestanding buildings with a focus on both professional and DIY customers.
We believe we are better able to meet our customers’ needs by operating under several trade names, which are as follows: Advance Auto Parts — Our 4,484 stores, inclusive of 394 hubs, as of December 30, 2023, are generally located in freestanding buildings with a focus on both professional and DIY customers.
Our fiscal years ended December 31, 2022 (“2022”) and January 1, 2022 (“2021”) included fifty-two weeks of operations. Our fiscal year ended January 2, 2021 (“2020”) included fifty-three weeks of operations. Overview We are a leading automotive aftermarket parts provider in North America, serving both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers, as well as independently owned operators.
Our previous three fiscal years ended on December 30, 2023 (“2023”), December 31, 2022 (“2022”) and January 1, 2022 (“2021”) and included fifty-two weeks of operations. Overview We are a leading automotive aftermarket parts provider in North America, serving both professional installers (“professional”) and “do-it-yourself” (“DIY”) customers, as well as independently owned operators.
Compliance with these laws and regulations and clean-up of released hazardous substances have not had, and do not anticipate to have, a material impact on our operations. We are also subject to numerous regulations including those related to labor and employment, discrimination, anti-bribery/anti-corruption, product quality and safety standards, data privacy and taxes.
Compliance with these laws and regulations and clean-up of released hazardous substances have not had a material impact on our operations to date. 5 Table of Contents We are also subject to numerous regulations including those related to labor and employment, discrimination, anti-bribery/anti-corruption, product quality and safety standards, data privacy, taxes, workplace safety, consumer protection and trade compliance.
Worldpac — Our 316 branches, of which 135 are branded Autopart International (“AI”), as of December 31, 2022 principally serve professional customers utilizing an efficient and sophisticated online ordering and fulfillment system. Worldpac’s branches are generally larger than our other store locations, averaging approximately 18,400 square feet.
Worldpac — Our 321 branches, of which 135 are branded Autopart International (“AI”), as of December 30, 2023 principally serve professional customers utilizing an efficient and sophisticated online ordering and fulfillment system. Worldpac’s branches are generally larger than our other store locations, averaging approximately 26,000 square feet.
Advance Auto Parts, Inc., a Delaware corporation, was incorporated in 2001 in conjunction with the acquisition of Discount Auto Parts, Inc. In 2014, we acquired General Parts International, Inc. (“GPI”), a privately held company that was a leading distributor and supplier of original equipment and aftermarket automotive replacement products for professional markets operating under the Carquest and Worldpac trade names.
In 2014, we acquired General Parts International, Inc. (“GPI”), a privately-held company that was a leading distributor and supplier of original equipment and aftermarket automotive replacement products for professional markets operating under the Carquest and Worldpac trade names.
Carquest — Our 330 stores as of December 31, 2022, including 148 stores in Canada, are generally located in freestanding buildings with a primary focus on professional customers, but also serve DIY customers. The average size of a Carquest store is approximately 7,300 square feet.
Carquest — Our 302 stores as of December 30, 2023, including 149 stores in Canada, are generally located in freestanding buildings with a primary focus on professional customers, but also serve DIY customers. The average size of a Carquest store is approximately 7,000 square feet.
Except where prohibited, we also provide a variety of services at our stores free of charge to our customers, including: • Battery and wiper installation; • Check engine light scanning; • Electrical system testing, including batteries, starters and alternators; • Oil and battery recycling; and • Loaner tool programs.
Except where prohibited, we also provide a variety of services at our stores free of charge to our customers, including: • Battery and wiper installation; • Check engine light scanning; • Electrical system testing, including batteries, starters and alternators; • Oil and battery recycling; and • Loaner tool programs. 3 Table of Contents We also serve our customers online at www.AdvanceAutoParts.com or on our Advance Mobile App.
These stores carry a wide variety of products serving the aftermarket auto part needs for both domestic and import vehicles with a product offering of approximately 25,000 SKUs. As of December 31, 2022, Carquest also serves 1,311 independently owned stores that operate under the Carquest name.
These stores carry a wide variety of products serving the aftermarket auto part needs for both domestic and import vehicles with a product offering of approximately 19,000 SKUs. As of December 30, 2023, 1,245 independently-owned stores operated under the Carquest name.
During 2022 , 144 stores and branches were opened and 30 were closed or consolidated, resulting in a total of 5,086 stores and branches as of December 31, 2022 compared with a total of 4,972 stores and branches as of January 1, 2022.
During 2023 , 61 stores and branches were opened and 40 were closed or consolidated, resulting in a total of 5,107 stores and branches as of December 30, 2023 compared with a total of 5,086 stores and branches as of December 31, 2022.
As of December 31, 2022, 4,915 stores and branches were located in 48 U.S. states and two U.S. territories, and 171 stores and branches were located in nine Canadian provinces. We serve our stores and branches primarily from our principal corporate offices in Raleigh, NC and Roanoke, VA. We also maintain store support centers in Newark, CA and Norton, MA.
As of December 30, 2023, 4,935 stores and branches were located in 48 U.S. states and two U.S. territories, and 172 stores and branches were located in nine Canadian provinces. We serve our stores and branches primarily from our executive office in Raleigh NC. We also maintain customer support centers in Newark CA and Norton MA.
As of December 31, 2022, we operated 4,770 total stores and 316 branches primarily under the trade names “Advance Auto Parts,” “Carquest” and “Worldpac.” We were founded in 1929 as Advance Stores Company, Incorporated, and operated as a retailer of general merchandise until the 1980s.
As of December 30, 2023, we operated 4,786 stores and 321 branches primarily under the trade names “Advance Auto Parts,” “Carquest” and “Worldpac.” We were founded in 1929 as Advance Stores Company, Incorporated, and operated as a retailer of general merchandise until the 1980s. During the 1980s, we began targeting the sale of automotive parts and accessories to DIY customers.
As of December 31, 2022, we employed approximately 40,000 full-time team members and approximately 27,000 part-time team members. Our workforce consisted of 82% of our team members employed in store-level operations, 13% in distribution and 5% in our corporate offices. As of December 31, 2022, approximately 2% of our team members were represented by labor unions.
As of December 30, 2023, we employed approximately 40,000 full-time team members and 29,000 part-time team members. Our workforce consisted of 82.5% of our team members employed in store-level operations, 11.3% in distribution and 6.2% in our corporate offices.
In addition, our business can be affected by weather conditions. While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate.
While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot or cold weather tends to enhance sales by causing automotive parts to fail at an accelerated rate. Our fourth quarter is generally our most volatile as weather and spending trade-offs typically influence our professional and DIY sales.
Merchandise, Marketing and Advertising In 2022, we purchased merchandise from over 1,400 vendors, with no single vendor accounting for more than 10% of purchases. Our purchasing strategy involves negotiating agreements to purchase merchandise over a specified period of time along with other provisions, including pricing, rebates, volume and payment terms.
Our purchasing strategy involves negotiating agreements with vendors to purchase merchandise over a specified period of time along with other provisions, including pricing, rebates, volume and payment terms.
As of December 31, 2022, we operated 50 distribution centers, ranging in size from approximately 57,000 to 943,000 square feet with total square footage of approximately 12.6 million, including one distribution center dedicated to reclamations. In 2022, we closed distribution centers in Riverside, California and Anchorage, Alaska.
As of December 30, 2023, we operated 50 distribution centers, ranging in size from approximately 60,000 to 943,000 square feet with total square footage of approximately 12.7 million, including one distribution center dedicated to reclamations. In 2023, we closed a distribution center in Asheville, North Carolina. Merchandise, Marketing and Advertising In 2023, we purchased merchandise from over 750 vendors.
Our DIY customers are primarily served through our stores, but can also order online to pick up merchandise at a conveniently located store or have their purchases shipped directly to them.
Our professional sales represented nearly 60% of our sales in 2023, 2022 and 2021. We also serve 1,245 independently owned Carquest stores with shipments directly from our distribution centers. Our DIY customers are primarily served through our stores, but can also order online to pick up merchandise at a conveniently located store or have their purchases shipped directly to them.
During the 1980s, we began targeting the sale of automotive parts and accessories to DIY customers. We initiated our professional delivery program in 1996 and have steadily increased our sales to professional customers since 2000. We have grown significantly as a result of strategic acquisitions, new store openings and comparable store sales growth.
We initiated our professional delivery program in 1996 and have served professional customers since 2000. We have grown significantly as a result of strategic acquisitions, new store openings and comparable store sales growth. Advance Auto Parts, Inc., a Delaware corporation, was incorporated in 2001 in conjunction with the acquisition of Discount Auto Parts, Inc.
Additional information about our human capital resources can be found in our Corporate Sustainability and Social Report, which is available on our website.
As of December 30, 2023, approximately 1.3% of our team members were represented by labor unions. 4 Table of Contents Additional information about our human capital resources can be found in our Corporate Sustainability and Social Report, which is available on our website.
In addition to these branded products, we stock a wide selection of high-quality owned brand products with a goal of appealing to value-conscious customers. These categories of merchandise include chemicals, interior automotive accessories, batteries and parts under various owned brand names such as Autopart International ® , Carquest ® , DieHard ® , Driveworks ® and Wearever ® .
In addition to these branded products, we stock a wide selection of high-quality owned brand products with a goal of appealing to value-conscious customers.
As part of our transformation efforts through December 31, 2022, we have converted all AI stores into the Worldpac technology format. 2 Table of Contents ` Store Development The key factors used in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores, and the cost of real estate.
For additional information related to risks related to divestitures, see Item 1A. Risk Factors . Store Development The key factors used in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, number and strength of competitors’ stores and the cost of real estate.
Removed
Worldpac’s complete product offering includes over 285,000 SKUs for domestic and import vehicles and specializes in imported OEM parts.
Added
Worldpac’s complete product offering includes over 293,000 SKUs for domestic and import vehicles and specializes in imported OEM parts. 2 Table of Contents As previously disclosed in our quarterly report on Form 10-Q for the period ended October 07, 2023, we announced our intention to explore divestitures of our Worldpac and Carquest Canada businesses in separate sales processes as part of our strategic review.
Removed
Our professional sales represented approximately 59%, 58% and 57% of our sales in 2022, 2021 and 2020. We also serve 1,311 independently owned Carquest stores with shipments directly from our distribution centers.
Added
These categories of merchandise include batteries, brakes, chassis, ride control, engine management, filtration, chemicals and other parts under various owned brand names such as Autopart International ® , Carquest ® , DieHard ® , Driveworks ® and Wearever ® .
