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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 23, 2022

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

Commission file number 001-16797
________________________

aap-20220423_g1.jpg
ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)
________________________
Delaware54-2049910
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

4200 Six Forks Road, Raleigh, North Carolina 27609
(Address of principal executive offices) (Zip Code)
 
(540) 362-4911
(Registrant’s telephone number, including area code)

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

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

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

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

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

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

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

As of May 20, 2022, the number of shares of the registrant’s common stock outstanding was 60,639,825 shares.


TABLE OF CONTENTS
   
 Page
 
  
  
  
  
 
 
 
 
 


NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are usually identifiable by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “likely,” “may,” “plan,” “position,” “possible,” “potential,” “probable,” “project,” “should,” “strategy,” “will,” or similar language. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, and future business and financial performance, as well as statements regarding underlying assumptions related thereto. Forward-looking statements reflect our views based on historical results, current information and assumptions related to future developments. Except as may be required by law, we undertake no obligation to update any forward-looking statements made herein. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. They include, among others, factors related to the timing and implementation of strategic initiatives, including with respect to labor shortages or disruptions and the impact on our ability to complete store openings, deterioration of general macroeconomic conditions, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current global pandemic. Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.
1

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

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data) (Unaudited)
AssetsApril 23, 2022January 1, 2022
Current assets:  
Cash and cash equivalents$138,733 $601,428 
Receivables, net957,799 782,785 
Inventories4,778,849 4,659,018 
Other current assets182,399 232,245 
Total current assets6,057,780 6,275,476 
Property and equipment, net of accumulated depreciation of $2,471,936 and $2,403,567
1,567,986 1,528,311 
Operating lease right-of-use assets2,687,581 2,671,810 
Goodwill993,820 993,744 
Other intangible assets, net642,120 651,217 
Other assets53,194 73,651 
Total assets$12,002,481 $12,194,209 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$3,942,388 $3,922,007 
Accrued expenses617,793 777,051 
Other current liabilities492,393 481,249 
Total current liabilities5,052,574 5,180,307 
Long-term debt1,187,170 1,034,320 
Noncurrent operating lease liabilities2,330,532 2,337,651 
Deferred income taxes420,336 410,606 
Other long-term liabilities102,189 103,034 
Total liabilities9,092,801 9,065,918 
Commitments and contingencies
Stockholders’ equity:  
Preferred stock, nonvoting, $0.0001 par value
  
Common stock, voting, $0.0001 par value
8 8 
Additional paid-in capital862,451 845,407 
Treasury stock, at cost(2,564,757)(2,300,288)
Accumulated other comprehensive loss(41,065)(22,627)
Retained earnings4,653,043 4,605,791 
Total stockholders’ equity2,909,680 3,128,291 
Total liabilities and stockholders’ equity$12,002,481 $12,194,209 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
2

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data) (Unaudited)
 Sixteen Weeks Ended
April 23, 2022April 24, 2021
Net sales$3,374,210 $3,330,370 
Cost of sales, including purchasing and warehousing costs
1,867,690 1,845,444 
Gross profit1,506,520 1,484,926 
Selling, general and administrative expenses
1,303,250 1,232,797 
Operating income203,270 252,129 
Other, net:
Interest expense(12,868)(11,191)
Loss on early redemptions of senior unsecured notes(7,408) 
Other income, net136 4,836 
Total other, net(20,140)(6,355)
Income before provision for income taxes183,130 245,774 
Provision for income taxes43,339 59,844 
Net income$139,791 $185,930 
Basic earnings per common share$2.28 $2.83 
Weighted-average common shares outstanding61,261 65,688 
Diluted earnings per common share$2.26 $2.81 
Weighted-average common shares outstanding61,732 66,102 


Condensed Consolidated Statements of Comprehensive Income
(in thousands) (Unaudited)
 Sixteen Weeks Ended
April 23, 2022April 24, 2021
Net income$139,791 $185,930 
Other comprehensive (loss) income:
Changes in net unrecognized other postretirement benefit (costs), net of tax of $9 and $19
24 (54)
Currency translation adjustments(18,462)5,347 
Total other comprehensive (loss) income(18,438)5,293 
Comprehensive income$121,353 $191,223 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
3

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except per share data) (Unaudited)
Sixteen Weeks Ended April 23, 2022
Common StockAdditional
Paid-in Capital
Treasury Stock, at CostAccumulated Other
Comprehensive Loss
Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at January 1, 202262,009 $8 $845,407 $(2,300,288)$(22,627)$4,605,791 $3,128,291 
Net income— — — — — 139,791 139,791 
Total other comprehensive loss— — — — (18,438)— (18,438)
Issuance of shares upon the exercise of stock options1 — 233 — — — 233 
Restricted stock units and deferred stock units vested234 — — — — —  
Share-based compensation— — 16,978 — — — 16,978 
Stock issued under employee stock purchase plan10 — 933 — — — 933 
Repurchases of common stock(1,156)— — (264,469)— — (264,469)
Cash dividends declared ($1.50 per common share)
— — — — — (92,539)(92,539)
Other — (1,100)— — — (1,100)
Balance at April 23, 202261,098 $8 $862,451 $(2,564,757)$(41,065)$4,653,043 $2,909,680 
Sixteen Weeks Ended April 24, 2021
Common StockAdditional
Paid-in Capital
Treasury Stock, at CostAccumulated Other
Comprehensive Loss
Retained EarningsTotal
Stockholders’ Equity
SharesAmount
Balance at January 2, 202166,361 $8 $783,709 $(1,394,080)$(26,759)$4,196,634 $3,559,512 
Net income
— — — — — 185,930 185,930 
Total other comprehensive income— — — — 5,293 — 5,293 
Restricted stock units and deferred stock units vested227 — — — — —  
Share-based compensation— — 16,260 — — — 16,260 
Stock issued under employee stock purchase plan13 —  — — —  
Repurchases of common stock(1,162)— — (183,647)— — (183,647)
Cash dividends declared ($1.00 per common share)
 — — — — (81,746)(81,746)
Other — (35)— — — (35)
Balance at April 24, 202165,439 $8 $799,934 $(1,577,727)$(21,466)$4,300,818 $3,501,567 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
4

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
 Sixteen Weeks Ended
April 23, 2022April 24, 2021
Cash flows from operating activities:  
Net income$139,791 $185,930 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization85,581 77,253 
Share-based compensation16,978 16,260 
Loss and impairment of long-lived assets1,237 4,732 
Loss on early redemptions of senior unsecured notes 7,408  
Provision for deferred income taxes9,681 14,660 
Other, net1,020 543 
Net change in:
Receivables, net(174,895)(53,982)
Inventories(119,550)63,883 
Accounts payable20,225 96,094 
Accrued expenses(98,978)(50,949)
Other assets and liabilities, net56,562 (24,492)
Net cash (used in) provided by operating activities(54,940)329,932 
Cash flows from investing activities:  
Purchases of property and equipment(114,854)(70,884)
Proceeds from sales of property and equipment828 590 
Net cash used in investing activities(114,026)(70,294)
Cash flows from financing activities:  
Borrowings under credit facilities275,000  
Payments on credit facilities(275,000) 
Borrowings on senior unsecured notes348,618  
Payments on senior unsecured notes(201,081) 
Dividends paid(154,796)(33,146)
Repurchases of common stock(264,469)(183,647)
Other, net(2,007)104 
Net cash used in financing activities(273,735)(216,689)
Effect of exchange rate changes on cash(19,994)2,292 
Net (decrease) increase in cash and cash equivalents(462,695)45,241 
Cash and cash equivalents, beginning of period
601,428 834,992 
Cash and cash equivalents, end of period
$138,733 $880,233 
Non-cash transactions:
Accrued purchases of property and equipment$15,272 $3,505 


The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
5

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)


1.    Nature of Operations and Basis of Presentation

Description of Business

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

As of April 23, 2022, we operated a total of 4,687 stores and 311 branches primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of April 23, 2022, we served 1,318 independently owned Carquest branded stores across the same geographic locations served by our stores and branches in addition to Mexico and various Caribbean islands. Our stores operate primarily under the trade names “Advance Auto Parts” and “Carquest” and our branches operate under the “Worldpac” and “Autopart International” trade names.

