ADVANCE AUTO PARTS INC

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 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 of January 3, 2026, the Company operated a total of 4,305 stores primarily within the United States, with additional locations in Canada, Puerto Rico and the U.S. Virgin Islands. In addition, as of January 3, 2026, the Company served 809 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. As of December 28, 2024, the Company hadtwo operating segments, which were aggregated as a single reportable segment; however, following the stabilization of the Company's new organizational structure in the first quarter of 2025, due to significant restructuring activities, the Company now operates under the single operating segment of "Advance Auto Parts/Carquest". See Note 18. Segment Reporting and Note 3. Restructuring, included herein for additional information on the Company's segment and restructuring activities.

Accounting Period

The Company’s fiscal year ends on the Saturday closest to December 31 st. All references herein for the years 2025, 2024 and 2023 represent the fiscal years ended January 3, 2026, which consisted of fifty-three weeks, and December 28, 2024 and December 30, 2023, which both consisted of fifty-two weeks.

Basis of Presentation

The consolidated financial statements include the accounts of the Company prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Change in Presentation

Prior to fiscal 2025, the Company presented its consolidated financial statements and notes to the consolidated financial statements in thousands. Effective in fiscal 2025, such amounts are presented in millions, except par value share amounts and per share data, unless otherwise stated. Certain prior year amounts have been reclassified to conform to the current year presentation, including the separate disclosure of the non-cash expense for expected future credit losses, operating lease right-of-use assets, other assets, operating lease liabilities and other liabilities, on the consolidated statements of cash flows. Certain prior year amounts have also been reclassified to conform to the current year presentation in Note 16. Share-Based Compensation. This change in presentation does not have a material impact on the consolidated financial statements.

Further, consistent with the presentation in the Company’s 2024 Form 10-K, the Company has presented the sale of the Worldpac, Inc. business (“Worldpac”) as discontinued operations in its consolidated financial statements.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and highly-liquid instruments with original maturities of three months or less. Additionally, credit card and debit card receivables from banks, which generally settle in less than four business days, are included in cash equivalents.

Inventory

The Company’s inventory, which consists primarily of parts, batteries, accessories and other products used on vehicles that have reasonably long shelf lives, is stated at the lower of cost or net realizable value. The cost of the Company’s merchandise inventory is primarily determined using the last-in, first-out (“LIFO”) method. Under the LIFO method, the Company’s cost of sales reflects the costs of the most recently purchased inventories, while the inventory carrying balance represents the costs relating to prices paid in fiscal 2025 and prior years. The Company regularly reviews inventory quantities on-hand to consider whether it has excess or obsolete inventory and adjusts the carrying value as necessary.

Vendor Incentives

The Company receives incentives in the form of reductions to amounts owed to and/or payments from vendors related to volume rebates and other promotional considerations. Many of these incentives are under long-term agreements in excess of one year, while others are negotiated on an annual or more frequent basis. Advertising allowances provided as a reimbursement of specific, incremental and identifiable costs incurred to promote a vendor’s products are included as an offset to selling, general and administrative ("SG&A") expense when the cost is incurred. Volume rebates and allowances that do not meet the requirements for offsetting in SG&A expenses are initially recorded as a reduction to inventory, as volume rebates and allowances are earned based on inventory purchases, and subsequently recorded as a reduction to cost of sales as the inventory is sold.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged directly to expense when incurred; major improvements are capitalized. When items are sold or retired, the related cost and accumulated depreciation are removed from the account balances, with any gain or loss reflected in the consolidated statements of operations.

Costs incurred with the acquisition or development of software for internal use are capitalized and amortized over the expected useful life of the software. Subsequent additions, modifications or upgrades are capitalized to the extent it enhances the software’s functionality. Capitalized software is classified in the construction in progress category, but once placed into service is removed from construction in progress and classified within the furniture, fixtures and equipment category and is depreciated on the straight-line method over three toten years.

Depreciation of land improvements, buildings, furniture, fixtures and equipment and vehicles is recognized over the estimated useful lives of the respective assets using the straight-line method. Depreciation of building and leasehold improvements is recognized over the shorter of the original useful lives of the respective assets or the term of the lease using the straight-line method.

Cloud Computing Arrangements

The Company enters into cloud computing arrangements, which are accounted for as service contracts whereby expenses are recognized as incurred. Implementation costs incurred for cloud computing arrangements are capitalized when incurred during theapplication development phase. Capitalized costs are included within other current or other noncurrent assets within the consolidated balance sheet and are amortized over the term of the hosting agreement.

Goodwill and Other Indefinite-Lived Intangible Assets

The Company performs an evaluation for the impairment of goodwill and other indefinite-lived intangible assets for the Company’s reporting unit annually as of the first day of the fourth quarter, or when indications of potential impairment exist. These indicators would include a significant change in operating performance, the business climate, legal factors, competition, or a planned sale or disposition of a significant portion of the business, among other factors. The evaluation of goodwill and other indefinite-lived intangibles may be a Step-0 analysis, which consists of a qualitative assessment, or a Step-1 analysis, which includes a quantitative assessment. In a Step-0 analysis, the Company assesses qualitative factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform a quantitative goodwill impairment test. In the quantitative goodwill impairment test, the Company compares the carrying value of its reporting unit to its fair value. In performing a Step-1 analysis, the Company has historically used an income approach which requires many assumptions including forecast, discount rate, long-term growth rate, among other items. The Company has also utilized the market approach which derives metrics from comparable publicly-traded companies. The Company has generally engaged a third-party valuation firm to assist in the fair value assessment of goodwill. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value.

The other indefinite-lived intangible assets are tested for impairment at the asset group level. Other indefinite-lived intangible assets are evaluated by comparing the carrying amount of the asset to the future discounted cash flows that the asset is expected to generate. If the fair value based on the future discounted cash flows exceeds the carrying value, the Company concludes that no intangible asset impairment has occurred. If the carrying value of the indefinite-lived intangible asset exceeds the fair value, the Company recognizes an impairment loss.