Removed
We also serve our customers online at www.AdvanceAutoParts.com or on our Advance Mobile App.
Added
Seasonality Our business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months. In addition, our business can be affected by weather conditions.
Removed
Our DIY campaign was developed around a multi-channel communications plan that brings together radio, television, digital marketing, social media, sponsorships, store execution, public relations and Speed Perks (our customer loyalty program). Seasonality Our business is somewhat seasonal in nature, with the highest sales usually occurring in the spring and summer months.
Added
Our Corporate Sustainability and Social Report is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated by reference into any of our other filings with the Securities and Exchange Commission (“SEC”).
Removed
Our fourth quarter is generally our most volatile as weather and spending trade-offs typically influence our professional and DIY sales.
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed0 unchanged
2023 filing
2024 filing
Biggest changeThe following table summarizes the location, ownership status and total square footage of space utilized for distribution centers, principal corporate offices and retail stores and branches as of December 31, 2022: Square Footage (in thousands) Location Leased Owned Distribution centers 50 locations in 31 U.S. states and four Canadian provinces 7,951 4,648 Principal corporate offices: Raleigh, NC Raleigh, NC 245 — Roanoke, VA Roanoke, VA 265 — Stores and branches 4,915 stores and branches in 48 U.S. states and two U.S. territories and 171 stores and branches in nine Canadian provinces 36,302 6,289
Biggest changeThe following table summarizes the location, ownership status and total square footage of space utilized for distribution centers, principal corporate office and retail stores and branches as of December 30, 2023: Square Footage (in thousands) Location Leased Owned Distribution centers 50 locations in 31 U.S. states and four Canadian provinces 8,106 4,591 Executive office Raleigh NC 245 — Stores and branches 4,935 stores and branches in 48 U.S. states and two U.S. territories and 172 stores and branches in nine Canadian provinces 36,644 6,289
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
26 edited+9 added−25 removed7 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
26 edited+9 added−25 removed7 unchanged
2023 filing
2024 filing
Biggest changeTo achieve these improvements, we have undertaken planned strategic initiatives to help build a foundation for long-term success across the organization, which include: • Continued refinement of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach. • Advancement towards optimizing our footprint by market to drive share, repurpose our in-market store and asset base and streamline our distribution network. • Continued evolution of our marketing campaigns, which focus on our customers and how we serve them every day with care and speed and innovate to meet their needs, inclusive of the iconic DieHard ® brand. • Progress in the implementation of a more efficient end-to-end supply chain to deliver our broad assortment of inventory. • Actively pursuing new store openings in 2023, including through lease acquisition opportunities as available and appropriate, in existing markets and new markets. • Continued negotiations with vendors on strategic sourcing and pricing to help mitigate inflationary pressures.
Biggest changeBusiness and Risk Update We have been executing various initiatives to improve the customer experience, expand margins and drive consistent execution for both professional and do-it-yourself (“DIY”) customers, including: • Continued refinement of a demand-based assortment, leveraging purchase and search history from our common catalog • Advancement towards optimizing our footprint by market to drive share, repurpose our in-market store and asset base and streamline our distribution network • Progress in the implementation of a more efficient end-to-end supply chain to deliver our broad assortment of inventory • Continued negotiations with vendors on strategic sourcing and pricing to help mitigate inflationary pressures • Rationalization of product assortment • Investment in our frontline workforce • Incremental investments in store and distribution center distribution As announced in the third quarter of 2023, we initiated a comprehensive operational and strategic review of our business to help improve execution and position Advance for long-term success and increased shareholder value.
Item 3. Legal Proceedings. Refer to discussion in Note 13. Contingencies , of the Notes to the Consolidated Financial Statements included herein for information relating to legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 15 Table of Contents ` PART II Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 3. Legal Proceedings. Refer to discussion in Note 13. Contingencies , of the Notes to the Consolidated Financial Statements included herein for information relating to legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 16 Table of Contents PART II Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. 16 Table of Contents ` Stock Price Performance The following graph shows a comparison of the cumulative total return on our common stock, the Standard & Poor’s (“S&P”) 500 Index and the S&P’s Retail Index.
This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. 17 Table of Contents Stock Price Performance The following graph shows a comparison of the cumulative total return on our common stock, the Standard & Poor’s (“S&P”) 500 Index and the S&P’s Retail Index.
Historically, we have also used available funds to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our share repurchase program, to pay our quarterly cash dividend and for acquisitions; however, depending on the priorities of our business and in consideration of ongoing uncertainties related to general global macroeconomic conditions, our future uses of cash may differ, including with respect to the weight we place on the preservation of cash and liquidity, degree of investment in our business and other capital allocation factors.
Historically, we have also used available funds to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our share repurchase program, to pay our quarterly cash dividend and for acquisitions; however, depending on the priorities of our business and in consideration of ongoing uncertainties related to general global macroeconomic conditions, our future uses of cash may differ, including with respect to the weight we place on the preservation of cash and liquidity, degree of investment in our business and other capital allo cation factors.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Form 10-K for 2021, filed with the Securities and Exchange Commission (“SEC”) on February 15, 2022. Amounts are presented in thousands, except per share data, unless otherwise stated.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our Form 10-K for 2022, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023. Amounts are presented in thousands, except per share data, unless otherwise stated.
During 2022, we repurchased 3.0 million shares of our common stock at an aggregate cost of $598.2 million, or an average price of $201.88 per share, in connection with our share repurchase program.
During 2022, we repurchased 3.0 million shares of our common stock at an aggregate cost of $598.2 million, or an average price of $201.88 per share, under our share repurchase program.
Risk Factors ” elsewhere in this report. The discussion of our financial condition and changes in our results of operations, liquidity and capital resources for the fiscal year ended January 1, 2022 (“2021”) compared with the fiscal year ended January 2, 2021 (“2020”) has been omitted from this Form 10-K, but are included in “ I tem 7.
Risk Factors ” elsewhere in this report. The discussion of our financial condition and changes in our results of operations, liquidity and capital resources for the fiscal year ended December 31, 2022 (“2022”) compared with the fiscal year ended January 1, 2022 (“2021”) has been omitted from this Form 10-K, but are included in “ Item 7.
The graph assumes that the value of an investment in our common stock and in each such index was $100 on December 30, 2017, and that any dividends have been reinvested. The comparison in the graph below is based solely on historical data and is not intended to forecast the possible future performance of our common stock.
The graph assumes that the value of an investment in our common stock was $100.00 on December 29, 2018, and that any dividends have been reinvested. The comparison in the graph below is based solely on historical data and is not intended to forecast the possible future performance of our common stock.
Our common stock is listed on the New York Stock Exchange under the symbol “AAP.” As of February 24, 2023, there w ere 375 holders of record of our common stock, which does not include the number of beneficial owners whose shares were repres ented by security position listings.
Our common stock is listed on the New York Stock Exchange under the symbol “AAP.” As of March 5, 2024, there were 1,067 holders of record of our common stock, which does not include the number of beneficial owners whose shares were repres ented by security position listings.
In addition to the “ Business and Risk Update ” section included within Management’s Discussion and Analysis of Financial Condition and Results of Operations, these factors include, but are not limited to: • Inflationary pressures, including product costs, logistics and labor • Global supply chain disruptions • Fuel costs • Unemployment rates • Consumer confidence and purchasing power • Competition • Changes in new car sales • Miles driven • Vehicle manufacturer warranties • Average age of vehicles in operation • Economic and political uncertainty • Deferral of elective automotive maintenance and improvements in new car quality While these factors tend to fluctuate, we remain confident in the long-term growth prospects for the automotive parts industry. 19 Table of Contents ` Results of Operations The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.
In addition to the “ Business and Risk Update ” section included within Management’s Discussion and Analysis of Financial Condition and Results of Operations, these factors include, but are not limited to: • Inflationary pressures, including logistics and labor • Global supply chain disruptions • Rising fuel costs • Miles driven • Unemployment rates • Consumer confidence and purchasing power • Competition • Changes in new car sales • Vehicle manufacturer warranties • Average age of vehicles in operation • Economic and geopolitical uncertainty • Deferral of elective automotive maintenance and improvements in new car quality • Increased foreign currency exchange volatility While these factors tend to fluctuate, we remain confident in the long-term growth prospects for the automotive parts industry.
On February 8, 2022, our Board of Directors authorized an additional $1.0 billion toward our share repurchase program. Previously, in April 2021 and November 2019, our Board of Directors authorized $1.0 billion and $700.0 million for our share repurchase program.
On February 8, 2022, our Board of Directors authorized an additional $1.0 billion toward our share repurchase program. Previously, in April 2021 and November 2019, our Board of Directors authorized $1.0 billion and $700.0 million for our share repurchase program. During 2023, we did not repurchase any shares of our common stock in connection with our share repurchase program.
The following table sets forth information with respect to repurchases of our common stock for the fourth quarter ended December 31, 2022: Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value that May Yet Be Purchased Under the Programs ( in thousands ) (2) October 9, 2022 to November 5, 2022 441,926 $ 169.71 441,762 $ 947,339 November 6, 2022 to December 3, 2022 5,741 $ 151.79 — $ 947,339 December 4, 2022 to December 31, 2022 2 $ 140.90 — $ 947,339 Total 447,669 $ 169.54 441,762 (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 $151.78 per share, during the twelve weeks ended December 31, 2022.
The following table sets forth information with respect to repurchases of our common stock for the fourth quarter ended December 30, 2023: Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value that May Yet Be Purchased Under the Programs ( in thousands ) (2) October 8, 2023 to November 4, 2023 20 $ 51.20 — $ 947,339 November 5, 2023 to December 2, 2023 5,340 $ 52.49 — $ 947,339 December 3, 2023 to December 30, 2023 1 $ 56.25 — $ 947,339 Total 5,361 $ 52.49 — (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 $0.3 million, or an average price of $52.49 per share, during the twelve weeks ended December 30, 2023.
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.
Our operational and strategic review progress is ongoing. 19 Table of Contents 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.
We believe funds generated from our expected results of operations, available cash and cash equivalents, and available borrowings under our credit facility will be sufficient to fund our obligations for the next year.
Typically, we have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our expected results of operations, available cash and cash equivalents and available borrowings under our credit facility will be sufficient to fund our obligations for the next year.
Our effective tax rate was 22.6% for 2022 and 23.6% for 2021. In 2022, the rate decreased compared with prior year primarily due to a tax benefit resulting from the expiration of statute of limitations for certain tax years in multiple states as well as enhanced utilization of tax credits in the current year.
