##### 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 July 13, 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 (Zip Code)(Address of Principal Executive Offices)





(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 August 9, 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





Twelve and Twenty-Eight Week Periods Ended July 13, 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 July 13, 2002 and December 29, 2001

1Condensed Consolidated Statements of Operations for the Twelve and Twenty-Eight Week Periods Ended July 13, 2002 and July 14, 2001

2Condensed Consolidated Statements of Cash Flows for the Twenty-Eight Week Periods Ended July 13, 2002 and July 14, 2001

3Notes to the Condensed Consolidated Financial Statements

5Item 2.

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

19Item 3.

Quantitative and Qualitative Disclosures About Market Risks

28PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings

29Item 6.

Exhibits and Reports on Form 8-K

29(a)    
Exhibits

29(b)    
Current Reports on Form 8-K

29SIGNATURE

S-1




i




---

##### Table of Contents




PART I.    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


July 13, 2002 and December 29, 2001


(in thousands, except per store data)


July 13, 2002

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

$
38,955

$
18,117Receivables, net


118,047


93,531Inventories


1,074,653


982,000Other current assets


49,237


42,027Total current assets


1,280,892


1,135,675Property and equipment, net of accumulated depreciation of $285,305 and $239,204


715,697


711,282Assets held for sale


46,200


60,512Other assets, net


26,227


29,274$
2,069,016

$
1,936,743LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Bank overdrafts

$


$
35,123Current portion of long-term debt


11,549


23,715Accounts payable


585,119


429,041Accrued expenses


209,165


176,194Other current liabilities


39,469


31,129Total current liabilities


845,302


695,202Long-term debt


675,263


836,648Other long-term liabilities


51,219


36,273Commitments and contingenciesStockholders equity:Common stock, Class A, voting, $100 par value; 5,000 shares authorized;539 and 538 issued and
outstanding


54


54Additional paid-in capital


491,490


396,503Retained earnings (accumulated deficit)


5,688


(27,937
)Total stockholders equity


497,232


368,620$
2,069,016

$
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 Twelve and Twenty-Eight Week Periods Ended


July 13, 2002 and July 14, 2001


(in thousands)


(unaudited)







Twelve Week Periods Ended


Twenty-Eight Week Perids EndedJuly 13, 2002


July 14, 2001


July 13, 2002


July 14, 2001Net sales

$
792,717


$
607,478


$
1,796,804


$
1,336,837Cost of sales, including purchasing and warehousing costs


443,703



350,250



1,011,282



768,159Gross profit


349,014



257,228



785,522



568,678Selling, general and administrative expenses


284,102



220,849



661,643



506,408Expenses associated with merger and integration


7,520







17,743



Expenses associated with merger related restructuring


109







451



Operating income


57,283



36,379



105,685



62,270Other, net:Interest expense


(16,291
)


(10,825
)


(40,116
)


(27,064
)Other income, net


353



355



590



467Total other, net


(15,938
)


(10,470
)


(39,526
)


(26,597
)Income before provision for income taxes and extraordinary item


41,345



25,909



66,159



35,673Provision for income taxes


15,848



10,079



25,291



13,766Income before extraordinary item


25,497



15,830



40,868



21,907Extraordinary item, loss on debt extinguishment, net of $4,101 and $4,592 income taxes, respectively


(6,468
)






(7,243
)


Net income

$
19,029


$
15,830


$
33,625


$
21,907








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 Twenty-Eight Week Periods Ended


July 13, 2002 and July 14, 2001


(in thousands)


(unaudited)







Twenty-Eight Week Periods EndedJuly 13, 2002


July 14, 2001Cash flows from operating activities:Net income

$
33,625


$
21,907Adjustments reconcile net income to net cash provided by operating activities:Depreciation and amortization


48,983



37,069Amortization of stock option compensation






1,342Amortization of deferred debt issuance costs


2,067



1,588Amortization of bond discount


820



Loss on disposal of property and equipment, net


1,310



806Impairment of assets held for sale






1,600Provision for deferred income taxes


25,221



8,177Tax benefit related to exercise of stock options


4,965



Extraordinary loss on extinguishment of debt, net of tax


7,243



Net (increase) decrease in:Receivables, net


(24,516
)


(1,870
)Inventories


(101,427
)


15,207Other assets


(18,243
)


(8,952
)Net increase (decrease) in:Accounts payable


156,078



13,187Accrued expenses


40,585



17,147Other liabilities


3,586



(5,442
)Net cash provided by operating activities


180,297



101,766Cash flows from investing activities:Purchases of property and equipment


(46,638
)


(31,048
)Acquisition, net of cash acquired






(21,472
)Proceeds from sales of property and equipment


9,410



1,381Net cash used in investing activities


(37,228
)


(51,139
)Cash flows from financing activities:Decrease in bank overdrafts


(35,123
)


(13,778
)Payment of note payable






(784
)Early extinguishment of debt


(414,372
)


Borrowings under credit facilities


286,700



171,400Payments on credit facilities


(46,700
)


(208,601
)Payment of debt related costs


(6,209
)


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


90,022



Other


3,451



2,508Net cash used in financing activities


(122,231
)


(49,255
)Net increase in cash and cash equivalents


20,838



1,372Cash and cash equivalents,beginning of period


18,117



18,009Cash and cash equivalents, end of period

$
38,955


$
19,381





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





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)


For the
Twenty-Eight Week Periods Ended


July 13, 2002 and July 14, 2001


(in thousands)


(unaudited)


Twenty-Eight Week Periods EndedJuly 13, 2002

July 14, 2001Supplemental cash flow information:Interest paid

$
35,025

$
23,271Income tax payments, net


133


1,241Non-cash transactions:Accrued purchases of property and equipment


7,816


4,717Accrued equity issuance costs


42














The accompanying notes to the condensed consolidated financial statements


are an integral part of these statements.