Valuation of Long-Lived Assets

The Company evaluates the recoverability of long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable and exceeds its fair value. When such an event occurs, the Company estimates the undiscounted future cash flows expected to result from the use of the long-lived asset or asset group and its eventual disposition. These impairment evaluations involve estimates of asset useful lives and future cash flows. If the undiscounted expected future cash flows are less than the carrying amount of the asset and the carrying amount of the asset exceeds its fair value, an impairment loss is recognized. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on quoted market prices or other valuation techniques (e.g., discounted cash flow analysis).

The Company assessed the recoverability of its long-lived assets assigned to closing locations in connection with the announced restructuring and distribution network optimization plan. This assessment resulted in carrying values that exceeded fair values for certain asset groups, primarily related to right-of-use ("ROU") assets, and related impairment charges to SG&A. Refer to Note 3. Restructuring, included herein for further details.

Self-Insurance

The Company is self-insured for general and automobile liability, workers’ compensation and health care claims of the Company’s team members, while maintaining stop-loss coverage with third-party insurers to limit the Company’s total liability exposure. Expenses associated with these liabilities are calculated for (i) claims filed, (ii) claims incurred but not yet reported and (iii) projected future claims using actuarial methods followed in the insurance industry as well as the Company’s historical claims expe rience. The Company includes the current portion of self-insurance reserves in accrued expenses and the long-term portion of self-insurance reserves in other long-term liabilities in the accompanying consolidated balance sheets.

Warranties

The Company provides warranties on certain merchandise it sells to its customers. The risk of loss arising from warranty claims is typically the obligation of the Company’s suppliers; however, we have an obligation to provide customers replacement of certain merchandise at no cost if the merchandise is under a warranty and not covered by the manufacturer. Certain suppliers may provide up-front allowances to the Company in lieu of accepting the obligation for warranty claims. Thedifferences between supplier allowances received by the Company, in lieu of warranty obligations and estimated warranty expense, are recorded to cost of sales. Beginning in the third quarter of fiscal 2025, the Company commenced the recognition of warranty liabilities associated with certain battery products sold due to contractual changes with vendors and as of January 3, 2026, our warranty liability primarily related to such products. For non-battery products, defective returns are generally recognized in the same period as the original sale, therefore, the warranty liability associated with such returns is not subject to significant estimation uncertainty and was immaterial as of January 3, 2026 and December, 28 2024, respectively. The Company’s historical experience has been that failure rates are relatively consistent over time and that the ultimate cost of warranty claims to the Company has been driven by volume of units sold as opposed to fluctuations in failure rates or the variation of the cost of individual claims.

Leases

The Company leases certain store locations, distribu tion centers, office spaces, equipment and vehicles. The Company recognizes lease expense on a straight-line basis over the initial term of the lease unless external economic factors exist such that renewals are reasonably certain. In those instances, the renewal period would be included in the lease term to determine the period in which to recognize the lease expense. Most leases require the Company to pay non-lease components, such as taxes, maintenance, insurance and other certain costs applicable to the leased asset. For leases related to store locations, distribution centers, office spaces and vehicles, the Company accounts for lease and non-lease components as a single amount.

Fair Value Measurements

A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: Level 1 - Quoted prices for identical instruments in active markets; Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose significant inputs are observable; and Level 3 - Instruments whose significant inputs are unobservable. Financial instruments are transferred in and/or out of Level 1, 2 or 3 at the beginning of the accounting period in which there is a change in valuation inputs.

Share-Based Payments

The Company provides share-based compensation to eligible team members and the Board of Directors. We measure and recognize share-based compensation for all share-based awards based on their estimated fair value and recognize the expense in our financial statements using the straight-line method to amortize compensation costs over the requisite service period.

The fair value of time-based RSUs, and performance-based RSUs that include a performance condition, is equal to the market value of our common stock on the grant date of the award. The fair value of performance-based RSUs that include a market condition is measured using a Monte Carlo simulation model on the date of grant.

The fair value of time-based RSUs, and performance-based RSUs that include a market condition, is not remeasured as a result of subsequent stock price fluctuations. When there is a change in management’s estimate of expected achievement relative to the performance target for performance-based RSUs that include a performance condition, the change in estimate results in the recognition of a cumulative adjustment of share-based compensation expense.

We account for forfeitures of share-based awards as they occur.

Revenues

Accounting Standards Codification 606, Revenue From Contracts With Customers (Topic 606) (“ASC 606”) defines a performance obligation as a promise in a contract to transfer a distinct good or service to the customer and is considered the unit of account. The majority of the Company’s contracts have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Discounts and incentives are treated as separate performance obligations. The Company allocates the contract’s transaction price to each of these performance obligations separately using explicitly stated amounts or the Company’s best estimate using historical data.

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

Some of the Company’s products include a core component, which represents a recyclable component of the auto part. If a customer purchases an auto part that includes a core component, the customer is charged for the core unless a used core is returned at the time of sale. Customers that return a core subsequent to the sale date will be refunded.

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

Receivables, net, consists primarily of receivables from professional customers and is stated at net realizable value. The Company grants credit to certain professional customers who meet the Company’s pre-established credit requirements. The Company regularly reviews accounts receivable balances and maintains allowances for credit losses estimated whenever events or circumstances indicate the carrying value may not be recoverable. The Company considers the following factors when determining if collection is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment terms. The Company controls credit risk through credit approvals, credit limits and accounts receivable and credit monitoring procedures.

Cost of Sales

Cost of sales includes actual product cost, warranty costs, vendor incentives, cash discounts on payments to vendors, costs associated with operating the Company’s distribution network, including payroll and benefits costs, occupancy costs and depreciation, in-bound freight-related costs from the Company’s vendors, impairment of inventory resulting from store closures and inventory-related reserves and costs associated with moving merchandise inventories from the Company’s distribution centers to stores and customers. Refer to Note 3. Restructuring, included herein for additional detail.

Selling, General and Administrative Expenses, Exclusive of Restructuring and Related Expenses

SG&A includes payroll and benefits costs for store and corporate team members; occupancy costs of store and corporate facilities; depreciation and amortization related to store and corporate assets; share-based compensation expense; advertising; self-insurance; professional services and costs associated with the Company’s professional delivery program, including payroll and benefits costs; and transportation expenses associated with moving merchandise inventories from stores to customer locations.

