ADVANCE AUTO PARTS INC

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 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 “the Company”).

As discussed in Note 3. “Discontinued Operations,” on August 22, 2024, the Company entered into a definitive purchase agreement to sell its Worldpac, Inc. business (“Worldpac”), which reflects a strategic shift in its business. The sale was completed on November 1, 2024. As a result of the Company’s entry into the purchase agreement, Worldpac is presented as discontinued operations beginning in the third quarter of 2024. The Company has reclassified the financial results of Worldpac to discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for all periods presented. The Company also reclassified the related assets and liabilities as assets and liabilities held for sale on the accompanying Condensed Consolidated Balance Sheets as of October 5, 2024 and December 30, 2023. Cash flows from the Company’s discontinued operations are presented as such in the Condensed Consolidated Statements of Cash Flows for all periods presented. Refer to Note 15. Subsequent Events for additional information about the sale of Worldpac in November 2024.

As of October 5, 2024, the Company operated a total of 4,781 stores primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of October 5, 2024, the Company served 1,125 independently owned Carquest branded stores across the same geographic locations served by the Company’s stores in addition to Mexico and various Caribbean islands. The Company’s stores operate primarily under the trade names “Advance Auto Parts” and “Carquest”.

The Company hasone reportable segment andthree operating segments. The operating segments are aggregated primarily due to the economic and operational similarities of each operating segment as the stores and branches have similar characteristics, including the nature of the products and services offered, customer base and the methods used to distribute products and provide services to its customers. Worldpac was one of the Company’s operating segments. As noted in Note 15. Subsequent Events, the sale of Worldpac was completed November 1, 2024, resulting in the Company havingtwo operating segments, “Advance Auto Parts/Carquest U.S.” and “Carquest Canada.”

Basis of Presentation

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 the Company’s Annual Report on Form 10-K for 2023 as filed with the SEC on March 12, 2024, and the amended Annual Report on Form 10-K/A filed with the SEC on May 30, 2024 (collectively the “2023 Form 10-K”).

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. The Company’s first quarter of the year contains sixteen weeks. The Company’s remaining three quarters each consist of twelve weeks.

Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

During the year ended December 30, 2023, the Company identified errors in its consolidated results impacting cost of sales, selling, general and administrative expenses (“SG&A”) and other income (expense), net, of $62.9 million, $36.6 million and $1.7 million incurred in prior years but not previously recognized. These charges primarily related to product costs and vendor credits. Management assessed the materiality of the errors, including the presentation on prior period consolidated financial statements, on a qualitative and quantitative basis in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections. The Company concluded that these errors and the related impacts did not result in a material misstatement of its previously issued consolidated financial statements as of and for the years ended December 31, 2022 and January 1, 2022 and its previously issued unaudited condensed consolidated interim financial statements as of and for the sixteen weeks ended April 22, 2023; the twelve and twenty-eight weeks ended July 15, 2023; and the twelve and forty weeks ended October 7, 2023. Correcting the cumulative effect of these errors in the fifty-two weeks ended December 30, 2023 would have had a significant effect on the results of operations for such period.

The Company has corrected the relevant prior periods of its consolidated financial statements and related footnotes for these and other immaterial corrections for comparative purposes, as previously disclosed in Note 18. Immaterial Restatement of Prior Period Financial Statements of the Company’s 2023 Form 10-K. The Company will also adjust previously reported financial information for such immaterial errors in future filings, as applicable. A summary of the corrections to the impacted financial statement line items from our previously issued financial statements are presented in Note 13. Immaterial Misstatement of Prior Period Financial Statements.

2. Significant Accounting Policies

Revenues

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

Recently Issued Accounting Pronouncements - Not Yet Adopted

Disclosure Improvements

In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements(“ASU 2023-06”), which defines when companies will be required to improve and clarify disclosure and presentation requirements. This ASU should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the applicable requirements have not been removed by the SEC by June 30, 2027, this ASU will not become effective. Early adoption is prohibited. The Company is currently evaluating the impact of adopting ASU 2023-06 on the consolidated financial statements and related disclosures, and does not believe it will have a material impact on the consolidated financial statements.