In 2023, the rate decreased compared with prior year primarily due to a tax benefit resulting from the expiration of statute of limitations for certain tax years in multiple states as well as enhanced utilization of tax credits in the current year and a discrete charge related to share-based compensation.
We also believe such funds, cash and available borrowings, together with our ability to generate cash through credit facilities and notes offerings as needed, will be sufficient to fund our obligations long-term. Cash requirements for obligations next year and beyond are discussed in the “ Contractual and Off Balance Sheet Obligations ” section below.
We also believe such funds, cash and available borrowings, together with our ability to generate cash through credit facilities and notes offerings as needed, will be sufficient to fund our obligations long-term.
Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details. Provision for Income Taxes Our Provision for income taxes for 2022 was $146.8 million compared with $189.8 million for 2021, a decrease of $43.0 million primarily due to a decrease in taxable income.
Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details. Provision for Income Taxes Our Provision for income taxes for 2023 was $2.1 million compared with $140.0 million for 2022, a favorable change of $137.9 million p rimarily due to a decrease in taxable income.
Comparable store sales increased 0.3% led primarily by the professional business. Category growth was led by batteries, fluids and chemicals and motor oil. 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.
Comparable store sales decreased 0.3% due to a decline in the DIY business. 20 Table of Contents We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete four-week periods (approximately one year) and by including e-commerce sales.
Net Sales Net sales for 2022 were $11.2 billion, an increase of $156.7 million, or 1.4%, compared with 2021, and was primarily driven by an improvement in strategic pricing and growth in both new store openings and professional sales, partially offset by declines in DIY customer sales and units sold.
Net Sales Net sales for 2023 were $11.3 billion, an increase of $132.9 million, or 1.2%, compared with 2022, and was primarily driven by new store openings and favorable product mix, partially offset by a decline in units sold. Category growth was led by brakes and batteries.
Gross Profit Gross profit in 2022 was $5.0 billion, or 44.5% of Net sales, compared with $4.9 billion, or 44.8% of Net sales, in 2021, a decrease of 33 basis points.
Gross Profit Gross pro fit in 2023 was $4.52 billion, or 40.1% of Net sales, compared with $4.93 billion, or 44.2% of Net sales in 2022, a decrease of 414 basis points.
A high-level summary of our financial results and other highlights from 2022 includes: • Net sales during 2022 were $11.2 billion, an increase of 1.4% compared with 2021, driven by improvements in strategic pricing and growth in both new stores openings and sales to our professional customers, partially offset by declines in DIY customer sales and units sold. • Gross profit margin for 2022 was 44.5% of Net sales, a decrease of 33 basis points compared with 2021.
Management Overview A high-level summary of our financial results and other highlights from 2023 includes: • Net sales during 2023 were $11.3 billion, an increase of 1.2% compared with 2022, driven by new store openings and favorable product mix, partially offset by a 0.3% decline in comparable store sales. • Gro ss profit margin for 2023 was 40.1% of Net sales, a decrease of 414 basis points compared with 2022.
Selling, General and Administrative Expenses SG&A for 2022 was $4.2 billion, or 38.1% of Net sales, compared with $4.1 billion, or 37.2% of Net sales, for 2021, an increase of 89 basis points.
Selling, General and Administrative Expenses SG&A for 2023 wa s $4.41 billion, or 39.1% of Net sales, compared with $4.26 billion, or 38.2% of Net sales for 2022, an increase of 85 basis points. T his increase as a percentage of Net sales was primarily driven by increased labor-related costs and occupancy expenses.
Year Ended 2022 vs. 2021 $ Change Basis Points 2021 vs. 2020 $ Change Basis Points (in millions) December 31, 2022 January 1, 2022 January 2, 2021 Net sales $ 11,154.7 100.0 % $ 10,998.0 100.0 % $ 10,106.3 100.0 % $ 156.7 — $ 891.7 — Cost of sales 6,192.6 55.5 6,069.2 55.2 5,624.7 55.7 123.4 33 444.5 (47) Gross profit 4,962.1 44.5 4,928.7 44.8 4,481.6 44.3 33.3 (33) 447.2 47 SG&A 4,247.9 38.1 4,090.0 37.2 3,731.7 36.9 157.9 89 358.3 26 Operating income 714.2 6.4 838.7 7.6 749.9 7.4 (124.6) (122) 88.9 21 Interest expense (51.1) (0.5) (37.8) (0.3) (46.9) (0.5) (13.3) (11) 9.1 12 Loss on debt extinguishment (7.4) (0.1) — — (48.0) (0.5) (7.4) (7) 48.0 48 Other (expense) income, net (7.0) (0.1) 5.0 0.0 (4.0) 0.0 (12.0) (11) 9.0 8 Provision for income taxes (146.8) (1.3) (189.8) (1.7) (158.0) (1.6) 43.0 41 (31.8) (16) Net income $ 501.9 4.5 % $ 616.1 5.6 % $ 493.0 4.9 % $ (114.3) (110) $ 123.2 72 Note 1: Table amounts may not foot due to rounding.
Year Ended 2023 vs. 2022 $ Change Basis Points 2022 vs. 2021 $ Change Basis Points (in millions) December 30, 2023 December 31, 2022 January 1, 2022 Net sales $ 11,287.6 100.0 % $ 11,154.7 100.0 % $ 10,998.0 100.0 % $ 132.9 — $ 156.7 — Cost of sales 6,764.1 59.9 6,222.5 55.8 6,074.0 55.2 541.6 414 148.5 55 Gross profit 4,523.5 40.1 4,932.2 44.2 4,924.0 44.8 (408.7) (414) 8.2 (55) SG&A 4,409.1 39.1 4,262.0 38.2 4,101.6 37.3 147.1 85 160.4 91 Operating income 114.4 1.0 670.2 6.0 822.4 7.5 (555.8) (500) (152.2) (147) Interest expense (88.1) (0.8) (51.1) (0.5) (37.8) (0.3) (37.0) (32) (13.3) (11) Loss on debt extinguishment — — (7.4) (0.1) — — 7.4 7 (7.4) (7) Other income (expense), net 5.5 0.0 (7.4) (0.1) (2.1) 0.0 12.9 12 (5.3) (5) Provision for income taxes 2.1 — 140.0 1.3 185.9 1.7 (137.9) (124) (45.9) (44) Net income $ 29.7 0.3 % $ 464.3 4.16 % $ 596.6 5.42 % $ (434.6) (390) $ (132.3) (126) Note 1: Table amounts may not foot due to rounding.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ADVANCE AUTO PARTS, INC., S&P 500 INDEX AND S&P RETAIL INDEX Company/Index December 30, 2017 December 29, 2018 December 28, 2019 January 2, 2021 January 1, 2022 December 31, 2022 Advance Auto Parts $ 100.00 $ 151.06 $ 154.32 $ 155.68 $ 243.72 $ 159.22 S&P 500 Index $ 100.00 $ 94.80 $ 126.06 $ 148.85 $ 191.58 $ 156.88 S&P Retail Index $ 100.00 $ 112.04 $ 144.71 $ 210.44 $ 251.08 $ 165.00 17 Table of Contents ` Item 6. [Reserved] Item 7.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ADVANCE AUTO PARTS, INC., S&P 500 INDEX AND S&P RETAIL INDEX Company/Index December 29, 2018 December 28, 2019 January 2, 2021 January 1, 2022 December 31, 2022 December 30, 2023 Advance Auto Parts $ 100.00 $ 102.01 $ 102.25 $ 158.16 $ 100.43 $ 41.52 S&P 500 Index $ 100.00 $ 132.97 $ 157.02 $ 202.09 $ 165.49 $ 209.00 S&P Retail Index $ 100.00 $ 129.15 $ 187.82 $ 224.09 $ 147.26 $ 209.70 18 Table of Contents Item 6. [Reserved] Item 7.
The increase in Selling, general and administrative (“SG&A”) costs was primarily driven by increases in labor-related inflation and transportation and fuel costs, partially offset by decreases in incentive compensation and COVID-19 related expenses. • Cash flow from operations was $722.2 million during 2022, a decrease of 35.1% compared with 2021, primarily due to a decrease in Net income, as well as a decrease related to working capital primarily driven by an increase in cash used by Accrued Expenses and Inventories, partially offset by an increase in cash provided by Receivables, net.
The increase in Selling, general and administrative (“SG&A”) costs was primarily driven by increased labor-related costs and occupancy expenses . • Cash flow from operations was $287.4 million during 2023, a decrease of 61.0% c ompared with 2022, primarily due to l ower Net income. • Diluted earnings per share (“Diluted EPS”) was $0.50 du ring 2023 compared with $7.65 in 2022.
Gross profit as a percentage of Net sales was negatively impacted by inflationary product costs, including an increase in LIFO related expenses, of $189.5 million and unfavorable channel mix, primarily offset by improvements in strategic pricing and product mix.
Gross profit as a percentage of Net sales was negatively impacted by higher product costs not fully covered by pricing actions of $180.9 million, a change in estimate associated with inventory reserves and other inventory-related charges of $143.5 million as well as elevated supply chain expenses. Gross margin decline was partially offset by favorable product mix.
Removed
Management Overview Net sales increased 1.4% during the fifty-two weeks ended December 31, 2022 (“2022”) compared with 2021, driven by improvements in strategic pricing and growth in both new store openings and sales to professional customers, partially offset by declines in DIY customer sales and units sold. Category growth was led by batteries, fluids and chemicals and motor oil.
Added
This decrease was primarily due to higher product costs, inventory-related charges and elevated supply chain costs. • Operating income for 2023 was $114.4 million, a decrease of $555.9 million from 2022. As a percentage of Net sales, operating income was 1.0%, a decrease of 500 basis points compared with 2022.
Removed
We generated Diluted earnings per share (“Diluted EPS”) of $8.27 during 2022 compared with $9.55 in 2021.
Added
Refer to “ Results of Operations ” and “ Liquidity and Capital Resources ” for further details on our results.
Removed
When adjusted for the following non-operational items, our Adjusted diluted earnings per share (“Adjusted EPS”) in 2022 was $13.04 compared with $12.02 in 2021: Year Ended December 31, 2022 January 1, 2022 Last-in, first-out (“LIFO”) impacts $ 3.85 $ 1.42 Transformation expenses $ 0.49 $ 0.73 General Parts International, Inc.
Added
We have identified and are pursuing cost reductions that we expect will generate at least $150 million in savings on an annualized basis, of which, we intend to invest approximately $50 million in employee compensation and training with a clear focus on improving the retention of our frontline team members.