The Company records restructuring and transformation activities when management or the Board of Directors commits to and approves a restructuring plan. Impairment of inventory is recognized when the cost of inventory exceeds its net realizable value. Asset impairment charges associated with operating lease ROU assets are recognized when the ROU carrying value exceeds its fair value. Severance and retention costs associated with workforce reductions are recognized at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Employee termination benefits are recognized as a liability when it is probable that a liability exists, and the amount is reasonably estimable. Other exit-related costs, including non-recurring professional fees, are recognized as incurred. Restructuring expenses are recognized as an operating expense in cost of sales or as a component of total selling, general and administrative expenses within the consolidated statements of operations and related liabilities are recorded within accounts payable and accrued expenses in the consolidated balance sheets. The Company periodically evaluates and, if necessary, adjusts its estimates based on currently available information. Refer to Note 3. Restructuring, included herein for additional detail.

Preopening Expenses

Preopening expenses, which consist primarily of payroll and occupancy costs related to the opening of new stores, are expensed as incurred as a component of SG&A in the accompanying consolidated statements of operations.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense, net of qualifying vendor promotional funds, was$98 million,$80 million and$150 million in fiscal 2025, 2024 and 2023, respectively.

Foreign Currency Translation

The assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at current exchange rates. Revenues, expenses and cash flows are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a separate component in the consolidated statements of comprehensive income. Foreign currency transactions, which are included in other income, net, were a gain of$2 million in fiscal 2025, loss of$6 million and$7 million in fiscal 2024 and 2023, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under the asset and liability method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income tax reporting purposes. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date.

The Company recognizes tax benefits and/or tax liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more-likely-than-not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts as the Company must determine the probability of various possible outcomes.

The Company reevaluates these uncertain tax positions on a quarterly basis or when new information becomes available to management. The reevaluations are based on many factors, including but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes of limitations and new federal or state audit activity. Any change in either the Company’s recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.

Earnings per Share

Basic earnings per share of common stock is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by including the effect of dilutive securities. Diluted earnings per share of common stock reflects the weighted average number of shares of common stock outstanding, outstanding deferred stock units and the impact of outstanding stock awards (collectively “share-based awards”) if the conversion of these awards are dilutive. Share-based awards containing performance conditions are included in the dilution impact based on the number of shares that would vest if the end of the reporting period were the end of the contingency period.

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.

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.

Measurement of Credit Losses for Accounts Receivable and Contract Assets

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which provides a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and for interim periods within those annual reporting periods, with early adoption permitted. The amendments in ASU 2025-05 should be applied prospectively. The Company is currently evaluating the impact of adopting ASU 2025-05 and believes that the adoption will not have a material impact on the consolidated financial statements and related disclosures.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which makes targeted improvements to the accounting for internal-use software by removing references to “development stages”. The update also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for annual reporting periods beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted. The amendment in ASU 2025-06 can be applied prospectively, retrospectively, or via a modified prospective transition method. The Company is currently evaluating the impact of adopting ASU 2025-06, including the possibility of early adoption in fiscal 2026, on the consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements - Adopted

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 has adopted ASU 2023-09 on a prospective basis, which resulted in additional disclosures, but did not have any other impact on its consolidated financial statements. See Note 13. Income Taxes, of the Notes to the Consolidated Financial Statements of this Annual Report.

Rest ructuring

2024 Restructuring Plan

On November 13, 2024, the Company’s Board of Directors approved a restructuring and asset optimization plan (“2024 Restructuring Plan”) designed to improve the Company’s profitability and growth potential and streamline its operations. This plan contemplated the closure of approximately 500 stores, approximately 200 independent locations andfour distribution centers by mid-2025, as well as headcount reductions. The Company completed the closure of all of these locations during the first quarter of fiscal 2025.

Expenses associated with the 2024 Restructuring Plan included: (1) inventory write-down of inventory to net realizable value due to liquidation sales as a result of store closures and streamlining assortment associated with the 2024 Restructuring Plan, (2) noncash asset impairment and accelerated amortization and depreciation of operating lease right-of-use ("ROU") assets and property and equipment, (3) personnel expenses related to severance and transition expenses, which were offered to certain employees who would provide services through key dates to ensure completion of closure activities and (4) other location closure-related activity, including nonrecurring services rendered by third-party vendors assisting with the turnaround initiatives and other related expenses, including incremental revisions to receivable collectability due to termination of contracts with independents associated with the 2024 Restructuring Plan.

Other Restructuring Initiatives

In November 2023, the Company announced a strategic and operational plan with anticipated savings of $150 million of which $50 million would be reinvested into frontline team members. In addition to a reduction in workforce, this plan streamlines the Company’s supply chain by configuring a multi-echelon supply chain by leveraging current asset and operating fewer, more productive distr ibution centers that focus on replenishment and move more parts closer to the customer. In achieving this plan, the Company is in process of converting certain distribution centers and stores into market hubs. In addition to providing replenishment to near-by stores, market hubs support retail operations. In addition to the distribution network optimization costs, other restructuring expenses include certain other items as further detailed in the table below. The Company continues to incur charges associated with this plan and expects to incur additional charges through the end of fiscal 2026, primarily consisting of conversion costs associated with the conversion of certain distribution centers and severance and other personnel expenses.

The Company has recorded all restructuring and related expenses as a component of selling general and administrative expenses in the consolidated statement of operations, with the exception of inventory related expenses that are recorded as a component of cost of sales on the consolidated state ment of operations.

Restructuring and related expenses for the periods presented was as follows:

(1) Other location closure related activity for the year ended January 3, 2026 includes$38 million of nonrecurring services rendered by third-party vendors assisting with the 2024 Restructuring Plan,$7 million for reserves on independent loans and$25 million of other related expenses associated with location closures, including the transfer of assets. Other location closure related activity for the year ended December 28, 2024 includes$21 million of nonrecurring services rendered by third-party vendors assisting with the 2024 Restructuring Plan and$25 million for incremental revisions to receivable collectability due to contract terminations with independents associated with the restructuring plan.

(2) Distribution network optimization for the year ended December 28, 2024 includes incremental depreciation as a result of accelerating long-lived assets over a shorter useful life of$5 million.