The accounting policies followed in the presentation of interim financial results are consistent with those followed on an annual basis. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted based upon the Securities and Exchange Commission (“SEC”) interim reporting principles. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for 2021 as filed with the SEC on February 15, 2022.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full year. Our first quarter of the year contains sixteen weeks. Our remaining three quarters each consist of twelve weeks.

2.    Significant Accounting Policies

Revenues

The following table summarizes disaggregated revenue from contracts with customers by product group:
Sixteen Weeks Ended
April 23, 2022April 24, 2021
Percentage of Sales, by Product Group:
Parts and Batteries66 %66 %
Accessories and Chemicals20 21 
Engine Maintenance13 12 
Other1 1 
Total100 %100 %

3.    Inventories

Inventories are stated at the lower of cost or market. We used the last in, first out (“LIFO”) method of accounting for approximately 90.3% of inventories as of April 23, 2022 and 89.8% of inventories as of January 1, 2022. Under the LIFO method, our cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs for inventories purchased in the sixteen weeks ended April 23, 2022 and prior years. As a result of changes in the LIFO reserve, we recorded an increase to Cost of sales of $81.5 million and $3.1 million for the sixteen weeks ended April 23, 2022 and April 24, 2021 to state inventories at LIFO.
6

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)

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

Inventory balances were as follows:
April 23, 2022January 1, 2022
Inventories at first in, first out (“FIFO”)$4,827,206 $4,625,900 
Adjustments to state inventories at LIFO(48,357)33,118 
Inventories at LIFO$4,778,849 $4,659,018 

4.    Intangible Assets

Our definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expense was $9.5 million and $9.7 million for the sixteen weeks ended April 23, 2022 and April 24, 2021.

5.    Receivables, net

Receivables, net, consisted of the following:
April 23, 2022January 1, 2022
Trade$652,625 $506,725 
Vendor224,216 201,933 
Other93,138 84,289 
Total receivables969,979 792,947 
Less: allowance for credit losses(12,180)(10,162)
Receivables, net$957,799 $782,785 

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

Long-term debt consists of the following:
April 23, 2022January 1, 2022
4.50% Senior Unsecured Notes due December 1, 2023
$ $193,220 
1.75% Senior Unsecured Notes due October 1, 2027
346,556 346,382 
3.90% Senior Unsecured Notes due April 15, 2030
495,157 494,718 
3.50% Senior Unsecured Notes due March 15, 2032
345,457  
Total long-term debt$1,187,170 $1,034,320 
Fair value of long-term debt$1,104,000 $1,092,000 

Fair Value of Financial Assets and Liabilities

The fair value of our senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The carrying amounts of our Cash and cash equivalents, Receivables, net, Accounts payable and Accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.
7

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)

Bank Debt

As of April 23, 2022 and January 1, 2022, we had no outstanding borrowings, $1.2 billion of borrowing availability and no letters of credit outstanding under our unsecured revolving credit facility (the “Credit Agreement”).

As of April 23, 2022 and January 1, 2022, we had $90.2 million and $92.0 million of bilateral letters of credit issued separately from the Credit Agreement, none of which were drawn upon. These bilateral letters of credit generally have a term of one year or less and primarily serve as collateral for our self-insurance policies.

We were in compliance with financial covenants required by our debt arrangements as of April 23, 2022.

Senior Unsecured Notes

Our 4.50% senior unsecured notes due December 1, 2023 (the “2023 Notes”) were issued in December 2013 at 99.69% of the principal amount of $450.0 million. The 2023 Notes bear interest, payable semi-annually in arrears on June 1 and December 1, at a rate of 4.50% per year. Pursuant to a cash tender offer that was completed on September 29, 2020, we repurchased $256.3 million of the 2023 Notes with the net proceeds from the 2027 Notes. In connection with this tender offer, we incurred charges related to tender premiums and debt issuance costs of $30.5 million and $1.4 million. On April 4, 2022, we redeemed the remaining $193.2 million principal amount of our outstanding 2023 Notes with the net proceeds from the issuance of the 3.50% senior unsecured notes due March 15, 2032 (the “2032 Notes”). 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.

Our 3.90% senior unsecured notes due April 15, 2030 (the “Original Notes”) were issued April 16, 2020, at 99.65% of the principal amount of $500.0 million, and were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The Original Notes bear interest, payable semi-annually in arrears on April 15 and October 15, at a rate of 3.90% per year. On July 28, 2020, we completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500.0 million were exchanged for a like principal amount (the “Exchange Notes” or “2030 Notes”), and which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except the Exchange Notes are registered under the Securities Act and are not subject to the transfer restrictions and certain registration rights agreement provisions applicable to the Original Notes.

Our 1.75% senior unsecured notes due October 1, 2027 (the “2027 Notes”) were issued September 29, 2020, at 99.67% of the principal amount of $350.0 million. The 2027 Notes bear interest, payable semi-annually in arrears on April 1 and October 1, at a rate of 1.75% per year. In connection with the 2027 Notes offering, we incurred $2.9 million of debt issuance costs.

Our 2032 Notes were issued March 4, 2022, at 99.61% of the principal amount of $350.0 million. The 2032 Notes bear interest, payable semi-annually in arrears on March 15 and September 15, at a rate of 3.50% per year. In connection with the 2032 Notes offering, we incurred $3.2 million of debt issuance costs.

We may redeem some or all of the 2032 Notes at any time or from time to time, prior to December 15, 2031, at the redemption price described in the related indenture for the 2032 Notes (the “Indenture”). In addition, in the event of a change of control triggering event, as defined in the Indenture, we will be required to offer to repurchase the 2032 Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. Currently, the 2032 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.

Debt Guarantees

We are a guarantor of loans made by banks to various independently owned Carquest-branded stores that are customers of ours totaling $44.5 million and $31.7 million as of April 23, 2022 and January 1, 2022. These loans are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements is $105.8 million and $86.9 million as of April 23, 2022 and January 1, 2022. We believe that the likelihood of performance under these guarantees is remote.

8

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)

7.    Leases

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

Operating lease liabilities consisted of the following:
April 23, 2022January 1, 2022
Total operating lease liabilities$2,798,628 $2,802,772 
Less: Current portion of operating lease liabilities(468,096)(465,121)
Noncurrent operating lease liabilities$2,330,532 $2,337,651 

The current portion of operating lease liabilities is included in Other current liabilities in the accompanying Condensed Consolidated Balance Sheets.

Total lease cost is included in Cost of sales and Selling, general and administrative expenses (“SG&A”) in the accompanying Condensed Consolidated Statements of Operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:
Sixteen Weeks Ended
April 23, 2022April 24, 2021
Operating lease cost$173,035 $161,984 
Variable lease cost53,296 43,525 
Total lease cost$226,331 $205,509 

The future maturity of lease liabilities as of April 23, 2022 were as follows:

Remainder of 2022$355,398 
2023543,223 
2024471,972 
2025436,146 
2026330,471 
Thereafter989,142 
Total lease payments3,126,352 
Less: Imputed interest(327,724)
Total operating lease liabilities$2,798,628 

As of April 23, 2022, our operating lease liabilities included $72.3 million related to options to extend lease terms that are reasonably certain of being exercised and excluded $89.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

The weighted-average remaining lease term and weighted-average discount rate for our operating leases were 7.1 years and 3.0% as of April 23, 2022. We calculated the weighted-average discount rates using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.
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Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)


Other information relating to our lease liabilities is as follows:
Sixteen Weeks Ended
April 23, 2022April 24, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$190,542 $185,083 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$147,015 $118,448 

8.    Share Repurchase Program

On February 8, 2022, our Board of Directors authorized an additional $1.0 billion to the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time.

During the sixteen weeks ended April 23, 2022, we repurchased 1.1 million shares of our common stock at an aggregate cost of $248.2 million, or an average price of $231.41 per share, in connection with our share repurchase program. During the sixteen weeks ended April 24, 2021, we repurchased 1.1 million shares of our common stock at an aggregate cost of $170.4 million, or an average price of $157.84 per share, in connection with our share repurchase program. We had $1.3 billion remaining under our share repurchase program as of April 23, 2022.