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures(“ASU 2023-07”), which requires a company to disclose additional, more detailed information about a reportable segment’s significant expenses, even if there isone reportable segment, and is intended to improve the disclosures about a public entity’s reportable segments. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements and segment reporting.

Income Tax Disclosure Improvements

In December 2023, the FASB issued ASU 2023-09, Income Taxes(“ASU 2023-09”), which requires a company to enhance its income tax disclosures. In each annual reporting period, the company should disclose the specific categories used in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, including disaggregation of taxes paid by jurisdiction. The related disclosures are effective for the fiscal year beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on our consolidated financial statements and related disclosures and believes that the adoption will result in additional disclosures, but will not have any other impact on its consolidated financial statements.

Climate Disclosure Requirements

In March 2024, the SEC issued its final climate disclosure rules, which require the disclosure of climate-related information in annual reports and registration statements. The rules require disclosure in the audited financial statements of certain effects of severe weather events and other natural conditions and greenhouse gas emissions above certain financial thresholds, as well as amounts related to carbon offsets and renewable energy credits or certificates, if material. Additionally, the rule established disclosure requirements regarding material climate-related risks, descriptions of board oversight and risk management activities, the material impacts of these risks on a registrants' strategy, business model and outlook and any material climate-related targets or goals. On April 4, 2024, the SEC determined to voluntarily stay the final rules pending certain legal challenges. Prior to the stay in the new rules, disclosures would have been effective for annual periods beginning January 1, 2025, except for the greenhouse gas emissions disclosure which would have been effective for annual periods beginning January 1, 2026. The Company is currently evaluating the impact of the new rules on the consolidated financial statements and related disclosures.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation (“ASU 2024-03”), which requires public entities to disclose more detailed information about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expenses and depreciation. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03 on the consolidated financial statements and related disclosures.

3. Discontinued Operations

On August 22, 2024, the Company entered into a definitive purchase agreement to sell Worldpac for $1.5 billion, with customary purchase price adjustments for working capital and other items. The Company’s sale of Worldpac was progress towards the changing landscape of the business with increased focus on the Advance blended-box model. The transaction closed on November 1, 2024. As a result, the Company has classified the results of operations and cash flows of Worldpac as discontinued operations in its Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows for all periods presented. The related assets and liabilities associated with the discontinued operations are classified as held for sale in the Condensed Consolidated Balance Sheets. Additionally, beginning August 22, 2024, in accordance with ASC 360, Property, Plant and Equipment, the Company ceased recording depreciation and amortization for Worldpac’s finite-lived intangible assets and operating lease right-of-use assets.

In connection with the Worldpac divestiture, the Company agreed to provide letters of credit in the aggregate amount of up to $200 million, issued under its unsecured revolving credit facility, for up to 12 months after closing of the transaction as credit support for Worldpac’s new supply chain financing program, which letter of credit exposure will reduce to zero no later than 24 months after closing. Worldpac will remain a parts supplier for the Company following the close of the sale. Worldpac has entered into an agreement to supply, sell and deliver to the Company. Under this agreement, the Company intends to purchase at least $145 million of Worldpac’s products during the period beginning on January 1, 2024 and ending on December 31, 2024. If the purchase minimum is met, the agreement automatically renews for one-year terms up to three years. Historically, the Company has made sales to Worldpac but there is no obligation to continue to do so as part of the purchase agreement.

Additionally, the Company and Worldpac entered into a Transition Services Agreement and Reverse Transition Services Agreement, pursuant to which the two entities will provide certain services to each other during the post-closing period. The minimum terms of the agreements are for twelve months, which may be extended by the Company and Worldpac for up to two three-month extension periods.

The following table represents the major classes of assets and liabilities of discontinued operations classified as held for sale in the Condensed Consolidated Balance Sheets as of October 5, 2024 and December 30, 2023:

1 Assets and liabilities of discontinued operations as of October 5, 2024 are classified as current on the consolidated balance sheet as the Company expects to close within twelve months of the balance sheet date.

