<PAGE>

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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                                   FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                   For the fiscal year ended January 1, 2000

                                      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                       (I.R.S. Employer
   incorporation or organization)                        Identification No.)

        5673 Airport Road                                       24012
        Roanoke, Virginia                                    (Zip Code)
  (Address of Principal Executive Offices)

                                (540) 362-4911
             (Registrant's telephone number, including area code)

       Securities Registered Pursuant to Section 12(b) of the Act:  None

       Securities Registered Pursuant to Section 12(g) of the Act:  None

     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 [X] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [_] Not Applicable.

     As of March 31, 2000, the registrant had outstanding 538 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.

     Aggregate market value of the registrant's voting and nonvoting Class A
Common Stock. Not Applicable.

                   Documents Incorporated by Reference: None
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<PAGE>

                                    PART I

     This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements include without limitation the words "believes," "anticipates,"
"estimates," "intends," "expects," and words of similar import. All statements
other than statements of historical fact included in statements under "Item 1.
Business," "Item 2. Properties," "Item 3. Legal Proceedings" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation" include forward-looking information and may reflect certain
judgements by management. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or the automotive
aftermarket industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These potential risks and uncertainties include, but are not limited
to, those identified in the "Risk Factors" section of this Form 10-K located at
the end of "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations". The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.


Item 1.   Business.

General

     As of January 1, 2000, Advance Stores Company, Incorporated (the "Company")
had 1,617 stores in 38 states, Puerto Rico and the Virgin Islands operating
under the "Advance Auto Parts" and "Western Auto" names. Advance Auto Parts is
the second largest specialty retailer of automotive parts, accessories and
maintenance items in the United States, and based on store count, the Company
believes it is the largest retailer in a majority of its markets. Western Auto
operates in Puerto Rico, the Virgin Islands and California (the "Service
Stores") and offers home and garden merchandise in addition to automotive parts,
accessories and service. In addition, Western is a wholesale supplier of
automotive parts and accessories and home and garden merchandise to
approximately 670 stores in 48 states through the wholesale dealer network. In
fiscal 1999, the Company derived over 90% of its total revenues from the retail
sale of automotive parts and accessories. In fiscal 1997 and 1998 (prior to the
Western Auto Supply Company Merger in November 1998, described below), 100% of
the Company's total revenues were derived from the retail sale of automotive
parts and accessories.

     The Company was formed in 1929. In the 1980s, the Company sharpened its
marketing focus to target sales of automotive parts and accessories to "do-it-
yourself" ("DIY") customers and accelerated its growth strategy. From the 1980s
through the present, the Company has grown significantly through new store
openings and strategic acquisitions. In 1996, the Company began to aggressively
expand its sales to "do-it-for-me" ("DIFM") customers by implementing a
commercial delivery program which supplies parts and accessories to third party
automotive service and repair providers.

E-commerce

     In January of fiscal 2000, the Company announced a joint venture with CSK
Auto, Inc. ("CSK") and Sequoia Capital to form PartsAmerica.com, Inc.
("PartsAmerica.com"). PartsAmerica.com is an e-commerce destination in the
automotive aftermarket that will operate independently from its partners and
will utilize the Company's and CSK's existing logistic systems to support its
web-based operations. The Company has contributed the "Parts America" tradename
to PartsAmerica.com under a royalty free license agreement and the use of
certain other assets. The Company is also party to a service agreement with
PartsAmerica.com that defines the wholesale sale of merchandise to
PartsAmerica.com and certain other services to be provided by the Company. The
Company finalized the PartsAmerica.com agreement in March of fiscal 2000 and
expects to begin selling product to PartsAmerica.com by the third quarter of
fiscal 2000.

                                       1
<PAGE>

Recapitalization

     In April 1998, Advance Holding Corporation, the Company's parent
("Holding"), consummated its recapitalization (the "Recapitalization"). See Note
3 to "Item 8. Financial Statements" for a detailed discussion of the
Recapitalization.

Western Merger

     On November 2, 1998, Western Auto Supply Company merged into Advance
Acquisition Corporation ("AAC"), a subsidiary of the Company (the "Western
Merger"). At the time of the Western Merger, AAC changed its name to Western
Auto Supply Company ("Western"). References to Western Auto Supply Company refer
to the entity prior to the Western Merger. As consideration in the Western
Merger, the Company issued to Sears, Roebuck and Co. ("Sears"), the parent
company of Western Auto Supply Company, 11,474,606 shares of Common Stock of
Holding (the "Holding Common Stock") representing approximately 40.6% of the
outstanding Holding Common Stock, and paid Sears $185.0 million in cash,
including the Company's portion of losses accrued by Sears with respect to
credit card portfolios. Certain existing stockholders of Holding invested an
additional $70.0 million in equity to fund a portion of the cash purchase price,
the remainder of which was funded through additional borrowings under the
Company's Credit Facility (the "Credit Facility") and cash on hand.


     Prior to the Western Merger, Western Auto Supply Company operated 612 auto
parts stores in the United States under the "Parts America" name. In addition,
Western Auto Supply Company operated 38 Service Stores in Puerto Rico and the
Virgin Islands and one store in each of California and Hawaii under the "Western
Auto" name. Western Auto Supply Company also supplied approximately 740 Western
Auto dealer stores in 48 states. Western Auto Supply Company supplied its stores
and dealers through four distribution centers.

     Immediately following the Western Merger, the Company began the integration
of Western Auto Supply Company, which consisted primarily of converting the
Parts America stores to Advance Auto Parts stores (the "Parts America
Conversion") and integrating certain administrative and support functions into
its corporate headquarters. The Parts America Conversion consisted of changing
certain merchandise lines (the "Merchandise Conversion"), store level management
information systems (the "MIS Conversion"), and the format and name of the Parts
America stores to conform with the Advance Auto Parts stores (the "Physical
Conversion"). In addition, the Company consolidated duplicative stores and
facilities, separated and relocated certain employees and integrated the
management information systems of the combined companies.

     During the fourth quarter of fiscal 1999, the Company completed the
integration of Western Auto Supply Company. As a result of the integration, the
Company has closed 67 Parts America and 31 Advance Auto Parts stores that were
in overlapping markets or that did not meet the Company's profitability
objectives, one distribution center, one Service Store in Hilo, Hawaii. In
addition, as of March 31, 2000, the Company has terminated 459 employees in
connection with the integration.

Store Operations

     The Company's stores generally are located in or adjacent to good
visibility, high traffic strip shopping centers. Domestic stores generally range
in size from 5,000 to 10,000 square feet, averaging approximately 8,000 square
feet, and currently stock between 16,000 and 21,000 stock-keeping units
("SKUs"). In addition, approximately 115,000 SKUs that are not stocked at the
store level are available on a next or same day basis to virtually all domestic
stores through the Company's PDQ(R) network. In fiscal 2000, the Company will
initiate a mini-PDQ(R) concept that will utilize store space in certain markets
with differing product mix requirements. The Company's stores are divided into
three regions which are managed by Senior Vice Presidents who are supported by
10 Regional Vice Presidents. Reporting to Regional Vice Presidents are Division
Managers who have direct responsibilities for store operations. A typical
division consists of 14 to 18 stores. Depending on store size and sales volume,
each store is staffed by 8 to 30 employees under the leadership of a store
manager. Stores generally are open seven days a week from 8:00 a.m. to 8:00 p.m.

     The Service Stores in Puerto Rico and the Virgin Islands are managed by one
Executive Vice President, and six District Managers who are supported by various
managers and field personnel. These stores average approximately 15,800 square
feet and stock approximately 18,000 SKUs of automotive and home and garden
merchandise, and are staffed with up to 70 employees depending on store size and
sales volume. The store hours are generally 7:00 a.m. to 8:00 p.m. seven days a
week.

                                       2
<PAGE>

         The wholesale dealer operations are managed by one Executive Vice
President, a sales manager, an operations manager and various field and support
personnel. The wholesale dealer operations consist of a network of independently
owned locations, which include associate, licensee, sales center and franchise
dealers. Associate, licensee and franchise stores have full rights to the use of
the "Western Auto" name and certain services provided by the Company. Sales
centers only have the right to purchase certain products from Western. The
Company also services the wholesale dealer network through various
administrative and support functions chosen by each independent location.