9.    Earnings per Share

The computations of basic and diluted earnings per share are as follows:
 Sixteen Weeks Ended
April 23, 2022April 24, 2021
Numerator
Net income applicable to common shares$139,791 $185,930 
Denominator
Basic weighted-average common shares61,261 65,688 
Dilutive impact of share-based awards471 414 
Diluted weighted-average common shares (1)
61,732 66,102 
Basic earnings per common share$2.28 $2.83 
Diluted earnings per common share$2.26 $2.81 

(1)For the sixteen weeks ended April 23, 2022 and April 24, 2021, 21 thousand and 43 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
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Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Amounts presented in thousands, except per share data, unless otherwise stated)
(Unaudited)

10.    Share-Based Compensation

During the sixteen weeks ended April 23, 2022, we granted 157 thousand time-based RSUs, 58 thousand market-based RSUs and 114 thousand Stock Options. The general terms of the time-based and market-based RSUs are similar to awards previously granted by us. We grant options to purchase common stock to certain employees under our 2014 Long-Term Incentive Plan. The options are granted at an exercise price equal to the closing market price of Advance's common stock on the date of the grant, expire after ten years and vest one-third annually over three years after the date of grant. We record compensation expense for the grant date fair value of the option awards evenly over the vesting period.

The weighted-average fair values of the time-based and market-based RSUs granted during the sixteen weeks ended April 23, 2022 were $205.63 and $205.52 per share. The fair value of each market-based RSU was determined using a Monte Carlo simulation model. For time-based RSUs, the fair value of each award was determined based on the market price of our stock on the date of grant adjusted for expected dividends during the vesting period, as applicable.

The weighted-average fair value of stock options granted during the sixteen weeks ended April 23, 2022 was $53.98 per share. The fair value was estimated on the date of grant by applying the Black-Scholes option-pricing valuation model.

Sixteen Weeks Ended
April 23, 2022
Risk-free interest rate (1)
1.9 %
Expected term (2)
6 years
Expected volatility (3)
34.0 %
Expected dividend yield (4)
2.6 %

(1) The risk-free interest rate is based on the yield in effect at grant for zero-coupon U.S. Treasury notes with maturities equivalent to the expected term of the stock options.
(2) The expected term represents the period of time options granted are expected to be outstanding. As we do not have sufficient historical data, we utilized the simplified method provided by the SEC to calculate the expected term as the average of the contractual term and vesting period.
(3) Expected volatility is the measure of the amount by which the stock price has fluctuated or is expected to fluctuate. We utilized historical trends and the implied volatility of our publicly traded financial instruments in developing the volatility estimate for our stock options.
(4) The expected dividend yield is calculated based on our expected quarterly dividend and the three month average stock price as of the grant date.

Total income tax benefit related to share-based compensation expense for the sixteen weeks ended April 23, 2022 was $4.2 million. As of April 23, 2022, there was $101.5 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted-average period of 1.7 years.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended January 1, 2022 (filed with the SEC on February 15, 2022), which we refer to as our 2021 Form 10-K, and our condensed consolidated financial statements and the notes to those statements that appear elsewhere in this report.

Management Overview

Net sales increased 1.3% in the first quarter of 2022 compared with the same period in the prior year, primarily driven by growing consumer demand, namely in our professional and independent businesses. Our regional strength in comparable store sales was led by the West and Canada, along with a strong recovery in Florida and the Mid-Atlantic. Category growth was led by motor oil, batteries and brakes.

We generated Diluted earnings per share (“Diluted EPS”) of $2.26 during our first quarter of 2022 compared with $2.81 for the comparable period of 2021. When adjusted for non-operational items outlined in the following table, our Adjusted diluted earnings per share (“Adjusted EPS”) for the sixteen weeks ended April 23, 2022 and April 24, 2021 was $3.57 and $3.34.

Sixteen Weeks Ended
April 23, 2022April 24, 2021
Last-in, first-out (“LIFO”) impacts$0.99 $0.03 
Transformation expenses0.13 0.40 
General Parts International, Inc. (“GPI”) amortization of acquired intangible assets0.10 0.10 
Other adjustments0.09 — 
Total adjustments, net of tax$1.31 $0.53 

Refer to Reconciliation of Non-GAAP Financial Measuresfor a definition and reconciliation of Adjusted EPS and other non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

A high-level summary of our financial results for the first quarter of 2022 includes:
 
Net sales during the first quarter of 2022 was $3.4 billion, an increase of 1.3% compared with the first quarter of 2021, primarily driven by our professional and independent businesses. Comparable store sales increased 0.6%.
Gross profit margin for the first quarter of 2022 was 44.6% of Net sales, flat compared with the first quarter of 2021. Gross profit was impacted favorably due to our ongoing category management initiatives, including strategic pricing and owned brand expansion. These were offset by LIFO expense, inflationary costs and unfavorable channel and product mix.
SG&A expenses for the first quarter of 2022 was 38.6% of Net sales, an increase of 161 basis points compared with the first quarter of 2021. This unfavorable impact was primarily driven by inflationary cost increases in store labor, fuel and delivery and start-up costs from new store openings compared with prior year, partially offset by a year over year decrease in COVID-19 related expenses and incentive compensation.

Business and Risks Update

We continue to make progress on the various elements of our strategic business plan, which is focused on improving the customer experience, margin expansion and driving consistent execution for both professional and DIY customers. To achieve these improvements, we have undertaken planned strategic initiatives to help build a foundation for long-term success across the organization, which include:

Continued development of a demand-based assortment, leveraging purchase and search history from our common catalog, versus our existing push-down supply approach.
Advancement towards optimizing our footprint by market, including consolidating our Worldpac and Autopart International businesses, to drive share, repurpose our in-market store and asset base and streamline our distribution network.
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Continued evolution of our marketing campaigns, which focus on our customers and how we serve them every day with care and speed and the iconic DieHard® brand.
Progress in the implementation of a more efficient end-to-end supply chain process to deliver our broad assortment and to help lessen the impact of external constraints.
Enhancement of Advance Same Day® Curbside Pick Up, Advance Same Day® Home Delivery and our mobile application and e-commerce performance.
Actively pursuing new store openings, including through lease acquisition opportunities as available and appropriate, in existing markets and new markets, as well as expansion of our independent Carquest network.
Continued negotiations with vendors on strategic sourcing and pricing to help mitigate inflationary pressures.

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, and include but are not limited to:

Inflationary pressures, including logistics and labor
Global supply chain disruptions
Fuel costs
Unemployment rates
Consumer confidence
Competition
Changes in new car sales
Miles driven
Economic and geopolitical uncertainty


Stores and Branches

Key factors in selecting sites and market locations in which we operate include population, demographics, traffic count, vehicle profile, competitive landscape and the cost of real estate. During the sixteen weeks ended April 23, 2022, 35 stores and branches were opened and nine were closed or consolidated, resulting in a total of 4,998 stores and branches compared with a total of 4,972 stores and branches as of January 1, 2022.


Results of Operations
Sixteen Weeks Ended$ Favorable/ (Unfavorable)Basis Points
($ in millions)April 23, 2022April 24, 2021
Net sales$3,374.2 100.0 %$3,330.4 100.0 %$43.8 — 
Cost of sales1,867.7 55.4 1,845.4 55.4 (22.3)(6)
Gross profit1,506.5 44.6 1,484.9 44.6 21.5 
SG&A1,303.3 38.6 1,232.8 37.0 (70.5)(161)
Operating income203.3 6.0 252.1 7.6 (49.0)(155)
Interest expense(12.9)(0.4)(11.2)(0.3)(1.7)(5)
Loss on early redemptions of senior unsecured notes(7.4)(0.2)0.0 — (7.4)(22)
Other income, net0.1 0.0 4.8 0.1 (4.7)(14)
Provision for income taxes43.3 1.3 59.8 1.8 16.5 51 
Net income$139.8 4.1 %$185.9 5.6 %$(46.3)(145)

Note: Table amounts may not foot due to rounding.
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Net Sales

Net sales for the sixteen weeks ended April 23, 2022 increased 1.3% compared with the same period in 2021, primarily driven by growth in our professional and independent businesses. Comparable store sales increased 0.6% for the sixteen weeks ended April 23, 2022 compared with the sixteen weeks ended April 24, 2021. Category growth was led by motor oil, batteries and brakes.