(3) For theyear ended January 3, 2026 other restructuring expenses primarily consists of severance and other personnel expenses. For the year ended December 28, 2024 other restructuring expenses include non-recurring services rendered by third-party vendors to perform a strategic business review of$15 million and executive turnover costs of$2 million. For the year ended December 30, 2023 other restructuring expenses include severance costs associated with a reduction in workforce and professional service fees.

The following table shows the change in the restructuring liability for the years ended January 3, 2026 and December 28, 2024, respectively, which excludes operating lease liabilities and associated expenses. The restructuring liabilities are classified within accounts payable, accrued expenses and other current liabilities in the consolidated balance sheets.

As of January 3, 2026, the cumulative amount incurred to date for active restructuring plans totaled$972 million, consisting of write-down of inventory to net realizable value, lease termination impacts, other exit-related expenses related to ceased use buildings, professional service fees and certain employee termination benefits. Substantially all of the costs under the restructuring plans have been incurred as of January 3, 2026. The Company estimates that it will incur additional expenses of approximately$30 million to$40 million through fiscal 2026.

Inventories, net

The Company used the last in, first out (“LIFO”) method of accounting for approximately 92% of inventories as of January 3, 2026 and December 28, 2024, respectively. The Company’s LIFO credit reserve balance was$104 million and$11 million as of January 3, 2026 and December 28, 2024, respectively, to state inventories at LIFO. Increases to the Company’s LIFO credit reserve balance are recorded as a noncash charge to cost of sales and decreases are recorded as a non-cash benefit to cost of sales. The non-cash expense (benefit) recorded to cost of sales related to the change in the LIFO credit reserve for the periods presented was as follows:

The effect of LIFO liquidations for the year ended January 3, 2026 was a decrease to cost of sales of$6 million and an increase to net earnings of$4 million, or ($0.07) per diluted share. The impact from LIFO liquidations for the year ended December 28, 2024 was a decrease to cost of sales of$21 million and an increase to net earnings of$16 million or ($0.27 per diluted share). During fiscal 2023, the Company experienced a decrease in inventory values which resulted in a liquidation of a LIFO inventory layer. This liquidation did not have a material impact to the consolidated financial statements.

Purchasing and warehousing costs included in inventories as of January 3, 2026 and December 28, 2024 were$426 million and$368 million, respectively.

In fiscal 2024, the Company recorded $431 million of inventory write-downs, taken as a charge to cost of sales, associated with the 2024 Restructuring Plan. Refer to Note 3. Restructuring, included herein for additional detail. Also, in fiscal 2023, the Company performed a strategic and operational review of the business, which included the rationalization of product assortment and planned decisive actions. As a result, the Company made a change in the estimate of excess inventory reserves resulting in a $110 million charge to cost of sales.

Goodwill and Other Intangible Assets, net

Goodwill

At January 3, 2026 and December 28, 2024, the carrying amount of goodwill in the accompanying consolidated balance sheets was$600 million and$598 million, respectively. The change in goodwill during 2025 and 2024 was$2 million and$3 million, respectively, and related to foreign currency translation. There were no accumulated losses recognized on goodwill as of January 3, 2026.

Other Intangible Assets, Net

Amortization expense was$12 million,$12 million and$13 million for fiscal 2025, 2024 and 2023, respectively. A summary of the composition of the gross carrying amounts and accumulated amortization of acquired other intangible assets are presented in the following table:

Future Amortization Expense

The expected amortization expense for the next five years and thereafter for acquired intangible assets recorded as of January 3, 2026 was as follows:

6. Receivables, net

Receivables, net, consisted of the following:

Changes in the allowance for expected credit losses were as follows:

For the year ended January 3, 2026, the allowance for credit losses increased primarily due to a reserve recorded against a vendor receivable. For the year ended December 28, 2024, the allowance for credit losses increased primarily due to incremental reserves established as a result of the 2024 Restructuring Plan. Refer to Note 3. Restructuring included herein.

In third quarter of fiscal 2025, one of the Company’s vendors, a leading auto parts supplier for the automotive aftermarket industry, who filed voluntary petitions for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Southern District of Texas. The vendor has secured short-term financing through a debtor-in-possession (“DIP”) loan, however, Chapter 11 proceedings carry inherent risks with respect to a company’s ability to continue operations and maintain adequate liquidity to satisfy current and future obligations. As a result of these events, the Company recorded a non-cash charge of $28 million to cost of sales in the third quarter of fiscal 2025, within the consolidated statement of operations, reflecting estimated future credit losses on certain vendor receivables due from the vendor. The estimate was developed utilizing a probability weighted cash-flow model adjusted for risks associated with credit risk deterioration for companies that enter Chapter 11 bankruptcy proceedings.

Long-term Debt and Fair Value of Financial Instruments

Long-term debt, net of unamortized discount and debt issuance costs, consisted of the following:

Fair Value of Financial Assets and Liabilities

As of January 3, 2026 and December 28, 2024, the fair value of the Company's long-term debt was approximately$3.4 billion and$1.6 billion, respectively. The fair value of the Company's long term debt was determined using Level 2 inputs based on quoted market prices. The carrying value of the Company's cash and cash equivalents, receivables, net, accounts payable, and accrued expenses approximate their fair value due to the relatively short-term nature of these instruments.

Long-term debt

On August 4, 2025, the Company issued (i) $975 million in aggregate principal amount of 7.000% Senior Notes due 2030 (the “2030 Notes”) and (ii) $975 million in aggregate principal amount of 7.375% Senior Notes due 2033 in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”). Following the closing of the issuance of the 2030 Notes and 2033 Notes, the Company utilized a portion of the net proceeds to redeem in full its outstanding $300 million in aggregate principal amount of 5.90% 2026 Notes and the Company recorded a loss of $3 million on redemption in the third quarter of fiscal 2025 associated with this extinguishment. The remaining proceeds from the issuance are available for general corporate purposes, and, as further discussed under “Credit Facilities” below, certain of our cash and cash equivalents, are designated as qualified cash and is subject to customary springing control agreements, as defined in the ABL Facility Agreement.

The Company’s 3.90% senior unsecured notes due April 15, 2030 (the “Original Notes”) were issued April 16, 2020 and were not registered under the Securities Act of 1933, as amended (the “Securities Act”). On July 28, 2020, the Company completed an exchange offer whereby the Original Notes in the aggregate principal amount of $500 million, which were not registered under the Securities Act, were exchanged for a like principal amount of 3.90% senior unsecured notes due 2030 (the “Exchange Notes”), which have been registered under the Securities Act. The Original Notes were substantially identical to the Exchange Notes, except that 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.