         The Company's stores are currently located as follows:

<TABLE>
<CAPTION>
                     Number of                                Number of                               Number of
                    Stores as of                             Stores as of                            Stores as of
    Location       January 1, 2000       Location           January 1, 2000       Location          January 1, 2000
---------------    ---------------    ---------------       ---------------     ------------        ---------------
<S>                <C>                <C>                   <C>                 <C>                 <C>
Arkansas                   6          Massachusetts               19            Pennsylvania               116
Alabama                   57          Maryland                    31            Puerto Rico                 38
California                 1          Mississippi                 19            Rhode Island                 4
Colorado                  15          Michigan                    31            South Carolina              94
Connecticut               23          Maine                        8            South Dakota                 1
Delaware                   5          Missouri                    38            Tennessee                  105
Florida                   27          Nebraska                    11            Texas                       34
Georgia                  122          New Hampshire                4            Virgin Islands               2
Iowa                      22          New Jersey                  12            Virginia                   123
Illinois                  21          New York                    91            Vermont                      2
Indiana                   60          North Carolina             164            Wisconsin                   17
Kansas                    26          Ohio                       135            West Virginia               60
Kentucky                  62          Oklahoma                     2            Wyoming                      2
Louisiana                  7
</TABLE>

Management Information Systems

         Store Based Information Systems

         The Company has store based information systems located in the Advance
Auto Parts stores, which are designed to improve the efficiency of its
operations and enhance customer service, and are comprised of Point-of-Sale
("POS"), Electronic Parts Catalogs ("EPC") and Store Level Inventory Management
("SLIM") systems. These systems are tightly integrated by a communications
network and together provide real time, comprehensive information to store
personnel, resulting in improved customer service levels and in-stock
availability.

         Point-of-Sale: The POS system has improved store productivity and
customer service by streamlining store procedures. POS information is used to
formulate the Company's pricing, marketing and merchandising strategies as well
as to rapidly replenish inventory. Additionally, the POS system maintains a
customer purchase and warranty history database, which may be used for targeted
marketing programs.

         Electronic Parts Catalog: The EPC system is a software based system
that identifies the application, location and availability of over 2 million
parts enabling sales associates to assist customers in parts selection and
ordering based on the year, model, engine type and application needed. The EPC
system displays an identified part and its inventory status, and if the part is
not available at the store, its availability through PDQ(R). The EPC system also
displays related parts for sales associates to recommend to a customer, leading
to increased average sales per customer. The integration of this system with the
POS system improves customer service by reducing time spent at the cash register
and fully automating the sales process between the parts counter and the POS
register. Additionally, this system allows sales associates to order parts and
accessories electronically from the Company's PDQ(R) system with immediate
confirmation of price, availability and delivery schedule. Information about a
customer's automobile can be entered into a permanent customer database that can
be accessed immediately whenever the customer visits or telephones the store.

         Store Level Inventory Management System: The SLIM system provides real-
time inventory tracking at the store level. With SLIM, store personnel can check
the quantity of on-hand inventory for any SKU, automatically

                                       3
<PAGE>

process returns and defective merchandise, designate SKUs for cycle counts and
track merchandise transfers. The Company is testing the effectiveness and
viability of radio frequency hand held devices in approximately 170 of its
retail stores that should increase inventory utilization and ensure the accuracy
of inventory movements.

         Store IntraNet ("STORENET"): The Company is in the process of
installing an intranet which will give all stores browser based access to
additional corporate information. This provides store personnel access to on-
line training, operational manuals, store plan-o-grams and planning calendars.
The Company has installed STORENET in over 900 stores and plans to have STORENET
in all Advance Auto Parts stores by the second quarter of fiscal 2000.

         Communications Network: In fiscal 1999, the Company replaced its
satellite communications in the United States with a frame relay network. The
frame relay network will provide increased capacity to support the Company's
growth strategy and future in-store applications. As a result of the Western
Merger, the Company has installed a satellite network in Puerto Rico and the
Virgin Islands to improve communications with the Service Stores.

Logistics and Purchasing Information Systems

         The Distribution Center Management System ("DCMS") provides real-time
inventory tracking throughout the stages of receiving, picking, shipping and
replenishment at the distribution center level. The DCMS, together with new
material handling equipment, significantly reduces warehouse and distribution
costs while improving efficiency. As a result of installing the DCMS in four
distribution centers and five PDQ(R) warehouses in fiscal 1999, all of the
Company's logistic facilities currently operate using this technology.
Therefore, the Company will be able to service over 2,000 stores from its six
retail distribution centers that serve Advance Auto Parts stores and to support
future growth of the Service Stores and wholesale dealer network from its
Gastonia distribution center.

         The E3 Replenishment System ("E3"), which was implemented in 1994,
monitors the Company's distribution center and PDQ(R) warehouse inventory levels
and orders additional products when appropriate. In addition, the system tracks
sales trends by SKU, allowing the Company to adjust future orders to evolving
demand. The Company is currently implementing a store level replenishment
version of E3.

Purchasing and Merchandising

         Merchandise is selected and purchased for all Advance Auto Parts
stores, the Service Stores and the wholesale dealer network by personnel at the
Company's corporate offices in Roanoke and Kansas City. In fiscal 1999, the
Company purchased from over 200 vendors, with no single vendor accounting for
10% or more of purchases. The Company's purchasing strategy involves negotiating
multi-year agreements with certain vendors. In connection with the Western
Merger, the Company entered into several long-term agreements that have provided
more favorable terms and pricing, which will continue through the current term
of the agreements, generally three to five years.

         The Company's merchandising objective related to automotive products is
to carry a broad selection of brand names in the Advance Auto Parts stores such
as; Fram-Bendix-Autolite, Fel-Pro, Federal-Mogul and AC Delco, that generate
customer traffic and appeal to the Company's commercial delivery customers.
Additionally, the Service Stores and the wholesale dealer network carry home and
garden products by Whirlpool, Maytag, Fridgidaire and Yardman and automotive
products by Michelin and Goodyear in addition to those products carried in the
Advance Auto Parts stores. In connection with the Western Merger, the Company
reached agreements with Sears to supply the Service Stores and wholesale dealer
network with certain Diehard(R) and Craftsman(R) brand products. In addition to
such branded products, the Company stocks a wide selection of high quality
private label products that appeal to value conscious customers. Sales of
replacement parts account for approximately 65% of the Company's sales and
generate higher gross profit margins than maintenance items or general
accessories. The Company determines its product mix based on a merchandising
program designed to identify the optimal inventory mix at each individual store
based on that store's historical and projected sales.

Warehouse and Distribution

         The Company currently operates six distribution centers that service
Advance Auto Parts stores in the United States. The Company also operates a
separate distribution center in the United States that services the Service
Stores and wholesale dealer network.

                                       4
<PAGE>

         All distribution centers are equipped with technologically advanced
material handling equipment, including carousels, "pick to light" systems, radio
frequency technology and automated sorting systems.

         The Company offers approximately 25,000 SKUs on a next day basis to
substantially all of its domestic retail stores via its nine PDQ(R) warehouses.
Stores place orders to these facilities through an on-line ordering system, and
ordered parts are delivered to substantially all stores the next day through the
Company's dedicated PDQ(R) trucking fleet. The Company operates a PDQ(R)
warehouse that stocks approximately 90,000 SKUs of harder to find automotive
parts and accessories. This facility is known as the "Master PDQ(R)" warehouse
and utilizes existing PDQ(R) distribution infrastructure to provide next day
service to substantially all of the Advance Auto Parts stores.

         The following table sets forth certain information relating to the
Company's main distribution facilities:

<TABLE>
<CAPTION>
                                                           Opening                                     Size
                Distribution Facility                        Date              Area Served            (Sq. ft.)
-----------------------------------------------------    -----------    ------------------------    ----------
<S>                                                      <C>            <C>                         <C>
Main Distribution Centers
      Roanoke, Virginia..............................        1988         Mid-Atlantic                 440,000
      Gadsden, Alabama...............................        1994         South                        240,000
      Jeffersonville, Ohio...........................        1996         Mid West                     383,000
      Gastonia, North Carolina (1)...................        1969         Service Stores, Wholesale    663,000
                                                                          Dealer Network
      Salina, Kansas (1).............................        1971         West                         441,000
      Delaware, Ohio (1).............................        1972         Northeast                    510,000
      Thomson, Georgia...............................        1999         Southeast                    383,000

PDQ(R) Warehouses
      Salem, Virginia................................        1983         Mid-Atlantic                  50,400
      Smithfield, North Carolina.....................        1991         Southeast                     42,000
      Jeffersonville, Ohio (2).......................        1996         Mid West                      50,000
      Thomson, Georgia (2)...........................        1998         South, Southeast              50,000
      Goodlettesville, Tennessee.....................        1999         Central                       41,900
      Youngwood, Pennsylvania........................        1999         East                          49,000
      Riverside, Missouri............................        1999         West                          45,000
      Guilderland Center, New York...................        1999         Northeast                     47,400
      Temple, Texas(1)(3)............................        1999         Southwest                    100,000

Master PDQ(R) Warehouse
      Andersonville, Tennessee.......................        1998         All                          116,000
</TABLE>

(1)  The Company acquired these facilities in the Western Merger in November
     1998.
(2)  This facility is located within the main distribution center.
(3)  Total capacity of this facility is approximately 550,000 square feet and is
     held for sale at January 1, 2000.