4




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For the Twelve and Twenty-Eight Weight Week Periods Ended July 13, 2002 and
July 14, 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 July 13, 2002, the condensed consolidated statements of operations
for the twelve and twenty-eight week periods ended July 13, 2002 and July 14, 2001 and the condensed consolidated statements of cash flows for the twenty-eight week periods ended July 13, 2002 and July 14, 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 twenty-eight 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 twelve and twenty-eight weeks ended July 14, 2001 was to decrease income from continuing
operations by $2,329 and $3,407, respectively.





Recent Accounting Pronouncements





In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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,




5




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




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 No. 144 retains the basic provisions from both SFAS No. 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.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. As a
result of rescinding FASB Statement No. 4, Reporting Gains Losses from Extinguishment of Debt, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30. This
statement also amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. Additional amendments include changes to other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under
changed conditions. The Company will adopt the provisions of SFAS No. 145 during the first quarter of fiscal 2003. For the twelve and twenty-eight week periods ended June 13, 2002, the Company recorded extraordinary losses on the extinguishment of
debt, net of tax, of $6,468 and $7,243, respectively. Accordingly, reclassifications of these losses to income from continuing operations will be made throughout fiscal 2003 to maintain comparability for the reported periods.





In June 2002, the FASB issued SFAS No. 146, Accounting for Cost Associated with Exit or Disposal Activities. This
statement nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement
requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred instead of at the date an entity commits to an exit plan. The statement is effective for exit and disposal activities
entered into after December 31, 2002. The Company does not expect adopting this statement will have a 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, Advance 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 and second quarters of 2002, the Company reduced the excess fair value by $16,614 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.





Total acquisition costs related to the transaction were approximately
$9,350. During the first and second quarters of fiscal 2002, the Company also incurred $17,743 of merger and integration expenses. These expenses




6




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




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 December 31, 2000:





Twelve Weeks Ended July 14, 2001

Twenty-Eight Weeks Ended July 14, 2001Net sales

$
765,970

$
1,718,141Income before extraordinary item


21,720


32,163





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 efficiencies, which might be achieved from combined
operations. The proforma results of operations have been prepared for comparative purposes only.





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 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 in the accompanying condensed consolidated statements of operations.





Closed Store





During the first and second quarters of fiscal 2002, the Company closed or relocated seven of the 12
stores included in the fiscal 2001 restructuring activities and made the decision to close or relocate 34 additional stores not meeting profitability objectives, of which 19 have been closed or relocated as of July 13, 2002. In addition to its
ongoing restructuring activities, the Company has closed substantially all of the Advance Auto Parts stores that were identified in overlapping markets with certain Discount Auto Parts stores at December 29, 2001.







7




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)










In connection with the Western merger and the Discount acquisition,
the Company assumed the restructuring reserves related to the acquired operations. As of July 13, 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


2,078Change in estimates


127Reserves utilized


(3,213
)Balance, July 13, 2002 (unaudited)

$
8,635





As of July 13, 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 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. At July 13, 2002,
the remaining liabilities associated with these activities primarily relate to the settlement of facility exit costs.





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 July 13, 2002, 105 stores have been closed, 103 of which were closed during the
first and second quarters 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. Additionally, changes to the established liabilities for severance, relocation, store and other facility exit costs, primarily including lease settlements, 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










(1,106
)


(1,106
)Reserves utilized


(2,873
)


(174
)


(904
)


(3,951
)Balance, July 13, 2002 (unaudited)

$
5,582


$
437


$
2,893


$
8,912




8




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







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





4.    Receivables:





Receivables consist of the following:





July 13, 2002


December 29, 2001(unaudited)Trade:Wholesale

$
11,424


$
8,965Retail


22,389



19,857Vendor


75,824



55,179Installment


16,282



15,430Related parties


896



812Employees


581



510Other


1,623



2,668Total receivables


129,019



103,421LessAllowance for doubtful accounts


(10,972
)


(9,890
)Receivables, net

$
118,047


$
93,531





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 July 13, 2002 and December 29, 2001 were
$67,037 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 provides
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:




9




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







July 13, 2002

December 29, 2001(unaudited)Inventories at FIFO

$
1,018,887

$
935,181Adjustments to state inventories at LIFO


55,766


46,819Inventories at LIFO

$
1,074,653

$
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 July 13, 2002 and December 29, 2001, the Companys assets held for
sale were $46,200 and $60,512, respectively, primarily consisting of real property acquired in the Western merger and Discount acquisition.