Each of the Company's Notes bear interest, payable semi-annually in arrears as follows:

The Company’s 2026 Notes, 2027 Notes, 2028 Notes, Exchange Notes, 2030 Notes, 2032 Notes, and 2033 Notes are collectively referred to herein as the Company’s “senior unsecured notes” or the “Notes.” The terms of the 2026 Notes, 2027 Notes, 2028 Notes and 2032 Notes are governed by an indenture dated as of April 29, 2010 (as amended, supplemented, waived or otherwise modified, the “2010 Indenture”) among Advance Auto Parts, Inc., the subsidiary guarantors from time to time party thereto and the Trustee. The terms of the Exchange Notes are governed by an indenture dated as of April 16, 2020 (as amended, supplemented, waived or otherwise modified, the “2020 Indenture” and together with the 2010 Indenture, the “Indentures”) among Advance Auto Parts, Inc., the subsidiary guarantors from time to time party thereto and the Trustee. The terms of the 2030 Notes and the 2033 Notes are governed by an indenture dated as of August 4, 2025 among Advance Auto Parts, Inc., the subsidiary guarantors from time to time party thereto and Computershare Trust Company, N.A., as Trustee.

The Company may redeem some or all of the senior unsecured notes at any time or from time to time, at the redemption prices described in the Indentures and subject to any restrictions or early payment provisions as described in the Indentures. In addition, in the event of a Change of Control Triggering Event (as defined in the Indentures), the Company will be required to offer to repurchase the Notes at a price equal to 101% ofthe principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. Currently, the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated and unsecured basis by guarantor and subsidiary guarantees, as defined by the Indentures.

The Indentures contain customary provisions for events of default including for: (i) failure to pay principal or interest when due and payable; (ii) failure to comply with covenants or agreements in the Indentures or the Notes and failure to cure or obtain a waiver of such default upon notice; (iii) a default under any debt for money borrowed by us or any of our subsidiaries that results in acceleration of the maturity of such debt, or failure to pay any such debt within any applicable grace period after final stated maturity, in an aggregate amount greater than $25.0 million for the 2027 Notes, 2028 Notes, Exchange Notes and 2032 Notes, and $125.0 million for the 2030 Notes and 2033 Notes, without such debt having been discharged or acceleration having been rescinded or annulled withinten days after receipt by us of notice of the default by the Trustee or holders of not less than 25% in aggregate principal amount of the Notes then outstanding; and (iv) events of bankruptcy, insolvency or reorganization affecting us and certain of its subsidiaries. In the case of an event of default, the principal amount of the Notes plus accrued and unpaid interest may be accelerated. The Indentures also contain covenants limiting the ability to incur debt secured by liens and to enter into certain sale and lease-back transactions.

Future Payment

As of January 3, 2026, the aggregate future annual maturities of long-term debt instruments were as follows:

Credit Facilities

On August 12, 2025, the Company’s $1 billion revolving credit facility (the “2021 Credit Agreement”) was terminated and replaced by a new asset-based loan revolving credit facility (the "ABL Facility"). The Company recorded a $6 million loss on extinguishment of the 2021 Credit Agreement during the third quarter of fiscal 2025. The ABL Facility provides for afive-year senior secured first lien asset-based revolving credit facility of up to $1 billion with an uncommitted accordion feature that provides for additional credit extensions up to $500 million. Our ability to draw upon the ABL Facility is subject to the available borrowing base. Outstanding amounts under the ABL Facility would accrue interest at a floating rate, which, at the Company’s election, can be either (i) SOFR plus an applicable margin or (ii) an alternative base rate plus an applicable margin. The applicable rate varies based on Average Historical Excess Availability (as defined in the ABL Facility Agreement) from (i) with respect to base rate loans,0.25% to 0.75% and (b) with respect to SOFR loans,1.25% to 1.75% and resets quarterly on a prospective basis and is, in part, derived based-upon the utilization of the facility. Interest is payable on a quarterly basis. Unused commitments under the ABL Facility will accrue an unused commitment fee of either 0.30% or 0.25% per annum, depending on average utilization. As of January 3, 2026, and December 28, 2024, the Company hadno outstanding borrowings under its ABL Facility and 2021 Credit Agreements, respectively. As of January 3, 2026, the Company had$896 million of borrowing availability and$104 million letters of credit outstanding under the ABL Facility. As of December 28, 2024, the Company had$1.0 billion of borrowing availability andno letters of credit outstanding under the 2021 Credit Agreement.

The ABL Facility has first lien on substantially all of the accounts receivable, inventory, cash and related assets of the Company and its subsidiary guarantors thereunder. Advance Auto Parts, Inc. is the ABL Facility borrower and the guarantors are (i) each of our subsidiaries that guarantee our recently issued Senior Unsecured Notes and (ii) certain of our Canadian subsidiaries. Availability under the ABL Facility is limited to the lesser of (i) the borrowing base, equal to the sum of 90% of eligible credit card receivables,85% of eligible trade accounts receivable,85% of the net orderly liquidation value of eligible inventory and 100% of qualified cash (up to certain limits for the purpose of determining borrowing capacity), subject, in each case, to customary reserves established by the collateral agent under the ABL Facility from time to time, including reserves related to outstanding obligations to our suppliers that are payable to the paying agents, as a result of such suppliers electing, at their option, to utilize third-party financing, commonly referred to as supply chain financing, and debt maturity reserves, and (ii) the aggregate revolving credit commitments. The ABL Facility contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to a springing financial covenant that would result in a fixed charge coverage ratio maintenance requirement as described in the ABL Facility. The fixed charge coverage ratio is defined in the ABL Facility as the ratio of Consolidated Adjusted EBITDA minus Consolidated Capital Expenditures minus Taxes to Fixed Charges, each as defined in the ABL Facility, on a four quarter trailing basis, which requires a minimum 1:1 coverage ratio to be maintained, and restrictions on certain indebtedness, liens, investments and acquisitions, asset dispositions, restricted payments, prepayment of certain indebtedness and transactions with affiliates, subject to various thresholds and caps.