Employees

     As of March 31, 2000, the Company employed approximately 14,600 full-time
employees and 9,300 part-time employees. Approximately 84% of the Company's
workforce is employed in store level operations, 11% in distribution and 5% in
the Company's corporate offices in Roanoke, Virginia, Kansas City, Missouri and
San Juan, Puerto Rico. The Company has never experienced any labor disruption
and believes that its labor relations are good.


Competition

     The Company competes in the automotive aftermarket industry, which consists
of replacement parts, maintenance items and accessories which, according to
industry estimates, generates approximately $90 billion in sales per year. The
Company competes for both DIY and DIFM customers. Although the number of
competitors and the level of competition vary by market area, both markets are
highly fragmented and generally very competitive. The Company competes primarily
with national and regional retail automotive parts chains (such as AutoZone,
Inc., Discount Auto Parts, Inc., O'Reilly Automotive, Inc. and The Pep Boys--
Manny, Moe & Jack), wholesalers or jobber stores (some of which are associated
with national automotive parts distributors or associations, such as NAPA),

                                       5
<PAGE>

independent operators, automobile dealers and mass merchandisers that carry
automotive replacement parts, maintenance items and accessories (such as Wal-
Mart Stores, Inc.). The Company believes that chains of automotive parts stores,
such as the Company, with multiple locations in regional markets, have
competitive advantages in customer service, marketing, inventory selection,
purchasing and distribution as compared to independent retailers and jobbers
that are not part of a chain or associated with other retailers or jobbers. The
principal competitive factors that affect the Company's business are store
location, customer service and product selection, availability, quality and
price.

Tradenames, Service Marks and Trademarks

         The Company owns and has registrations for the trade names "Advance
Auto Parts," "Western Auto" and "Parts America" and the trademark "PDQ(R)" with
the United States Patent and Trademark Office for use in connection with the
automotive parts retailing business. In addition, the Company owns and has
registered a number of trademarks with respect to its private label products.
The Company believes that its various tradenames, service marks and trademarks
are important to its merchandising strategy, but that its business is not
otherwise dependent on any particular service mark, tradename or trademark.
There are no infringing uses known by the Company that materially affect the use
of such marks. However, in connection with a decision in a lawsuit filed in
1998, the Company is restricted from opening stores under the "Advance Auto
Parts" name in Jefferson County, Kentucky. See "Item 3. Legal Proceedings."

Environmental Matters

         The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing recycling of batteries and used lubricants and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also use hazardous
materials on the Company's properties or bring hazardous materials or used oil
onto the Company's properties. The Company currently provides collection and
recycling programs for spent automotive batteries and used lubricants at certain
of its stores as a service to its customers pursuant to agreements with third
party vendors. Pursuant to these agreements, spent batteries and used lubricants
are collected by Company employees, deposited into vendor-supplied
containers/pallets and stored by the Company until collected by the third party
vendors for recycling or proper disposal. Persons who arrange for the disposal,
treatment or other handling of hazardous or toxic substances may be liable for
the costs of removal or remediation at any affected disposal, treatment or other
site affected by such substances.

         The Company owns and leases real property. Under various environmental
laws and regulations, a current or previous owner or operator of real property
may be liable for the cost of removal or remediation of hazardous or toxic
substances on, under, or in such property. Such laws often impose joint and
several liability and may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the release of such hazardous or toxic
substances. Certain other environmental laws and common law principles also
could be used to impose liability for releases of hazardous materials into the
environment or work place, and third parties may seek recovery from owners or
operators of real properties for personal injury or property damage associated
with exposure to released hazardous substances. Compliance with such laws and
regulations has not had a material impact on its operations to date, but there
can be no assurance that future compliance with such laws and regulations will
not have a material adverse effect on the Company or its operations. The Company
believes it is currently in material compliance with such laws and regulations.

                                       6
<PAGE>

Item 2.  Properties.

         The following table sets forth certain information concerning the
Company's principal facilities:

<TABLE>
<CAPTION>
                                                                                                 Size              Nature of
                    Primary Use                                       Location                 (Sq. ft.)           Occupancy
--------------------------------------------------           --------------------------       ------------       ---------------
<S>                                                          <C>                              <C>                <C>
Corporate offices......................................      Roanoke, Virginia                     49,000         Leased (1)
Corporate offices......................................      San Juan, Puerto Rico                  8,000         Leased
Corporate offices......................................      Kansas City, Missouri                 12,500         Leased
Administrative offices.................................      Roanoke, Virginia                     40,000         Leased
Distribution center....................................      Roanoke, Virginia                    440,000         Leased (2)
Distribution center....................................      Gadsden, Alabama                     240,000         Owned
Distribution center....................................      Salina, Kansas                       441,000         Owned
Distribution center....................................      Delaware, Ohio                       510,000         Owned
Distribution center....................................      Gastonia, North Carolina             663,000         Owned
Distribution center and regional PDQ(R) warehouses.....      Jeffersonville, Ohio                 383,000         Owned
Distribution center and regional PDQ(R) warehouses.....      Thomson, Georgia                     383,000         Leased (3)
Regional PDQ(R) Warehouse..............................      Temple, Texas                        100,000         Owned  (4)
Regional PDQ(R) Warehouse..............................      Salem, Virginia                       50,400         Leased
Regional PDQ(R) Warehouse..............................      Smithfield, North Carolina            42,000         Leased
Regional PDQ(R) Warehouse..............................      Goodlettsville, Tennessee             41,900         Leased
Regional PDQ(R) Warehouse..............................      Youngwood, Pennsylvania               49,000         Leased
Regional PDQ(R) Warehouse..............................      Riverside, Missouri                   45,000         Leased
Regional PDQ(R) Warehouse..............................      Guilderland Center, New York          47,400         Leased
Master PDQ(R) Warehouse................................      Andersonville, Tennessee             116,000         Leased
</TABLE>

(1)  This facility is owned by Ki, L.C., a Virginia limited liability company
     owned by two trusts for the benefit of a child of Nicholas F. Taubman. See
     "Item 13. Certain Relationships and Related Transactions."
(2)  This facility is owned by Nicholas F. Taubman. See "Item 13. Certain
     Relationships and Related Transactions."
(3)  The construction of this facility was financed by a $10.0 million IRB
     issuance from the Development Authority of McDuffie County of the State of
     Georgia, from which the Company leases the facility. The Company has an
     option to purchase this facility for $10.00 at the end of five years or
     upon prepayment of the outstanding bonds.
(4)  Total capacity of this facility is approximately 550,000 square feet and is
     held for sale at January 1, 2000.

         At January 1, 2000, 134 and 1,483 of the Company's stores were owned
and leased, respectively. The expiration dates (including renewal options) of
the store leases are summarized as follows:

<TABLE>
<CAPTION>
            Years                      Stores (1)
          ---------                 ----------------
          <S>                       <C>
          2000-2001                       43
          2002-2006                      155
          2007-2011                      283
          2012-2021                      891
          2022-2031                       91
          2032-2047                       20
</TABLE>

(1)  Of these stores, 28 are owned by affiliates of the Company. See "Item 13.
     Certain Relationships and Related Transactions."

                                       7
<PAGE>

Item 3.     Legal Proceedings.

         In March 2000, the Company was notified it has been named in a lawsuit
filed on behalf of independent retailers and jobbers against the Company and
others for various claims under the Robinson-Patman Act. The Company 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 January 1999, the Company was notified by the United States
Environmental Protection Agency ("EPA") that Western may have potential
liability under the Comprehensive Environmental Response Compensation and
Liability Act relating to two battery salvage and recycling sites that were in
operation in the 1970s and 1980s. The EPA has indicated the total cleanup for
this site will be approximately $1.6 million. An estimate of the range of
liability is not reasonably possible until technical studies are sufficiently
completed and the amount of potential indemnification from Sears, if any, is
further investigated. The ultimate exposure will also depend upon the
participation of other parties named in the notification who are believed to
share in responsibility. The Company believes the claim could be settled for an
amount not material to the Company's current financial position or future
results of operations.

