##### Table of Contents

---




UNITED STATES


SECURITIES AND EXCHANGE COMMISSION





---




FORM 10-Q





(Mark One)


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




For the quarterly period ended April 20, 2002





OR





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




For the transition period from
 to
.





Commission file number333-56013





---




ADVANCE STORES COMPANY, INCORPORATED


(Exact name of registrant as specified in its charter)





Virginia

54-0118110(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification
No.)





5673 Airport Road Roanoke, Virginia

24012(Address of Principal Executive Offices)

(Zip Code)





(540) 362-4911


(Registrants telephone number, including area code)





Not
Applicable


(Former name, former address and former fiscal year, if changed since last report).





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





As of May 17, 2002, the registrant had outstanding 539 shares of Class A Common Stock, par value $100 per share (the only class
of common stock of the registrant outstanding). The registrants Class A Common Stock is not traded in a public market.





---



---

##### Table of Contents




ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





Sixteen Week Periods Ended April 20, 2002





TABLE OF CONTENTS





PagePART I    FINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial Statements of Advance Stores Company, Incorporated and Subsidiaries:Condensed Consolidated Balance Sheets as of April 20, 2002 and December 29, 2001

1Condensed Consolidated Statements of Operations for the Sixteen Week Periods Ended April 20, 2002 and April 21, 2001

2Condensed Consolidated Statements of Cash Flows for the Sixteen Week Periods Ended April 20, 2002 and April 21, 2001

3Notes to the Condensed Consolidated Financial Statements

4Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

14Item 3.

Quantitative and Qualitative Disclosures About Market Risks

21PART II    OTHER INFORMATIONItem 1.

Legal Proceedings

22Item 6.

Exhibits and Reports on Form 8-K

22(a)  
Exhibits

22(b)  
Current Reports on Form 8-K

22SIGNATURE

S-1




i




---

##### Table of Contents

PART 1.    FINANCIAL INFORMATION





|ITEM |  | 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
|---- |  | ----------------------------------------------------

| |  |  | ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
| |  |  | -----------------------------------------------------




Advance Stores Company, Incorporated and Subsidiaries


Condensed Consolidated Balance Sheets


April 20, 2002 and December 29, 2001


(in thousands, except per share data)





April 20, 2002


December 29, 2001(unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
64,669


$
18,117Receivables, net


114,312



93,531Inventories


1,015,848



982,000Other current assets


41,328



42,027Total current assets


1,236,157



1,135,675Property and equipment, net of accumulated depreciation of $264,303 and $239,204


720,309



711,282Assets held for sale


53,033



60,512Other assets, net


34,272



29,274$
2,043,771


$
1,936,743LIABILITIES AND STOCKHOLDER'S EQUITYCurrent liabilities:Bank overdrafts

$



$
35,123Current portion of long-term debt


19,404



23,715Accounts payable


517,340



429,041Accrued expenses


186,551



176,194Other current liabilities


35,369



31,129Total current liabilities


758,664



695,202Long-term debt


764,383



836,648Other long-term liabilities


47,276



36,273Commitments and contingenciesStockholder's equity:Common stock, Class A, voting, $100 par value; 5,000 shares authorized; 539 shares issued and outstanding


54



54Additional paid-in capital


486,735



396,503Accumulated deficit


(13,341
)


(27,937
)Total stockholder's equity


473,448



368,620$
2,043,771


$
1,936,743





The accompanying notes to the condensed consolidated financial statements


are an integral part of these balance sheets




1




---

##### Table of Contents

ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


For the Sixteen Week Periods Ended


April 20, 2002 and April 21, 2001


(in thousands)


(unaudited)





Sixteen Week Periods EndedApril 20, 2002


April 21, 2001Net sales

$
1,004,087


$
729,359Cost of sales, including purchasing and warehousing costs


567,579



417,909Gross profit


436,508



311,450Selling, general and administrative expenses


377,541



285,559Expenses associated with merger and integration


10,223



Expenses associated with merger related restructuring


342



Operating income


48,402



25,891Other, net:Interest expense


(23,825
)


(16,239
)Other income, net


237



112Total other, net


(23,588
)


(16,127
)Income before provision for income taxes and extraordinary item


24,814



9,764Provision for income taxes


9,443



3,687Income before extraordinary item


15,371



6,077Extraordinary item, loss on debt extinguishment, net of $491 income taxes


(775
)


Net income

$
14,596


$
6,077








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




2




---

##### Table of Contents




ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Sixteen Week Periods Ended


April 20, 2002 and April 21, 2001


(in thousands)


(unaudited)





Sixteen Week Periods EndedApril 20, 2002


April 21, 2001Cash flows from operating activities:Net income

$
14,596


$
6,077Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization


27,391



20,856Amortization of stock option compensation






1,109Amortization of deferred debt issuance costs


1,289



908Amortization of bond discount


457



Loss on sales of property and equipment, net


1,393



1,308Impairment of assets held for sale






1,600Provision for deferred income taxes


6,603



1,556Extraordinary loss on extinguishment of debt, net of tax


775



Net (increase) decrease in:Receivables, net


(20,781
)


(11,574
)Inventories


(42,132
)


5,142Other assets


(4,288
)


(2,792
)Net increase (decrease) in:Accounts payable


88,299



(33,254
)Accrued expenses


18,317



4,125Other liabilities


4,309



(34
)Net cash provided by (used in) operating activities


96,228



(4,973
)Cash flows from investing activities:Purchases of property and equipment


(26,421
)


(17,627
)Proceeds from sales of property and equipment


594



908Net cash used in investing activities


(25,827
)


(16,719
)Cash flows from financing activities:(Decrease) increase in bank overdrafts


(35,123
)


11,700Payment of note payable






(784
)Early extinguishment of debt


(67,033
)


Borrowings under credit facilities


36,700



147,300Payments on credit facilities


(46,700
)


(138,501
)Payment on debt issuance costs


(2,488
)


Proceeds from issuance of common stock to Advance Auto Parts, Inc.


90,022



Other


773



611Net cash (used in) provided by financing activities


(23,849
)


20,326Net increase (decrease) in cash and cash equivalents


46,552



(1,366
)Cash and cash equivalents,beginning of period


18,117



18,009Cash and cash equivalents,end of period

$
64,669


$
16,643Supplemental cash flow information:Interest paid

$
27,359


$
17,678Income tax payments, net


660



113Non-cash transactions:Accrued purchases of property and equipment


7,404



5,912Accrued equity issuance costs


448









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




3




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







1.    Basis of Presentation:





Advance Stores Company, Incorporated is a wholly owned subsidiary of Advance Auto Parts, Inc., or Advance. The accompanying condensed
consolidated financial statements include the accounts of Advance Stores Company, Incorporated and its wholly owned subsidiaries, or the Company. All significant intercompany balances and transactions have been eliminated in consolidation.