The following table presents the major components of discontinued operations, net of income taxes, in the Company's Condensed Consolidated Statements of Operations:

4. Inventories, net

The Company used the last in, first out (“LIFO”) method of accounting for approximately 92.3% of inventories as of October 5, 2024 and 92.8% as of December 30, 2023. As a result, the Company recorded a reduction to cost of salesof $34.7 million and $51.3 million for the twelve weeks ended October 5, 2024 and October 7, 2023 to state inventories at LIFO. For the forty weeks ended October 5, 2024 and October 7, 2023, the Company recorded a reduction to cost of sales of $69.1 million and $106.5 million to state inventories at LIFO.

Purchasing and warehousing costs included in inventories as of October 5, 2024 and December 30, 2023 were $429.7 million and $454.0 million.

An actual valuation of inventory under the LIFO method is performed at the end of each fiscal year based on inventory levels and carrying costs at that time. Accordingly, interim LIFO calculations are based on the Company’s estimates of expected inventory levels and costs at the end of the year.

Inventory balances were as follows:

5. Intangible Assets

The Company’s definite-lived intangible assets include customer relationships and non-compete agreements. Amortization expensewas $2.6 million and $2.9 million for the twelve weeks ended October 5, 2024 and October 7, 2023, and $9.4 million and $10.2 million for the forty weeks ended October 5, 2024 and October 7, 2023.

6. Receivables, net

Receivables, net, consisted of the following:

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

Long-term debt consisted of the following:

Fair Value of Financial Assets and Liabilities

The fair value of the Company’s senior unsecured notes was determined using Level 2 inputs based on quoted market prices. The carrying amounts of the Company’s cash and cash equivalents, receivables, net, accounts payable and accrued expenses approximate their fair values due to the relatively short-term nature of these instruments.

Bank Debt

On February 26, 2024, the Company entered into Amendment No. 4 (“Amendment No. 4”) to the Company’s unsecured revolving credit facility (“2021 Credit Agreement”) to enable certain addbacks to the definition of Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) contained therein for specific write-downs of inventory and vendor receivables. Amendment No. 4 also updated certain limitations on future incurrences of other indebtedness and liens, replacing the cap thereon of 10% of consolidated net tangible assets with $400 million, and eliminated the $250 million basket for accounts receivable securitization transactions. Amendment No. 4 made no other material changes to the terms of the 2021 Credit Agreement. See Note 15. Subsequent Events for changes to the Company’s 2021 Credit Agreement as defined in Amendment No. 5.

The 2021 Credit Agreement contains customary covenants restricting the ability of: (a) Advance Auto Parts, Inc. and its subsidiaries to, among other things, (i) create, incur or assume additional debt (only with respect to subsidiaries of Advance Auto Parts, Inc.), (ii) incur liens, (iii) guarantee obligations, and (iv) change the nature of their business; (b) Advance Auto Parts, Inc., Advance Stores and their subsidiaries to, among other things (i) enter into certain hedging arrangements, (ii) enter into restrictive agreements limiting their ability to incur liens on any of their property or assets, pay distributions, repay loans, or guarantee indebtedness of their subsidiaries; and (c) Advance Auto Parts, Inc., among other things, to change its holding company status. The Company is also required to comply with financial covenants with respect to a maximum leverage ratio and a minimum coverage ratio. The 2021 Credit Agreement also provides for customary events of default, including non-payment defaults, covenant defaults and cross-defaults of Advance’s other material indebtedness. The Company was in compliance with the financial covenants with respect to the 2021 Credit Agreement as of October 5, 2024. See Note 15. Subsequent Events for changes to the Company’s 2021 Credit Agreement as defined in Amendment No. 5.

As of October 5, 2024 and December 30, 2023, the Company hadno outstanding borrowings,$1.2 billion of borrowing availability andno letters of credit outstanding under the 2021 Credit Agreement.

As of October 5, 2024 and December 30, 2023, the Company had $90.8 million and $91.2 million of bilateral letters of credit issued separately from the 2021 Credit Agreement, none of which were drawn upon. These bilateral letters of credit generally have a term ofone year or less and primarily serve as collateral for the Company’s self-insurance policies.