         During fiscal 1998, an appeal was taken in connection with the November
1996 and the October 1997 decisions in a federal district court restricting the
Company from opening stores under the "Advance Auto Parts" name in a single
county in Kentucky. On November 1, 1999, the United States District Court of
Appeals for the Sixth District reaffirmed the earlier decisions of the federal
district court. Those decisions held that the Company was entitled to exclusive
use of the name "Advance Auto Parts" throughout the United States, except in
Jefferson County, Kentucky, and the Company was entitled to summary judgment in
connection with various infringement and unfair competition claims brought by
the appellant.

         Three lawsuits were filed against the Company on July 28, 1998 in the
federal district court in South Carolina for wrongful death relating to an
automobile accident involving an employee of the Company. The complaints seek
compensatory and punitive damages. The Company believes its financial exposure
is covered by insurance.

         On November 5, 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 the Company from November 1, 1991 to November 5, 1997
filed a class action complaint and motion of class certification against the
Company in the circuit court for Jefferson County, Tennessee, alleging the sale
by the Company of used, old or out-of-warranty automotive batteries as new. The
complaint seeks compensatory and punitive damages. The Company believes it has
no liability for such claims and intends to defend them vigorously.

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

Item 4.     Submission of Matters to a Vote of Securityholders.

         None.

                                       8
<PAGE>

                                    PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder
            Matters.

         There is no established public trading market for the Company's Common
Stock. All of the Common Stock of the Company is held by Holding.

         In connection with the Recapitalization, the Company paid a cash
dividend to Holding in the amount of $183.0 million. In addition, in June 1998,
the Company paid a dividend to Holding in the amount of $150,000. The Company
expects to pay dividends to Holding in the future in order for Holding to redeem
its Senior Discount Debentures. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for a discussion of restrictions in the Company's debt instruments on
its ability to pay cash dividends.

Item 6.     Selected Financial Data.

         The following table sets forth selected consolidated statement of
operations, balance sheet and other operating data of the Company. The selected
consolidated financial data for each of the five fiscal years during the period
ended January 1, 2000 are derived from the audited financial statements of the
Company which have been audited by Arthur Andersen LLP. The data presented below
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto included herein, the other financial information
included herein and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations". The following financial data includes
certain expenses related to the merger integration and Parts America Conversion
incurred in fiscal 1998 and fiscal 1999 and certain private company expenses
that were eliminated in the Recapitalization. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
detailed discussion of these expenses.

<TABLE>
<CAPTION>
                                                                                        Fiscal Year (1)
                                                             -----------------------------------------------------------------------
                                                                  1995           1996          1997          1998            1999
                                                             -------------  -------------  -------------  -------------  -----------
                                                                                      (dollars in thousands)
<S>                                                          <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:
Net sales..................................................    $602,559       $705,983      $848,108      $1,220,759     $2,206,945
Cost of sales..............................................     369,962        437,615       524,586         766,198      1,404,113
Selling, general and administrative expenses (2)...........     196,153        228,049       279,924         400,405        781,587
Expenses associated with the Recapitalization (3)..........           -              -             -          14,277              -
Expenses associated with the restructuring (4).............           -              -             -           6,774              -
Expenses associated with non-cash compensation (5).........           -              -             -             695          1,082
Operating income...........................................      36,444         40,319        43,598          32,410         20,163
Interest expense...........................................       6,327          6,221         7,732          29,517         53,844
Other, net.................................................      (1,764)          (151)         (824)            606          4,488
Income (loss) before income taxes..........................      28,353         33,947        35,042           3,499        (29,193)
Income tax expense (benefit)...............................      11,648         13,735        14,670           1,887         (9,628)
Net income (loss)..........................................      16,705         20,212        20,372           1,612        (19,565)
</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Fiscal Year (1)
                                                               --------------------------------------------------------------------
                                                                   1995         1996          1997           1998           1999
                                                               ----------   -----------  ------------    ------------   -----------
                                                                                        (dollars in thousands)
<S>                                                             <C>         <C>          <C>             <C>            <C>
Other Data:
EBITDA (6)....................................................  $ 51,243      $ 57,818      $ 65,399     $   62,374     $   78,310
EBITDAR (7)...................................................    82,427        96,423       113,697        130,648        191,230
Capital expenditures..........................................    42,939        44,264        48,864         65,790        105,017
Percentage increase in comparable store net
  sales (8)...................................................       3.3%          2.1%          5.7%           7.8%          10.3%
Commercial sales (9)..........................................       N/A        68,878       100,180        129,926        244,940
Net cash provided by (used in) operating
   activities.................................................    26,854        21,575        41,679         37,897        (19,320)
Net cash used in investing activities.........................   (39,855)      (44,121)      (48,607)      (423,675)      (113,824)
Net cash provided by financing activities.....................    22,925        15,193         7,443        412,551        121,501
Stores open at end of period..................................       536           649           814          1,567          1,617

Balance Sheet Data:
Net working capital (10)......................................  $ 92,699      $101,957      $113,136     $  310,833     $  356,312
Total assets..................................................   287,716       384,620       449,626      1,261,516      1,344,878
Total debt (including current maturities).....................    92,727       107,920       113,777        455,776        576,149
Stockholder's equity..........................................    88,585       108,797       129,169        221,011        202,528
</TABLE>

(1)   The Company's fiscal year consists of 52 or 53 weeks ending on the
      Saturday nearest to December 31. All fiscal years presented are 52 weeks
      except for fiscal 1997, which consists of 53 weeks.
(2)   Fiscal 1999 and fiscal 1998 amounts include certain merger integration and
      Parts America Conversion expenses that total $41,034 and $7,788. Fiscal
      1997 amount includes an unusual medical claim that exceeded the Company's
      stop loss insurance coverage. The Company has increased its stop loss
      coverage effective January 1, 1998 to a level that would provide insurance
      coverage for a medical claim of this magnitude. The pre-tax amount of this
      claim, net of related increased insurance costs, was $882. In addition,
      amounts are included for all fiscal years for private company expenses
      incurred prior to the Recapitalization that relate primarily to
      compensation and benefits paid to the Company's Chairman that were
      eliminated after the Recapitalization. These amounts are $2,037, $2,482,
      $3,056 and $845, fiscal 1995, fiscal 1996, fiscal 1997 and fiscal 1998,
      respectively. There are no private company expenses in the fiscal 1999
      amounts.
(3)   Represents expenses incurred in the Recapitalization related primarily to
      bonuses paid to certain employees and professional services.
(4)   Represents fiscal 1998 expenses primarily related to lease costs
      associated with the 31 Advance Auto Parts stores closed or identified to
      be closed in overlapping markets in connection with the Western Merger.
(5)   Represents non-cash compensation expenses related to options granted to
      certain Company employees.
(6)   EBITDA represents operating income plus depreciation and amortization
      included in operating income. EBITDA is not intended to represent cash
      flow from operations as defined by GAAP and should not be considered as a
      substitute for net income as an indicator of operating performance or as
      an alternative to cash flow (as measured by GAAP) as a measure of
      liquidity. The Company has included it herein because management believes
      this information is useful to investors as such measure provides
      additional information with respect to the Company's ability to meet its
      future debt service, capital expenditure and working capital requirements
      and, in addition, certain covenants in the Indenture and Credit Facility
      are based upon an EBITDA calculation. The Company's method for calculating
      EBITDA may differ from similarly titled measures reported by other
      companies. Management believes certain one time expenses, private company
      expenses, Recapitalization expenses, non-cash compensation expenses,
      restructuring expenses and merger integration expenses should be
      eliminated from the EBITDA calculation to evaluate the operating
      performance of the Company.

                                       10
<PAGE>

      The following table reflects the effect of these items:

<TABLE>
<CAPTION>
                                                                             Fiscal Year (1)
                                                                   ----------------------------------
                                                                     1997          1998         1999
                                                                   -------       --------    --------
                                                                          (dollars in thousands)
     <S>                                                          <C>            <C>         <C>
     Other Data:
     EBITDA                                                        $65,399        $62,374     $ 78,310
        Medical claim (see note 2 above)........................       882               -           -
        Private company expenses (a)............................     3,056             845           -
        Recapitalization expenses (b)...........................         -          14,277           -
        Non-cash compensation expenses (see note 5 above).......         -             695       1,082
        Restructuring expenses (see note 4 above)...............         -           6,774           -
        Merger integration expenses (c).........................         -           7,788      41,034
                                                                   -------        --------    --------
     EBITDA, as adjusted........................................   $69,337         $92,753    $120,426
</TABLE>

     (a)Reflects management's estimate of expenses primarily related to
        compensation and other benefits of the Company's Chairman, who prior to
        the Recapitalization was Holding's principal stockholder, that were
        eliminated after the Recapitalization.
     (b)Represents non-recurring management bonuses and other expenses incurred
        in connection with the Recapitalization.
     (c)Represents certain expenses related to the merger integration and Parts
        America Conversion. See "Item 7. Management's Discussion and Analysis of
        Financial Condition and Results of Operations."