The condensed consolidated balance sheet as of April 20, 2002, the condensed consolidated statements of
operations for the sixteen week periods ended April 20, 2002 and April 21, 2001 and the condensed consolidated statements of cash flows for the sixteen week periods ended April 20, 2002 and April 21, 2001, have been prepared by the Company and have
not been audited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been
made.





Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the
Companys consolidated financial statements for the fiscal year ended December 29, 2001.





The results of
operations for the sixteen week periods are not necessarily indicative of the operating results to be expected for the full fiscal year.





Use of Estimates





The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America 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 from those estimates.





Change in Accounting Method





Effective December 31, 2000,
the Company changed its method of accounting for unrestricted cooperative advertising funds received from certain vendors to recognize these payments as a reduction to the cost of inventory acquired from these vendors. Previously, these funds were
accounted for as a reduction to selling, general and administrative expenses as advertising expense was incurred. The new method was adopted to better align the reporting of these payments with the Companys and the vendors use of these
payments as reductions to the price of inventory acquired from the vendors. The effect of the change for the first quarter of fiscal 2001 was to decrease income from continuing operations by $1,078.





Recent Accounting Pronouncements





In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes accounting standards for recognition and measurement of an asset
retirement obligation and an associated asset retirement cost and is effective for fiscal years beginning after June 15, 2002. The Company does not expect SFAS No. 143 to have a material impact on its financial statements.





In August 2001, the FASB also issued SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. This
Statement replaces both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and Accounting Principles Board (APB) Opinion No. 30,




4




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)




Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. SFAS 144 retains the basic provisions from both SFAS 121 and APB No. 30 but includes changes to improve financial reporting and comparability among entities. The provisions of SFAS
No. 144 are effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 during the first quarter of fiscal 2002 with no material impact on its financial position or the results of its operations.





Reclassifications





Certain 2001 amounts have been reclassified to conform with their 2002 presentation.





2.    Discount Acquisition:





On November 28, 2001, the Parent acquired
100% of the outstanding common stock of Discount Auto Parts, Inc., or Discount. Discounts shareholders received $7.50 per share in cash plus 0.2577 shares of Advances common stock for each share of Discount common stock. Advance issued
4,310 shares of common stock to the former Discount shareholders, which represented 13.2% of Advances total shares outstanding immediately following the acquisition.





In accordance with SFAS No. 141, the acquisition has been accounted for under the purchase method of accounting and was effective for accounting purposes on December 2,
2001. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their respective fair values. The initial purchase price allocation resulted in excess fair value over the purchase price of $75,724, and was
allocated proportionately as a reduction to certain noncurrent assets, primarily property and equipment. During the first quarter of 2002, the Company reduced the excess fair value by $20,357 due to purchase accounting adjustments made to primarily
adjust the fair market value of certain inventory and property and equipment and the related deferred income tax effects. These purchase accounting adjustments resulted in additional depreciation expense of $363 for the first quarter.





Total acquisition costs related to the transaction were approximately $9,350. During the first quarter of fiscal 2002, the
Company also incurred $10,223 of merger and integration expenses. These expenses represent non-recurring costs associated with integrating the Discount operations.





The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had taken place at the beginning of the applicable
period:





Sixteen Weeks Ended April 21, 2001Net sales

$
952,171Income before extraordinary item


11,250





The proforma amounts give effect to certain adjustments, including
changes in interest expense, depreciation and amortization and related income tax effects. These amounts are based on certain assumptions and estimates and do not reflect any benefit from economies, which might be achieved from combined operations.
The proforma results




5




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)




of operations have been prepared for comparative purposes only as if the acquisition occurred on December 31, 2000.





3.    Restructuring and Closed Store Liabilities:





The Companys restructuring activities relate to the ongoing analysis of the profitability of store locations and the settlement of restructuring activities undertaken
as a result of mergers and acquisitions, including the fiscal 1998 Western merger with Western Auto Supply Company, or Western and the fiscal 2001 acquisitions of Carport Auto Parts, Inc., or Carport and Discount. The Company recognizes a provision
for future obligations at the time a decision is made to close a facility, primarily store locations. The provision for closed facilities includes the present value of the remaining lease obligations, reduced by the present value of estimated
revenues from subleases, and managements estimate of future costs of insurance, property tax and common area maintenance. The Company uses discount rates ranging from 6.5% to 7.7%. Expenses associated with the ongoing restructuring program are
included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. From time to time these estimates require revisions that affect the amount of the recorded liability. The effect of these
changes in estimates is netted with new provisions and included in selling, general and administrative expenses on the accompanying consolidated statements of operations.





Closed Stores





During the
first quarter of fiscal 2002, the Company closed or relocated five stores included in the fiscal 2001 restructuring activities and made the decision to close or relocate 21 additional stores not meeting profitability objectives, of which four have
been closed or relocated as of April 20, 2002. Additionally, as a result of the Discount acquisition, the Company closed 25 of the 27 Advance Auto Parts stores that were identified in overlapping markets with certain Discount Auto Parts stores at
December 29, 2001.





In connection with the Western merger and the Discount acquisition, the Company assumed the
restructuring reserves related to the acquired operations. As of April 20, 2002, these restructuring reserves relate primarily to ongoing lease obligations for closed store locations.





A reconciliation of activity with respect to these restructuring accruals is as follows:





Other Exit CostsBalance, December 29, 2001

$
9,643New provisions


1,684Change in estimates


429Reserves utilized


(1,589
)Balance, April 20, 2002 (unaudited)

$
10,167





As of April 20, 2002, this liability represents the current value
required for certain facility exit costs, which will be settled over the remaining terms of the underlying lease agreements. This liability, along with those associated with mergers and acquisitions, is recorded in accrued expenses (current portion)
and other long-term liabilities (long-term portion) in the accompanying condensed consolidated balance sheets.





Restructuring Associated with Mergers and Acquisitions





As a result of the Western merger,
the Company established restructuring reserves in connection with the




6




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







decision to close certain retail stores, to relocate certain Western administrative
functions, to exit certain facility leases and to terminate certain team members of Western. Additionally, the Carport acquisition resulted in restructuring reserves for closing 21 acquired stores not expected to meet long-term profitability
objectives and the termination of certain administrative team members.