7.    Debt:





Long-term debt consists of the following:




10




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







July 13, 2002


December 29, 2001Senior Debt:Tranche A, Senior Secured Term Loan at variable interest rates (5.38% at July 13, 2002), due November 2006

$
90,014


$
180,000Tranche B, Senior Secured Term Loan at variable interest rates (7.00% at December 29, 2001), repaid






305,000Tranche C, Senior Secured Term Loan at variable interest rates (4.38% at July 13, 2002), due November 2007


250,000



Revolving facility at variable interest rates (5.38% at July 13, 2002), due November 2006






10,000McDuffie County Authority taxable industrial development revenue bonds, issued December 31,1997, interest due monthly at
an adjustable rate established by the Remarketing Agent (2.00% at July 13, 2002), principal due on November 1, 2002


10,000



10,000Subordinated Debt:Subordinated notes payable, interest due semi-annually at 10.25%, due April 2008


167,450



169,450Subordinated notes payable, interest due semi-annually at 10.25%, due April 2008, face amount of $200,000 less
unamortized discount of $12,022 and $14,087 at July 13, 2002 and December 29, 2001, respectively


169,348



185,913686,812



860,363Less: Current portion of long-term debt


(11,549
)


(23,715
)Long-term debt, excluding current portion

$
675,263


$
836,648





During the second quarter of fiscal 2002, the Company repaid a
portion of its Tranche A and B term loans and refinanced the remaining Tranche B term loan under the existing credit facility. The Company also repurchased and retired a portion of the subordinated notes at prices approximating 107 percent on the
total face value purchased of $20,630. In conjunction with the extinguishments of this debt, the Company wrote-off deferred financing costs in accordance with Emerging Issues Task Force Issue No. 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments. The write-off of these costs and the premiums paid are classified as an extraordinary loss of $6,468, net of $4,101 income taxes, in the accompanying condensed consolidated statements of
operations.





Through the refinancing the Company also amended its bank credit facility, or the Credit Facility,
and closed on a new $250 million Tranche C term loan. The proceeds from the Tranche C were used to refinance the Tranche B term loan. The Tranche B term loan was initially issued for $305 million in fiscal 2001 and had a balance of $265 million
prior to the refinancing.





Under the amended credit facility, the Tranche C term loan requires scheduled
repayments of $2.1 million semi-annually beginning November 30, 2003 through maturity on November 30, 2007. The amended Tranche A term loan amortization schedule reflects required repayments of $1.5 million on May 31, 2003, $7.8 million on November
30, 2003, $12.4 million in May and November 2004 and $14.0 million each May and November during 2005 and 2006 through maturity on November 30, 2006.





Interest on the Tranche C term loan is based, at the Company's option, on either an adjusted LIBOR rate plus 2.5% per annum, or an alternative base rate plus 1.5% per annum. These initial margins can
step down to 2.25% and 1.25% per annum, respectively, if the Companys leverage ratio is less than 2.00 to 1.00. The amended credit facility carried forward the prepayment provisions, covenant requirements and guarantees from the previous
credit agreement entered into in




11




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




November 2001.





8.    Other Related-party Transactions:





In September 2001, the Company loaned a member of the Board of Directors $1,300. This loan was evidenced by a
full recourse promissory note secured by a stock pledge agreement that granted the Company a security interest in all of Advances shares owned by the board member. In June 2002, the board member repaid the loan in full.





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 twelve and twenty-eight week periods ended July 13, 2002 and July 14, 2001 and the condensed consolidated balance sheets as of July 13, 2002 and December 29, 2001:





Twelve Week Periods Ended

Twenty-Eight Week Periods EndedJuly 13, 2002

July 14, 2001





July 13, 2002

July 14, 2001(unaudited)





(unaudited)Net sales to Sears



$
1,676

$
1,856





$
3,693

$
3,879Credit card fees expense




61


93






138


194July 13, 2002

December 29, 2001(unaudited)Receivables from Sears



$
896

$
812Payables to Sears




1,322


1,220





9.    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.




12




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Twelve Week Periods EndedJuly 13, 2002 (unaudited)Retail

Wholesale


Eliminations


TotalsNet sales

$
774,906

$
17,811


$



$
792,717Income before provision for income taxes and extraordinary item


41,108


237







41,345Segment assets (a)


2,042,480


35,058



(8,522
)


2,069,016July 14, 2001 (unaudited)Retail

Wholesale


Eliminations


TotalsNet sales

$
586,796

$
20,682


$



$
607,478Income before provision for income taxes


25,723


186







25,909Segment assets (a)


1,320,627


44,721



(7,935
)


1,357,413Twenty-Eight Week Periods EndedJuly 13, 2002 (unaudited)Retail

Wholesale


Eliminations


TotalsNet sales

$
1,742,222

$
54,582


$



$
1,796,804Income before provision for income taxes and extraordinary item


64,960


1,199







66,159Segment assets (a)


2,042,480


35,058



(8,522
)


2,069,016July 14, 2001 (unaudited)Retail

Wholesale


Eliminations


TotalsNet sales

$
1,275,582

$
61,255


$



$
1,336,837Income (loss) before (provision) benefit for income taxes


37,391


(1,718
)






35,673Segment assets (a)


1,320,627


44,721



(7,935
)


1,357,413


---

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




10.    Subsequent Event:





On
July 23, 2002, the Company announced that it had received bankruptcy court approval to acquire certain assets of Trak Auto Corporation, or Trak, including the leases on approximately 55 stores in Virginia, Washington, D.C. and Maryland. The closing
of the acquisition occurred July 26, 2002, although the transfer and conversion of these stores will take place over the next three or four months. The acquisition will be accounted for under the purchase method of accounting and, accordingly, the
results of operations for Trak will be included in the Companys financial records from the date each store is transferred.