(7)   EBITDAR represents EBITDA plus operating lease expense. Because the
      proportion of stores leased versus owned varies among industry
      competitors, the Company believes that EBITDAR permits a meaningful
      comparison of operating performance among industry competitors. The
      Company leases substantially all of its stores.
(8)   Comparable store net sales is calculated based on the change in net sales
      starting once a store has been opened for thirteen complete accounting
      periods (each period represents four weeks). Relocations are included in
      comparable store net sales from the original date of opening.
      Additionally, each converted Parts America store will be included in the
      comparable store net sales calculation after thirteen complete accounting
      periods following its physical conversion to an Advance Auto Parts store.
      The Company has not included and currently does not plan to include
      Service Stores in its comparable store net sales calculation.
(9)   Represents net sales from Advance Auto Parts stores and Parts America
      stores after MIS Conversion to commercial customers, including net sales
      from stores without commercial delivery. The Company's commercial sales
      program began in 1996.
(10)  Net working capital represents total current assets less total current
      liabilities.


Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.

         The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the consolidated
financial statements of the Company, the notes thereto and other data and
information appearing elsewhere in this Report on Form 10-K. The Company's
fiscal year ends on the Saturday nearest December 31. As used in this section,
fiscal 1999 represents the 52 weeks ended January 1, 2000; fiscal 1998
represents the 52 weeks ended January 2, 1999; and fiscal 1997 represents the 53
weeks ended January 3, 1998. The Company's first quarter consists of 16 weeks,
and the other three quarters consist of 12 weeks.

General

         The Company's combined operations are conducted in two operating
segments, Advance Stores and Western. Advance Stores segment consists of retail
locations and is the second largest retailer of automotive parts and accessories
in the United States, with 1,576 stores in 38 states operating under the
"Advance Auto Parts" name. Western consists of 41 Service Stores in Puerto Rico,
the Virgin Islands and California operating under the "Western Auto" name. In
addition, Western supplies approximately 670 stores in 48 states through the
wholesale dealer network.

         During first quarter of 1998, Holding consummated a Recapitalization
through the sale of common stock, the issuance of debt, the redemption of common
and preferred stock and the repayments of notes payable and long-term debt. See
Note 3 to "Item 8. Financial Statements" for a detailed discussion of the
Recapitalization. Additionally, on November 2, 1998, Western Auto Supply Company
merged with a subsidiary of the Company. See "Item 1. Business" for a discussion
of the Western Merger.

                                       11

<PAGE>

         The Western Merger has been accounted for under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and
liabilities assumed based on their respective fair values. The Company's initial
purchase price allocation resulted in an excess fair value over purchase price
of $11.7 million, which was allocated proportionately as a reduction to certain
non-current assets, primarily property and equipment. Purchase accounting
adjustments recorded in fiscal 1999 resulted in the Company recording additional
net liabilities of $6.6 million and acquisition costs of $.4 million. These
final adjustments resulted in an increase to property and equipment of $7.0
million as of October 9, 1999. The final purchase price allocation resulted in
total excess fair value over purchase price of $4.7 million.

         Included in the net liabilities recorded through purchase accounting is
approximately $25.1 million in reserves resulting from management's
restructuring plan to close certain Parts America stores in overlapping markets
or stores not meeting the Company's profitability objectives, to exit certain
other facility leases, to relocate certain Western administrative functions to
the Company's Roanoke headquarters and to terminate certain management,
administrative and support employees of Western. During fiscal 1998, purchase
price liabilities were recorded for approximately $9.0 million for severance and
relocation costs and approximately $14.4 million for store closing and other
exit costs. During fiscal 1999, the Company finalized its restructuring plan for
termination of employees and closure of Parts America stores and other Western
facilities and finalized its purchase accounting adjustments related to the
Western Merger by recording additional net liabilities of $1.7 million for
severance and relocation costs and store and other exit costs. As of January 1,
2000, 457 employees have been terminated and 51 leased Parts America stores have
been closed under the restructuring plan included in the merger and integration
activities.

         The Company has achieved benefits from the combination with Western
through improved product pricing and terms from vendors, consolidated
advertising, distribution and corporate support efficiencies and the closure of
certain overlapping locations. However, as a result of the Western Merger, the
Company incurred additional store closing, store conversion, distribution center
conversion and system conversion expenses and other integration costs as part of
the Parts America Conversion during fiscal 1999.

         Based on the Company's continued evaluation of store performance, 15
Advance Auto Parts stores were identified during fiscal 1999 for closure. The
identification of these stores resulted in the Company adding $1.3 million in
other exit cost to its restructuring reserve during fiscal 1999. As of January
1, 2000, nine of these stores have been closed.

Results of Operations

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

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Fiscal Year Ended
                                                                       ----------------------------------------------------
                                                                         January 3,          January 2,          January 1,
                                                                            1998                1999                2000
                                                                       -------------        -------------       -----------
                                                                                       (dollars in thousands)
<S>                                                                    <C>                   <C>                <C>
Statement of Operations Data:
Net sales..............................................................    $848,108          $1,220,759          $2,206,945
Cost of sales..........................................................     524,586             766,198           1,404,113
                                                                           --------          ----------          ----------
Gross profit...........................................................     323,522             454,561             802,832
Selling, general and administrative expenses (1).......................     276,868             391,772             740,553
                                                                           --------          ----------          ----------
Operating income, as  adjusted.........................................      46,654              62,789              62,279
Expenses associated with the Recapitalization..........................           -              14,277                   -
Expenses associated with the restructuring.............................           -               6,774                   -
Expenses associated with merger integration............................           -               7,788              41,034
Expenses associated with private company...............................       3,056                 845                   -
Expenses associated with non-cash compensation.........................           -                 695               1,082
                                                                           --------          ----------          ----------
Operating income, as reported..........................................      43,598              32,410              20,163
Interest expense.......................................................       7,732              29,517              53,844
Other, net.............................................................        (824)                606               4,488
Income tax expense (benefit)...........................................      14,670               1,887              (9,628)
                                                                           --------          ----------          ----------
Net income (loss)......................................................    $ 20,372          $    1,612          $  (19,565)
                                                                           ========          ==========          ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                          Fiscal Year Ended
                                                                       -----------------------------------------------------
                                                                          January 3,          January 2,         January 1,
                                                                            1998                1999                2000
                                                                       ------------          ----------          -----------
<S>                                                                    <C>                   <C>                <C>
Net sales..............................................................       100.0 %             100.0 %             100.0 %
Cost of sales..........................................................        61.9                62.8                63.6
                                                                           --------          ----------          ----------
Gross profit...........................................................        38.1                37.2                36.4
Selling, general and administrative expenses (1).......................        32.6                32.1                33.6
                                                                           --------          ----------          ----------
Operating income, as adjusted..........................................         5.5                 5.1                 2.8
Expenses associated with the Recapitalization..........................           -                 1.2                   -
Expenses associated with the restructuring.............................           -                 0.6                   -
Expenses associated with merger integration............................           -                 0.6                 1.8
Expenses associated with private company...............................         0.4                 0.1                   -
Expenses associated with non-cash compensation.........................           -                 0.1                 0.1
                                                                           --------          ----------          ----------
Operating income, as reported..........................................         5.1                 2.5                 0.9
Interest expense.......................................................         0.9                 2.4                 2.4
Other, net.............................................................        (0.1)                0.1                 0.2
Income tax expense (benefit)...........................................         1.7                 0.1                (0.4)
                                                                           --------          ----------          ----------
Net income (loss)......................................................         2.4 %               0.1 %              (0.9)%
                                                                           ========          ==========          ==========
</TABLE>

(1)  Selling, general and administrative expenses are as adjusted for certain
non-recurring items.

                                       13
<PAGE>

         Net sales consist primarily of comparable store net sales, new store
net sales, Service Store net sales and net sales to the wholesale dealer
network. Comparable store net sales is calculated based on the change in net
sales starting once a store has been opened for thirteen complete accounting
periods (each period represents four weeks). Relocations are included in
comparable store net sales from the original date of opening. Additionally, each
converted Parts America store will be included in the comparable store net sales
calculation after thirteen complete accounting periods following its physical
conversion to an Advance Auto Parts store. The Company has not included and
currently does not plan to include Service Stores in its comparable store net
sales calculation.