Removed
(“GPI”) amortization of acquired intangible assets $ 0.34 $ 0.32 Other adjustments $ 0.09 $ — Refer to “ Reconciliation of Non-GAAP Financial Measures ” for a definition and reconciliation of Adjusted EPS and other non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.
Added
In addition, we recently launched an initiative to eliminate costs related to our indirect spend by an additional $50 million on an annualized basis We also announced the potential sales of our Worldpac business and the Canadian portion of our Carquest business.
Removed
This decrease was primarily due to inflationary product costs, including the impact of LIFO related expenses, and unfavorable channel mix, primarily offset by improvements in strategic pricing and product mix. • Operating income for 2022 was $714.2 million, a decrease of $124.6 million from 2021.
Added
Results of Operations The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.
Removed
As a percentage of Net sales, operating income was 6.4%, a decrease of 122 basis points compared with 2021.
Added
Interest Expense Interest expense for 2023 wa s $88.1 million, an increase of $37.0 million compared with 2022. Thi s increase was primarily due to interest incurred on higher borrowings against our revolver as well as issuances of senior unsecured notes in 2023. Refer to Note 6.
Removed
Refer to “ Results of Operations ” and “ Liquidity and Capital Resources ” for further details on our results. 18 Table of Contents ` Business and Risk Update We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience and driving consistent execution for both professional and DIY customers.
Added
Our effective tax rate was 6.6% for 2023 and 23.2% for 2022.
Removed
Note 2: Fiscal years 2022 and 2021 included 52 weeks. Fiscal year 2020 included 53 weeks.
Added
Cash requirements for obligations next year and beyond are discussed in the “ Contractual and Off Balance Sheet Obligations ” section below. 21 Table of Contents Share Repurchases In August 2019, our Board of Directors approved a share repurchase program.
Removed
This increase as a percentage of Net sales was primarily driven by increases in labor-related inflation and transportation and fuel costs partially offset by decreases in incentive compensation and COVID-19 related expenses. Interest Expense Interest expense for 2022 was $51.1 million, an increase of $13.3 million compared with 2021.
Added
Given macroeconomic uncertainties and our focus on strengthening our balance sheet, we expect to continue our pause on share repurchases in 2024, but may resume share repurchases in the future . We had $947.3 million remaining under our share repurchase program as of December 30, 2023. Refer to “
Removed
This increase was primarily due to incremental borrowings on our unsecured revolving credit facility, partially offset by a 100-basis-point rate differential between our issued versus retired senior unsecured notes in 2022. Refer to Note 6.
Removed
Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein for further details. 20 Table of Contents ` Loss on Early Redemptions of Senior Unsecured Notes During the fifty-two weeks ended December 31, 2022, we incurred charges related to a make-whole provision and debt issuance costs of $7.0 million and $0.4 million related to the early redemption of our 4.50% senior unsecured notes due December 1, 2023 ("2023 Notes").
Removed
Reconciliation of Non-GAAP Financial Measures “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” includes certain financial measures not derived in accordance with GAAP.
Removed
Non-GAAP financial measures, including Adjusted net income and Adjusted EPS, should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows.
Removed
We have presented these non-GAAP financial measures as we believe that the presentation of our financial results that exclude: (1) LIFO impacts; (2) transformation expenses under our strategic business plan; (3) non-cash amortization related to the acquired GPI intangible assets; and (4) other nonrecurring adjustments, are useful and indicative of our base operations because the expenses vary from period to period in terms of size, nature and significance and/or relate to store closure and consolidation activity in excess of historical levels.
Removed
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.
Removed
Included below is a description of the expenses we have determined are not normal, recurring cash operating expenses necessary to operate our business and the rationale for why providing these measures is useful to investors as a supplement to the GAAP measures.
Removed
LIFO Impacts — Beginning the first quarter of 2021, to assist in comparing our current operating results with the operational performance of other companies in our industry, the impact of LIFO on our results of operations is a reconciling item to arrive at non-GAAP financial measures.
Removed
Transformation Expenses — Costs incurred in connection with our business plan that focuses on specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise, that we do not view to be normal cash operating expenses.
Removed
These expenses will include, but not be limited to the following: • Restructuring costs - Costs primarily relating to the early termination of lease obligations, asset impairment charges, other facility closure costs and team member severance in connection with our voluntary retirement program and continued optimization of our organization. • Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the development of various information technology and supply chain projects in connection with our enterprise integration initiatives. • Other significant costs - Costs primarily relating to accelerated depreciation of various legacy information technology and supply chain systems in connection with our enterprise integration initiatives and temporary off-site workspace for project teams who are primarily working on the development of specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise.
Removed
GPI Amortization of Acquired Intangible Assets — As part of our acquisition of GPI, we obtained various intangible assets, including customer relationships, non-compete contracts and favorable lease agreements, which are subject to amortization through 2025. 21 Table of Contents ` We have included a reconciliation of this information to the most comparable GAAP measures in the following table: Year Ended December 31, 2022 January 1, 2022 Net income (GAAP) $ 501,872 $ 616,108 Cost of sales adjustments: LIFO impacts 311,766 122,303 Transformation expenses: Other significant costs 2,572 2,608 SG&A adjustments: GPI amortization of acquired intangible assets 27,407 27,587 Transformation expenses: Restructuring costs 4,657 27,307 Third-party professional services 27,074 24,099 Other significant costs 5,351 8,796 Other income adjustment (1) 7,408 — Provision for income taxes on adjustments (2) (96,559) (53,175) Adjusted net income (Non-GAAP) $ 791,548 $ 775,633 Diluted earnings per share (GAAP) $ 8.27 $ 9.55 Adjustments, net of tax 4.77 2.47 Adjusted diluted earnings per share (Non-GAAP) $ 13.04 $ 12.02 (1) During 2022, we incurred charges relating to a make-whole provision and debt issuance cost of $7.0 million and $0.4 million resulting from the early redemption of our 2023 Notes.
Removed
(2) The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.
Removed
Given macroeconomic uncertainties and our planned focus on improved working capital, we expect to temporarily pause share repurchases in 2023. Typically, we have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed.
Removed
On March 4, 2022, we issued our 3.50% senior unsecured notes due 2032 (the “2032 Notes”). Refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included herein for further details.
Removed
Proceeds from our 2032 Notes were utilized to fund the early redemption of our 2023 Notes and supplement operational and capital expenditures. 22 Table of Contents ` Share Repurchases In August of 2019, our Board of Directors approved a share repurchase program.
Removed
During 2021, we repurchased 4.6 million shares of our common stock at an aggregate cost of $886.7 million, or an average price of $192.92 per share, under our share repurchase program. We had $947.3 million remaining under our share repurchase program as of December 31, 2022. Refer to “
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
22 edited+21 added−8 removed11 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
22 edited+21 added−8 removed11 unchanged
2023 filing
2024 filing
Biggest changeThe 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.
Biggest changeIf our credit ratings further decline, it would negatively impact our interest rate, and our access to additional financing on favorable terms may be limited. In addition, further decline in our credit ratings would likely reduce the attractiveness of our supplier finance programs, whereby our suppliers are provided financing arrangements based on our credit rating.
Specific factors include, but are not limited to, assumptions about health care costs, the severity of accidents and the incidence of illness and the average size of claims. Generally, claims for automobile and general liability and workers’ compensation take several years to settle.
Specific factors include, but are not limited to, assumptions about health care costs, the severity of accidents, the incidence of illness and the average size of claims. Generally, claims for automobile and general liability and workers’ compensation take several years to settle.
Our captive insurance subsidiary, an insignificant wholly-owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes. 24 Table of Contents ` Contractual and Off Balance Sheet Obligations We enter into operating leases for certain store locations, distribution centers, office spaces, equipment and vehicles. Our property leases generally contain renewal and escalation clauses and other concessions.
Our captive insurance subsidiary, an insignificant wholly-owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes. 23 Table of Contents Contractual and Off Balance Sheet Obligations We enter into operating leases for certain store locations, distribution centers, office spaces, equipment and vehicles. Our property leases generally contain renewal and escalation clauses and other concessions.
Many of these incentives are under agreements with terms in excess of one year, while others are negotiated on an annual basis or less. Advertising allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred.
Many of these incentives are under agreements with terms in excess of one year, while others are negotiated on an annual basis or less. Advertising allowances received as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to SG&A when the cost is incurred.
On February 27, 2023, we entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement, dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “2021 Credit Agreement”).
On February 27, 2023, we entered into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement, dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent (“2021 Credit Agreement”).
Historically, the change in our reserve for receivables related to vendor funding has not been significant. 25 Table of Contents ` Self-Insurance Reserves Our self-insurance reserves consist of the estimated exposure for claims filed, claims incurred but not yet reported and projected future claims, and are established using actuarial methods followed in the insurance industry and our historical claims experience.
Historically, the change in our reserve for receivables related to vendor funding has not been significant. Self-Insurance Reserves Our self-insurance reserves consist of the estimated exposure for claims filed, claims incurred but not yet reported and projected future claims, and are established using actuarial methods followed in the insurance industry and our historical claims experience.
New Accounting Pronouncements For a description of recently adopted and issued accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “ Recently Issued Accounting Pronouncements” in Note 2. Significant Accounting Policies , of the Notes to the Consolidated Financial Statements included herein.
New Accounting Pronouncements For a description of recently adopted and issued accounting standards, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see “ Recently Issued Accounting Pronouncements” in Note 2. Significant Accounting Policies , of the Notes to the Consolidated Financial Statements included herein. 25 Table of Contents
The preparation of our financial statements included the following significant estimates and exercise of judgment. Vendor Incentives We receive incentives in the form of reductions to amounts owed and/or payments from vendors related to volume rebates and other promotional considerations.
The preparation of our financial statements included the following significant estimates and exercise of judgment. 24 Table of Contents Vendor Incentives We receive incentives in the form of reductions to amounts owed and/or payments from vendors related to volume rebates and other promotional considerations.
The Amendment extends the maturity date of the 2021 Credit Agreement by one year from November 9, 2026, to November 9, 2027. The Amendment also replaces an adjusted LIBOR benchmark rate with a Term Secured Overnight Financing Rate (“Term SOFR”) benchmark rate, as adjusted by an increase of ten basis points, plus the applicable margin under 2021 Credit Agreement.
Amendment No. 1 extends the maturity date of the 2021 Credit Agreement by one year from November 9, 2026, to November 9, 2027. Amendment No. 1 also replaces an adjusted LIBOR benchmark rate with a Term Secured Overnight Financing Rate benchmark rate, as adjusted by an increase of ten basis points, plus the applicable margin under the 2021 Credit Agreement.