13




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







11.    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:





July 13, 2002 (unaudited)Advance Stores Company

Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyCurrent assets:Cash and cash equivalents

$
41,749

$
5,234


$
(8,028
)

$
38,955Receivables, net


86,976


31,071







118,047Inventories


925,372


149,281







1,074,653Other current assets


53,815


93,684



(98,262
)


49,237Total current assets


1,107,912


279,270



(106,290
)


1,280,892Investment in subsidiaries


262,923






(262,923
)


Property and equipment, net


410,705


304,992







715,697Assets held for sale


30,682


15,518







46,200Due from affiliates


71,876






(71,876
)


Other assets, net


21,784


28,899



(24,456
)


26,227Total assets

$
1,905,882

$
628,679


$
(465,545
)

$
2,069,016Current liabilities:Bank overdrafts

$


$
8,028


$
(8,028
)

$
Current portion of long-term debt


11,549


11,549



(11,549
)


11,549Accounts payable


482,434


102,685







585,119Accrued expenses


161,328


252,467



(204,630
)


209,165Other current liabilities


38,259


1,712



(502
)


39,469Total current liabilities


693,570


376,441



(224,709
)


845,302Long-term debt


675,263


665,263



(665,263
)


675,263Due to affiliates





42,539



(42,539
)


Other long-term liabilities


40,964


21,893



(11,638
)


51,219Stockholders equity (deficit)Common stock


54


10



(10
)


54Additional paid-in capital


490,343


(344,678
)


345,825



491,490Retained earnings (accumulated deficit)


5,688


(132,789
)


132,789



5,688Total stockholders equity (deficit)


496,085


(477,457
)


478,604



497,232Total liabilities and stockholders equity

$
1,905,882

$
628,679



$(465,545)


$
2,069,016




14




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







December 29, 2001Advance 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







15




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Twelve Week Period ended July 13, 2002 (unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
612,531


$
183,632


$
(3,446
)

$
792,717Cost of sales, including purchasing and warehousing costs


336,446



107,257







443,703Gross profit


276,085



76,375



(3,446
)


349,014Selling, general and administrative expenses


206,083



81,465



(3,446
)


284,102Expenses associated with merger and integration


7,520











7,520Expenses associated with merger related restructuring


109











109Operating income (loss)


62,373



(5,090
)






57,283Other, net:Interest expense


(15,092
)


(16,333
)


15,134



(16,291
)Equity in earnings of subsidiaries


19,075







(19,075
)


Other (expense) income, net


(35,836
)


36,189







353Total other, net


(31,853
)


19,856



(3,941
)


(15,938
)Income before provision for income taxes and extraordinary item


30,520



14,766



(3,941
)


41,345Provision for income taxes


5,023



5,074



5,751



15,848Income before extraordinary item


25,497



9,692



(9,692
)


25,497Extraordinary item, loss on debt extinguishment, net of $4,101 income taxes


(6,468
)


(6,468
)


6,468



(6,468
)Net income

$
19,029


$
3,224


$
(3,224
)

$
19,029Twelve Week Period ended July 14, 2001 (unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
542,779


$
67,386


$
(2,687
)

$
607,478Cost of sales, including purchasing and warehousing costs


304,164



46,086







350,250Gross profit


238,615



21,300



(2,687
)


257,228Selling, general and administrative expenses


212,452



11,084



(2,687
)


220,849Operating income


26,163



10,216







36,379Other, net:Interest expense


(11,062
)


(10,895
)


11,132



(10,825
)Equity in earnings of subsidiaries


6,950







(6,950
)


Other income, net


281



1,710



(1,636
)


355Total other, net


(3,831
)


(9,185
)


2,546



(10,470
)Income before provision (benefit) for income taxes


22,332



1,031



2,546



25,909Provision (benefit) for income taxes


6,502



(127
)


3,704



10,079Net income

$
15,830


$
1,158


$
(1,158
)

$
15,830




16




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Twenty-Eight Week Period ended July 13, 2002 (unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
1,357,651


$
446,815


$
(7,662
)

$
1,796,804Cost of sales, including purchasing and warehousing costs


745,679



265,603







1,011,282Gross profit


611,972



181,212



(7,662
)


785,522Selling, general and administrative expenses


478,762



190,543



(7,662
)


661,643Expenses associated with merger and integration


17,743











17,743Expenses associated with merger related restructuring


451











451Operating income (loss)


115,016



(9,331
)






105,685Other, net:Interest expense


(36,985
)


(40,196
)


37,065



(40,116
)Equity in earnings of subsidiaries


42,899







(42,899
)


Other (expense) income, net


(79,623
)


80,213







590Total other, net


(73,709
)


40,017



(5,834
)


(39,526
)Income before provision for income taxes and extraordinary item


41,307



30,686



(5,834
)


66,159Provision for income taxes


439



10,767



14,085



25,291Income before extraordinary item


40,868



19,919



(19,919
)


40,868Extraordinary item, loss on debt extinguishment, net of $4,592 income taxes


(7,243
)


(7,243
)


7,243



(7,243
)Net income

$
33,625


$
12,676


$
(12,676
)

$
33,625Twenty-Eight Week Period ended July 14, 2001 (unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidated Advance Stores CompanyNet sales

$
1,173,430


$
169,837


$
(6,430
)

$
1,336,837Cost of sales, including purchasing and warehousing costs


647,634



120,525







768,159Gross profit


525,796



49,312



(6,430
)


568,678Selling, general and administrative expenses


482,403



30,435



(6,430
)


506,408Operating income


43,393



18,877







62,270Other, net:Interest expense


(27,174
)


(27,258
)


27,368



(27,064
)Equity in earnings of subsidiaries


11,288







(11,288
)


Other income, net


295



4,215



(4,043
)


467Total other, net


(15,591
)


(23,043
)