Senior Unsecured Notes

The Company’s 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, the Company 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.

The Company’s 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, the Company incurred $2.9 million of debt issuance costs.

The Company’s 3.50% senior unsecured notes due 2032 (the “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, the Company incurred $3.2 million of debt issuance costs.

The Company’s 5.90% senior unsecured notes due March 9, 2026 (the “2026 Notes”) were issued March 9, 2023, at 99.94% of the principal amount of $300.0 million. The 2026 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.90% per year. In connection with the 2026 Notes offering, the Company incurred $1.6 million of debt issuance costs.

The Company’s 5.95% senior unsecured notes due March 9, 2028 (the “2028 Notes”) were issued March 9, 2023, at 99.92% of the principal amount of $300.0 million. The 2028 Notes bear interest, payable semi-annually in arrears on March 9 and September 9, at a rate of 5.95% per year. In connection with the 2028 Notes offering, the Company incurred $1.9 million of debt issuance costs.

The Company may redeem some or all of the 2026 Notes and 2028 Notes (the “Notes”) at any time, or from time to time, prior to March 9, 2026 in the case of the 2026 Notes, or February 9, 2028 in the case of the 2028 Notes, at the redemption price described in the related indenture for the Notes (the “Indenture”). In the event of a change of control triggering event, as defined in the Indenture, the Company will be required to offer the repurchase of the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. Currently, the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated unsecured basis by guarantor and subsidiary guarantees, as defined by the Indenture.

Debt Guarantees

The Company is a guarantor of loans made by banks to various independently owned Carquest-branded stores that are customers of the Company. These loans totaled$102.4 million and $106.9 million as of October 5, 2024 and December 30, 2023 and are collateralized by security agreements on merchandise inventory and other assets of the borrowers. The approximate value of the inventory collateralized by these agreements was$183.6 millionand $221.2 million as of October 5, 2024 and December 30, 2023. The Company believes that the likelihood of performance under these guarantees is remote.

8. Leases

Substantially all of the Company’s leases are for facilities, vehicles and equipment. The initial term for facilities is typically five toten years, with renewal options typically atfive-year intervals, with the exercise of lease renewal options at the Company’s sole discretion. The Company’s vehicle and equipment lease terms are typically three tosix years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease cost is included in cost of sales and SG&A in the accompanying condensed consolidated statements of operations and is recorded net of immaterial sublease income. Total lease costs comprised of the following:

Other information relating to the Company’s lease liabilities was as follows:

During first quarter of 2024, the Company entered into a sale-leaseback transaction where the Company sold a building and land and entered into a three-year lease of the property upon the sale. This transaction resulted in a gain of $22.3 million and is included in selling, general and administrative expenses on the condensed consolidated statement of operations.

9. Share Repurchase Program

The Company’s Board of Directors had previously authorized $2.7 billion to its share repurchase program. The share repurchase program permits the repurchase of the Company’s common stock on the open market and in privately negotiated transactions from time to time. Amendment No. 5 to the Company’s 2021 Credit Agreement generally prohibits open market share repurchases.

During the twelve and forty weeks ended October 5, 2024 and October 7, 2023, the Company did not purchaseany shares of the Company’s common stock under the share repurchase program. The Company had $947.3 million remaining under the share repurchase program as of October 5, 2024.

10. Earnings per Share

The computations of basic and diluted earnings per share were as follows:

(1) For the twelve weeks ended October 5, 2024 and October 7, 2023,570 thousand and 515 thousand restricted stock units (“RSUs”) were excluded from the diluted calculation as their inclusion would have been anti-dilutive. For the forty weeks ended October 5, 2024 and October 7, 2023,536 thousand and 299 thousand RSUs were excluded from the diluted calculation as their inclusion would have been anti-dilutive.

11. Share-Based Compensation

The Company grants time based RSUs, market based RSUs and options to purchase common stock to certain employees under the Company’s 2023 Omnibus Incentive Compensation Plan. The general terms of the time-based and market-based RSUs and stock options are similar to awards previously granted by the Company. The Company records compensation expense for the grant date fair value of the option awards evenly over the vesting period.