In accordance with the ABL Facility, the Company is required to hold cash and cash equivalents in designated accounts with lenders, referred to as Qualified Cash Accounts as defined in the ABL Facility. As of January 3, 2026,$2.3 billion was designated as Qualified Cash. These amounts are unrestricted and the Company is able to direct, and have sole control over, the manner of disposition of funds in such accounts, subject to: 1) maintaining a minimum availability under the ABL facility of at least the greater of (i)12.5% of the Line Cap and (ii) $125 million; and 2) maintaining excess availability under the ABL Facility of at least $400 million. The Qualified Cash Accounts are subject to springing control agreements pursuant to which the cash deposited therein would become restricted in the event of default or a breach of such covenants. The Company was in compliance with its covenants related to the ABL Facility as of January 3, 2026.

As of January 3, 2026, the Company hadno bilateral letters of credit issued separately from the ABL Agreement. As of December 28, 2024, the Company had $91 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.

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 totaling$69 million and$98 million as of January 3, 2026 and December 28, 2024, respectively. 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 was$152 million as of January 3, 2026 and$181 million as of December 28, 2024. The Company continuously assesses the likelihood of performance under these guarantees and as of January 3, 2026 recognized an immaterial liability related to such guarantees.

Property and Equipment, net

Property and equipment consisted of the following:

(1) Land is deemed to have an indefinite life.

As of January 3, 2026 and December 28, 2024, the Company had capitalized software costs of$1.0 billion and accumulated depreciation of$816 million and$767 million, respectively. Depreciation expense relating to property and equipment was$260 million,$280 million and$256 million for fiscal 2025, 2024 and 2023, respectively.

As of January 3, 2026 and December 28, 2024, the Company recorded$32 million and$144 million of non-cash asset impairment and write-down charges, including impairment and incremental depreciation as a result of accelerating assets over a shorter useful life, in connection with the 2024 Restructuring Plan and the Other Restructuring Plan which is included in restructuring and related expenses within the accompanying consolidated statements of operations. Refer to Note 3. Restructuring included herein.

During the first quarter of 2024, the Company entered into a sale-leaseback transaction where the Company sold a building and land and entered into athree-year lease of the property upon the sale. This transaction resulted in a gain of$22 million and is included in selling, general and administrative expenses on the consolidated statement of operations for the year ended December 28, 2024.

Leases and Other Commitments

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.

Operating lease liabilities consisted of the following:

The current portion of operating lease liabilities is included in other current liabilities in the accompanying consolidated balance sheets.

Total lease cost is included in cost of sales and total selling, general and administrative expenses in the accompanying consolidated statements of operations and is recorded net of immaterial sublease income. Total lease cost is comprised of the following:

As of January 3, 2026 and December 28, 2024, the Company recorded$56 million and $65 million, respectively, primarily related to accelerated amortization on leases the Company expects to exit before the end of the contractual term, and non-cash asset impairment, net of gains on lease modifications and terminations. These amounts are recorded in restructuring and related expenses within the accompanying consolidated statements of operations. See Note 3. Restructuring, included herein.

The future maturity of lease liabilities are as follows:

Operating lease liabilities included$16 million related to options to extend lease terms that are reasonably certain of being exercised and excluded$78 million of legally binding lease obligations for leases signed, but not yet commenced.

The weighted average remaining lease term and weighted average discount rate for the Company’s operating leases were 6.4 years and 4.4% as of January 3, 2026. The Company calculated the weighted average discount rates using incremental borrowing rates, which equal the rates of interest that the Company would pay to borrow funds on a fully collateralized basis over a similar term.

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

Accrued Expenses

Accrued expenses consisted of the following:

Share Repurchase Program

In February 2022, the Company’s Board of Directors authorized an additional $1.0 billion toward the existing share repurchase program. Previously, in April 2021 and November 2019, the Company’s Board of Directors authorized $1.0 billion and $700 million, respectively, for the Company’s share repurchase program. The Company’s share repurchase program permitted the repurchase of the Company’s common stock on the open market and in privately negotiated transactions from time to time. The Board of Directors were able to increase or otherwise modify, renew, suspend or terminate the share repurchase program without prior notice. However, Amendment No. 5 to the Company’s 2021 Credit Agreement, which was terminated on August 12, 2025 and replaced by the ABL facility, generally prohibited open market share repurchases. Share repurchases are generally permitted under the Company's ABL facility, however, under certain circumstances, the Company's ability to repurchase shares may be restricted.

During fiscal 2025 and 2024, the Company did not repurchase any shares of its common stock under the share repurchase program. The remaining authorized amount for share repurchases under the program was$0.9 billion as of January 3, 2026 and December 28, 2024.

Earnings per Share

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

(1) For fiscal 2025, 2024 and 2023, restricted stock units ("RSUs") excluded from the diluted calculation as their inclusion would have been anti-dilutive were 0.8 million,0.5 million and 0.3 million, respectively.

Income Taxes

The Company has adopted ASU 2023-09 on a prospective basis, which resulted in additional income tax disclosures for the rate reconciliation and related to income taxes paid for 2025. Given that the Company has elected to adopt ASU 2023-09 prospectively, the 2024 and 2023 rate reconciliation is not disaggregated in accordance with ASU 2023-09 and the income taxes paid are not presented by jurisdiction.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes key elements of the Tax Cuts and Jobs Act permanent, including 100% bonus depreciation and the business interest expense limitation, among others. The Company has determined the OBBBA has an immaterial impact to the Company’s provision for income taxes and deferred tax balances. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted, which occurred during the Company’s second quarter of fiscal 2025. Therefore, the Company has reflected the effect of the OBBBA within the provision for income taxes for the fiscal year ended January 3, 2026.

Provision for Income Taxes

Provision for income taxes from continuing operations consisted of the following:

Disaggregation of loss before income tax expense from continuing operations for the fiscal year ended January 3, 2026:

The provision for income taxes differed from the amount computed by applying the federal statutory income tax rate due to:

(1)State taxes in Florida, Georgia, Illinois, Maryland, New York, Pennsylvania, and Virginia make up the majority (greater than 50 percent) of the tax effect in this category.