These provisions are considered in our calculation of our minimum lease payments that are recognized as expense on a straight-line basis over the applicable lease term. Any lease payments that are based upon an existing index or rate are included in our minimum lease payment calculations. As of December 31, 2022, our operating lease obligations were $2.69 billion.
These provisions are considered in our calculation of our minimum lease payments that are recognized as expense on a straight-line basis over the applicable lease term. Any lease payments that are based upon an existing index or rate are included in our minimum lease payment calculations. As of December 30, 2023, our operating lease obligations were $2.66 billion .
In 2023, we anticipate that our capital expenditures related to such investments will range from $300 million to $350 million but may vary with business conditions.
In 2024, we anticipate that our capital expenditures related to such investments will range from $200 million to $250 million but may vary with business conditions.
As of December 31, 2022, our long-term debt, consisting of senior unsecured notes with varying maturities through 2032, was $1.20 billion and our credit revolver outstanding balance was $185.0 million. Future interest payable related to long-term debt was $293.3 million as of December 31, 2022.
As of December 30, 2023, our long-term debt, consisting of senior unsecured notes with varying maturities through 2032, was $1.8 billion. Future interest payable related to long-term debt was $380.0 million as of December 30, 2023.
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. Long-Term Debt On March 4, 2022, we issued $350.0 million aggregate principal amount of our 2032 Notes.
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.
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.
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.
As of December 31, 2022, our purchase commitments were $121.0 million.
As of December 30, 2023, our purchase commitments were $133.0 million.
Analysis of Cash Flows The following table summarizes our cash flows from operating, investing and financing activities: Year Ended December 31, 2022 January 1, 2022 January 2, 2021 Cash flows provided by operating activities $ 722,222 $ 1,112,262 $ 969,688 Cash flows used in investing activities (424,448) (287,314) (266,897) Cash flows used in financing activities (620,704) (1,064,112) (285,997) Effect of exchange rate changes on cash (9,216) 5,600 (467) Net (decrease) increase in cash and cash equivalents $ (332,146) $ (233,564) $ 416,327 23 Table of Contents ` Operating Activities In 2022, Net cash provided by operating activities decreased $390.0 million to $722.2 million.
Analysis of Cash Flows The following table summarizes our cash flows from operating, investing and financing activities: Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Cash flows provided by operating activities $ 287,375 $ 736,571 $ 1,107,022 Cash flows used in investing activities (235,489) (424,448) (287,314) Cash flows provided by (used in) financing activities 189,267 (620,704) (1,064,112) Effect of exchange rate changes on cash (8,487) (8,664) 5,474 Net increase (decrease) in cash and cash equivalents $ 232,666 $ (317,245) $ (238,930) 22 Table of Contents Operating Activities In 2023, Net cas h provided by operating activities decreased $449.2 million to $287.4 million.
Subsequent to December 31, 2022 and through the date of this filing, we had additional net borrowings on our revolving credit facility of $469 million. Critical Accounting Policies Our financial statements have been prepared in accordance with GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements.
Critical Accounting Policies Our financial statements have been prepared in accordance with GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management.
We lease approximately 84% of our stores and branches. Our capital expenditures were $424.1 million in 2022, an increase of $134.4 million from 2021, and were primarily related to investments in new store openings, inclusive of leasehold improvements, as well as investments in information technology and supply chain.
We lease approximately 84% o f our stores and branches. Our capital expenditur es were $242.4 million in 2023, a decrease of $181.7 million fro m 2022, related to the decrease of spend in information technology and supply chain as well as fewer store openings from 2022 to 2023.
The net decrease in cash flows provided by operating activities compared with the prior year was primarily driven by lower Net income, higher incentive compensation expense payout and a decrease in overall working capital.
The net decrease in c ash flows provided by operating activities compared with the prior year was primarily driven by lower Net income and higher accounts receivable. Re fer to “ Results of Operations ” for further details on our results.
Financing Activities In 2022, Net cash used in financing activities decreased by $443.4 million to $620.7 million compared with 2021.
Financing Activities In 2023, Net cash provided by financing activities increased by $810.0 million to $189.3 million compared with 2022.
In connection with this early redemption, we incurred charges related to the make-whole provision and debt issuance costs of $7.0 million and $0.4 million. For additional information on transactions entered into relating to long-term debt during the fifty-two weeks ended December 31, 2022, refer to Note 6.
For additional information on transactions entered into relating to long-term debt during the fifty-two weeks ended December 30, 2023, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein.
The decrease was partially offset by a net payment of $201.1 million for the early redemption of our 2023 Notes and an increase in dividends paid of $175.3 million during 2022 compared with 2021. Our Board of Directors has declared a quarterly cash dividend since 2006.
The net increase in cash provided by financing activities was attributable to a reduction in share repurchases of our common stock of $604.0 million and the incremental net proceeds of $251 million from the issuances of senior unsecured notes in 2023 compared with 2022. Our Board of Directors has declared a quarterly cash dividend since 2006.
Removed
The decrease in working capital was primarily driven by an increase in cash used by Accrued expenses and Inventories, partially offset by an increase in cash provided by Receivables, net. Refer to “ Results of Operations ” for further details on our results.
Added
Investing Activities In 2023, Net cas h used in investing activities decreased $189.0 million to $235.5 million compared with 2022 . This decrease was attributable to reduced purchases of property and equipment due to the completion of back office integration in the prior year, partially offset by investments in new store openings.
Removed
Investing Activities In 2022, Net cash used in investing activities increased $137.1 million to $424.4 million compared with 2021. Cash used in investing activities for 2022 consisted primarily of purchases of property and equipment attributable to investments in new store openings, including leasehold improvements, as well as information technology and supply chain.
Added
Long-Term Debt On March 9, 2023, we issued our 5.90% senior unsecured notes due 2026 (the “2026 Notes”) at 99.94% of the principal amount of $300.0 million and our 5.95% senior unsecured notes due 2028 (the “2028 Notes”) at 99.92% of the principal amount of $300.0 million.
Removed
The net decrease in cash used in financing activities was attributable to net proceeds of $348.6 million received from the issuance of the 2032 Notes, a decrease in share repurchases of our common stock of $287.7 million and proceeds from net borrowings under our unsecured revolving credit facility of $185.0 million during the fifty-two weeks ended December 31, 2022.
Added
The 2026 Notes and 2028 Notes bear interest at a rate of 5.90% and 5.95%, respectively, and are payable semi-annually in arrears in March and September. Proceeds from our 2026 and 2028 Notes were utilized to make repayments on our revolving facility and supplement operational and capital expenditures.
Removed
The 2032 Notes were issued at 99.61% of the principal amount of $350.0 million, are due March 15, 2032 and bear interest at 3.50% per year payable semi-annually in arrears on March 15 and September 15 of each year. On April 3, 2022, we redeemed the remaining $193.2 million principal amount of our outstanding 2023 Notes.
Added
As of March 12, 2024, we had a credit rating from S&P of BB+ and from Moody’s Investor Service of Baa3. The current outlooks by S&P and Moody’s were stable and negative, respectively. The current pricing grid used to determine our borrowing rate under our revolving credit facility is based on our credit ratings.
Removed
Long-term Debt and Fair Value of Financial Instruments of the Notes to the Consolidated Financial Statements included herein. As of February 28, 2023, we had a credit rating from S&P of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by S&P and Moody’s are both stable.
Added
This could result in significantly lower supplier or bank participation in those programs. Following the downgrade in our credit rating from S&P, certain banks reduced participation in our programs. This capacity has been substantially replaced with new participating banks as well as existing participating banks providing increased capacity.
Removed
In addition, it could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease. With respect to all senior unsecured notes for which Advance Auto Parts, Inc.
Added
Lower participation in our supplier payment programs would shorten our payable terms, resulting in an increase in our working capital requirements, and may have a material negative impact on our liquidity or capital resources. With respect to all senior unsecured notes for which Advance Auto Parts, Inc.
Removed
The Amendment made no other material changes to the terms of the 2021 Credit Agreement. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, which is attached hereto as Exhibit 10. 29 and is incorporated by reference herein.
Added
Amendment No. 1 made no other material changes to the terms of the 2021 Credit Agreement.
Removed
A 10% change in our self-insurance liabilities at December 31, 2022 would result in a change in expense of approximately $14.5 million for 2022.
Added
On August 21, 2023, we entered into Amendment No. 2 (“Amendment No. 2”) to the 2021 Credit Agreement in order to amend certain financial covenants related to the Consolidated Coverage Ratio (as defined therein), and on November 20, 2023, we entered into Amendment No. 3 (“Amendment No. 3”) to the 2021 Credit Agreement in order to further amend financial covenants related to the Consolidated Coverage Ratio.
Added
Pursuant to Amendment No. 2 and Amendment No. 3, we will not permit the Consolidated Coverage Ratio to be less than (a) 1.75 to 1.00 for each period of four fiscal quarters ending on October 7, 2023 through and including the period of four fiscal quarters ending on October 5, 2024, (b) 2.00 to 1.00 for each period of four fiscal quarters ending on December 28, 2024 through and including the period of four fiscal quarters ending on October 4, 2025 and (c) 2.25 to 1.00 for each period of four fiscal quarters ending after October 4, 2025.
Added
Amendment No. 2. and Amendment No. 3 made no other material changes to the terms of the 2021 Credit Agreement.
Added
On February 26, 2024, we entered into Amendment No. 4 (“Amendment No. 4”) to the Credit Agreement dated November 9, 2021, with Advance Auto Parts, Inc., as Borrower, Advance Stores Company, Incorporated, as a Guarantor, the lenders party thereto, and Bank of America, N.A., as administrative agent to enable certain addbacks to the definition of Consolidated EBITDA contained therein for specific write-downs of inventory and vendor receivables .
Added
Amendment No. 4 also updated certain limitations on future incurrences of other indebtedness and liens, replacing the cap thereon of 10% of consolidated net tangible assets with $400 million, and eliminated the $250 million basket for accounts receivable securitization transactions. Amendment No. 4 made no other material changes to the terms of the 2021 Credit Agreement.
Added
In addition to our Consolidated Coverage Ratio requirement, we are required to maintain a maximum leverage ratio of 3.75 to 1.00. Our compliance with these covenants will depend upon achieving our financial targets including improvements in operating income.
Added
As of December 30, 2023, giving consideration to the amendments to our 2021 Credit Agreement, we were in compliance with the financial covenants required thereby. We currently expect to be in compliance with these financial covenants for the next 12 months.