During the twelve and forty weeks ended October 5, 2024, the Company granted the following time-based and market-based RSUs:

For time-based RSUs, the fair value of each award was determined based on the market price of the Company’s stock on the date of grant adjusted for expected dividends during the vesting period, as applicable. The fair value of each market-based RSU was determined using a Monte Carlo simulation model.

During the twelve and forty weeks ended October 5, 2024, the Company granted the following stock options:

The fair value of each option was estimated on the date of grant by applying the Black-Scholes option-pricing valuation model.

(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 the Company does not have sufficient historical data, the Company 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. The Company utilized historical trends and the implied volatility of the Company’s publicly traded financial instruments in developing the volatility estimate for its 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.

The total income tax benefit related to share-based compensation expense for the twelve and forty weeks ended October 5, 2024 was $2.4 million and $8.4 million. As of October 5, 2024, there was $85.4 million of unrecognized compensation expense related to all share-based awards that is expected to be recognized over a weighted-average period of 1.6 years.

12. Supplier Finance Programs

The Company maintains supply chain financing agreements with third-party financial institutions to provide the Company’s suppliers with enhanced receivables options. Through these agreements, the Company’s suppliers, at their sole discretion, may elect to sell their receivables due from the Company to the third-party financial institution at terms negotiated between the supplier and the third-party financial institution. The Company does not provide any guarantees to any third party in connection with these financing arrangements. The Company’s obligations to suppliers, including amounts due and scheduled payment terms, are not impacted, and no assets are pledged under the agreements. All outstanding amounts due to third-party financial institutions related to suppliers participating in such financing arrangements are recorded within accounts payable and represent obligations outstanding under these supplier finance programs for invoices that were confirmed as valid and owed to the third-party financial institutions in the Company’s Condensed Consolidated Balance Sheets. As of October 5, 2024, and December 30, 2023, $3.26 billion and $3.36 billion of the Company’s accounts payable were to suppliers participating in these financing arrangements.

13. Immaterial Restatement of Prior Period Financial Statements

As discussed in Note 1. Basis of Presentation, the Company made corrections to the consolidated financial statements for periods ended December 31, 2022, January 1, 2022, and the quarterly periods of 2023. A summary of the corrections related to prior periods presented are as follows (tables may not foot or cross foot due to rounding):

(1)Adjustments to retained earnings does not foot due to the previous adjustments made in third quarter 2023.

(1)Adjustments to retained earnings does not foot due to the previous adjustments made in third quarter 2023.

(1)The summary of corrections table above inadvertently omitted disclosure for proceeds from the issuance of common stock as follows: $3.0 million as previously reported, $0 adjustments and $3.0 million as corrected.

14. Contingencies

On October 9, 2023, and October 27, 2023, two putative class actions on behalf of purchasers of the Company’s securities who purchased or otherwise acquired their securities between November 16, 2022, and May 30, 2023, inclusive (the “Class Period”), were commenced against the Company and certain of the Company’s former officers in the United States District Court for the Eastern District of North Carolina. The plaintiffs allege that the defendants made certain false and materially misleading statements during the alleged Class Period in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. These cases were consolidated on February 9, 2024, and the court-appointed lead plaintiff filed a consolidated and amended complaint on April 22, 2024. The consolidated and amended complaint proposes a Class Period of November 16, 2022 to November 15, 2023, and alleges that defendants made false and misleading statements in connection with (a) the Company’s 2023 guidance and (b) certain accounting issues previously disclosed by the Company. On June 21, 2024, defendants filed a motion to dismiss the consolidated and amended complaint. The Company strongly disputes the allegations and intends to defend the case vigorously.

On January 17, 2024, February 20, 2024, and February 26, 2024, derivative shareholder complaints were commenced against the Company’s directors and certain former officers alleging derivative liability for the allegations made in the securities class action complaints noted above. On April 9, 2024, the court consolidated these actions and appointed co-lead counsel. On June 10, 2024, the court issued a stay order on the consolidated derivative complaint pending resolution of the motion to dismiss for the underlying securities class action complaint.