         Cost of sales includes merchandise costs and warehouse and distribution
expenses as well as service labor costs for the Service Stores. Gross profit as
a percentage of net sales may be affected by variations in the Company's product
mix, price changes in response to competitive factors and fluctuations in
merchandise costs and vendor programs.

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

Fiscal 1999 Compared to Fiscal 1998

         Fiscal 1999 results include a full fiscal year of operating results of
the operations acquired in the Western Merger as compared to fiscal 1998
results, which include Western operating results from November 2, 1998.

         Net sales for fiscal 1999 were $2,206.9 million, an increase of $986.2
million or 80.8% over net sales for fiscal 1998. The net sales increase was a
result of the Western Merger, opening of new stores and a 10.3% increase in
comparable store sales over fiscal 1998. The comparable sales increase was due
to maturation of stores opened in 1997 and 1998, increased product availability,
continued growth in the commercial sales program and the closure of Parts
America and Advance Auto Parts stores in overlapping markets.

         During fiscal 1999, the Company opened 99 new stores, reopened three
closed locations, relocated 13 stores and closed 52 stores in addition to the
stores closed due to relocations (33 of which were Parts America and Advance
Auto Parts stores in overlapping markets closed in connection with the Western
Merger). Also, the Company added 562 stores to its commercial delivery program,
bringing the total to 1,094 stores. As of January 1, 2000, the Company operated
1,617 stores in 38 states, Puerto Rico and the Virgin Islands and supplied
approximately 670 independent dealers through the wholesale dealer network.

         Gross profit for fiscal 1999 was $802.8 million or 36.4% of net sales,
compared with $454.6 million or 37.2% of net sales, in fiscal 1998. The decrease
in the gross profit percentage resulted largely from the lower margins
associated with the wholesale dealer network and certain non-recurring items
such as the liquidation of certain product lines related to the Merchandise
Conversion and increased shrinkage primarily associated with the Parts America
Conversion. The decline in margins discussed above was partially offset by
better pricing from vendors in fiscal 1999 compared to fiscal 1998, due to
vendor agreements entered into as a result of the Western Merger. The better
pricing will continue through the current term of these vendor agreements,
generally three to five years. The impact from the lower wholesale dealer
network gross profits resulted in the Western segment realizing a gross profit
percentage of approximately 22% during fiscal 1999, as compared to approximately
40% realized by the Advance Stores segment.

         Selling, general and administrative expenses, before expenses
associated with the Recapitalization, restructuring, merger integration, private
company and non-cash compensation, increased to $740.6 million or 33.6% of net
sales, in fiscal 1999 from $391.8 million or 32.1% of net sales in fiscal 1998.
The increase as a percentage of sales was due primarily to increased costs
realized by the Advance Stores segment related to higher store labor costs, an
increase in advertising and costs associated with the Company's national
manager's conference.

         Operating income, as adjusted for expenses associated with the
Recapitalization, restructuring, merger integration, private company and
non-cash compensation in fiscal 1999 was $62.3 million or 2.8% of net sales as
compared to $62.8 million or 5.1% of net sales in fiscal 1998.

         The Company recorded $41.0 million of non-recurring merger integration
and transition expenses and $1.1 million of non-cash compensation expenses for
fiscal 1999. Merger integration and transition expenses consist primarily of
store and merchandise conversions, professional services, travel, training and
project incentives incurred by the Advance Stores segment.

                                       14
<PAGE>

         EBITDA (operating income plus depreciation and amortization), as
adjusted for expenses associated with the Recapitalization, merger integration,
private company and non-cash compensation was $120.4 million for fiscal 1999 or
5.5% of net sales, as compared to $92.8 million or 7.6% of net sales for fiscal
1998. EBITDA is not intended to represent cash flow from operations as defined
by GAAP and should not be considered as a substitute for net income as an
indicator of operating performance or as an alternative to cash flow (as
measured by GAAP) as a measure of liquidity. The Company's method for
calculating EBITDA may differ from similarly titled measures reported by other
companies. Management believes certain one time expenses, expenses associated
with the Recapitalization, merger integration, private company and non-cash
compensation should be eliminated from the EBITDA calculation to evaluate the
operating performance of the Company.

         Interest expense in fiscal 1999 was $53.8 million compared to $29.5
million in fiscal 1998. The increase in interest in 1999 was primarily due to
the additional debt incurred in the Western Merger, the increased borrowings
under the Company's revolving and delayed draw credit facilities and higher
interest rates.

         Other income in fiscal 1999 was $4.5 million compared to $.6 million in
fiscal 1998. The increase in other income was primarily the result of the
Advance Stores segment recognizing the settlement of a dispute between the
Company and a vendor due to non-performance by the vendor under a supply
agreement.

         Income tax benefit for fiscal 1999 was $9.6 million as compared to an
expense of $1.9 million in fiscal 1998, with effective tax rates of 33.0% and
53.9%, respectively. In fiscal 1999, the Company recognized federal and state
net operating loss carryforwards ("NOLs") of approximately $22.1 million. The
Company believes it will utilize these NOLs through a combination of the
reversal of temporary differences, projected future taxable income during the
NOL carryforward periods and available tax planning strategies. Based on
finalizing merger and integration costs of approximately $41.0 million in fiscal
1999 associated with the Western Merger, the Company believes it is more likely
than not that it will have sufficient future taxable income to utilize the NOLs.
Additionally, the Company believes the Western Merger will result in increased
future earnings through purchasing and advertising synergies and lower non-
operating costs of the combined companies as a percentage of net sales. Due to
uncertainties related to the realization of deferred tax assets for certain
state NOLs, the Company recorded a valuation allowance of $596,000 as of January
1, 2000. The amount of deferred income tax assets realizable, however, could
change in the near future if estimates of future taxable income are changed.

         As a result of the above factors, the Company incurred a net loss of
$19.6 million in fiscal 1999 as compared to net income of $1.6 million in fiscal
1998. As a percentage of net sales, the net loss for fiscal 1999 was 0.9% as
compared to net income of 0.1% for fiscal 1998.

Fiscal 1998 Compared to Fiscal 1997

         Net sales for fiscal 1998 were $1,220.8 million, an increase of $372.7
million or 43.9% over net sales for fiscal 1997. Fiscal 1998 represented the
first year that the Company recorded sales in excess of $1.0 billion in a fiscal
year. The Western Merger, which closed November 2, 1998, added $178.3 million in
sales. The remainder of the net sales increase was due to a 7.8% increase in
comparable store sales and new stores opened during fiscal 1998. The comparable
sales increase was due to increased product availability at the store level and
from the PDQ(R) and Master PDQ(R) warehouse system. In addition, comparable
store sales continued to benefit from the growth of the commercial sales
program.


         The Western Merger added 560 net new stores operating under the Parts
America name, 40 stores operating under the Western Auto name and the wholesale
dealer network. During fiscal 1998, in addition to the Western Merger, the
Company opened 169 new stores, relocated eight stores and closed 14 stores in
addition to the stores closed in connection with the Western Merger and in
overlapping markets. In fiscal 1998, the Company added 111 stores to its
commercial delivery program, bringing the total to 532 stores. As of January 2,
1999, the Company operated 1,567 stores in 39 states, Puerto Rico and the Virgin
Islands and supplied approximately 740 independent dealers through the wholesale
dealer network.

         Gross profit for fiscal 1998 was $454.6 million or 37.2% of net sales,
compared with $323.5 million or 38.1% of net sales in fiscal 1997. The decrease
in the gross profit percentage resulted largely from the gross profit
contribution from the acquired wholesale dealer network and Service Stores,
primarily due to lower margins associated with service and tires and the
wholesale nature of the dealer network. Additionally, certain product lines in
Parts America stores that

                                       15
<PAGE>

were discontinued were sold at lower prices to liquidate inventory. Excluding
the impact of the Western Merger, the Company's gross profit percentage would
have increased to 38.9% of net sales primarily due to decreased warehouse and
delivery costs as a percentage of net sales and generally better pricing from
its vendors in fiscal 1998 compared to fiscal 1997.

         Selling, general and administrative expenses, before expenses
associated with the Recapitalization, restructuring, merger integration, private
company and non-cash compensation, increased to $391.8 million or 32.1% of net
sales, in fiscal 1998 from $276.9 million or 32.6% of net sales. The decrease as
a percentage of sales was due to the incremental sales volume added by the
Western Merger and the lower selling, general and administrative expense
structure of the wholesale dealer network.

         Operating income, as adjusted for expenses associated with the
Recapitalization, restructuring, merger integration, private company and non-
cash compensation in fiscal 1998 was $62.8 million or 5.1% of net sales as
compared to $46.7 million or 5.5% of net sales in fiscal 1997.