Added
However, risk of noncompliance increases if our financial performance worsens or we are required to increase borrowings to fund operations.
Added
If we are not in compliance with the financial covenants required by our 2021 Credit Agreement, and cannot timely secure an amendment or waiver thereof, we would be in default of our 2021 Credit Agreement and our outstanding senior unsecured notes, which would have a material adverse impact on our financial condition.
Added
A 10% change i n our self-insurance liabilities at December 30, 2023 would result in a change in expense of approximate ly $15.0 million for 2023. Excess and Obsolete Inventory Reserves In connection with a strategic and operational review of the business, we reviewed the rationalization of product assortment and planned decisive actions related to inventory.
Added
As a result, we made a change in our estimate of excess inventory reserves resulting in an increase to Cost of sales of approximately $116 million.
Added
Our excess and obsolete inventory reserve assessment includes analyzing our inventory at the SKU level by assessing each SKU quantity based on years on hand, the stage within the product lifecycle the SKU is assigned and sales history. From this data analysis, our excess and obsolete inventory is identified, analyzed and compared against our reserve.
Added
Additionally, from time to time, specific SKUs may be identified as excess and/or obsolete for which a reserve will be recognized. We classify each product into a product lifecycle category: introduction, expansion, saturation, reduction and disposition.
Added
This assessment is routinely performed and includes, but is not limited to, the analysis of anticipated, historical and actual demand; and changes in customer preferences. SKU-level classifications are updated as warranted.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
49 edited+21 added−17 removed67 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
49 edited+21 added−17 removed67 unchanged
2023 filing
2024 filing
Biggest changeOur failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt, including such notes. 14 Table of Contents ` In addition, our overall credit rating may be negatively impacted by deteriorating and uncertain credit markets or other factors that may or may not be within our control.
Biggest changeThe indentures governing our senior unsecured notes and credit agreement governing our credit facilities contain financial and other restrictive covenants. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt, including such notes.
We 12 Table of Contents ` may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that minimize emissions. Additionally, compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers.
We may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to 12 Table of Contents electric vehicles and other technologies that minimize emissions. Additionally, compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers.
The actual number and format of any new locations to be opened and the success of our growth strategy will depend on a number of factors, including, among other things: • the availability of desirable locations; • the negotiation of acceptable lease or purchase terms for new locations; • the availability of financial resources, including access to capital at cost-effective interest rates; • our ability to expand our online offerings and sales; and • our ability to manage the expansion and to hire, train and retain qualified team members.
The actual number and format of any new locations to be opened and the success of our strategy will depend on a number of factors, including, among other things: • the availability of desirable locations; • the negotiation of acceptable lease or purchase terms for new locations; • the availability of financial resources, including access to capital at cost-effective interest rates; • our ability to expand our online offerings and sales; and • our ability to manage the expansion and to hire, train and retain qualified team members.
Accordingly, any negative impact on our credit ratings would likely result in higher interest rates and interest expense on any borrowings under our revolving credit facility and less favorable terms on our other operating and financing arrangements, including additional debt we may issue or incur in the future.
Accordingly, any further negative impact on our credit ratings would likely result in higher interest rates and interest expense on any borrowings under our revolving credit facility and less favorable terms on our other operating and financing arrangements, including additional debt we may issue or incur in the future.
Further, changing local demographics at existing store locations may adversely affect revenue and profitability levels at those stores. The termination or expiration of leases at existing store locations may adversely affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores.
Further, changing local demographics at existing store locations may adversely affect revenue and profitability levels at those stores. The early termination or expiration of leases at existing store locations may adversely affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores.
We intend to continue to expand the markets we serve as part of our growth strategy, which may include opening new stores or branches, as well as expansion of our online business. We may also grow our business through strategic acquisitions.
We intend to continue to expand the markets we serve as part of our strategy, which may include opening new stores or branches, as well as expansion of our online business. We may also grow our business through strategic acquisitions.
In the event that commercial transportation, including the global shipping industry, is curtailed or substantially delayed, our business may be adversely impacted as we may have difficulty receiving merchandise from our suppliers and/or transporting it to our stores. 11 Table of Contents ` Terrorist attacks, warfare, geopolitical unrest, or uncertainty or insurrection involving any oil producing country could result in an abrupt increase in the price of crude oil, gasoline and diesel fuel.
In the event that commercial transportation, including the global shipping industry, is curtailed or substantially delayed, our business may be adversely impacted as we may have difficulty receiving merchandise from our suppliers and/or transporting it to our stores. 11 Table of Contents Terrorist attacks, warfare, geopolitical instability, or uncertainty or insurrection involving any oil producing country could result in an abrupt increase in the price of crude oil, gasoline and diesel fuel.
For the portion of our inventory manufactured and/or sourced outside the United States, geopolitical changes, changes in trade regulations or tariff rates, currency fluctuations, work stoppages, labor strikes, port delays, civil unrest, natural disasters, pandemics and other factors beyond our control may increase the cost of items we purchase or create shortages that could have a material adverse effect on our sales and profitability.
For the portion of our inventory manufactured and/or sourced outside the United States, geopolitical changes, changes in trade regulations or tariff rates, currency fluctuations, work stoppages, labor strikes, port delays, shipping disruptions, civil unrest, natural disasters, pandemics and other factors beyond our control may increase the cost of items we purchase or create shortages that could have a material adverse effect on our sales and profitability.
In addition to potentially incurring costs related to lease obligations, we may also incur employee-related severance or other facility closure costs for stores that are closed or relocated. 7 Table of Contents ` Omnichannel growth in our business is complex and if we are unable to successfully maintain a relevant omnichannel experience for our customers, our sales and results of operations could be adversely impacted.
In addition to potentially incurring costs related to lease obligations, we may also incur employee-related severance or other facility closure costs for stores that are closed or relocated. 8 Table of Contents Omnichannel growth in our business is complex and if we are unable to successfully maintain a relevant omnichannel experience for our customers, our sales and results of operations could be adversely impacted.
Hurricanes, tornadoes, earthquakes or other natural disasters, war or acts of terrorism, public health issues or pandemics or the threat of any of these incidents or others, may have a negative impact on our ability to obtain merchandise to sell in our stores, result in certain of our stores being closed for an extended period of time, negatively affect the lives of our customers or team members, or otherwise negatively impact our operations.
Hurricanes, tornadoes, earthquakes or other natural disasters, war or acts of terrorism, civil or geopolitical unrest, public health issues or pandemics or the threat of any of these incidents or others, may have a negative impact on our ability to obtain merchandise to sell in our stores, result in certain of our stores being closed for an extended period of time, negatively affect the lives of our customers or team members, or otherwise negatively impact our operations.
If these team members were to engage in a strike, work stoppage, or other slowdown, or if the terms and conditions in labor agreements were renegotiated, we could experience a disruption in our operations and higher ongoing labor costs.
If these team members, or if non-union team members, were to engage in a strike, work stoppage, or other slowdown, or if the terms and conditions in labor agreements were renegotiated, we could experience a disruption in our operations and higher ongoing labor costs.
If we are unable to successfully integrate future acquisitions into our existing operations or implement joint ventures or other strategic relationships, it could adversely affect our business, financial condition, results of operations and cash flows. We expect to continue to make strategic acquisitions and enter into strategic relationships as an element of our growth strategy.
If we are unable to successfully integrate future acquisitions into our existing operations or implement joint ventures or other strategic relationships, it could adversely affect our business, financial condition, results of operations and cash flows. We may continue to make strategic acquisitions and enter into strategic relationships as an element of our strategy.
We develop, maintain and update processes and systems in an effort to try to prevent this from occurring, but these actions are costly and require constant, ongoing attention as technologies change, privacy and information security regulations change, and efforts to overcome security measures by bad actors continue to become ever more sophisticated.
We develop, maintain and update processes and systems in an effort to try to prevent this from occurring, but these actions are costly and require constant, 9 Table of Contents ongoing attention as technologies change, privacy and information security regulations change, and efforts to overcome security measures by bad actors continue to become ever more sophisticated.
We are currently making and expect to continue to make significant investments to pursue our strategic initiatives. If we are unable to implement our strategic initiatives efficiently and effectively, our business, financial condition, results of operations and cash flows could be adversely affected.
We are currently making and expect to continue to make significant investments to improve our business. If we are unable to implement our initiatives efficiently and effectively, our business, financial condition, results of operations and cash flows could be adversely affected.
Additionally, decisions to return capital to stockholders, including through our repurchase program or the issuance of dividends on our common stock, remain subject to determination of our Board of Directors that any such activity is in the best interests of our stockholders and is in compliance with all applicable laws and contractual obligations.
Additionally, decisions to return capital to stockholders, including through our repurchase program or the issuance of dividends on our common stock, remain subject to determination of our Board of Directors that any such activity is in the best interests of our stockholders and is in compliance with all applicable laws and contractual obligations. Item 1B. Unresolved Staff Comments. None.
The success of these acquisitions and relationships depends on a number of factors, including but not limited to: • our ability to continue to identify and acquire suitable targets or strategic partners, or to acquire additional companies or enter into strategic relationships, at favorable prices and/or with favorable terms; • our ability to obtain the full benefits envisioned by strategic transactions or relationships; • the risk that management’s attention may be distracted; • our ability to attract and retain key personnel; • our ability to successfully integrate the operations and systems of the acquired companies, and to achieve the strategic, operational, financial or other anticipated synergies of the acquisition or other transaction or relationship; • the performance of our strategic partners; • significant transaction or integration costs that may not be offset by the synergies or other benefits achieved in the near term or at all; • additional operational risks, such as those associated with doing business internationally or expanding operations into new territories, geographies or channels, that may become applicable to us; and • loss contingencies that we may assume or become subject to, whether known or unknown, of acquired companies, which could relate to past, present or future facts, events, circumstances or occurrences. 8 Table of Contents ` If we experience difficulties implementing various information systems, our ability to conduct our business could be negatively impacted.
The success of these acquisitions and relationships depends on a number of factors, including but not limited to: • our ability to continue to identify and acquire suitable targets or strategic partners, or to acquire additional companies or enter into strategic relationships, at favorable prices and/or with favorable terms; • our ability to obtain the full benefits envisioned by strategic transactions or relationships; • the risk that management’s attention may be distracted; • our ability to attract and retain key personnel; • our ability to successfully integrate the operations and systems of the acquired companies, and to achieve the strategic, operational, financial or other anticipated synergies of the acquisition or other transaction or relationship; • the performance of our strategic partners; • significant transaction or integration costs that may not be offset by the synergies or other benefits achieved in the near term or at all; • additional operational risks, such as those associated with doing business internationally or expanding operations into new territories, geographies or channels, that may become applicable to us; and • loss contingencies that we may assume or become subject to, whether known or unknown, of acquired companies, which could relate to past, present or future facts, events, circumstances or occurrences. 10 Table of Contents We are dependent on our suppliers to supply us with products that comply with safety and quality standards at competitive prices.