12,037



(26,597
)Income (loss) before provision (benefit) for income taxes


27,802



(4,166
)


12,037



35,673Provision (benefit) for income taxes


5,895



(1,226
)


9,097



13,766Net income (loss)

$
21,907


$
(2,940
)

$
2,940


$
21,907




17




---

##### Table of Contents



ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES





NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Twenty-Eight Week Period ended July 13, 2002(unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


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

$
167,739


$
(75,187
)

$
87,745


$
180,297Cash flows from investing activities:Purchases of property and equipment


(37,977
)


(8,661
)






(46,638
)Proceeds from sales of property and equipment


7,558



1,852







9,410Net cash used in investing activities


(30,419
)


(6,809
)






(37,228
)Cash flows from financing activities:Decrease in bank overdrafts


(19,698
)


(7,397
)


(8,028
)


(35,123
)Early extinguishment of debt


(414,372
)


(414,372
)


414,372



(414,372
)Borrowings under credit facilities


286,700



286,700



(286,700
)


286,700Payments on credit facilities


(46,700
)


(46,700
)


46,700



(46,700
)Payment of debt issuance costs


(6,209
)


(6,209
)


6,209



(6,209
)Proceeds from issuance of common stock toAdvance Auto Parts, Inc.


90,022



90,022



(90,022
)


90,022Equity impact of debt pushdown






178,304



(178,304
)


Other


3,451











3,451Net cash (used in) provided by financing activities


(106,806
)


80,348



(95,773
)


(122,231
)Net increase (decrease) in cash and cash equivalents


30,514



(1,648
)


(8,028
)


20,838Cash and cash equivalents, December 29, 2001


11,235



6,882







18,117Cash and cash equivalents, July 13, 2002

$
41,749


$
5,234


$
(8,028
)

$
38,955Twenty-Eight Week Period ended July 14, 2001 (unaudited)Advance Stores Company


Guarantor Subsidiaries (a)


Eliminations


Consolidatd Advance Stores CompanyNet cash provided by operating activities

$
101,655


$
1,671


$
(1,560
)

$
101,766Cash flows from investing activities:Purchases of property and equipment


(29,217
)


(1,831
)






(31,048
)Acquisition, net of cash acquired


(21,472
)










(21,472
)Proceeds from sales of property and equipment


749



632







1,381Net cash used in investing activities


(49,940
)


(1,199
)






(51,139
)Cash flows from financing activities:Decrease in bank overdrafts


(12,907
)


(871
)






(13,778
)Payment of note payable


(784
)










(784
)Borrowings under credit facilities


171,400



171,400



(171,400
)


171,400Payments on credit facilities


(208,601
)


(208,601
)


208,601



(208,601
)Equity impact of debt pushdown






37,201



(37,201
)


Other


2,508











2,508Net cash used in financing activities


(48,384
)


(871
)






(49,255
)Net increase (decrease) in cash and cash equivalents


3,331



(399
)


(1,560
)


1,372Cash and cash equivalents, December 30, 2000


14,258



3,751







18,009Cash and cash equivalents, July 14, 2001

$
17,589


$
3,352


$
(1,560
)

$
19,381


---

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



18




---

##### 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 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 the Company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 July 13, 2002, the Company had 2,367, of which 1,869 operated under the Advance Auto Parts trade name in 37 states in the Northeastern, Southeastern and
Midwestern regions of the United States and 458 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.




19




---

##### Table of Contents




The Companys 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 450 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 $75.7 million, and was allocated proportionately as a reduction to certain noncurrent assets, primarily property and equipment. During the first and second quarters of 2002,
the Company reduced the excess fair value by $16.6 million 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.





During the second quarter of fiscal 2002, the Company recorded a $6.5 million extraordinary loss on
extinguishment of debt as a result of writing off deferred debt issuance costs associated with the Companys partial repayment of its Tranche A and B term loans and refinancing of its Tranche B term loan under its existing credit facility and
repurchasing a portion of its outstanding bonds. Additionally, the loss included bank fees associated with the establishment of a Tranche C term loan, which replaced the Tranche B term loan under the senior credit facility.





On July 23, 2002, the Company announced that it had received bankruptcy court approval to acquire certain assets of Trak Auto Corporation,
or Trak, including the leases on approximately 55 stores in Virginia, Washington, D.C. and Maryland. The closing of the acquisition occurred on July 26, 2002, although the transfer and conversion of these stores will take place over the next three
or four months. The acquisition will be accounted for under the purchase method of accounting and, accordingly, the results of operations for Trak will be included in the Companys financial results from the date each store is transferred.





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.





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




20




---

##### Table of Contents

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, roadside 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.





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.




21




---

##### 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.





Twelve Week Periods Ended (dollars in thousands) (unaudited)


Twenty-Eight Week Periods Ended (dollars in thousands) (unaudited)July 13, 2002


July 14, 2001


July 13,2002


July 14,2001Net sales

$
792,717


$
607,478


$
1,796,804


$
1,336,837Cost of sales


443,703



350,250



1,011,282



768,159Gross profit


349,014



257,228



785,522



568,678Selling, general and administrative expenses


284,102



220,849



661,643



506,408Operating income, as adjusted


64,912



36,379



123,879



62,270Expenses associated with merger and integration


7,520







17,743



Expenses associated with merger related restructuring


109







451



Operating income


57,283



36,379



105,685



62,270Interest expense


(16,291
)


(10,825
)


(40,116
)