As of the date of the Discount
acquisition, management formalized a plan to close certain Discount Auto Parts stores in overlapping markets or stores not meeting the Companys profitability objectives, to relocate certain Discount administrative functions to the
Companys headquarters and to terminate certain management, administrative and support team members of Discount. As of April 20, 2002, 96 stores have been closed, 94 of which were closed during the first quarter of fiscal 2002. The Company
expects to finalize its plan for termination of team members and closure of Discount Auto Parts stores within one year from the date of the Discount acquisition and to complete the terminations and closures by the end of fiscal 2002. Additional
liabilities for severance, relocation, store and other facility exit costs may result in an adjustment to the purchase price. A reconciliation of activity with respect to these restructuring accruals is as follows:





Severance


Relocation


Other Exit Costs


TotalBalance, December 29, 2001

$
8,455


$
611


$
4,903


$
13,969Purchase accounting adjustments










(483
)


(483
)Reserves utilized


(586
)


(148
)


(618
)


(1,352
)Balance, April 20, 2002 (unaudited)

$
7,869


$
463


$
3,802


$
12,134





Severance and relocation liabilities will primarily be settled
through the end of fiscal 2002. Other exit cost liabilities will be settled over the remaining terms of the underlying lease agreements.





4.    Receivables:





Receivables consist of the following:





April 20, 2002


December 29, 2001(unaudited)Trade:Wholesale

$
22,391


$
8,965Retail


19,762



19,857Vendor


62,110



55,179Installment


15,595



15,430Related parties


1,413



1,100Employees


957



510Other


2,756



2,380Total receivables


124,984



103,421LessAllowance for doubtful accounts


(10,672
)


(9,890
)Receivables, net

$
114,312


$
93,531




7




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







5.    Inventories, net:





Inventories are stated at the lower of cost or market. Inventory quantities are tracked through a perpetual inventory system. The Company
uses a cycle counting program to ensure the accuracy of the perpetual inventory quantities and establishes reserves for estimated shrink based on historical accuracy of the cycle counting program. Cost is determined using the last-in, first-out, or
LIFO, method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on managements
estimates of expected fiscal year-end inventory levels and costs. The Company capitalizes certain purchasing and warehousing costs into inventory. Purchasing and warehousing costs included in inventory at April 20, 2002 and December 29, 2001 were
$67,124 and $69,398, respectively. The nature of the Companys inventory is such that the risk of obsolescence is minimal. In addition, the Company has historically been able to return excess items to the vendor for credit. The Company does
provide reserves where less than full credit will be received for such returns and where the Company anticipates that items will be sold at retail for prices that are less than recorded cost. Inventories consist of the following:





April 20, 2002

December 29, 2001(unaudited)Inventories at FIFO

$
963,534

$
935,181Adjustments to state inventories at LIFO


52,314


46,819Inventories at LIFO

$
1,015,848

$
982,000





6.    Assets Held for Sale:





The Company applies SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets, which requires that
long-lived assets and certain identifiable intangible assets to be disposed of be reported at the lower of the carrying amount or the fair market value less selling costs. At April 20, 2002 and December 29, 2001, the Companys assets held for
sale were $53,033 and $60,512, respectively, primarily consisting of real property acquired in the Western merger and Discount acquisition.





7.    Other Related-party Transactions:





The following table presents
the related party transactions with Sears, Roebuck and Co., or Sears, included in the condensed consolidated statements of operations for the sixteen week periods ended April 20, 2002 and April 21, 2001 and the condensed consolidated balance sheets
as of April 20, 2002 and December 29, 2001:




8




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







Sixteen Week Periods EndedApril 20, 2002

April 21, 2001(unaudited)

(unaudited)Net sales to Sears

$
2,017

$
2,023Credit card fees expense


77


101April 20, 2002

December 29, 2001(unaudited)Receivables from Sears

$
860

$
812Payables to Sears


1,220


1,220





8.    Segment and Related Information:





The Company has the following operating segments: Retail and Wholesale. Retail consists of the retail operations of the Company, operating
under the trade names Advance Auto Parts, Discount Auto Parts and Western Auto in the United States and Western Auto in Puerto Rico and the Virgin Islands. Wholesale consists of the wholesale
operations, including distribution services to independent dealers and franchisees primarily operating under the Western Auto trade name.





Sixteen Week Periods EndedApril 20, 2002(unaudited)

Retail

Wholesale


Eliminations


TotalsNet sales

$
967,316

$
36,771


$



$
1,004,087Income before provision for income taxes and extraordinary item


23,852


962







24,814Segment assets(a)


2,004,560


39,356



(145
)


2,043,771April 21, 2001(unaudited)

Retail

Wholesale


Eliminations


TotalsNet sales

$
688,786

$
40,573


$



$
729,359Income (loss) before provision (benefit) for income taxes and extraordinary item


11,668


(1,904
)






9,764Segment assets(a)


1,296,870


56,923



(7,340
)


1,346,453


---

|(a) |  | Excludes investment in and equity in net earnings or losses of subsidiaries.
|--- |  | ----------------------------------------------------------------------------



9




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







9.    Guarantor Subsidiaries:





The Company has wholly owned subsidiaries, Advance Trucking Corporation, Discount and Western, or the Guarantor Subsidiaries that are
guarantors of the Companys subordinated notes and senior credit facility. The guarantees are joint and several in addition to full and unconditional. Advance Trucking Corporation is a wholly owned subsidiary that holds substantially all of the
Companys inventory delivery vehicles. The Guarantor Subsidiaries comprise all direct and indirect subsidiaries. Combined condensed financial information for the guarantor subsidiaries is as follows:





April 20, 2002

Advance Stores Company


Gurantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyCurrent assets:Cash and cash equivalents

$
66,631


$
5,188


($
7,150
)

$
64,669Receivables, net


66,866



47,446







114,312Inventories


884,368



131,480







1,015,848Other current assets


40,466



84,585



(83,723
)


41,328Total current assets


1,058,331



268,699



(90,873
)


1,236,157Investment in subsidiaries


248,762







(248,762
)


Property and equipment, net


413,887



306,422







720,309Assets held for sale


36,038



16,995







53,033Due from affiliates


106,427







(106,427
)


Other assets, net


31,178



36,337



(33,243
)


34,272Total assets

$
1,894,623


$
628,453


($
479,305
)