Internet-based retailers may possess cost advantages over us due to lower overhead costs, time and travel savings and ability to price competitively. In order to compete favorably, we may need to increase delivery speeds and incur higher shipping costs or lower prices, which would adversely impact our financial results.
Internet-based retailers may possess cost advantages over us due to lower overhead costs, time and travel savings and ability to price competitively. In order to compete favorably, we may need to increase availability, change inventory assortment, increase delivery speeds, incur higher shipping costs or lower prices, any of which could adversely impact our financial results.
We operate in a competitive labor market and there is a risk that market increases in compensation could have an adverse effect on our profitability.
We operate in a competitive labor market and are investing in key roles in our frontline organization, and there is a risk that increases in compensation could have an adverse effect on our profitability.
These risks increase when significant changes are undertaken. If we are unable to successfully implement our growth strategy, keep existing store locations or open new locations in desirable places on favorable terms, it could adversely affect our business, financial condition, results of operations and cash flows.
If we are unable to keep existing store locations or open new locations in desirable places on favorable terms, it could adversely affect our business, financial condition, results of operations and cash flows.
As suppliers increase prices charged to us for products, including transportation and distribution, as a result of these or other factors, it may negatively impact our results.
If suppliers increase prices charged to us for products, including transportation and distribution, as a result of these or other factors such as inflation or the cost of participating in vendor financing programs, it may negatively impact our results.
Market or government regulated increases to employee hourly wage rates, along with our ability to implement corresponding adjustments within our labor model and wage rates, could have a significant impact to the profitability of our business. In addition, approximately 2% of our team members are represented by unions.
Additionally, government regulated increases to employee hourly wage rates, along with our ability to implement corresponding adjustments within our labor model and wage rates, could have a negative impact on our profitability. Approximately 1.3% of our team members are represented by unions.
We continue to streamline and optimize our supply chain network and systems. If our investments in our supply chain do not provide the anticipated benefits, we could experience sub-optimal inventory levels, inventory availability or increases in our costs, which could adversely affect our business, financial condition, results of operations and cash flows.
Our investments in our supply chain may not provide the anticipated benefits, and experiencing sub-optimal inventory levels, inventory availability or increases in our costs could adversely affect our business, financial condition, results of operations and cash flows.
Our level of indebtedness, a downgrade in our credit ratings or a deterioration in global credit markets could limit the cash flow available for operations and could adversely affect our ability to service our debt or obtain additional financing. Our level of indebtedness could restrict our operations and make it more difficult for us to satisfy our debt obligations.
Risks Related to Our Common Stock and Financial Condition Our level of indebtedness, a downgrade in our credit ratings or a deterioration in global credit markets could limit the cash flow available for operations and could adversely affect our ability to service our debt or obtain additional financing.
While we have taken and continue to undertake significant steps to protect such personally identifiable information and other confidential information and to protect the functioning of our computer systems, website and other online offerings, a compromise of our data security systems or those of businesses we interact with could result in information related to our customers, suppliers, team members or business being obtained by unauthorized persons or adverse operational effects or interruptions, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Despite these efforts, a compromise of our data security systems or those of businesses we interact with could result in information related to our customers, suppliers, team members or business being obtained by unauthorized persons or adverse operational effects or interruptions, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Contingencies , of the Notes to the Consolidated Financial Statements included herein). 10 Table of Contents ` We are subject to numerous federal, state and local laws and governmental regulations relating to, among other things, environmental protection, product quality and safety standards, building and zoning requirements, labor and employment, discrimination, anti-bribery/anti-corruption, data privacy and income taxes.
We are subject to numerous federal, state and local laws and governmental regulations relating to, among other things, environmental protection, product quality and safety standards, weights and measures, building and zoning requirements, labor and employment, discrimination, anti-bribery/anti-corruption, data privacy, income taxes and trade sanctions and compliance.
The amount and frequency of our share repurchases and dividend payments may fluctuate. The amount, timing and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as operational spending, capital spending, acquisitions or repayment of debt.
The amount, timing and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as operational spending, capital spending, acquisitions or repayment or repurchase of debt. Changes in operational results, cash flows, tax laws and our share price could also impact our share repurchase program and other capital activities.
While we have experienced threats to our data and systems, including phishing attacks, to date we are not aware that we have experienced a material cyber-security breach that has in any manner hindered our operational capabilities or resulted in a known data breach.
While we have experienced threats to our data and systems, including phishing attacks, to date we are not aware that we have experienced a material cyber-security incident.
For example, the recent surges in consumer demand, shortages of raw materials and disruptions to the global supply chain resulting from lack of carrier capacity, labor shortages, port congestion and/or closures, amongst other factors, have negatively impacted costs and inventory availability and may continue to have a negative impact on future results and profitability.
For example, disruptions to the global supply chain resulting from lack of carrier capacity, labor shortages, geopolitical unrest, port congestion and/or closures, amongst other factors, may negatively impact costs, inventory availability and operating results.
If our merchandise offerings do not meet our customers’ expectations regarding safety, innovation and quality, we could experience lost sales, increased costs and exposure to legal and reputational risk. Our suppliers are subject to applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety and quality standards.
We are dependent on our vendors continuing to supply us with quality products on payment terms that are favorable to us. If our merchandise offerings do not meet our customers’ expectations regarding safety, innovation and quality, we could experience lost sales, increased costs and exposure to legal and reputational risk.
Website downtime and other technology disruptions in our e-commerce platform, including interruptions due to cyber-related issues or natural disasters, as well as supply and distribution delays and other related issues may affect the successful operation of our e-commerce platform.
Website or catalog downtime and other technology disruptions in our omnichannel business, including interruptions due to cyber-related issues, aging informational technology infrastructure or natural disasters, as well as supply and distribution delays and other related issues may negatively affect our operations.
These implementations will require significant investment of human and financial resources, and we may experience significant delays, increased costs and other difficulties with these projects.
We are in the process of designing, implementing and updating various information systems. These initiatives will require significant investment of human and financial resources, and we may experience significant delays, increased costs and other difficulties with these projects.
Generally, our ability to negotiate favorable terms with our suppliers is more difficult with suppliers for whom our purchases represent a smaller proportion of their total revenues, consequently impacting our profitability from such vendor relationships.
Generally, our ability to negotiate favorable terms with our suppliers is more difficult with suppliers for whom our purchases represent a smaller proportion of their total revenues, consequently impacting our profitability from such vendor relationships. If we encounter any of these issues with our suppliers, our business, financial condition, results of operations and cash flows could be adversely impacted.
In addition, our capital and operating expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.
In addition, our capital and operating expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations. Business interruptions may negatively impact our store hours, operability of our computer systems and the availability and cost of merchandise, which may adversely impact our sales and profitability.
If we encounter any of these issues with our suppliers, our business, financial condition, results of operations and cash flows could be adversely impacted. 9 Table of Contents ` In addition, our suppliers, including those within our global supply chain, are impacted by global conditions that in turn may impact our ability to source merchandise at competitive prices or timely supply product at levels adequate to meet consumer demand.
In addition, our suppliers, including those within our global supply chain, are impacted by global conditions that in turn may impact our ability to source merchandise at competitive prices or timely supply product at levels adequate to meet consumer demand.
Because we are involved in litigation from time to time, and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs. We are sometimes the subject of complaints or litigation, which may include class action litigation from customers, team members or others for various actions.
In those circumstances, it may be difficult and costly for us to regain the confidence of our customers. Because we are involved in litigation from time to time, and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of our attention and resources, which could have an adverse effect on our business.
Failure to meet expectations set by us or our analysts, even slightly, could have an adverse effect on the price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such a company.
Additionally, turnover in executive or other key positions can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, cause other team members to take on substantially more responsibility which results in greater workload demands and diverting attention away from key areas of the business, or otherwise negatively impact our growth prospects or future operating results.
Additionally, turnover in executive or other key positions can disrupt progress in implementing business strategies, result in a loss of institutional knowledge, impair our ability to execute, distract other team members from their key areas of focus or otherwise negatively impact our business and results.
In addition, negative customer perceptions regarding the safety or quality of the products we sell could cause our customers to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our customers.
To the extent our suppliers are subject to additional government regulation of their product design and/or manufacturing processes, the cost of the merchandise we purchase may rise. In addition, negative customer perceptions regarding the safety or quality of the products we sell could cause our customers to seek alternative sources for their needs, resulting in lost sales.
We are dependent on information systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results. We are in the process of implementing and updating various information systems.
If we are unable to design, implement and properly operate and maintain various information systems, our ability to conduct our business could be negatively impacted . We are dependent on information systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results.
Risks Related to Our Common Stock and Financial Condition The market price of our common stock may be volatile and could expose us to securities class action litigation. The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions. Downturns in the stock market may cause the price of our common stock to decline.
An inability to obtain sufficient financing at cost-effective rates could have a material adverse effect on our business, financial condition, results of operations and cash flows. Item 1B. Unresolved Staff Comments. None.
An inability to obtain sufficient financing at cost-effective rates could have a material adverse effect on our business, financial condition, results of operations and cash flows. 14 Table of Contents The market price of our common stock may be volatile and could expose us to securities class action litigation.
We have also established standards for product safety and quality and workplace standards that we require all our suppliers to meet. We do not condone human trafficking, forced labor, child labor, harassment or abuse of any kind, and we expect our suppliers to operate within these same principles.
We do not condone human trafficking, forced labor, child labor, harassment or abuse of any kind, and we expect our suppliers to operate within these same principles. Our ability to find qualified suppliers who can supply products in a timely and efficient manner that meet our standards can be challenging.
If we are unable to maintain adequate supply chain capacity and improve supply chain efficiency, we will not be able to expand our business, which could adversely affect our business, financial condition, results of operations and cash flows. Our store inventories are primarily replenished by shipments from our network of distribution centers, warehouses and hub stores.
The effectiveness of our supply chain is important to our business operations and ability to grow our business, and if we are unable to maintain adequate supply chain capacity or improve supply chain efficiency, it could adversely affect our business, financial condition, results of operations and cash flows.