(27,064
)Other income, net


353



355



590



467Provision for income taxes


15,848



10,079



25,291



13,766Income before extraordinary item


25,497



15,830



40,868



21,907Extraordinary item, loss on debt extinguishment, net of $4,101 and $4,592 income taxes, respectively


(6,468
)






(7,243
)


Net income

$
19,029


$
15,830


$
33,625


$
21,907





Twelve Week Periods Ended (unaudited)


Twenty-Eight Week Periods Ended (unaudited)July 13, 2002


July 14, 2001


July 13, 2002


July 14, 2001Net sales

100.0
%

100.0
%

100.0
%

100.0
%Cost of sales

56.0


57.7


56.3


57.5Gross profit

44.0


42.3


43.7


42.5Selling, general and administrative expenses

35.8


36.3


36.8


37.9Operating income, as adjusted

8.2


6.0


6.9


4.6Expenses associated with merger and integration

0.9





1.0


Expenses associated with merger related restructuring

0.0





0.0


Operating income

7.3


6.0


5.9


4.6Interest expense

(2.1
)

(1.8
)

(2.2
)

(2.0
)Other income, net

0.0


0.1


0.0


Provision for income taxes

2.0


1.7


1.4


1.0Income before extraordinary item

3.2


2.6


2.3


1.6Extraordinary item, loss on debt extinguishment, net of $4,101 and $4,592 income taxes, respectively

(0.8
)




(0.4
)

Net income

2.4
%

2.6
%

1.9
%

1.6
%




22




---

##### Table of Contents




Net Sales





Net sales consist primarily of comparable store net sales, new store net sales, service 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 40 Western Auto retail sales, which operate service bays, 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, 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.





Twelve Weeks Ended July 13, 2002 Compared to Twelve Weeks Ended July 14, 2001





Net sales for the twelve weeks ended July 13, 2002 were $792.7 million, an increase of $185.2 million, or 30.5%, over net sales for the twelve weeks ended July 14, 2001.
Net sales for the retail segment increased $188.1 million, or 32.1%. The net sales increase for the retail segment was due to an increase in the comparable store sales of 5.0%, sales from Discount Auto Parts stores and contributions from new stores
opened within the last year. The comparable store sales increase 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 $2.9 million due to
the decline in the number of dealer stores the Company serviced and lower average sales to each dealer.





During
the twelve weeks ended July 13, 2002, the Company opened 11 new stores, relocated seven stores and closed 23 stores (nine of which were related to the Discount acquisition), bringing the total number of retail stores to 2,367. As of July 13, 2002,
the Company had 1,411 stores participating in its commercial delivery program, as a result of adding 45 net programs during the twelve week period ended July 13, 2002.





Gross profit for the twelve weeks ended July 13, 2002 was $349.0 million or 44.0% of net sales, as compared to $257.2 million or 42.3% of net sales in the twelve weeks
ended July 14, 2001. The increase in gross profit percentage over the comparable prior year quarter reflects the positive impact in purchasing synergies as a result of renegotiating vendor contracts in conjunction with the Discount acquisition and a
positive shift in product mix due to our merchandising and marketing initiatives. The gross profit for the retail segment was $345.8 million or 44.6% of net sales for the twelve week period ended July 13, 2002, as compared to $253.7 million or 43.2%
of net sales for the twelve week period ended July 14, 2001.





Selling, general and administrative expenses, before
merger and integration expenses and merger related restructuring, increased to $284.1 million or 35.8% of net sales for the twelve week period ended July 13, 2002, from $220.8 million or 36.3% of net sales for the twelve week period ended July 14,
2001. The decrease in selling, general and administrative expenses as a percentage of sales is reflective of the Companys ability to leverage its existing infrastructure against a higher store base, and lower rent expense as a result of owning
a higher percentage of stores following the Discount acquisition.




23




---

##### Table of Contents




Operating income, as adjusted for merger and integration and merger related
restructuring, was $64.9 million in the twelve week period ended July 13, 2002 or 8.2% of net sales, as compared to $36.4 million or 6.0% of net sales in the twelve week period ended July 14, 2001. Merger and integration expenses of $7.5 million
include non-recurring expenses associated with integrating the Discount operations. Merger related restructuring expenses primarily relate to lease costs associated with the Advance Auto Parts stores in overlapping markets that were closed as a
result of the Discount acquisition.





Interest expense in the twelve weeks ended July 13, 2002 was $16.3 million or
2.1% of net sales, as compared to $10.8 million or 1.8% of net sales in the twelve week period ended July 14, 2001. Interest expense reflects the overall increase in average borrowings offset by more favorable interest rates during the twelve weeks
ended July 13, 2002 as compared to the twelve weeks ended July 14, 2001. This increase in borrowings is a result of the additional debt entered into in conjunction with the Discount acquisition.





During the twelve weeks ended July 13, 2002, the Company recorded $6.5 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 Tranche A and B term loans and refinancing of its Tranche B term loan under its credit facility and a partial repurchase and retirement of outstanding bonds at a
premium during the second quarter of fiscal 2002.





Income tax expense for the twelve weeks ended July 13, 2002 was
$15.8 million compared to $10.1 million in the twelve weeks ended July 14, 2001. This increase was primarily due to the increase in income before taxes for the twelve weeks ended July 13, 2002 as compared to the twelve weeks ended July 14, 2001.