(2) In fiscal year 2025, the Company completed an internal legal entity restructuring event which was treated as a taxable stock disposition for U.S. federal income tax purposes. As a result, the Company recognized a capital loss deduction which was utilized against capital gain income.

Income Taxes Paid

Income taxes paid, net of refunds, consisted of the following:

Income taxes paid (net of refunds) was$37 million and$99 million for the fiscal years 2024 and 2023, respectively.

Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:

Deferred Income Tax Assets (Liabilities)

Temporary differences that give rise to significant deferred income tax assets (liabilities) were as follows:

As of January 3, 2026 and December 28, 2024, the Company’s net operating loss (“NOL”) carryforwards comprised state NOLs of$664 million and$106 million, respectively. Federal NOL carryforwards were$449 million as of January 3, 2026. There wereno Federal NOL carryforwards as of December 28, 2024. State NOLs may be used to reduce future taxable income and may expire in various years based on jurisdiction, whereas federal NOLs are carried forward indefinitely. Due to uncertainties related to the realization of these NOLs in certain jurisdictions, as well as other credits available, the Company has recorded a valuation allowance of$18 million as of January 3, 2026 and$2 million as of December 28, 2024. In addition, the Company recorded a$4 million and$3 million valuation allowance on foreign tax credit carryforwards as of January 3, 2026 and December 28, 2024, respectively. The amount of deferred income tax assets realizable could change in the future if projections of future taxable income change.

The Company has not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside of the U.S. As of January 3, 2026 and December 28, 2024, these accumulated net earnings generated by foreign operations were$113 million and$93 million, respectively, which did not include earnings deemed to be repatriated as part of the U.S. Tax Cuts and Jobs Act. It is not practicable to determine the income tax liability that would be payable if such earnings were repatriated.

Unrecognized Tax Benefits

The following table summarizes the activity of the Company’s gross unrecognized tax benefits:

As of January 3, 2026, December 28, 2024, and December 30, 2023, the entire amount of unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate of 175.0%,23.6% and 36.4%, respectively. During 2025, the Company recorded income tax-related interest and penalty expense of$0.6 million, and in 2024 and 2023, the Company recorded income tax-related interest and penalty expense of$0.6 million and benefit of$0.2 million, respectively, due to uncertain tax positions included in the Provision for income taxes in the accompanying consolidated statements of operations. As of January 3, 2026 and December 28, 2024, the Company recorded a liability for potential interest of$4 million and$3 million, respectively. Liabilities for potential penalties of were immaterial in all periods presented. The Company does not provide for any penalties associated with tax contingencies unless considered probable of assessment. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2022.

Commitments and Conti ngencies

Currently and from time to time, the Company is subject to litigation, claims and other disputes, including legal and regulatory proceedings, arising in the normal course of business. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. Although the final outcome of pending legal matters cannot be determined, based on the facts presently known, it is management’s opinion that the final outcome of any pending matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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. On January 23, 2025, the motion to dismiss was granted by the United States District Court for the Eastern District of North Carolina. On February 21, 2025, plaintiffs filed an appeal to the 4th Circuit Court of Appeals. 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.

Benefit Plans

401(k) Plan

The Company maintains a defined contribution benefit plan, which covers substantially all team members after one year of service and who have attained the age of 21. The plan allows for team member salary deferrals, which are matched at the Company’s discretion. Company contributions to these plans were$26 million,$23 million and$23 million in fiscal 2025, 2024 and 2023, respectively.

Deferred Compensation

The Company maintains a non-qualified deferred compensation plan for certain team members. This plan provides for a minimum and maximum deferral percentage of the team member’s base salary and bonus as determined by the Retirement Plan Committee. The Company maintains a deferred compensation liability for this plan. As of January 3, 2026 and December 28, 2024, the deferred compensation plan liability was$10 million and$15 million, respectively, and recorded within accrued expenses in the consolidated balance sheets.

Share-Based Compensation

The Company grants share-based compensation awards to its team members and members of the Board of Directors as provided for under the 2023 Omnibus Incentive Compensation Plan (“2023 Plan”), approved on May 24, 2023, which replaced the Company’s 2014 Long-Term Incentive Plan. In fiscal 2025, 2024 and 2023, the Company granted share-based compensation primarily in the form of RSUs. The Company’s grants have two methods of measuring fair value and are categorized into three types of awards, which include time-based service awards, performance-based or market-based awards, and hybrid awards that include both performance and market conditions.

The Company has historically granted stock options, however, commencing in fiscal 2025, the Company has stopped granting stock options and the associated expense and activity is not material.

At January 3, 2026, there were 2.9 million shares of common stock available for future issuance under the 2023 Plan. Shares forfeited become available for reissuance and are included in availability.

Restricted Stock Units

Time-based RSUs generally vest over athree-year period in equal annual installments beginning on the first anniversary of the grant date. During the vesting period, holders of RSUs are entitled to receive dividend equivalents, which may be forfeited, but are not entitled to voting rights. The grant date fair value of time-based RSUs is calculated utilizing the Company's externally quoted closing stock price on the date of grant.

Performance-based awards generally may vest following a three-year period subject to the achievement of certain financial goals, market conditions, or a hybrid of both, as specified in the grant agreements. Depending on the Company’s results during thethree-year performance period, the actual number of awards vesting at the end of the period generally ranges from 0% to 300% of the performance award. Performance-based RSUs generally do not have dividend equivalent rights and do not have voting rights until the shares are earned and issued following the applicable performance period. Compensation expense for performance-based awards was determined based on management's estimate of the probable vesting outcome. The number of performance-based awards outstanding is based on the number of awards that the Company believes were probable of vesting at January 3, 2026.

For market-based RSUs and performance-based RSUs that include market conditions, the fair value of each award was determined using a Monte Carlo simulation model. The model uses multiple input variables that determined the probability of satisfying the market condition requirements as follows:

(1)The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate having a term consistent with the vesting period of the award.

(2)Expected volatility is determined based on historical volatility over a matching look-back period and is consistent with the correlation coefficients between the Company’s stock prices and the Company’s peer group.