         The Company recorded $14.3 million and $6.8 million in expenses related
to the Recapitalization and a restructuring charge related to the closure of
certain Advance Auto Parts stores, respectively. The Recapitalization costs
consisted of $11.5 million of bonuses paid to certain employees for past
performance, $.2 million in related employment taxes and $2.6 million of non-
recurring expenses, which consisted primarily of professional fees. The
restructuring charge related to estimated exit costs of $6.3 million and write-
offs of related leasehold improvements of $.4 million associated with the
decision to close 31 Advance Auto Parts stores that were in overlapping markets
with certain Parts America stores acquired in the Western Merger. Store exit
costs represent the present value, discounted at a 6.5% interest rate, of the
remaining lease payments, including management's estimate of future insurance,
property tax and common area maintenance, reduced by management's estimate of
future sublease revenue. In addition, the Company recorded $7.8 million of
expenses that consisted of a one-time penalty of $3.3 million for the
cancellation of a long-term vendor contract due to a product line changeover at
the Advance Auto Parts stores and $4.5 million in integration and transition
expenses, primarily for professional services, travel, store conversions and
project incentives.

         EBITDA (operating income plus depreciation and amortization), as
adjusted for expenses associated with the Recapitalization, merger integration,
private company and non-cash compensation was $92.8 million for fiscal 1998 or
7.6% of net sales, as compared to $69.3 million or 8.2% of net sales for fiscal
1997. EBITDA is not intended to represent cash flow from operations as defined
by GAAP and should not be considered as a substitute for net income as an
indicator of operating performance or as an alternative to cash flow (as
measured by GAAP) as a measure of liquidity. The Company's method for
calculating EBITDA may differ from similarly titled measures reported by other
companies. Management believes certain one time expenses, expenses associated
with the Recapitalization, merger integration, private company and non-cash
compensation should be eliminated from the EBITDA calculation to evaluate the
operating performance of the Company.

         Interest expense in fiscal 1998 was $29.5 million compared to $7.7
million in fiscal 1997. The increase in interest in 1998 was primarily due to
the increase in debt related to the Recapitalization, the additional debt
incurred in the Western Merger and higher interest rates.

         Income tax expense for fiscal 1998 was $1.9 million as compared to an
expense of $14.7 million in fiscal 1997, with effective tax rates of 53.9% and
41.9%, respectively. This increase in effective tax rate was due to lower pretax
earnings due to the Recapitalization and the Western Merger.

         As a result of the above factors, the Company recorded net income of
$1.6 million in fiscal 1998 as compared to net income of $20.4 million in fiscal
1997. As a percentage of net sales, net income for fiscal 1998 was 0.1% as
compared to 2.4% for fiscal 1997.


Liquidity and Capital Resources

         The Company believes it will have sufficient liquidity to fund its debt
service obligations, including indebtedness incurred in connection with the
Western Merger, and implement its growth strategy over the next twelve months.
As of January 1, 2000, the Company had outstanding indebtedness consisting of
$200.0 million of Senior Subordinated Notes (the "Senior Subordinated Notes"),
borrowings of $350.5 million under the Credit Facility, $10.0 million of
indebtedness
                                       16
<PAGE>

under the McDuffie County Development Authority Taxable Industrial Bonds ("IRB")
and $3.5 million of obligation under a capital lease.

         The Senior Subordinated Notes bear interest at a rate of 10.25%,
payable semiannually, and require no principal payments until maturity. The
indenture governing the Senior Subordinated Notes contains certain covenants
that limit, among other things, the ability of the Company and its restricted
subsidiaries to incur additional indebtedness and issue preferred stock, pay
dividends or certain other distributions, issue stock of subsidiaries, make
certain investments, repurchase stock and certain indebtedness, create or incur
liens, engage in transactions with affiliates, enter into new businesses, sell
stock of restricted subsidiaries and restrict the Company from engaging in
certain mergers or consolidations and sell assets. The $10.0 million principal
amount IRB bears interest at a variable rate and will require no principal
payments until maturity in November 2002.

         The Company has access to a total of $465.0 million through the Credit
Facility in addition to its operating cash flow. The Credit Facility provides
for (i) a $125.0 million Tranche B term loan, which was made at the closing of
the Recapitalization; (ii) a revolver with maximum borrowings including letters
of credit of approximately $125.0 million, of which $66.0 million is borrowed
and $12.1 million is outstanding for letters of credit, at January 1, 2000,
(iii) a $125.0 million delayed draw term loan of which $70.0 million was
borrowed at January 1, 2000 and (iv) a $90.0 million deferred term loan facility
which was drawn at the closing of the Western Merger. The term loan facilities,
other than the Tranche B term loan, will mature on the sixth anniversary of
initial borrowing, and the Tranche B term loan will mature on the eighth
anniversary of initial borrowing. Annual principal payments on the term loan
facilities prior to the sixth anniversary of initial borrowing will be nominal;
thereafter, required principal payments will be approximately $236.5 million in
2004, $60.0 million in 2005 and $30.0 million in 2006, assuming the term loan
facilities have been fully borrowed. The revolving loan facility will mature on
the sixth anniversary of initial borrowing. The interest rates under the delayed
draw facilities and the revolver are determined by reference to a pricing grid
that will provide for reductions in the applicable interest rate margins based
on the Company's trailing total debt to EBITDA ratio (as defined in the Credit
Facility). Based upon the Company's operating ratios at January 1, 2000, the
margins were 2.25% and 1.25% for Eurodollar and base rate borrowings,
respectively, and can step down to 1.75% and 0.75%, respectively, if the
Company's total debt to EBITDA ratio is less than or equal to 4.00 to 1.00.
Additionally, at January 1, 2000, the margin under the Tranche B term loan and
the deferred term loan facility was 2.50% on a Eurodollar rate and 1.50% on
the base rate borrowings.

         Borrowings under the Credit Facility are required to be prepaid,
subject to certain exceptions, with (a) 50% of defined excess cash flow, (b)
100% of the net cash proceeds of all asset sales or other dispositions of
property by the Company and its subsidiaries (including certain insurance and
condemnation proceeds), subject to certain exceptions (including exceptions for
(i) reinvestment of certain asset sale proceeds within 360 days of such sale and
(ii) certain sale-leaseback transactions), (c) 100% of the net proceeds of
issuances of debt obligations of the Company and its subsidiaries and (d) 100%
of the net proceeds of issuance of equity of the Company and its subsidiaries.
Because increases in net working capital, capital expenditures and debt
repayments are deducted in calculating excess cash flow, the Company does not
anticipate that the prepayment obligation under the Credit Facility in respect
thereof will have a material effect on its operating strategy. With respect to
growth through acquisitions, the operation of this covenant may result in the
application of cash resources for prepayments which would require the Company to
secure additional equity or debt financing to fund an acquisition, but while no
assurance can be given, the Company does not anticipate that this would have a
material effect on its ability to finance acquisitions in the future. The
Company did not make any mandatory prepayments in fiscal 1999, and does not
anticipate any mandatory prepayments under this provision in fiscal 2000.

         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 the
Western Merger. From fiscal 1996 through fiscal 1999, Holding opened 441 stores,
closed the Western Merger, constructed two new distribution centers and expanded
its Roanoke distribution center. The Company has financed its growth through a
combination of internally generated funds, borrowings under the Credit
Facility and issuances of equity.

         The Company's new Advance Auto Parts stores require capital
expenditures of approximately $120,000 per store and an inventory investment of
approximately $350,000 per store, a portion of which is held at a distribution
facility. A substantial portion of these inventories is financed through vendor
payables. Pre-opening expenses, consisting primarily of store set-up costs and
training of new store employees, average approximately $25,000 per store

                                       17
<PAGE>

and are expensed when incurred. The Company opened 99 new stores and reopened
three closed stores during fiscal 1999 and anticipates opening up to 150 new
stores in fiscal 2000.

         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 and increased
SKU levels. Additionally, related to the Western Merger, the Company entered
into several long-term vendor agreements which will provide more favorable
pricing and terms, as compared to periods prior to the Western Merger, over the
term of the agreement. The Company believes this will continue to have a
positive impact on gross margins.

         As a result of the Western Merger, the Company decided to close certain
Advance Auto Parts stores in overlapping markets with Parts America stores based
on store performance. As part of normal operations the Company continued to
review store performance, and close additional stores not meeting profitability
objectives. The Western Merger also resulted in restructuring reserves recorded
in purchase accounting for the closure of certain Parts America stores,
severance and relocation costs and other facility exit costs. As of January 1,
2000, these reserves had a remaining balance of $16.5 million. The Company also
assumed certain restructuring and deferred compensation liabilities previously
recorded by Western Auto Supply Company. At January 1, 2000, the total liability
for the restructuring and deferred compensation plans was $4.8 million and $8.5
million, respectively, of which $1.9 million and $3.4 million, respectively, is
recorded as a current liability. The classification for deferred compensation is
determined by employee election, and can be changed upon 12 months' notice.