15. Subsequent Events

Sale of Worldpac

On November 1, 2024, the Company completed the sale of Worldpac for a cash consideration of $1.5 billion, with customary adjustments for working capital and other items. The Company received net proceeds of approximately $1.2 billion from the transaction after paying transaction fees and taxes. The Company intends to use net proceeds from the transaction for general corporate purposes, which may include the provision of additional working capital, funding internal operational improvement initiatives and repayment or refinancing of outstanding indebtedness.

Credit Agreement Amendment No. 5

On November 13, 2024, the Company entered into Amendment No. 5 to the 2021 Credit Agreement. Amendment No. 5 (i) permitsup to $575 million of certain restructuring charges to be added back to Consolidated EBITDAR (as defined therein), (ii) permits up to$800 million of unrestricted cash to be netted out of debt in the calculation of the Leverage Ratio (as defined therein), and (iii) reduces the minimum Consolidated Coverage Ratio (as defined therein) to 1.50 to 1.00 through July 12, 2025 and 1.75 to 1.00 thereafter. Amendment No. 5 also reduced the unsecured revolving credit facility under the 2021 Credit Agreement from $1.2 billion to $1.0 billion and amended the pricing on the loans thereunder in connection with changes in the Company’s credit ratings, as described below.

The interest rates on outstanding amounts, if any, on the revolving facility under the 2021 Credit Agreement will be based, at the Company’s option, on Term SOFR (as defined in the 2021 Credit Agreement), plus a margin, or an alternate base rate, plus a margin. The margins per annum for the revolving loan will vary from 0.795% to 1.525% for Term SOFR (with margins of 1.325% or greater applying when credit ratings are below BBB/Baa2) and from 0.00% to 0.525% for alternate base rate (with margins of 0.325% or greater applying when credit ratings are below BBB/Baa2) based on the assigned debt ratings of the Company. A facility fee will be charged on the total revolving facility commitment, payable quarterly in arrears, in an amount that will vary from 0.08% to 0.35% (with rates of 0.250% or greater applying when credit ratings are below BB+/Ba1) per annum based on the assigned debt ratings of the Company.

Amendment No. 5 also updated certain covenants and other limitations on the Company, including(i) expanding the scope of the covenant restricting the ability to create, incur or assume additional debt to cover Advance Auto Parts, Inc.,(ii) restricting the Company’s rights to complete share repurchases and increase cash dividend amounts, (iii) requiring the Company to grant liens on deposit accounts, inventory and accounts receivables if credit ratings are downgraded below a minimum threshold, (iv) imposing an additional monthly minimum daily liquidity financial covenant of $750 million, (v) providing for the maturity date under the 2021 Credit Agreement to automatically spring forward to the extent necessary for the 2021 Credit Agreement to mature at least 91 days prior to any scheduled maturity date under any of the Company’s senior unsecured notes, (vi) prohibiting further extensions of the maturity date under the 2021 Credit Agreement beyond the existing maturity date, and (vii) eliminating certain baskets for additional indebtedness, liens, and asset sales.

Restructuring Plan

On November 13, 2024, the Company’s Board of Directors approved a restructuring and asset optimization plan designed to improve the Company’s profitability and growth potential and streamline its operations. This plan anticipates closure of approximately 500 stores, approximately 200 independent locations andfour distribution centers by mid-2025, as well as headcount reductions.

The costs that will be incurred as a result of the Company’s plan include severance and employee benefit costs, voluntary termination benefits, and other exit costs that qualify as exit and disposal costs. Additionally, the Company expects to incur costs related to the closure of stores, independent locations and distribution centers, including asset-related charges, lease termination fees and other incremental costs to exit facilities. The Company currently estimates that it will incur approximately $45 million of involuntary and voluntary severance costs and benefits, a range of approximately $100 - $250 million of net costs associated with lease terminations, a range of approximately $130 - $150 million of other closure-related costs, including closure costs for stores and distribution centers and related consultant fees, and a range of approximately $75 - $350 million of asset-related charges and other non-cash costs.