We calculate comparable store sales based on the change in store or branch sales starting once a location has been open for 13 complete accounting periods (approximately one year) and by including e-commerce sales. Sales to independently owned Carquest stores are excluded from our comparable store sales. Acquired stores are included in our comparable store sales once the stores have completed 13 complete accounting periods following the acquisition date. We include sales from relocated stores in comparable store sales from the original date of opening.

Gross Profit

Gross profit for the sixteen weeks ended April 23, 2022 was $1.5 billion, or 44.6% of Net sales, and was flat compared with the sixteen weeks ended April 24, 2021. During the sixteen weeks ended April 23, 2022, improvements in strategic pricing and owned brand expansion were offset by LIFO expense, inflationary costs and unfavorable channel and product mix.

As a result of changes in our LIFO reserve, an expense of $81.5 million and $3.1 million were included in the sixteen weeks ended April 23, 2022 and April 24, 2021.

Selling, General and Administrative Expenses

SG&A expenses for the sixteen weeks ended April 23, 2022 were $1.3 billion, or 38.6% of Net sales, compared with $1.2 billion, or 37.0% of Net sales, for the sixteen weeks ended April 24, 2021. This increase in SG&A as a percentage of Net sales was primarily driven by increased inflationary pressures in store labor as well as higher fuel and delivery expenses associated with the recovery of the professional business. Additionally, we incurred higher start-up costs from new store openings when compared with the prior year. These costs were partially offset by a year over year decrease in COVID-19 related expenses and incentive compensation.

Loss on Early Redemptions of Senior Unsecured Notes

During the sixteen weeks ended April 23, 2022, we incurred charges related to a make-whole provision and debt issuance costs of $7.0 million and $0.4 million in connection with the early redemption of our senior unsecured notes due 2023.

Provision for Income Taxes

Our Provision for income taxes for the sixteen weeks ended April 23, 2022 was $43.3 million, compared with $59.8 million for the sixteen weeks ended April 24, 2021. Our effective tax rate was 23.7% and 24.3% for the sixteen weeks ended April 23, 2022 and April 24, 2021. The decrease in tax expense resulted from lower Income before provision for income taxes compared with prior year, as well as a benefit relating to the vesting of share-based awards.
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Reconciliation of Non-GAAP Financial Measures

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

LIFO Impacts — To assist in comparing our current operating results with the operational performance of other companies in our industry, the impact of LIFO on our results of operations is a reconciling item to arrive at non-GAAP financial measures.

Transformation Expenses — Costs incurred in connection with our business plan that focuses on specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise, that we do not view to be normal cash operating expenses. These expenses include, but are not limited to the following:

Restructuring costs - Costs primarily relating to the early termination of lease obligations, asset impairment charges, other facility closure costs and team member severance in connection with our voluntary retirement program and continued optimization of our organization.
Third-party professional services - Costs primarily relating to services rendered by vendors for assisting us with the development of various information technology and supply chain projects in connection with our enterprise integration initiatives.
Other significant costs - Costs primarily relating to accelerated depreciation of various legacy information technology and supply chain systems in connection with our enterprise integration initiatives and temporary off-site workspace for project teams who are primarily working on the development of specific transformative activities that relate to the integration and streamlining of our operating structure across the enterprise.

GPI Amortization of Acquired Intangible Assets — As part of our acquisition of GPI, we obtained various intangible assets, including customer relationships, non-compete contracts and favorable lease agreements, which we expect to be subject to amortization through 2025.
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We have included a reconciliation of this information to the most comparable GAAP measures in the following table:
Sixteen Weeks Ended
(in thousands, except per share data)April 23, 2022April 24, 2021
Net income (GAAP)$139,791 $185,930 
Cost of sales adjustments:
LIFO impacts 81,475 3,147 
Transformation expenses:
Other significant costs56 2,303 
SG&A adjustments:
GPI amortization of acquired intangible assets8,439 8,547 
Transformation expenses:
Restructuring costs1,491 20,742 
Third-party professional services6,924 8,034 
Other significant costs1,979 3,883 
Other income adjustment (1)
7,408 (36)
Provision for income taxes on adjustments (2)
(26,943)(11,655)
Adjusted net income (Non-GAAP)$220,620 $220,895 
Diluted earnings per share (GAAP)$2.26 $2.81 
Adjustments, net of tax1.31 0.53 
Adjusted EPS (Non-GAAP)$3.57 $3.34 

(1)During the sixteen weeks ended April 23, 2022, we incurred charges related to a make-whole provision and debt issuance costs of $7.0 million and $0.4 million, in connection with the early redemption of our 2023 Notes.
(2)The income tax impact of non-GAAP adjustments is calculated using the estimated tax rate in effect for the respective non-GAAP adjustments.

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Liquidity and Capital Resources

Overview

Our primary cash requirements necessary to maintain our current operations include payroll and benefits, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, funding of initiatives under our strategic business plan and other operational priorities, including payment of interest on our long-term debt. Historically, we have used available funds to repay borrowings under our credit facility, to periodically repurchase shares of our common stock under our stock repurchase program, to pay our quarterly cash dividends and for acquisitions; however, in consideration of ongoing uncertainties related to COVID-19 and general macroeconomic conditions, our future uses of cash may differ if our relative priorities, including the weight we place on the preservation of cash and liquidity, change. Typically, we have funded our cash requirements primarily through cash generated from operations, supplemented by borrowings under our credit facilities and notes offerings as needed. We believe funds generated from our results of operations, available cash and cash equivalents and available borrowings under our credit facility will be sufficient to fund our obligations for the long term.

During the sixteen weeks ended April 24, 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. Proceeds from our 2032 Notes were utilized to fund the early redemption of our 2023 Notes and supplement operational and capital expenditures.

Share Repurchase Program

On February 8, 2022, our Board of Directors authorized an additional $1 billion towards the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors. Our share repurchase program permits the repurchase of our common stock on the open market and in privately negotiated transactions from time to time.

During the sixteen weeks ended April 23, 2022, we repurchased 1.1 million shares of our common stock at an aggregate cost of $248.2 million, or an average price of $231.41 per share, in connection with our share repurchase program. During the sixteen weeks ended April 24, 2021, we repurchased 1.1 million shares of our common stock at an aggregate cost of $170.4 million, or an average price of $157.84 per share, in connection with our share repurchase program. We had $1.3 billion remaining under our share repurchase program as of April 23, 2022.

Analysis of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:
Sixteen Weeks Ended
(in thousands)April 23, 2022April 24, 2021
Cash flows (used in) provided by operating activities$(54,940)$329,932 
Cash flows used in investing activities(114,026)(70,294)
Cash flows used in financing activities(273,735)(216,689)
Effect of exchange rate changes on cash(19,994)2,292 
Net (decrease) increase in cash and cash equivalents$(462,695)$45,241 

Operating Activities

For the sixteen weeks ended April 23, 2022, Cash flows provided by operating activities decreased by $384.9 million to $54.9 million of cash used in operating activities compared with the same period of prior year. The net decrease in operating cash flows compared with the prior year was primarily driven by a decrease in overall working capital, primarily driven by an increase in cash used by Inventories, Receivables, net, and Accrued expenses, as well as a decrease in cash provided by Accounts payable.
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Investing Activities

For the sixteen weeks ended April 23, 2022, Cash flows used in investing activities increased by $43.7 million to $114.0 million compared with the same period of prior year. Cash used in investing activities for the sixteen weeks ended April 23, 2022 consisted primarily of purchases of property and equipment of $114.9 million attributable to investments in information technology as we remain focused on a complete back office integration throughout the enterprise and supply chain.

Financing Activities

For the sixteen weeks ended April 23, 2022, Cash flows used in financing activities was $273.7 million, an increase of $57.0 million compared with the same period of prior year. The increase in cash used in financing activities over prior year was primarily a result of the early redemption of our 2023 Notes during the sixteen weeks ended April 23, 2022. Additionally, dividends paid increased $121.7 million and share repurchases of our common stock increased $77.8 million during the sixteen weeks ended April 23, 2022 compared with the sixteen weeks ended April 24, 2021. The increase in cash used was partially offset by the net proceeds received from the issuance of the 2032 Notes.