Liquidity discounts are calculated using the Chaffe, Cost of Carry or Finnerty models, or a combination of all three, to adjust the fair value for post-vest restrictions. Vesting of market-based RSUs depends on the Company’s relative total shareholder return among a designated group of peer companies during a three-year period and will be subject to a one-year holding period after vesting. Vesting of hybrid RSUs depends on the achievement of certain financial goals as well as the Company's relative total shareholder return among a designated group of peer companies during a three-year period and will be subject to a one-year holding period after vesting. The Company estimated a liquidity discount of 12.6% in fiscal 2025 to adjust the fair value for the post-vest restrictions.

The following table summarizes activity for time-based, performance-based, and market-based RSUs in fiscal 2025 (in millions except for fair value):

The following table summarizes certain information concerning activity for time-based, performance-based, and market-based RSUs (in millions except for per unit fair value):

Other Considerations

Total income tax benefit related to share-based compensation expense for fiscal 2025, 2024 and 2023 was$9 million,$10 million and$10 million, respectively.

As of January 3, 2026, there was$51 million of unrecognized compensation expense related to all share-based awards that are expected to be recognized over a weighted average period of 1.4 years.

Employee Stock Purchase Plan

The Company also offers an employee stock purchase plan (“ESPP”). Under the ESPP, eligible team members may elect salary deferrals to purchase the Company’s common stock at a discount of 10% from its fair market value on the date of purchase. As of January 3, 2026, there were 2.3 million shares available to be issued under the ESPP.

Supplier Finance Programs

Certain of the Company’s suppliers enter into agreements with third-party financial institutions to obtain enhanced receivables options. These arrangements are commonly referred to and known in the industry as supply chain financing programs. 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’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 consolidated balance sheets. As of January 3, 2026, and December 28, 2024, the confirmed obligations outstanding under these supplier finance programs to third-party financial institutions were$2.5 billion and$3.2 billion, respectively. As of January 3, 2026, there were no amounts outstanding for Worldpac. As of December 28, 2024,$0.4 billion was included in the confirmed obligations outstanding but is excluded from the Company’s accounts payable balance on the Company’s consolidated balance sheets, as such amounts represent liabilities of Worldpac transferred with the sale of the business in fiscal 2024. Under the provisions of the Worldpac sale, the Company provided certain letters of credit to the buyer to support supply chain financing for the buyer. As of January 3, 2026, there were no remaining letters of credit outstanding to support Worldpac's supply chain financing program. See Note 19. Discontinued Operations, included herein.

The Company’s confirmed obligations to suppliers participating in these financing arrangements consist of the following (in billions):

(1) Includes $0.4 billion in payments made related to confirmed obligations outstanding for Worldpac included in the confirmed obligations outstanding at the beginning of the year.

Segment Reporting

The Company hasone operating segment andone reportable segment, effective during the first quarter of fiscal year 2025, resulting from the stabilization of the Company’s new organizational structure due to the significant restructuring activities announced in fiscal year 2024 as further described in Note 3. Restructuring, included herein. Following this restructuring, the Company no longer hastwo operating segments, which were previously aggregated into a single reportable segment. The Company conducts its operations principally in the geographical areas of the U.S. and Canada through its Advance Auto Parts and Carquest trade brands. The products sold by the Company, across all geographic areas, have similar economic characteristics, are sourced from the Company’s suppliers in a similar manner, and are available for sale to all of the Company’s customers through the Company’s stores and self-service e-commerce sites. All of the Company’s stores have similar characteristics, including the nature of the products and services, the type and class of customers, and the methods used to distribute products and provide service to its customers. Due to these reasons, the Company hasone operating segment, referred to as Advance Auto Parts/Carquest.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who regularly reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance for the Company’s single reportable segment. The CODM primarily focuses on net income to evaluate its reportable segment. The CODM also uses net income for evaluating pricing strategy and to assess the performance for determining the compensation of certain employees. Significant segment expenses reviewed, which represent the difference between segment revenue and segment net income, consisted of the following:

(1) Selling, general and administrative expenses, excludes restructuring and related expenses and depreciation and amortization.

(2)Excluded $49 million and$23 million of depreciation and amortization expense included within cost of sales and restructuring, respectively, for fiscal 2025,$56 million and$15 million , respectively, for fiscal 2024. Depreciation and amortization expense included within cost of sales for fiscal 2023 was$56 million. There wasno depreciation or amortization included within restructuring for fiscal 2023.

(3) Other segment items relates to interest income, loss on extinguishment of debt, and income recognized from the transition services (“TSA Services”) agreement with Worldpac that commenced in the fourth quarter of fiscal 2024, included in total other, net, in the accompanying consolidated statements of operations.

The following table presents the Company’s net sales disaggregated by geographical area:

No asset information has been provided for the reportable segment as the CODM does not regularly review asset information by reportable segment.

There were no major customers individually accounting for 10% or more of consolidated net revenues.

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 transaction closed on November 1, 2024. Net proceeds from the transaction after paying expenses, the final working capital true-up adjustment and excluding the impact of taxes were approximately$1.44 billion. 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 Company classified the results of operations and cash flows of Worldpac as discontinued operations in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The related assets and liabilities associated with the discontinued operations are not included in the consolidated balance sheets as of January 3, 2026 and December 28, 2024. Additionally, beginning August 22, 2024, the Company ceased recording depreciation and amortization for Worldpac’s finite-lived intangible assets and operating lease ROU 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 totwelve months after closing of the transaction as credit support for Worldpac’s new supply chain financing program, which letter of credit exposure will reduce tozero no later than 24 months after closing. As of January 3, 2026, there wereno remaining letters of credit outstanding to support Worldpac's supply chain financing program.

Additionally, the Company and Worldpac entered into a Transition Services Agreement ("TSA") 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 fortwelve months, which may be extended by the Company and Worldpac for up totwo three-month extension periods. Services provided under the TSA and Reverse Transition Services Agreement are substantially complete as of January 3, 2026.

The total net loss from discontinued operations in fiscal 2025 relates to an adjustment for customary final working capital amounts, reflected as an adjustment to the original estimated purchase price and a reduction to the initial gain on divestiture recorded in fiscal 2024. The accrual for the final working capital adjustment payment is classified within accrued expenses on the consolidated balance sheets. Refer to Note 10. Accrued Expenses, included herein.

The following table presents the major components of discontinued operations in the Company's consolidated statements of operations:

Advance Auto Parts, Inc.