The Company recorded net income of $30.2 million before merger and integration expenses and the extraordinary
loss on extinguishment of debt for the twelve weeks ended July 13, 2002, as compared to $15.8 million for the twelve week period ended July 14, 2001. After merger and integration expenses and the extraordinary loss, the Company recorded net
income of $19.0 million for the twelve weeks ended July 13, 2002. As a percentage of sales, net income for the twelve week period ended July 13, 2002 was 2.4% as compared to 2.6% for the twelve week period ended July 14, 2001.





Twenty-Eight Weeks Ended July 13, 2002 Compared to Twenty-Eight Weeks Ended July 14, 2001





Net sales for the twenty-eight weeks ended July 13, 2002 were $1,796.8 million, an increase of $460.0 million, or 34.4%, over net sales for the twenty-eight weeks
ended July 14, 2001. Net sales for the retail segment increased $466.6 million, or 36.6%. The net sales increase for the retail segment was due to an increase in the comparable store sales of 6.5%, sales from Discount Auto Parts stores and
contributions from new stores opened within the last year. The comparable store sales increase 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 $6.7 million due to the decline in the number of dealer stores the Company serviced and lower average sales to each dealer.





During the twenty-eight weeks ended July 13, 2002, the Company opened 28 new stores, relocated 19 stores and closed 145 stores (128 of which were related to the Discount acquisition), bringing the total number of retail
stores to 2,367. As of July 13, 2002 the Company had 1,411 stores participating in its commercial delivery program, as a result of adding 41 net programs during the twenty-eight week period ended July 13, 2002.





Gross profit for the twenty-eight weeks ended July 13, 2002 was $785.5 million or 43.7% of net sales, as compared to $568.7 million or
42.5% of net sales in the twenty-eight weeks ended July 14, 2001. The increase in gross profit percentage reflects 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 our recent supply chain initiatives. Additionally, gross profit for the twenty-eight weeks ended July 13, 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 $777.0 million or 44.6% of net sales for the twenty-eight week period ended July 13, 2002, as compared to $552.2 million, excluding the $8.3 million gain recorded as a result of a
vendor settlement or 43.3% of net sales for the twenty-eight week period ended July 14, 2001.





Selling, general
and administrative expenses, before merger and integration expenses and merger related restructuring, increased to $661.6 million or 36.8% of net sales for the twenty-eight week period ended July 13,




24




---

##### Table of Contents

2002, from $506.4 million or 37.9% of net sales for the twenty-eight week period ended July 14, 2001. The decrease in selling, general and administrative expenses as a percentage of sales
reflects the Companys ability to leverage its existing infrastructure against a higher store base, and lower rent expense as a result of owning a higher percentage of stores following the Discount acquisition.





Operating income, as adjusted for merger and integration and merger related restructuring, was $123.9 million in the twenty-eight
week period ended July 13, 2002 or 6.9% of net sales, as compared to $62.3 million or 4.6% of net sales in the twenty-eight week period ended July 14, 2001. Merger and integration expenses of $17.7 million include non-recurring expenses associated
with integrating the Discount operations. Merger related restructuring expenses primarily relate to lease costs associated with the Advance Auto Parts stores in overlapping markets that were closed as a result of the Discount acquisition.





Interest expense in the twenty-eight weeks ended July 13, 2002 was $40.1 million or 2.2% of net sales, as
compared to $27.1 million or 2.0% of net sales in the twenty-eight week period ended July 14, 2001. Interest expense reflects the overall increase in average borrowings offset by more favorable interest rates during the twenty-eight weeks ended July
13, 2002 as compared to the twenty-eight weeks ended July 14, 2001. This increase in borrowings is a result of the additional debt entered into in conjunction with the Discount acquisition.





During the twenty-eight weeks ended July 13, 2002, the Company recorded $7.2 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 Tranche A and B term loans and refinancing of its Tranche B term loan under its credit facility and the repurchase and retirement of outstanding bonds at a
premium.





Income tax expense for the twenty-eight weeks ended July 13, 2002 was $25.3 million compared to
$13.8 million in the twenty-eight weeks ended July 14, 2001. This increase was primarily due to the increase in income before taxes for the twenty-eight weeks ended July 13, 2002 as compared to the twenty-eight weeks ended July 14, 2001.





The Company recorded net income of $52.0 million before merger and integration expenses and the
extraordinary loss on extinguishment of debt for the twenty-eight weeks ended July 13, 2002, as compared to $21.9 million for the twenty-eight week period ended July 14, 2001. After merger and integration expenses and the extraordinary loss, the
Company recorded net income of $33.6 million for the twenty-eight weeks ended July 13, 2002. As a percentage of sales, net income for the twenty-eight week period ended July 13, 2002 was 1.9% as compared to 1.6% for the twenty-eight week period
ended July 14, 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 24 months. As of July 13, 2002,
the Company had outstanding indebtedness consisting of $336.8 million of senior subordinated notes, borrowings of $340.0 million under the amended bank credit facility and $10.0 million of indebtedness under the McDuffie County Development Authority
Taxable Industrial Bonds.





During second quarter, the Company amended its credit agreement in addition to repaying
a portion of and refinancing the Tranche B term loan. For the twenty-eight week period ended July 13, 2002, the Company repaid $174.4 million in debt with free cash flow generated and equity offering proceeds during the period. In conjunction
with the refinancing of the Tranche B term loan, the Company entered into a Tranche C term loan for $250.0 million.





Under the amended credit facility, the Tranche C term loan requires scheduled repayments of $2.1 million semi-annually beginning November 30, 2003 through the maturity on November 30, 2007. The amended Tranche A term loan
amortization schedule reflects required repayments of $1.5 million on May 31, 2003, $7.8 million on November 30, 2003, $12.4 million in May and November 2004 and $14.0 million each May and November during 2005 and 2006 through maturity on November
30, 2006.