$
2,043,771Current liabilities:Bank overdrafts

$



$
7,150


($
7,150
)

$
Current portion of long-term debt


19,404



19,404



(19,404
)


19,404Accounts payable


426,136



91,204







517,340Accrued expenses


137,444



232,351



(183,244
)


186,551Other current liabilities


35,572



723



(926
)


35,369Total current liabilities


618,556



350,832



(210,724
)


758,664Long-term debt


764,383



754,383



(754,383
)


764,383Due to affiliates






79,010



(79,010
)


Other long-term liabilities


38,236



22,472



(13,432
)


47,276Stockholder's equity (deficit)Common stock


54



10



(10
)


54Additional paid-in capital


486,735



(442,244
)


442,244



486,735(Accumulated deficit) retained earnings


(13,341
)


(136,010
)


136,010



(13,341
)Total stockholder's equity (deficit)


473,448



(578,244
)


578,244



473,448Total liabilities and stockholder's equity

$
1,894,623


$
682,453


($
479,305
)

$
2,043,771







10




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)


December 29, 2001

Advance Stores Company


Guarantor Subsidiaries(a)


Eliminations


Consolidated Advance Stores CompanyCurrent assets:Cash and cash equivalents

$
11,235


$
6,882


$



$
18,117Receivables, net


52,366



41,165







93,531Inventories


852,002



129,998







982,000Other current assets


26,367



86,551



(70,891
)


42,027Total current assets


941,970



264,596



(70,891
)


1,135,675Investment in subsidiaries


350,789







(350,789
)


Property and equipment, net


422,319



288,963







711,282Assets held for sale


41,872



18,640







60,512Due from affiliates


8,342



19,692



(28,034
)


Other assets, net


8,452



44,675



(23,853
)


29,274Total assets

$
1,773,744


$
636,566


$
(473,567
)

$
1,936,743Current liabilities:Bank overdrafts

$
19,698


$
15,425


$



$
35,123Current portion of long-term debt


23,715



23,715



(23,715
)


23,715Accounts payable


358,691



70,350







429,041Accrued expenses


118,835



217,581



(160,222
)


176,194Other current liabilities


31,055







74



31,129Total current liabilities


551,994



327,071



(183,863
)


695,202Long-term debt


836,648



826,648



(826,648
)


836,648Other long-term liabilities


16,482



21,675



(1,884
)


36,273Stockholder's equity (deficit)Common stock


54



10



(10
)


54Additional paid-in capital


396,503



(534,645
)


534,645



396,503(Accumulated deficit) retained earnings


(27,937
)


(4,193
)


4,193



(27,937
)Total stockholder's equity (deficit)


368,620



(538,828
)


538,828



368,620Total liabilities and stockholder's equity

$
1,773,744


$
636,566


$
(473,567
)

$
1,936,743




11




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







Sixteen Week Period ended April 20, 2002 (unaudited)


Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
745,120


$
263,183


$
(4,216
)

$
1,004,087Cost of sales, including purchasing and warehousing costs


409,233



158,346







567,579Gross profit


335,887



104,837



(4,216
)


436,508Selling, general and administrative expenses


272,679



109,078



(4,216
)


377,541Expenses associated with merger and integration


10,223











10,223Expenses associated with merger related restructuring


342











342Operating income


52,643



(4,241
)






48,402Other (expense) income :Interest expense


(21,893
)


(23,863
)


21,931



(23,825
)Equity in earnings of subsidiaries


23,824







(23,824
)


Other, net


(43,787
)


44,024







237Total other expense, net


(41,856
)


20,161



(1,893
)


(23,588
)Income before (benefit) provision for income taxes and extraordinary item


10,787



15,920



(1,893
)


24,814(Benefit) provision for income taxes


(4,584
)


5,693



8,334



9,443Income before extraordinary item


15,371



10,227



(10,227
)


15,371Extraordinary item, loss on debt extinguishment, net of $491 income taxes


(775
)


(775
)


775



(775
)Net income

$
14,596


$
9,452


$
(9,452
)

$
14,596





Sixteen Week Period ended April 21, 2001 (unaudited)


Advance Stores Company


Guarantor Subsidiaries(a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
630,651


$
102,451


$
(3,743
)

$
729,359Cost of sales,including purchasing and warehousing costs


343,470



74,439







417,909Gross profit


287,181



28,012



(3,743
)


311,450Selling, general and administrative expenses


269,951



19,351



(3,743
)


285,559Non-cash and other compensation expense














Operating income


17,230



8,661







25,891Other (expense) income :Interest expense


(16,112
)


(16,363
)


16,236



(16,239
)Equity in earnings of subsidiaries


4,338







(4,338
)


Other, net


14



2,505



(2,407
)


112Total other expense, net


(11,760
)


(13,858
)


9,491



(16,127
)Income (loss) before (benefit) provision for income taxes


5,470



(5,197
)


9,491



9,764(Benefit) provision for income taxes


(607
)


(1,099
)


5,393



3,687Net income (loss)

$
6,077


$
(4,098
)

$
4,098


$
6,077




12




---

##### Table of Contents



Advance Stores Company, Incorporated and Subsidiaries





Notes to the Condensed Consolidated Financial Statements


For the Sixteen Week
Periods Ended April 20, 2002 and April 21, 2001


(in thousands, except per store data)







Sixteen Week Period ended April 20, 2002 (unaudited)


Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet cash provided by (used in) operating activities

$
86,387


$
(77,633
)

$
87,474


$
96,228Cash flows from investing activities:Purchases of property and equipment


(22,925
)


(3,496
)






(26,421
)Proceeds from sales of property and equipment


358



236







594Net cash used in investing activities


(22,567
)


(3,260
)






(25,827
)Cash flows from financing activities:Decrease in bank overdrafts


(19,698
)


(8,275
)


(7,150
)


(35,123
)Early extinguishment of debt


(67,033
)


(67,033
)


67,033



(67,033
)Borrowings under credit facilities


36,700



36,700



(36,700
)


36,700Payments on credit facilities


(46,700
)


(46,700
)


46,700



(46,700
)Payment of debt issuance costs


(2,488
)


(2,488
)


2,488



(2,488
)Proceeds from issuance of common stock toAdvance Auto Parts, Inc.