Risks Related to Our Operations and Growth Strategy If we are unable to successfully implement our business strategy, our business, financial condition, results of operations and cash flows could be adversely affected. We have identified several initiatives as part of our business strategy to increase sales, expand margins, drive accelerated growth and deliver top quartile results relative total shareholder return.
Risks Related to Our Operations and Strategy If we are unable to successfully implement our business strategy, our business, financial condition, results of operations and cash flows could be adversely affected. We have undertaken a strategic and operational review to improve the performance of our business and create long-term value.
Our ability to find qualified suppliers who can supply products in a timely and efficient manner that meet our standards can be challenging. Events that give rise to actual, potential or perceived product safety concerns could expose us to government enforcement action and private litigation and result in costly product recalls and other liabilities.
Events that give rise to actual, potential or perceived product safety concerns could expose us to government enforcement action and private litigation and result in costly product recalls and other liabilities. Suppliers may also fail to invest adequately in design, production or distribution facilities, may reduce their customer incentives, advertising and promotional activities or change their pricing policies.
As we expand our market presence, we will need to increase efficiency and maintain adequate capacity of our supply chain network in order to achieve the business goal of reducing inventory costs while improving availability and movement of goods throughout our supply chain to meet consumer product needs and channel preferences.
If we are unable to maintain adequate capacity in our supply chain network, either as we expand our business or work to optimize our existing network, or if we are unable to improve the efficiency of our supply chain, we may experience higher inventory costs, lower availability, slower delivery speed and ultimately a lower ability to meet consumer product needs and channel preferences.
For instance, we are subject to numerous lawsuits alleging injury as a result of exposure to asbestos-containing products (see Note 13.
For instance, we are subject to a potential securities class action regarding past public disclosures (See I tem 3 . Legal Proceeding s of this Annual Report on Form 10-K) and to numerous lawsuits alleging injury as a result of exposure to asbestos-containing products (see Note 13. Contingencies , of the Notes to the Consolidated Financial Statements included herein).
Downturns in the stock market may cause the price of our common stock to decline. The market price of our stock may also be affected by our ability to meet analysts’ expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the price of our common stock.
The market price of our stock may also be affected by our ability to meet analysts’ expectations or financial guidance that we provide to the investment community. Inability to accurately forecast our operational and financial performance could increase volatility in our stock.
We are dependent on our suppliers to supply us with products that comply with safety and quality standards at competitive prices. We are dependent on our vendors continuing to supply us with quality products on payment terms that are favorable to us.
Our suppliers are subject to applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety and quality standards. We have also established standards for product safety and quality and workplace standards that we require all our suppliers to meet.
Removed
Our business has become increasingly omnichannel as we strive to deliver a seamless shopping experience to our customers through both online and in-store shopping experiences.
Added
These risks increase when significant changes are undertaken and when multiple projects with interdependencies and shared human resources are pursued simultaneously. We are exposed to risks associated with our potential divestitures, which may impact our ability to fully realize the anticipated benefits of those transactions.
Removed
Continuing to improve our e-commerce platform involves substantial investment of capital and resources, increasing supply chain and distribution capabilities, attracting, developing and retaining qualified personnel with relevant subject matter expertise and effectively managing and improving the customer experience. Omnichannel and e-commerce retail are competitive and evolving environments.
Added
We recently announced our intention to explore divestitures of our Worldpac business and Carquest Canada business in separate sales processes as part of our strategic review. There can be no assurance that we will complete these transactions.
Removed
Insufficient, untimely or inadequately prioritized or ineffectively implemented investments could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones.
Added
Divestitures are complex transactions involving inherent risks, including the potential for distractions of management from the core remaining business of the Company and the occurrence of events that may impact our ability to fully realize the anticipated benefits of the divestitures.
Removed
Costs associated with implementing omnichannel initiatives may be higher than expected, and the initiatives may not result in increased sales, including same store sales, customer traffic, customer loyalty or other anticipated results.
Added
We have not yet set a timetable for the sale processes, but transactions of this nature carry risks associated to variation from expectations with respect to timing, expense and post-closing claims for liability. If any of these risks materialize, the benefits of such divestitures may not be fully realized, if at all.
Removed
Any significant disruption or deficiency in the design and implementation of these information systems could adversely affect our ability to process orders, ship products, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.
Added
We are currently focusing on projects to improve our merchandising, assortment and inventory systems to enable us to efficiently move product through our supply chain network.
Removed
While we have invested meaningful resources in planning, project management and training, additional and significant implementation issues may arise as we integrate onto these new information systems that may disrupt our operations and negatively impact our business, financial condition, results of operations, cash flows and internal controls structure.
Added
Any deficiency in the design or implementation or maintenance of these systems could lead to inaccuracy of data and disruption to our business operations, such as demand and fulfillment data, which would lower the accuracy and efficacy of our demand and inventory forecasting.
Removed
Suppliers may also fail to invest adequately in design, production or distribution facilities, may reduce their customer incentives, advertising and promotional activities or change their pricing policies. To the extent our suppliers are subject to additional government regulation of their product design and/or manufacturing processes, the cost of the merchandise we purchase may rise.
Added
Such deficiencies may also result in lost sales from failure to buy product demanded by our customers, excess inventory from buying product not demanded by our customers, higher costs from buying products in an inefficient manner, disruption in sending invoices and tracking payments, and otherwise negative impacts to our business operations.
Removed
We may not be able to retain our current executives and other key team members or attract and retain additional qualified executives and team members who may be needed in the future.
Added
Our store inventories are primarily replenished by shipments from our network of distribution centers. We are working to optimize our distribution network to support sales growth.
Removed
For example, during 2021 and 2022, we experienced unusually low availability of workers, which we believe was primarily attributable to COVID-19-pandemic-related factors, and in turn has created increased competition in labor markets. Disruptions and heightened competition may increase our costs, impact our ability to serve customers and otherwise affect our business operations.
Added
We plan to further invest in distribution center infrastructure to help ensure safety, reliability and efficiency across our operations, which will require capital investments. We are also working to improve product lifecycle management and address slower-moving inventory in our 7 Table of Contents network.
Removed
We also believe our future success will depend in part upon our ability to attract and retain highly skilled personnel for whom the market is highly competitive, particularly for individuals with certain types of technical skills. Failure to recruit or retain qualified employees may impair our efficiency and effectiveness and our ability to pursue growth opportunities.
Added
Omnichannel and e-commerce retail are competitive and evolving environments.
Removed
In February 2023, our President and Chief Executive Officer informed our Board of his intention to retire from his position at the end of the year.
Added
Failure to recruit or retain qualified team members may impact our ability to serve our customers, increase our costs and impair our efficiency and ability to pursue growth opportunities.
Removed
Leadership transitions can be inherently difficult to manage, and uncertainty regarding future leadership at our organization or inadequate transition of our Chief Executive Officer may increase the risk of turnover in executive or other key positions, negatively impact our ability to recruit and retain talent, cause disruption to our business or hinder our planning, execution and future performance.
Added
For example, we experienced turnover in senior leadership positions in our accounting function during 2023 that led to our having a material weakness in our internal control over financial reporting.
Removed
If we fail or are unable to maintain competitive compensation, our customer service and execution levels could suffer by reason of a declining quality of our workforce, which could adversely affect our business, financial condition, results of operations and cash flows.
Added
If we are unable to attract and retain personnel with expertise in the required areas, there may be disruptions in our financial processes and reporting, delays to full remediation of the material weakness in our internal controls or higher likelihood of additional control deficiencies or future material weaknesses in internal control over financial reporting.
Removed
Business interruptions may negatively impact our store hours, operability of our computer systems and the availability and cost of merchandise, which may adversely impact our sales and profitability.
Added
We have taken and continue to undertake significant steps, including contractual provisions and third-party risk management processes, to protect such personally identifiable information and other confidential information and to protect the functioning of our computer systems, website and other online offerings.
Removed
For example, in February 2018, following a significant decline in the price of our common stock, a putative class action was commenced against us. The settlement agreement received final approval by the court in June 2022 and was fully paid by our insurance carriers (see “ Note 13. Contingencies ” of this Annual Report on Form 10-K).
Added
Additionally, since we do not control our third-party service providers and our ability to monitor their data security is limited, we cannot ensure the security measures they take will be sufficient to protect our data.
Removed
Changes in operational results, cash flows, tax laws and our share price could also impact our share repurchase program and other capital activities. For example, in August 2022, Congress enacted the Inflation Reduction Act of 2022, which instituted, among other things, a 1% excise tax on certain corporate share repurchases beginning on January 1, 2023.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+0 added−0 removed1 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+0 added−0 removed1 unchanged
2023 filing
2024 filing
Biggest changeFinancial Statements and Supplementary Data. This information is included in “ Item 15. Exhibits, Financial Statement Schedules ” of this annual report and is incorporated herein by reference.
Biggest changeFinancial Statements and Supplementary Data. This information is included in “ Item 15. Exhibits, Financial Statement Schedules ” of this annual report and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
We are exposed to foreign currency exchange rate fluctuations for the portion of our inventory purchases denominated in foreign currencies. We believe that the price volatility relating to foreign currency exchange rates is partially mitigated by our ability to adjust selling prices. During 2022 and 2021, foreign currency transactions did not materially impact Net income. Item 8.
We are exposed to foreign currency exchange rate fluctuations for the portion of our inventory purchases denominated in foreign currencies. We believe that the price volatility relating to foreign currency exchange rates is partially mitigated by our ability to adjust selling prices. During 2023 and 2022, foreign currency transactions did not materially impact Net income. Item 8.
As of December 31, 2022, we had $185.0 million borrowings outstanding under our revolving credit facility. As of January 1, 2022, we had no borrowings outstanding under our revolving credit facility. Our financial assets that are exposed to credit risk consist primarily of trade accounts receivable and vendor receivables. We are exposed to normal credit risk from customers.
As of December 30, 2023, we had no borrowings outstanding under our revolving credit facility. As of December 31, 2022, we had $185.0 million of borrowings outstanding under our revolving credit facility. Our financial assets that are exposed to credit risk consist primarily of trade accounts receivable and vendor receivables. We are exposed to normal credit risk from customers.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. We are subject to interest rate risk to the extent we borrow against our revolving credit facility as it is based, at our option, on adjusted Term SOFR, plus a margin, or an alternate base rate, plus a margin.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks. We are subject to interest rate risk to the extent we borrow against our revolving credit facility as it is based, at our option, on adjusted Term Secured Overnight Financing Rate (“SOFR”) plus a margin, or an alternate base rate plus a margin.