From April 24, 2022 through the date of issuance of the condensed consolidated financial statements, we borrowed $210.0 million and repaid $110.0 million under the Credit Agreement. As of the date of issuance, we had $100.0 million of borrowings outstanding under the Credit Agreement.

Our Board of Directors has declared a cash dividend every quarter since 2006. Any payments of dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. On May 18, 2022, we declared a regular cash dividend of $1.50 per share to be paid on July 1, 2022 to all common stockholders of record as of June 17, 2022.

Long-Term Debt

On March 4, 2022, we issued $350.0 million aggregate principal amount of our 2032 Notes. 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. 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, refer to Note 6. Long-term Debt and Fair Value of Financial Instruments of the Notes to the Condensed Consolidated Financial Statements included herein.

As of April 23, 2022, we had a credit rating from Standard & Poor’s of BBB- and from Moody’s Investor Service of Baa2. The current outlooks by Standard & Poor’s and Moody’s are positive and stable. The current pricing grid used to determine our borrowing rate under the Credit Agreement is based on our credit ratings. If these credit ratings decline, our interest rate on outstanding balances may increase and our access to additional financing on favorable terms may be limited. In addition, declines could reduce the attractiveness of certain vendor payment programs whereby third-party institutions finance arrangements to our vendors based on our credit rating, which could result in increased working capital requirements. Conversely, if these credit ratings improve, our interest rate may decrease.

With respect to all senior unsecured notes for which Advance Auto Parts, Inc. (“Issuer”) is an issuer or provides full and unconditional guarantee, Advance Stores, a wholly owned subsidiary of the Issuer, serves as the guarantor (“Guarantor Subsidiary”). The subsidiary guarantees related to our senior unsecured notes are full and unconditional and joint and several, and there are no restrictions on the ability of the Issuer to obtain funds from its Guarantor Subsidiary. Our captive insurance subsidiary, an insignificant wholly owned subsidiary of the Issuer, does not serve as guarantor of our senior unsecured notes.

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Critical Accounting Policies and Estimates

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

During the sixteen weeks ended April 23, 2022, there were no changes to the critical accounting policies discussed in our 2021 Form 10-K. For a complete discussion of our critical accounting policies, refer to the 2021 Form 10-K.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our exposure to market risk since January 1, 2022. Refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2021 Form 10-K.

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of April 23, 2022. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our quarter ended April 23, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
 
ITEM 1.LEGAL PROCEEDINGS

On February 6, 2018, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between November 14, 2016 and August 15, 2017, inclusive (the “Class Period”), was commenced against us and certain of our current and former officers in the U.S. District Court for the District of Delaware. The plaintiff alleged that the defendants failed to disclose material adverse facts about our financial well-being, business relationships, and prospects during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On February 7, 2020, the court granted in part and denied in part our motion to dismiss. On November 6, 2020, the court granted the plaintiff’s motion for class certification. On March 15, 2021, we moved for reconsideration of the order denying in part our motion to dismiss, and on October 15, 2021, we filed a motion for summary judgment, seeking full dismissal of the case. Following mediation, on November 5, 2021, the parties executed a confidential binding term sheet to settle all claims and on December 23, 2021, the parties executed a settlement agreement fully documenting their agreement. The settlement agreement received preliminary approval from the court on January 11, 2022 and remains subject to final court approval. The settlement amount of $49.3 million will be fully covered by our insurance carriers, and the settlement is subject to court approval.

ITEM 1A.RISK FACTORS

Please refer to “Item 1A. Risk Factors found in our 2021 Form 10-K filed for the year ended January 1, 2022 for risks that, if they were to occur, could materially adversely affect our business, financial condition, results of operations, cash flows and future prospects, which could in turn materially affect the price of our common stock.

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

The following table sets forth the information with respect to repurchases of our common stock for the quarter ended April 23, 2022:
Total Number of Shares Purchased (1)
Average Price Paid per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) (in thousands)
January 2, 2022 to January 29, 2022646,647 $235.05 646,584 $1,393,552 
January 30, 2022 to February 26, 2022430,251 $225.67 425,922 $1,297,338 
February 27, 2022 to March 26, 202277,970 $203.17 — $1,297,338 
March 27, 2022 to April 23, 20221,365 $202.68 — $1,297,338 
Total1,156,233 $229.37 1,072,506 

(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 $17.0 million, or an average price of $203.20 per share, during the sixteen weeks ended April 23, 2022.
(2)On February 8, 2022, our Board of Directors authorized an additional $1 billion to the existing share repurchase program. This authorization is incremental to the $1.7 billion that was previously authorized by our Board of Directors.
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ITEM 6.EXHIBITS
  Incorporated by Reference
Exhibit No.Exhibit DescriptionFormExhibitFiling Date
10-Q3.18/14/2018
10-Q3.28/18/2020
8-K4.13/4/2022
8-K4.23/4/2022
10-K22.12/15/2022
   
   
   
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1*Cover Page Interactive Data file (Embedded within Inline XBRL Documents and Included in Exhibit 101).

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

ADVANCE AUTO PARTS, INC.
Date: May 24, 2022/s/ William J. Pellicciotti Jr.
William J. Pellicciotti Jr.
Senior Vice President, Controller and Chief Accounting Officer
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EX-10.1 2 aap_exhibit101x04232022.htm EX-10.1 Document

Exhibit 10.1

EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement") dated as of July 29, 2019 between Advance Auto Parts, Inc. ("Advance" or the "Company"), a Delaware corporation, its subsidiaries, predecessors, successors, affiliated corporations, companies and partnerships, and its current and former officers, directors, and agents (collectively, the ''Company") and Jason McDonell (the "Executive").

The Company and the Executive agree as follows:

1.Position: Term of Employment. Subject to the terms and conditions of this Agreement, the Company agrees to employ the Executive, and the Executive agrees to serve the Company, as its Executive Vice President, Chief Marketing Officer ("Executive's Position"). The parties intend that the Executive shall continue to so serve in this capacity throughout the Employment Term (as such term is defined below).

The term of Executive's employment by the Company pursuant to this Agreement shall be considered to have commenced on July 29, 2019 ("Commencement Date") and shall end on the day prior to the first anniversary of the Commencement Date, unless sooner terminated under the provisions of Paragraph 4 below ("Employment Term"); provided, however, that commencing on the first anniversary of the Commencement Date ("Anniversary Date") the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to the Anniversary Date, either party shall have given notice to the other that it does not wish to extend the Employment Term (a "Non-Renewal"), in which case the Employment Term shall end on the day prior to the Anniversary Date; and on each Anniversary Date thereafter the Employment Term shall be automatically extended for an additional period of one year unless, not later than 90 days prior to such Anniversary Date, either party shall have given notice of a Non-Renewal to the other, in which case the Employment Term shall end 90 days following such notice. For purposes of clarification, the provision of an Employment Term does not change Executive's at will status as stated in Section 4(1) below nor does it entitle Executive to payment of any compensation if Executive's employment is terminated during the Employment Term, other than as specifically provided for below.
2.Duties.

(a)Duties and Responsibilities: Location. The Executive shall have such duties and responsibilities of the Executive's Position and such other duties and responsibilities that are reasonably consistent with the Executive's Position as the Company may request from time to time, including, but not limited to, oversight for professional and retail marketing functions across the enterprise. Executive shall perform such duties and carry out such responsibilities to the best of the Executive's ability for the purpose of advancing the business of the Company and its subsidiaries, if any (jointly and severally, "Related Entities"). The Executive shall observe and conform to the applicable policies and directives promulgated from time to time by the Company and its Board of Directors or by any superior officer(s) of the Company. Subject to the provisions of Subsection 2(b) below, the Executive shall devote the Executive's full time, skill and attention during normal business hours to the business and affairs of the Company and its Related Entities, except for holidays and vacations consistent with applicable Company policy and except for illness

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or incapacity, The services to be performed by the Executive hereunder may be changed from time to time at the discretion of the Company, The Company shall retain full direction and control of the means and methods by which the Executive performs the Executive's services and of the place or places at which such services are to be rendered, Effective on the Commencement Date, the Executive's principal office location shall be the Company's offices located in Raleigh, North Carolina, The Executive agrees to relocate to the Raleigh, NC area as soon as practicable after the Commencement Date but in no event later than December 31, 2019, Executive understands that, while his principal office is located in North Carolina, the Executive's Position will entail involvement with the entire range of the Company's operations across the United States and Canada, and may from time to time require travel throughout the United States and Canada,

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

3., Compensation.