90,022



90,022



(90,022
)


90,022Equity impact of debt pushdown






76,973



(76,973
)


Other


773











773Net cash (used in) provided by financing activities


(8,424
)


79,199



(94,624
)


(23,849
)Net increase (decrease) in cash and cash equivalents


55,396



(1,694
)


(7,150
)


46,552Cash and cash equivalents, December 29, 2001


11,235



6,882







18,117Cash and cash equivalents, April 20, 2002

$
66,631


$
5,188


$
(7,150
)

$
64,669


Sixteen Week Period ended April 21, 2001 (unaudited)


Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet cash used in operating activities

$
(4,656
)

$
(317
)

$



$
(4,973
)Cash flows from investing activities:Purchases of property and equipment


(16,381
)


(1,246
)






(17,627
)Proceeds from sales of property and equipment


296



612







908Net cash used in investing activities


(16,085
)


(634
)






(16,719
)Cash flows from financing activities:Increase (decrease) in bank overdrafts


11,759



(59
)






11,700Payment of note payable


(784
)










(784
)Borrowings under credit facilities


147,300



147,300



(147,300
)


147,300Payments on credit facilities


(138,501
)


(138,501
)


138,501



(138,501
)Equity impact of debt pushdown






(8,799
)


8,799



Other


611











611Net cash provided by (used in) financing activities


20,385



(59
)






20,326Net decrease in cash and cash equivalents


(356
)


(1,010
)






(1,366
)Cash and cash equivalents, December 30, 2000


14,258



3,751







18,009Cash and cash equivalents, April 21, 2001

$
13,902


$
2,741


$



$
16,643





(a)    Reflects the push down of guaranteed
debt, deferred debt issuance costs and related interest and amortization.




13




---

##### Table of Contents




ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Certain statements in this Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
which are usually identified by the use of the words such as will, anticipates, believes, estimates, expects, projects, forecasts, plans,
intends, should or similar expressions. The Company intends those forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act
of 1995 and are included in this Form 10-Q for purposes of complying with these safe harbor provisions.





These
forward-looking statements reflect current views about Advances plans, strategies and prospects, which are based on the information currently available and on current assumptions.





Although, the Company believes that its plans, intentions and expectations as reflected in or suggested by those forward-looking statements are reasonable. The Company can
give no assurance that the plans, intentions or expectations will be achieved. Listed below and discussed elsewhere in the Companys Annual Report on Form 10-K for the year ended December 29, 2001 are some important risks, uncertainties and
contingencies which could cause the Companys actual results, performances or achievements to be materially different from the forward-looking statements made in this Form 10-Q.These risks, uncertainties and contingencies include, but are not
limited to, the following: the Companys ability to expand its business; the implementation of the Companys business strategies and goals; integration of the Companys previous and future acquisitions; a decrease in demand for
products; competitive pricing and other competitive pressures; the Companys relationships with its vendors; deterioration in general economic conditions, and the Companys ability to meet debt obligations and adhere to the restrictions
and covenants imposed under our debt instruments.





The Company assumes no obligations to update publicly any
forward-looking statements, whether as a result of new information, future events or otherwise. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other risks described from time to time in
Advances reports and documents filed with the Securities and Exchange Commission, and you should not place undue reliance on those statements.





Advance Stores Company, Incorporated and its subsidiaries, or the Company, is a wholly owned subsidiary of Advance Auto Parts, Inc., or Advance. The Company was formed in 1929 and operated as a
retailer of general merchandise until the 1980s. In the 1980s, the Company sharpened its marketing focus to target sales of automotive parts and accessories to do-it-yourself, or DIY, customers and accelerated its growth
strategy. From the 1980s through the present, the Company has grown significantly through new store openings and strategic acquisitions. Additionally, in 1996, the Company began to aggressively expand its sales to do-it-for-me, or
DIFM, customers by implementing a commercial delivery program that supplies parts and accessories to third party professional installers and repair providers.





At April 20, 2002, the Company had 2,379, of which 1,838 operated under the Advance Auto Parts trade name, in 37 states in the Northeastern, Southeastern and Midwestern regions of the
United States and 501 stores operating under the Discount Auto Parts trade name in the Southeastern region of the United States. In addition, the Company had 40 stores operating under the Western Auto trade name primarily
located in Puerto Rico and the Virgin Islands. Advance Auto Parts is the second largest specialty retailer of automotive parts, accessories and maintenance items to DIY customers in the United States, based on store count and sales. The Company is
currently the largest specialty retailer of automotive products in the majority of the states in which the Company operates, based on store count.





Our combined operations are conducted in two operating segments, retail and wholesale. The retail segment consists of the Companys retail operations operating under the trade names Advance
Auto Parts and Discount Auto Parts in the United States and Western Auto in Puerto Rico, the Virgin Islands and one store in California. The Companys wholesale segment includes a wholesale distribution network
which includes distribution services of automotive parts and accessories to approximately 460 independently owned dealer stores in 44 states, the majority of which operate under the Western Auto trade name.





On November 28, 2001, Advance acquired Discount Auto Parts, Inc., or Discount, for $7.50 per share in cash (or approximately $128.5
million in the aggregate) plus 0.2577 shares of Advances common stock for each share of Discounts common stock. The acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on their respective fair values. The initial purchase price allocation resulted in excess fair value over the purchase price of $75,724, and was allocated proportionately as a reduction
to certain noncurrent assets, primarily property and equipment. During the first quarter of 2002, the Company reduced the excess fair value by $20,357 due to purchase accounting adjustments made to primarily adjust the fair market value of certain
inventory and property and equipment and the related deferred income tax effects. Accordingly, these purchase accounting adjustments resulted in additional depreciation expense of $363 for the first quarter.





Critical Accounting Policies





The Companys financial statements have been prepared in accordance with accounting policies generally accepted in the United States of America. The Companys discussion and analysis of the financial condition and results
of operations are based on these financial statements. The preparation of these financial statements requires the application of these accounting policies in addition to certain estimates and judgements by the Companys management. The
Companys estimates and judgements are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ from these estimates.





The following critical accounting policies are used in the preparation of the financial statements discussed above.




14




---

##### Table of Contents




Vendor Incentives





The Company receives incentives from vendors related to cooperative advertising allowances, volume rebates and other miscellaneous agreements. Many of the incentives
are under long-term agreements (terms in excess of one year), while others are negotiated on an annual basis. Certain vendors require the Company to use certain cooperative advertising allowances exclusively for advertising. These restricted
cooperative advertising allowances are recognized as a reduction to selling, general and administrative expenses as advertising expenditures are incurred. Unrestricted cooperative advertising revenue, rebates and other miscellaneous incentives are
earned based on purchases and/or the sale of the product. Amounts received or receivable from vendors that are not yet earned are reflected as deferred revenue in the condensed consolidated balance sheets included elsewhere in this filing. The
Company records unrestricted cooperative advertising and volume rebates earned as a reduction of inventory and recognizes the incentives as a reduction to cost of sales as the inventory is sold. Short-term incentives are recognized as a reduction to
cost of sales over the course of the annual agreement and are not recorded as reductions to inventory.