Interest on the Tranche C term loan is based, at the Companys option, on either an adjusted LIBOR
rate plus 2.5% per annum, or an alternative base rate plus 1.5% per annum. These initial margins can step down to 2.25% and 1.25% per annum, respectively, if the Companys leverage ratio is less than 2.00 to 1.00. The amended credit facility
carried forward




25




---

##### Table of Contents

the prepayment provisions, covenant requirements and guarantees from the previous credit agreement entered into November in 2001. For a full discussion of the other terms of the credit facility,
see section Long Term Debt in Item 7. of the Companys annual report on Form 10-K for the year ended December 29, 2001.





The Company was in compliance with the above covenants under the amended credit facility as of July 13, 2002. As of July 13, 2002, $132.9 million was available under the amended credit facility. The Company intends to use
borrowings under this 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 twenty-eight weeks ended July 13, 2002, net cash provided by operating activities was $180.3 million. Of
this amount, $33.6 million was provided by net income and $69.6 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 $49.0 million, amortization of bond discounts and deferred debt issuance costs of $2.9 million and provision for deferred income taxes of $25.2 million. Net cash used for investing activities was $37.2 million and was comprised primarily of
capital expenditures. Net cash used in financing activities was $122.2 million and was comprised primarily of $174.4 million in net payments on the credit facility and payments to repurchase and retire outstanding bonds 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 of fiscal 2002.





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.





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 28 have been opened as of July 13, 2002. Subsequent to July 13, 2002, the Company announced the acquisition of 55 Trak Auto stores, in which the Company will assume the existing leases and anticipates
paying up to approximately $16.0 million for inventory and fixtures. These stores will be considered part of the 100 to 125 new stores to be opened during fiscal 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 and second quarters of fiscal 2002, the Company closed or relocated seven of the 12 stores included in the fiscal 2001 restructuring activities and decided to close or relocate 34 additional stores that
are not meeting profitability objectives, 19 of which were closed or relocated at July 13, 2002. In addition to its ongoing restructuring activities, the Company has closed substantially all of the Advance Auto Parts stores that were identified in
overlapping markets with certain Discount Auto Parts stores at December 29, 2001 and closed 103 Discount Auto Parts stores during the first and second quarters of fiscal 2002.




26




---

##### Table of Contents

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 July 13, 2002, these restructuring reserves had a remaining balance of $17.5 million. At July 13, 2002, the total liability for the assumed restructuring and deferred compensation plans was $1.5 million and $3.1 million, respectively,
of which $0.9 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.





New Accounting Pronouncements





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. As a result of rescinding FASB Statement No. 4,
Reporting Gains Losses from Extinguishment of Debt, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30. This statement also amends FASB Statement No. 13,
Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Additional amendments include changes to other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The Company will
adopt the provisions of SFAS No. 145 during the first quarter of fiscal 2003. For the twelve and twenty-eight week periods ended June 13, 2002, the Company recorded extraordinary losses on the extinguishment of debt, net of tax, of $6,468 and
$7,243, respectively. Accordingly, reclassifications of these losses to income from continuing operations will be made throughout fiscal 2003 to maintain comparability for the reported periods.





In June 2002, the FASB issued SFAS No. 146, Accounting for Cost Associated with Exit or Disposal Activities. This statement nullifies Emerging Issues Task
Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement requires that a liability for costs
associated with an exit or disposal activity be recognized when the liability is incurred instead of at the date an entity commits to an exit plan. The statement is effective for exit and disposal activities entered into after December 31, 2002. The
Company does not expect adopting this statement will have a material impact on its financial position or the results of its operations.




27




---

##### 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 and second quarters of fiscal 2002 primarily due to the refinancing of its 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 amended credit facility and the McDuffie
County industrial revenue bond. 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 July 13, 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 July 13, 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

$



$



$



$



$



$
348,820


$
348,820


$
366,261Weighted average interest rate






















10.3
%


10.3
%Variable rate

$
10,000


$
11,436


$
29,003


$
32,079


$
32,079


$
235,417


$
350,014


$
350,014Weighted average interest rate


4.5
%


4.8
%


6.3
%


7.3
%


7.7
%


7.9
%


6.3
%




28




---

##### Table of Contents

PART II.    OTHER INFORMATION





Item 1.Legal Proceedings





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 judgment against the plaintiff and dismissed all claims against Advance. The period for appeal has expired and no
further action is expected on this case.





Item 6.Exhibits and Reports on Form 8-K





(1)

Exhibits:10.47

Amendment and Restatement Agreement dated as of June 28, 2002, among Advance Stores Company, Inc., Advance Auto Parts, Inc., the Lenders and JPMorgan Chase
Bank, as administrative agent.10.48

Reaffirmation Agreement dated as of July 1, 2002, among Advance Stores Company, Inc., Advance Auto Parts, Inc., and JPMorgan Chase Bank, as administrative
agent.10.49

Amended and Restated Credit Agreement dated as of June 28, 2002, among Advance Stores Company, Inc., Advance Auto Parts, Inc., the Lenders and JPMorgan Chase
Bank, as administrative agent.99.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(2)

Reports on Form 8-K.(a)

The Company filed a Current Report on Form 8-K on July 13, 2002, disclosing the refinancing of a portion of the Companys senior credit
facility.




29




---

##### 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, INCORPORATEDa Virginia corporationBy:

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


August 14, 2002




S-1