(a)Base Salary. During the Employment Term, the Company shall pay to the Executive a salary of $425,000 (four hundred twenty-five thousand dollars) per annum, payable consistent with the Company's standard payroll practices then in effect ("Base Salary"), Such Base Salary shall be reviewed by the Compensation Committee of Advance's Board of Directors (hereinafter the ''Compensation Committee") at least annually, with any changes taking into account, among other factors, Company and individual performance.

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

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




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

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

4.Termination of Employment.
(a)Death. In the event of the death of the Executive during the Employment Term, the Executive's employment shall be automatically terminated as of the date of death and a lump sum amount, equivalent to the Executive's annual Base Salary and Target Bonus then in effect, shall be paid, within 60 days after the date of the Executive's death, to the Executive's designated beneficiary, or to the Executive's estate or other legal representative if no beneficiary was designated at the time of the Executive's death. In the event of the death of the Executive during the Employment Term, the restrictions and deferral limitations applicable to any Option, Stock Appreciation Right ("SAR"), Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Deferred Stock Unit, Dividend Equivalent or any Stock Grant Awards (collectively "Awards"), as such Awards are defined in the Advance Auto Parts 2014 Long-Term Incentive Plan, as amended, effective August 7, 2018 ("2014 LTIP" or "Advance's 2014 LTIP") (or any applicable successor or predecessor plan of the Company), granted to the Executive shall be subject to the provisions regarding vesting and transferability in those circumstances as are set forth in the applicable award agreement or grant. The foregoing benefit will be provided in addition to any death, disability or other benefits provided under the Company's benefit plans and programs in which the Executive was participating at the time of his death. Except in accordance with. the terms of the Company's benefit programs and other plans and programs then in effect, after the date of the Executive's death, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder. .

(b)Disability. In the event of the Executive's Disability as hereinafter defined, the employment of the Executive may be terminated by the Company, effective upon the Disability Termination Date (as defined below). In such event, the Company shall pay the Executive an amount equivalent to thirty percent (30%) of the Executive's Base Salary for a one year period, which amount shall be paid in one lump sum within 45 days following the Executive's "separation from service," as that term is defined in Section 409A of the Code and regulations promulgated

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

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

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



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

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

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

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

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

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

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

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

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







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value of the annual bonuses pursuant to Section 3(b) that the Executive has received during the period of the Executive's employment.
(ii)Outplacement Services. The Company shall make outplacement services available to the Executive, at a cost to the Company not to exceed $12,000, for a period of time not to exceed 12 months following the date of termination pursuant to the Company's Executive outplacement program with the Company's selected vendor, to include consulting, search support and administrative services,

(iii)Medical Coverage. In addition, the Company shall provide the Executive with medical, dental and vision insurance benefits (which may also cover, if applicable, the Executive's spouse and eligible dependents) for three hundred sixty-five (365) days from the date of the Executive's termination of employment or until such time as the Executive is eligible for group health coverage under another employer's plan, whichever occurs first. 1n order to trigger the Company's obligation to provide health care continuation benefits, the Executive must elect continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA''), upon such eligibility. The Company's obligation shall be satisfied solely through the payment of the Executive's COBRA premiums during the 365-day period, but only to the extent that such premiums exceed the amount that would otherwise have been payable by the Executive for coverage of the Executive and the Executive's eligible dependents that were covered by the Company's medical, dental, and vision insurance programs at the time of the Executive's termination of employment had the Executive continued to be employed by the Company,

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

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

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








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(i)Good Reason, For purposes of this Agreement, "Good Reason" shall
mean:

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

(B)a material diminution in the Executive's authority, duties, or responsibilities;

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

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

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

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

(iii)Effective Date of Resignation. The effective date of the Executive's resignation for Good Reason must occur no longer than six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above, If Executive has not resigned for Good Reason effective within six (6) months following the expiration of the cure period set forth in Section 4(e)(ii), above, the Executive shall be deemed to have waived said Good Reason condition.
(f)Termination by the Company Other Than For Due Cause, Death or Disability or Resignation from Employment for Good Reason Within Twelve Months After a Change in Control. If the Company terminates the Executive's employment for other than Death, Disability or Due Cause prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control (as defined below), or if the Executive elects to terminate the Executive's employment for Good Reason prior to the expiration of the Employment Term and within twelve (12) months after a Change In Control, then (i) the Executive shall be entitled to a Change In Control Termination Payment as hereinafter defined in lieu of the Termination Payment set forth in Subsection 4(d)(i) above, (ii) the Executive shall receive benefits as defined in Subsections 4(d)(ii) and (iii) above, and (iii) either the Company or the Executive, as the case may be, shall provide Notice of Termination pursuant to Subsection 4(j)(i) other than in the case of a Non-Renewal, which shall be communicated in accordance with Section I.



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(i)Change In Control Termination Payment. The term "Change In Control Termination Payment" shall mean a cash payment equal to the sum of:
(A)an amount equal to two times the Executive's annual Base Salary, as in effect immediately prior to such termination (unless the termination is due to Section 4(e)(i)(A), in which case, it shall be two times the Executive's annual Base Salary in effect prior to any such material diminution of the Base Salary) (the "Change In Control Termination Salary Payment"), and

(B)an amount equal to two times the Executive's Target Bonus Amount, as in effect immediately prior to such termination (unless the termination is due to Sections 4(e)(i)(A) or (E), in which case, it shall be two times the Executive's Target Bonus in effect prior to any such material diminution of the Target Bonus or termination of the bonus plan, respectively) (the "Change In Control Termination Bonus Payment''),
(ii)Timing of Payments. The Change In Control Termination Salary Payment and the Change In Control Termination Bonus Payment shall be paid in lump sum payments within 45 days following the date of the Executive's Separation From Service, provided that the Executive executes and does not revoke within any applicable revocation period the release described in Section 4(j)(ii) below.
(iii)Entire Obligation. Except as provided in Subsection 4(1) of this Agreement, following the Executive's termination of employment under this Subsection 4(f), the Executive will have no further obligation to the Company pursuant to this Agreement (other than under Sections 6, 7, 8, 9, 10, 11, 16, 18, 19 (to the extent such policies, guidelines and codes by their terms apply post-employment) and 20). Except for the Change In Control Termination Payment and as otherwise provided in accordance with the terms of the Company's benefit programs and plans then in effect or as expressly required under applicable law, within twelve (12) months after a Change In Control, after termination by the Company of employment for other than Death, Disability or Due Cause or after termination by the Executive for Good Reason, the Executive shall not be entitled to any other compensation or benefits from the Company or hereunder.

(iv)Change In Control. For purposes of this Agreement, "Change In Control" shall mean the occurrence of any of the following events:
(A)a Transaction, as defined below, unless securities possessing more than 50% of the total combined voting power of the survivor's or acquiror's outstanding securities (or the securities of any parent thereof) are held by a person or persons who held securities possessing more than 50% of the total combined voting power of the Company's outstanding securities immediately prior to that transaction, or
(B)any person or group of persons (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and in effect from time to time) directly or indirectly acquires, including but not limited to by means

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of a merger or consolidation, beneficial ownership (determined pursuant to Securities and Exchange Commission Rule l 3d-3 promulgated under the said Exchange Act) of securities possessing more than 25% of the total combined voting power of the Company's outstanding securities unless pursuant to a tender or exchange offer made directly to the Company's stockholders that the Board recommends such stockholders accept, other than (i) the Company or any of its Affiliates, (ii) an employee benefit plan of the Company or any of its Affiliates, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or
(C)over a period of thirty-six (36) consecutive months or less, there is a change in the composition of the Board such that a majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or more proxy contests for the election of Board members, to be composed of individuals who either (i) have been Board members continuously since the beginning of that period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in the preceding clause (i) who were still in office at the time that election or nomination was approved by the Board,

For purposes of Section 4(f)(iv)(A), "Transaction" means (1) consummation of any merger or consolidation of the Company with or into another entity as a result of which the Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) any sale or exchange of all of the Stock of the Company for cash, securities or other property, (3) any sale, transfer, or other disposition of all or substantially all of the Company's assets to one or more other persons in a single transaction or series of related transactions or (4) any liquidation or dissolution of the Company.
(v)IRC 280G "Net-Best". Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (A) any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the ''Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the "Excise Tax"), and
(B)the reduction of the amounts payable to Executive to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the "Safe Harbor Cap") would provide Executive with a greater after tax amount than if such amounts were not reduced, then the amounts payable to Executive shall be reduced (but not below zero) to the Safe Harbor Cap. If the reduction of the amounts payable would not result in a greater after tax result to Executive, no amounts payable under this Agreement shall be reduced pursuant to this provision.