The
Company recognizes other incentives earned related to long-term agreements as a reduction to cost of sales over the life of the agreement based on the timing of purchases. These incentives are not recorded as reductions to inventory. The amounts
earned under long-term arrangements not recorded as a reduction of inventory are based on estimates of total purchases that will be made over the life of the contracts and the amount of incentives that will be earned. The incentives are generally
recognized based on the cumulative purchases as a percentage of the total estimated purchases over the life of the contract. The Companys margins could be impacted positively or negatively if actual purchases or results differ from our
estimates, but over the life of the contract would be the same.





Inventory





Minimal inventory shrink reserves are recorded related to Advance Auto Parts stores as a result of an extensive and frequent cycle
counting program. Estimates related to these shrink reserves depend on the effectiveness of the cycle counting programs. The Company evaluates the effectiveness of these programs on an on-going basis and believes they provide reasonable assurance
that minimal shrink reserves are needed.





Minimal reserves for potential excess and obsolete inventories are
recorded as well. The nature of the Companys inventory is such that the risk of obsolescence is minimal. In addition, the Company has historically been able to return excess items to the vendor for credit. The Company does provide reserves
where less than full credit will be received for such returns and where we anticipate that items will be sold at retail prices that are less than recorded cost. Future changes by vendors in their policies or willingness to accept returns of excess
inventory could require us to revise our estimates of required reserves for excess and obsolete inventory.





Warranties





The Company records accruals for future warranty claims related to warranty
programs for batteries, tires, road-side assistance and Craftsman products. These accruals are based on current sales of the warranted products and historical claim experience. If claims experience differs from historical levels, revisions in
estimates may be required.





Restructuring and Closed Store Liabilities





The Company recognizes a provision for future obligations at the time a decision is made to close a store location and includes future
minimum lease payments, common area maintenance and taxes. Additionally, the Company makes certain assumptions related to potential subleases and lease buyouts that reduce the recorded amount of the accrual. These assumptions are based on knowledge
of the market and the relevant experience. However, the inability to enter into the subleases or obtain buyouts within the estimated timeframe may result in adjustments to these reserves.




15




---

##### Table of Contents




Contingencies





The Company accrues for obligations, including estimated legal costs, when it is probable and the amount of loss is reasonably estimable. As facts concerning contingencies
become known, these estimates may require adjustment. Estimates that are particularly sensitive to future changes include, tax, environmental and legal matters, which are subject to change as events evolve and as additional information becomes
available during the administrative and litigation process.





The following discussion of the consolidated
historical results of operations and financial condition of the Company should be read in conjunction with the unaudited condensed consolidated financial statements of the Company and the notes thereto included elsewhere in this Form 10-Q. The
Companys first quarter consists of 16 weeks and its other three quarters consist of 12 weeks each.







16




---

##### Table of Contents




Results of Operations





The following tables set forth the statement of operations data for the Company expressed in dollars and as a percentage of net sales for the periods indicated.





Sixteen Week Periods Ended (dollars in thousands) (unaudited)April 20, 2002


April 21, 2001Net sales

$
1,004,087


$
729,359Cost of sales


567,579



417,909Gross profit


436,508



311,450Selling, general and administrative expenses


377,541



285,559Operating income, as adjusted


58,967



25,891Expenses associated with merger and integration


10,223



Expenses associated with merger related restructuring


342



Operating income


48,402



25,891Interest expense


(23,825
)


(16,239
)Other income, net


237



112Provision for income taxes


9,443



3,687Income before extraordinary item


15,371



6,077Extraordinary item, loss on debt extinguishment, net of $491 income taxes


(775
)


Net income

$
14,596


$
6,077Sixteen Week Periods Ended (unaudited)April 20, 2002


April 21, 2001Net sales


100.0
%


100.0
%Cost of sales


56.5



57.3Gross profit


43.5



42.7Selling, general and administrative expenses


37.6



39.2Operating income, as adjusted


5.9



3.5Expenses associated with merger and integration


1.0



Expenses associated with merger related restructuring






Operating income


4.9



3.5Interest expense


(2.4
)


(2.2
)Other income, net






Provision for income taxes


0.9



0.5Income before extraordinary item


1.6



0.8Extraordinary item, loss on debt extinguishment, net of $491 income taxes


(0.1
)


Net income


1.5
%


0.8
%




17




---

##### Table of Contents




Net Sales





Net sales consist primarily of comparable store net sales, new store net sales, service store net sales, net sales to the wholesale dealer network and finance charges on
installment sales. Comparable store net sales is calculated based on the change in net sales starting once a store has been open for 13 complete accounting periods (each period represents four weeks). Relocations are included in comparable store net
sales from the original date of opening. Additionally, the stores acquired in the Discount acquisition will be included in the comparable store net sales calculation following 13 complete accounting periods after the acquisition date. The Company
does not include net sales from the Western Auto retail sales in the comparable store net sales calculation.





Cost of Sales





The Companys cost of sales includes merchandise costs and warehouse
and distribution expenses as well as service labor costs for the Western Auto stores. Gross profit as a percentage of net sales may be affected by variations in among other things, the Companys product mix, price changes in response to
competitive factors and fluctuations in merchandise costs and vendor programs. The Company seeks to avoid fluctuation in merchandise costs by entering into long-term purchasing agreements with vendors in exchange for pricing certainty.





Selling, General and Administrative Expenses





Selling, general and administrative expenses are comprised of store payroll, store occupancy (including rent), net advertising expenses, other store expenses and general
and administrative expenses, including salaries and related benefits of corporate employees, administrative office expenses, data processing, professional expenses and other related expenses.





Sixteen Weeks Ended April 20, 2002 Compared to Sixteen Weeks Ended April 21, 2001





Net sales for the sixteen weeks ended April 20, 2002 were $1,004.1 million, an increase of $274.7 million, or 37.7%, over net sales for the sixteen weeks ended April 21, 2001. Net sales for the retail
segment increased $278.5 million, or 40.4%. The net sales increase for the retail segment was due to an increase in the comparable store sales, sales from Discount Auto Parts stores and contributions from new stores opened within the last year. The
comparable store sales increase of 7.8% was a result of growth in both the DIY and DIFM market segments, as well as the continued maturation of new stores. Net sales for the wholesale segment decreased $3.8 million due to the decline in the number
of dealer stores the Company serviced and lower average sales to each dealer.