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(A)Reduction of Payments. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first cash amounts payable under this Agreement (in contrast to benefit amounts), and applying any reduction to amounts payable in the following order: (A) first, any cash amounts payable to Executive as a Termination Payment or Change in Control Termination Payment under this Agreement, as applicable; (B) second, any cash amounts payable by Company for Outplacement Services on behalf of Executive under the terms of this Agreement; (C) third, any amounts payable by Company on behalf of Executive under the terms of this Agreement for continued Medical Coverage; (D) fourth, any other cash amounts payable by Company to or on behalf of Executive under the terms of this Agreement: (E) fifth, outstanding performance-based equity grants to the extent that any such grants would be subject to the Excise Tax; and (F) finally, any time-vesting equity grants to the extent that any such grants would be subject to the Excise Tax,
(B)Determinations by Accounting Firm. All determinations required to be made under this Section 4(f)(v) shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company. Notwithstanding the foregoing, in the event (A) the Board shall determine prior to the Change in Control that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (B) the Audit Committee of the Board determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (C) the Accounting Firm is serving as accountant or auditor for the person(s) effecting the Change in Control, the Board shall appoint another nationally recognized public accounting firm reasonably acceptable to Executive to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Finn shall be borne by the Company, If Payments are reduced to the Safe Harbor Cap or the Accounting Finn determines that no Excise Tax is payable by Executive without a reduction in Payments, the Accounting Firm shall provide a written opinion to Executive to the effect that the Executive is not required to report any Excise Tax on the Executive's federal income tax return, and that the failure to report the Excise Tax, if any, on Executive's applicable federal income tax return will not result in the imposition of a negligence or similar penalty, The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in paragraph 4(f)(v)(C) below).

(C)Excess Payment/Underpayment. If it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive, which are in excess of the

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limitations provided in this Section (referred to hereinafter as an "Excess Payment"), Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent the Executive's reasonable expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Notwithstanding the foregoing, in the event that amounts payable under this Agreement were reduced pursuant to paragraph 4(f)(v)(A) and the value of stock options is subsequently re-determined by the Accounting Firm within the context of Treasury Regulation §1.2800-1 Q/A 33 that reduces the value of the Payments attributable to such options, the Company shall promptly pay to Executive any amounts payable under this Agreement that were not previously paid solely as a result of paragraph 4(f)(v)(A) up to the Safe Harbor Cap.

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

(i)Cooperation. During the term of the Executive's employment by the Company and for a period of one (I) year immediately following the termination of the Executive's employment with the Company, the Executive agrees to be reasonably available to assist the Company and its representatives and agents with any business and/or litigation (or potential litigation) matters affecting or involving the Company. The Company will reimburse the Executive for all associated reasonable costs of travel.
(j)Notice of Termination, Resignation and Release. Any termination under Subsection 4(b) by the Company for Disability or Subsection 4(c) for Due Cause or by the Executive for Good Reason under Subsection 4(e) or by the Company or the Executive within twelve (12) months after a Change in Control under Subsection 4(f) or by the Executive by Voluntary Termination under Subsection 4(g) shall be communicated by Notice of Termination to the other party thereto given in accordance with Paragraph 10.

(i)Notice of Termination. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such Notice, specifies the termination date (which date shall not be prior to the date of such notice or more than 15 days after the giving of such Notice).
(ii)Resignation and Release, Notwithstanding anything in this Agreement to the contrary, unless the Company provides otherwise, upon termination of employment for
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any reason, Executive shall be deemed to have resigned as a member of the Board of Directors of the Company, if applicable, and as an officer, director, manager and employee of the Company and its Related Entities and shall execute any documents and take any actions to effect the foregoing as requested by the Company. In order to be eligible to receive any payments or benefits hereunder as a result of the termination of the Executive's employment, in addition to fulfilling all other conditions precedent to such receipt, the Executive or the Executive's legal representative must within 21 days (or such other period as required under applicable law) after presentation of a release in form and substance reasonably satisfactory to the Company and its legal counsel, execute said release, and within 7 days (or such other period as required under applicable law) after such execution not revoke said release, on behalf of the Executive and the Executive's estate, heirs and representatives, releasing the Company, its Related Entities and each of the Company's and such Related Entities' respective officers, directors, employees, members, managers, agents, independent contractors, representatives, shareholders, successors and assigns (all of which persons and entities shall be third party beneficiaries of such release with full power to enforce the provisions thereof) from any and all claims related to the Executive's employment with the Company; termination of the Executive's employment; all matters alleged or which could have been alleged in a charge or complaint against the Company; any and all injuries, losses or damages to Executive, including any claims for attorney's fees; any and all claims relating to the conduct of any employee, servant, officer, director or agent of the Company; and any and all matters, transactions or things occurring prior to the date of said release, including any and all possible claims, known or unknown, which could have been asserted against the Company or the Company's employees, agents, servants, officers or directors. Notwithstanding the foregoing, the form of release shall except out therefrom, and acknowledge the Executive's continuing rights with respect to, the following: (i) all vested rights that the Executive may have under all welfare, retirement and other plans and programs of the Company in which the Executive was participating at the time of his employment termination, including all equity plans and programs of the Company with respect to which equity awards were made to the Executive, (ii) all continuing rights that the Executive may have under this Agreement, and (iii) all rights that the Executive may have following the termination of his employment under the Company's Certificate of Incorporation and Bylaws, any applicable Company insurance and any indemnity agreements to which the Executive is a party which provide for indemnification, insurance or other, similar coverage for the Executive with respect to his actions or inactions as an officer, employee and/or member of the Board. For clarification, unless and until the Executive executes and does not, within any applicable revocation period, revoke the release, the Company shall have no obligation to make any Termination Payment to the Executive, and, even if the Executive does not execute the release, the Executive shall be bound by the post-termination provisions of this Agreement, including without limitation Section 18.
(k)Earned and Accrued Payments. The foregoing notwithstanding, upon the termination of the Executive's employment at any time, for any reason, the Executive shall be paid all amounts that had already been earned and accrued as of the time of termination, including but not limited to (i) any bonus that had been earned but not yet paid; and (ii) reimbursement for any business expenses accrued in accordance with Subsection 3(e).
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(1) Employment at Will. The Company and Executive expressly understand and agree that nothing herein shall be construed as a guarantee of employment for any specific time, nor does it change the at will employment relationship. Either the Company or Executive may terminate the Executive's employment under this Paragraph 4 at will, for any or no reason, subject to compliance with the applicable post-termination obligations of each contained herein,

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

6.Successors and Assigns.
(a)Assignment by the Company. This Agreement shall be binding upon and inure to the benefit of the Company or any corporation or other entity to which the Company may transfer all or substantially all of its assets and business and to which the Company may assign this Agreement, in which case the term "Company," as used herein, shall mean such corporation or other entity, provided that no such assignment shall relieve the Company from any obligations hereunder, whether arising prior to or after such assignment.
(b)Assignment by the Executive. The Executive may not assign this Agreement or any part hereof without the prior written consent of the Company: provided, however, that nothing herein shall preclude the Executive from designating one or more beneficiaries to receive any amount that may be payable following occurrence of the Executive's legal incompetency or Death and shall not preclude the legal representative of the Executive's estate from assigning any right hereunder to the person or persons entitled thereto under the Executive's will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to the Executive's estate. The term "beneficiaries," as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount or, if no beneficiary has been so designated, the legal representative of the Executive (in the event of the Executive's incompetency) or the Executive's estate.
7.Governing Law. This Agreement shall be governed by the laws of the State of North Carolina.
8.Entire Agreement. This Agreement, which shall include the Exhibits hereto, in conjunction with the Repayment Agreement For Relocation Services and the Signing Bonus Agreement, contains all of the understandings and representations between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto, including without limitation any previous employment, severance or separation agreements (including any severance or change in control benefits contained therein); provided that the obligations set forth in Section
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18 of this Agreement are in addition to any similar obligations Executive has to the Company or its affiliates, This Agreement may only be modified by an instrument in writing signed by both parties hereto,
9. Waiver of Breach. The waiver by any party of a breach of any condition or provision of this Agreement to be performed by such other party shall not operate or be construed to be a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time,
10. Notices. Any notice to be given hereunder shall be in writing and delivered personally, or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing:
If to the Company:
Advance Auto Parts, Inc. 5008 Airport Road
Roanoke, VA 24012 Attn: General Counsel
With a copy to:
Advance Auto Parts, Inc. 2635 Millbrook Road
Raleigh, NC 27604
Attn: Chief Executive Officer