During the sixteen weeks ended
April 20, 2002, the Company opened 17 new stores, relocated 12 stores and closed 122 stores (119 of which were related to the Discount acquisition), bringing the total retail stores to 2,379. During the first quarter of fiscal 2002, the Company had
1,366 stores participating in its commercial delivery program, as a result of consolidating four programs during the sixteen week period ended April 20, 2002.





Gross profit for the sixteen weeks ended April 20, 2002 was $436.5 million or 43.5% of net sales, as compared to $311.5 million or 42.7% of net sales in the sixteen weeks ended April 21, 2001. The
increase in gross profit percentage is reflective of the positive impact in purchasing synergies as a result of renegotiating vendor contracts in conjunction with the Discount acquisition, and the leveraging of logistics costs realized from the
supply chain initiatives. Additionally, gross profit for the sixteen weeks ended April 21, 2001 includes an $8.3 million gain from a settlement reached between the Company and a vendor. The gross profit for the retail segment was $431.2 million or
44.6% of net sales for the sixteen week period ended April 20, 2002, as compared to $299.3 million or 43.5% of net sales for the sixteen week period ended April 21, 2001.





Selling, general and administrative expenses, before merger and integration expenses and merger related restructuring, increased to $377.5 million or 37.6% of net sales for
the sixteen week period ended April 20, 2002, from $285.6 million or 39.2% of net sales for the sixteen week period ended April 21, 2001. The decrease in selling, general and administrative expenses as a percentage of sales is reflective of the
Companys ability to leverage benefits received from store staffing and retention initiatives, and lower rent expense as a result of owning a higher percentage of stores following the Discount acquisition.




18




---

##### Table of Contents




Operating income, as adjusted for merger and integration and merger related
restructuring, was $59.0 million in the sixteen week period ended April 20, 2002 or 5.9% of net sales, as compared to $25.9 million or 3.5% of net sales in the sixteen week period ended April 21, 2001. Merger and integration expenses of $10.2
million include non-recurring expenses associated with integrating the Discount operations. Merger related restructuring expenses primarily relate to lease costs associated with the 27 Advance Auto Parts stores in overlapping markets to be closed as
a result of the Discount acquisition.





Interest expense in the sixteen weeks ended April 20, 2002 was $23.8
million or 2.4% of net sales, as compared to $16.2 million or 2.2% of net sales in the sixteen week period ended April 21, 2001. Interest expense is reflective of the overall increase in average borrowings during the sixteen weeks ended April 20,
2002 as compared to the sixteen weeks ended April 21, 2001. This increase in borrowings is a result of the additional debt entered into in conjunction with the Discount acquisition.





During the sixteen weeks ended April 20, 2002, the Company recorded $0.8 million in a loss on extinguishment of debt, net of tax. This loss reflects the ratable portion of
the deferred loan costs associated with the Companys partial repayment of its senior credit facility during this first quarter of fiscal 2002.





Income tax expense for the sixteen weeks ended April 20, 2002 was $9.4 million compared to $3.7 million in the sixteen weeks ended April 21, 2001. This increase was primarily due to the increase in
income before taxes for the sixteen weeks ended April 20, 2002 as compared to the sixteen weeks ended April 21, 2001.





The Company recorded net income of $14.6 million for the sixteen weeks ended April 20, 2002, as compared to $6.1 million for the sixteen week period ended April 21, 2001. As a percentage of sales, net income for the sixteen week
period ended April 20, 2002 was 1.5% as compared to 0.8% for the sixteen week period ended April 21, 2001.





Liquidity and Capital
Resources





The Company believes it will have sufficient liquidity to fund its debt service obligations and
implement its growth strategy over the next twelve months. As of April 20, 2002, the Company had outstanding indebtedness consisting of $355.8 million of Senior Subordinated Notes, or the Notes, borrowings of $418.0 million under the bank credit
facility, or the Credit Facility and $10.0 million of indebtedness under the McDuffie County Development Authority Taxable Industrial Bonds.





The loans under the Credit Facility are secured by a first priority security interest in substantially all tangible and intangible assets of the Company. Amounts available to the Company under portions
of the Credit Facility are subject to certain debt covenants. The Company was in compliance with the above covenants under the Credit Facility as of April 20, 2002. As of April 20, 2002, $133.6 million was available under these facilities. The
Company intends to use borrowings under the Credit Facility, as well as internally generated funds, for store expansion, including new store openings and store acquisitions, and funding of working capital, including among other things the
Companys restructuring program.





For the sixteen weeks ended April 20, 2002, net cash provided by operating
activities was $96.2 million. Of this amount, $14.6 million was provided by net income and $45.9 million was provided as a result of a net decrease in working capital and other. Significant non-cash items added back for operating cash purposes
include depreciation and amortization of $27.4 million, amortization of bond discounts and deferred debt issuance costs of $1.7 million and provision for deferred income taxes of $6.6 million. Net cash used for investing activities was $25.8 million
and was comprised primarily of capital expenditures. Net cash used in financing activities was $23.8 million and was comprised primarily of $113.7 million in payments on the Credit Facility and a decrease in bank overdrafts of $35.1 million, all
offset by $90.0 million in net proceeds from Advances equity offering during the first quarter.





The
Companys primary capital requirements have been the funding of its continued store expansion program, store relocations and remodels, inventory requirements, the construction and upgrading of distribution centers, the development and
implementation of proprietary information systems, and strategic acquisitions. The Company has financed its growth through a combination of internally generated funds, borrowings under the Credit Facility and issuances of debt and equity securities.




19




---

##### Table of Contents




The Companys new stores, if leased require capital expenditures of
approximately $120,000 per store and an inventory investment of approximately $150,000 per store, net of vendor payables. A portion of the inventory investment is held at a distribution facility. Pre-opening expenses, consisting primarily of store
set-up costs and training of new store employees, average approximately $25,000 per store and are expensed when incurred.





The Companys future capital requirements will depend on the number of new stores the Company opens and the timing of these within a given year. The Company expects to open or acquire between 100 and 125 stores during fiscal
2002, of which 17 have been opened as of April 20, 2002.





Historically, the Company has negotiated extended
payment terms from suppliers to help finance inventory growth, and the Company believes that it will be able to continue financing much of its inventory growth through such extended payment terms. The Company anticipates that inventory levels will
continue to increase primarily as a result of new store openings.