If to the Executive:
Jason McDonell
24 Autumn Grove Court Kleinburg, Ontario, Canada

or Executive's address currently on file in the Company's records if different from the above,
11.Arbitration. Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, excepting only the enforcement of any Loyalty Obligations arising under Paragraph 18 of this Agreement, shall be settled by arbitration in the state of North Carolina in accordance with the Employment Arbitration Rules of the American Arbitration Association then in effect in the State of North Carolina and judgment upon such award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The board of arbitrators shall consist of one arbitrator to be appointed by the Company, one by the Executive, and one by the two arbitrators so chosen. The arbitration shall be held at such place as may be agreed upon at the time by the parties to the arbitration, The cost of arbitration shall be borne as determined by the arbitrators,
12.Withholding. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive's estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably






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determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholdings as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.
13.Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.
14.Titles. Titles to the paragraphs and subsections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any paragraph or subsection.
15.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
16.Amendment. Except as provided in Paragraph 13 above, this Agreement may not be modified or amended except by written instrument signed by all parties hereto.
17.Independent Counsel. The Executive acknowledges that Executive has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of its terms by independent legal counsel, selected of the Executive's own free will, and that the Executive has had the opportunity to discuss this Agreement with counsel. Executive further acknowledges that Executive has read and understands the meaning and ramifications of this Agreement and as evidence of this fact signs this Agreement below. The Executive further acknowledges that the Company has not made any representations or given any advice with respect to the tax or other consequences of this Agreement or any transactions contemplated by this Agreement to him and that the Executive has been advised of the importance of seeking independent counsel with respect to such consequences, By executing this Agreement, the Executive represents that the Executive has, after being advised of the potential conflicts between him and the Company with respect to the future consequences of this Agreement, either consulted independent legal counsel or elected, notwithstanding the advisability of seeking such independent legal counsel, not to consult with such independent legal counsel.
18.Loyalty Obligations. The Executive agrees that, immediately upon execution of this Agreement, the following obligations ("Loyalty Obligations") shall apply in consideration of the Executive's employment by or continued employment with the Company:

(a)Confidential Information.

(i)Company Information, Except as otherwise provided in Section l8(a)(iii) of this Agreement, the Executive agrees at all times during the term of the Executive's employment and thereafter, to hold any Confidential Information of the Company or its Related Entities in strictest confidence, and not to use (except for the benefit of the Company to fulfill the Executive's employment obligations) or to disclose to any person,

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firm or corporation other than the Company or those designated by it said Confidential Information without the prior authorization of the Company, except as may otherwise be required by law or legal process. The Executive agrees that "Confidential Information" means any proprietary information prepared or maintained· in any format, including technical data, trade secrets or know-how in which the Company or Related Entities have an interest, including, but not limited to, business records, contracts, research, product or service plans, products, services, customer lists and customers (including, but not limited to, vendors to the Company or Related Entities on whom the Executive called, with whom the Executive dealt or with whom the Executive became acquainted during the term of the Executive's employment), pricing data, costs, markets, expansion plans, summaries, marketing and other business strategies, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration or marketing, financial or other business information obtained by the Executive or disclosed to the Executive by the Company or Related Entities or any other person or entity during the term of the Executive's employment with the Company either directly or indirectly electronically, in writing, orally, by drawings, by observation of services, systems or other aspects of the business of the Company or Related Entities or otherwise. Confidential Information does not include information that: (A) was available to the public prior to the time of disclosure, whether through press releases, SEC filings or otherwise; or (B) otherwise becomes available to the public through no act or omission of the Executive or through the wrongful act of a third party.

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

(iii)Permitted Disclosure. Nothing in this Agreement shall prohibit or restrict the Executive from lawfully (A) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by the Securities and Exchange Commission ("SEC"), the Department of Justice, the Equal Employment Opportunity Commission ("EEOC"), the Congress, or any other governmental or regulatory agency, entity, or official(s) or self regulatory organization (collectively, "Governmental Authorities") regarding a possible violation of any law, rule, or regulation; (B) responding to any inquiry or legal process directed to you individually (and not directed to the Company and/or its subsidiaries) from any such Governmental Authorities, including an inquiry about the existence of this Agreement or its underlying facts or circumstances; (C) testifying, participating or otherwise assisting in an action or proceeding by any such Governmental Authorities relating to a possible violation of law; or (D) making any other disclosures that are


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protected under the whistleblower provisions of any applicable law, rule, or regulation, Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made to Executive's attorney in relation to a lawsuit for retaliation against Executive for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nor does this Agreement require Executive to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that Executive has engaged in any such conduct.

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

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

(d)Notification of New Employer. In the event that the Executive leaves the employ of the Company, the Executive agrees to notify the Executive's new employer and hereby grants consent to notification by the Company to the Executive's new employer (whether the Executive is employed as an employee, consultant, independent contractor, director, partner, officer, advisor,


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Executive, volunteer or manager) about the Executive's Loyalty Obligations specified under this Agreement.

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

(i)For purposes of this Agreement, "Interfere" shall mean, except in the performance of the Executive's duties and responsibilities on behalf of and for the benefit of the Company, (A) to solicit, entice, persuade, induce, influence or attempt to influence, directly or indirectly, Customers, suppliers, Employees or Independent Contractors of the Company or any of its Related Entities to restrict, reduce, sever or otherwise alter their relationship with the Company or any of its Related Entities; or (B) to hire or recruit on the Executive's own behalf or on behalf of any other person or entity, directly or indirectly, any Employee or Independent Contractor of the Company who at any time was supervised (1) directly by the Executive or (2) by another person who was supervised directly by the Executive; or (C) whether as a direct solicitor or provider of such services, or in a direct management or direct supervisory capacity over others who solicit or provide such services, to solicit or provide services that fall within the definition of Restricted Activities as defined in Subsection l8(f)(ii) below to any Customer of the Company or its Related Entities. Nothing in this section shall be construed to prohibit the Executive from engaging in non-targeted solicitation of Employees and Independent Contractors of the Company such as advertisements to the general public.

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


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(f)Covenants Not to Compete

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

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

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

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

(ii)Restricted Activities/Restricted Area. For purposes of this Agreement, the term "Restricted Activities" means (1) the retail, commercial and/or wholesale sale, rental, and/or distribution of parts, accessories, supplies (including, but not limited to, paint), equipment and/or maintenance items for automobiles, light and heavy duty trucks (both commercial and non-commercial), off-road equipment, buses, recreational vehicles, and/or agricultural equipment, and/or (2) the provision of any automotive-related service (including, but not limited to, shop management, inventory control, and/or vehicle repair software or marketing) to auto repair shops, garages, specialty-service providers (e.g. any business that specializes in automotive oil changes, painting, tires, mufflers, brakes, transmission, and/or body work) and/or service centers, including, but not limited to painting, collision or body service centers. The term "Restricted Area" means: (l) the

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United States of America and Canada, including their territories and possessions; (2) the United States of America; (3) in any location where a Customer is located if that Customer is purchasing products or services from the Company from that location as of the end of the Executive's employment; (4) the area within which Executive was assigned during the last 6 months of his employment with the Company, In the event it is determined by judicial action that any portion of the Restricted Area is unenforceable, the geographic scope of the restriction shall be limited to any/all of the preceding as a court of competent jurisdiction shall deem reasonable and enforceable,

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