As part of normal operations, the Company
continually monitors store performance, which results in the Companys closing certain store locations that do not meet profitability objectives. During first quarter of fiscal 2002, the Company closed or relocated five stores included in the
fiscal 2001 restructuring activities and decided to close or relocate 21 additional stores that are not meeting profitability objectives, four of which were closed or relocated at April 20, 2002. As part of the Companys integration of
Discount, the Company closed 25 of the 27 Advance Auto Parts stores that were identified in overlapping markets with certain Discount Auto Parts stores at December 29, 2001 and closed 94 Discount Auto Parts stores during the first quarter of fiscal
2002.





The Western merger, Carport acquisition and Discount acquisition also resulted in restructuring reserves
recorded in purchase accounting for the closure of certain stores, severance and relocation costs and other facility exit costs. In addition, the Company assumed certain restructuring and deferred compensation liabilities previously recorded by
Western and Discount. At April 20, 2002, these reserves had a remaining balance of $22.3 million. At April 20, 2002, the total liability for the assumed restructuring and deferred compensation plans was $1.9 million and $3.3 million, respectively,
of which $1.2 million and $0.7 million, respectively, is recorded as a current liability. The classification for deferred compensation is determined by payment terms elected by plan participants, primarily former Western employees, which can be
changed upon 12 months notice.





Seasonality





The Companys business is somewhat seasonal in nature, with the highest sales occurring in the spring and summer months. In addition, the Companys business is
affected by weather conditions. While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot and cold weather tends to enhance sales by causing parts to fail.




20




---

##### Table of Contents




ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





The Company currently utilizes no material derivative financial instruments that expose it to significant market risk. The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its
long-term debt. While the Company cannot predict the impact that interest rate movements will have on its debt, exposure to rate changes is managed through the use of fixed and variable rate debt. The Companys exposure to interest rate risk
decreased during the first quarter of fiscal 2002 primarily due to the reduction in variable rate debt.





The
Companys fixed rate debt consists primarily of outstanding balances on the Senior Subordinated Notes. The Companys variable rate debt relates to borrowings under the Credit Facility and the IRB. The Companys variable rate debt is
primarily vulnerable to movements in the LIBOR, Prime, Federal Funds and Base CD rates.





The table below presents
principal cash flows and related weighted average interest rates on the Companys long-term debt at April 20, 2002 by expected maturity dates. Expected maturity dates approximate contract terms. Fair values included herein have been determined
based on quoted market prices. Weighted average variable rates are based on implied forward rates in the yield curve at April 20, 2002. Implied forward rates should not be considered a predictor of actual future interest rates.





Fiscal 2002


Fiscal 2003


Fiscal 2004


Fiscal 2005


Fiscal 2006


Thereafter


Total


Fair Market Value(dollars in thousands)Long-term debt:Fixed rate

$



$



$



$



$



$
369,450


$
369,450


$
392,541Weighted average interest rate






















10.3
%


10.3
%Variable rate

$
19,404


$
22,196


$
32,363


$
35,752


$
35,752


$
282,500


$
427,967


$
427,967Weighted average interest rate


6.0
%


8.0
%


9.2
%


9.7
%


10.0
%


10.2
%


8.6
%




21




---

##### Table of Contents

PART II.    OTHER INFORMATION





ITEM 1.    LEGAL PROCEEDINGS





In February 2000, the Coalition for a
Level Playing Field and over 100 independent automotive parts and accessories aftermarket warehouse distributors and jobbers filed a lawsuit styled Coalition for a Level Playing Field, et al. v. AutoZone, Inc. et al., Case No. 00-0953 in the United
States District Court for the Eastern District of New York against various automotive parts and accessories retailers. In March 2000, Advance and Discount were notified that Advance and Discount had been named defendants in the lawsuit. The
plaintiffs claim that the defendants have knowingly induced and received volume discounts, rebates, slotting and other allowances, fees, free inventory, sham advertising and promotional payments, a share in the manufacturers profits, and
excessive payments for services purportedly performed for the manufacturers in violation of the Robinson-Patman Act. The complaint seeks injunctive and declaratory relief, unspecified treble damages on behalf of each of the plaintiffs, as well as
attorneys fees and costs. The defendants, including Advance and Discount, filed a motion to dismiss in late October 2000. On October 18, 2001, the court denied the motion to dismiss on all but one count. It is expected that the discovery phase
of the litigation will now commence (including with respect to Advance and Discount); however, determinations as to the discovery schedule and scope have not yet been made. Advance believes these claims are without merit and intends to defend them
vigorously; however, the ultimate outcome of this matter can not be ascertained at this time.





In November 1997,
Joe C. Proffitt, Jr., on behalf of himself and all others in the states of Alabama, California, Georgia, Kentucky, Michigan, North Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia and West Virginia who purchased batteries from Advance from
November 1, 1991 to November 5, 1997, filed a class action complaint and motion of class certification against us in the circuit court for Jefferson County, Tennessee, alleging the sale by Advance of used, old or out-of-warranty automotive batteries
as new. The complaint seeks compensatory and punitive damages. In September 2001, the court granted Advances motion for summary judgement against the plaintiff and dismissed all claims against Advance. The period for appeal has not yet
expired. Advance believes that Advance does not have any liability for such claims and intends to defend them vigorously.





In addition to the above matters, Advance currently and from time to time is involved in litigation incidental to the conduct of Advances respective business. The damages claimed against Advance in some of these proceedings are
substantial. Although the amount of liability that may result from these matters cannot be ascertained, Advance believes currently that, in the aggregate, they will not result in liabilities to Advances consolidated financial condition, future
results of operations or cash flow.





ITEM 6.    
EXHIBITS AND REPORTS ON FORM 8-K





(1)  The Company filed a Current Report on
Form 8-K on April 5, 2002, which disclosed in Item 4 the change in independent public accountants for 2002.





(2)  The Company filed a Current Report on Form 8-K on April 16, 2002, to clarify certain statements made in the 8-K filed April 5, 2002, regarding the dismissal of the former accountants and to confirm that management had
no disagreements with the former accountants.




22




---

##### Table of Contents




SIGNATURE





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





ADVANCE STORES COMPANY, INCORPORATED a Virginia corporationBy:

/s/    JIMMIE L.
WADEJimmie L. Wade President and
Chief Financial Officer (as principal executive and accounting officer)





May 23, 2002




S-1