         In fiscal 1997, net cash provided by operating activities was $41.7
million. This amount consisted of $20.4 million in net income, depreciation and
amortization of $21.8 million, offset by $.5 million of an increase in net
working capital and other. Net cash used for investing activities was $48.6
million and was comprised of capital expenditures. Net cash provided by
financing activities was $7.4 million and was comprised primarily of net
borrowings.

         In fiscal 1998, net cash provided by operating activities was $37.9
million. This amount consisted of $1.6 million in net income, depreciation and
amortization of $30.0 million, amortization of deferred debt issuance costs of
$1.9 million and a decrease of $4.4 million of net working capital and other.
Net cash used for investing activities was $423.7 million and was comprised
primarily of net capital expenditures of approximately $59.7 million, cash
consideration of approximately $171.0 million in the Western Merger and $193.0
million for the purchase of Holding Common Stock related to the Western Merger.
Net cash provided by financing activities was $412.6 million and was comprised
primarily of net borrowings and issuance of equity.

         In fiscal 1999, net cash used in operating activities was $19.3
million. This amount consisted of a $19.6 million net loss, offset by
depreciation and amortization of $58.1 million, amortization of deferred debt
issuance costs of $3.2 million and an increase of $61.0 million in net working
capital and other. Net cash used for investing activities was $113.8 million and
was comprised primarily of net capital expenditures of $101.9 million and cash
consideration of $13.0 million in the Western Merger. Net cash provided by
financing activities was $121.5 million and was comprised primarily of net
borrowings.

         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 the revolver, delayed draw term
and deferred term loans are subject to a borrowing base formula, which is based
on certain percentages of the Company's inventories and certain debt covenants.
As of January 1, 2000, $63.8 million was available under these facilities. The
Company intends to use borrowings under the revolver and delayed draw term
loans, as well as internally generated funds, for store expansion and funding of
working capital, including funding of the restructuring program.

         The Credit Facility contains covenants restricting the ability of the
Company and its subsidiaries to, among others things, (i) pay dividends on any
class of capital stock or make any payment to purchase, redeem, retire, acquire,
cancel or terminate capital stock, (ii) prepay, redeem, retire, acquire, cancel
or terminate debt, (iii) incur liens or engage in sale-leaseback transactions,
(iv) make loans, investments, advances or guarantees, (v) incur additional debt
(including hedging arrangements), (vi) make capital expenditures, (vii) engage
in mergers, acquisitions and asset sales, (viii) engage in transactions with
affiliates, (ix) enter into any agreement which restricts the ability to create
liens on property or assets or the ability of subsidiaries to pay dividends or
make payments on advances or loans to the Company or other subsidiaries, (x)
change the nature of the business conducted by the Company and its subsidiaries,
(xi) change the passive holding company status of Holding and (xii) amend
existing debt agreements or the Company's or Holding's

                                       18
<PAGE>

certificate of incorporation, by-laws or other organizational documents. The
Company is also required to comply with financial covenants in the Credit
Facility with respect to (a) limits on annual aggregate capital expenditures,
(b) a maximum leverage ratio, (c) a minimum interest coverage ratio and (d) a
minimum retained cash earnings test. The Company is generally prohibited from
paying dividends (including to Holding) except that as long as no defined event
of default under the Credit Facility then exists, the Company will be permitted
to pay dividends to Holding in an amount sufficient to cover the cash interest
due on the Senior Discount Debentures (the "Debentures") commencing October 15,
2003. The Company believes it is in compliance with the above covenants under
the Credit Facility as of January 1, 2000.

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.

Year 2000 Conversion

         The Year 2000 concern generally existed since a significant percentage
of the software that runs most computers relies on two-digit date codes to
perform computations and decision-making functions. As a result, the possibility
existed on January 1, 2000 that these computer programs would fail from an
inability to interpret date codes properly, misinterpreting "00" as the year
1900 rather than 2000. During fiscal 1998, the Company appointed an internal
Year 2000 manager and remediation team and adopted a four phase approach of
assessment, remediation, testing and contingency planning. The scope of the
project included all internal software, hardware, operating systems and
assessment of risk to the business from vendors and other partners' Year 2000
issues. During 4th quarter 1999, the Company completed all reprogramming
required to permit the proper functioning of all internal computer systems and
equipment, including the testing of such systems and equipment. The total cost
of the Year 2000 project approximated $4.8 million. Of that cost, approximately
$1.5 million represented the purchase of new software and hardware, which was
capitalized. The remaining costs were expensed as incurred.

         As a result of those planning and remediation efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems as a result of the Year 2000
date change. Additionally, as of the date of this filing, the Company has not
experienced any Year 2000 operational or financial interruptions, either
internally or externally with vendors or service providers, nor are any
expected. Although the Company believes that it successfully avoided any
significant disruption from the century rollover, it will continue to monitor
all critical systems for the appearance of delayed complications or disruptions.
In addition, the Company will continue to monitor any problems encountered by
vendors, distributors or service providers throughout calendar year 2000 to
ensure that any latent Year 2000 matters that may arise are promptly addressed.

Risk Factors

     Substantial Leverage and Debt Service Obligations

         The Company has substantial indebtedness and debt service obligations.
The Company has entered into an indenture governing the Senior Subordinated
Notes (the "Senior Subordinated Notes Indenture") which were used to finance
Holding's Recapitalization, including refinancing the existing outstanding
indebtedness of Holding and the Company. As of January 1, 2000, (i) the Company
and its subsidiaries had $1,142.4 million of liabilities outstanding, including
indebtedness under the Senior Subordinated Notes and the Credit Facility, trade
payables and other accrued liabilities and (ii) the Company had stockholder's
equity of $202.5 million. In addition, the Company has $101.9 million to borrow
under the Credit Facility, which is limited to $63.8 million based on certain
borrowing base formulas as of January 1, 2000.

         The level of the Company's indebtedness may have important consequences
to the holders of the Senior Subordinated Notes, including: (i) the ability of
the Company to obtain additional debt financing in the future for acquisitions,
working capital and capital expenditures may be limited; (ii) a substantial
portion of the Company's cash flow must be dedicated to debt service and will
not be available for other purposes; (iii) the Company's level of indebtedness
could limit its flexibility in reacting to changes in its operating environment
and economic conditions generally and (iv) the covenants contained in the
Company's debt instruments, limit the Company's

                                       19
<PAGE>

ability to, among other things, borrow additional funds, dispose of assets or
make investments.

         In order to satisfy the Company's obligations under the Senior
Subordinated Notes, its operating leases, the Credit Facility, the IRB and
certain other indebtedness presently outstanding, the Company must generate
substantial operating cash flow. The ability of the Company to meet its
respective debt service and other obligations or to refinance any such
obligation will depend on the future performance of the Company, which will be
subject to prevailing economic conditions and to financial, business and other
factors beyond the control of the Company. The Company believes it will be able
to meet its respective debt service and other obligations and to refinance
such indebtedness, there can be no assurances with respect thereto, including
with respect to the Company's ability to refinance borrowings under the Credit
Facility at the maturity of the obligations arising thereunder. Furthermore,
because the Credit Facility bears interest at floating rates, the Company's
financial performance and flexibility may be adversely affected by fluctuations
in interest rates.

     Uncertainty Relating to Ability to Implement Growth Strategy

         The Company has significantly increased its store count in the past
five fiscal years, from 536 stores at the end of fiscal 1995 to 1,617 stores at
the end of fiscal 1999. The Company intends to continue to expand its base of
stores as part of its growth strategy, both by opening new stores and by
acquisition. There can be no assurance that this strategy will be successful.
The actual number of new stores to be opened and their success will be dependent
on a number of factors, including, among other things, the ability of the
Company to manage such expansion and hire and train qualified sales associates,
the availability of suitable store locations and the negotiation of acceptable
lease terms for new locations. There can be no assurance that the Company will
be able to open and operate such stores on a timely or profitable basis or that
opening new stores in markets already served by the Company will not adversely
affect existing store profitability or comparable store sales. Furthermore, the
success of the Company's acquisition strategy will depend on the extent to which
it is able to acquire, successfully absorb and profitably manage additional
businesses, and no assurance can be given that the Company's strategy will
succeed.

     Competition

         The retail sale of automotive parts and accessories is highly
competitive. The Company competes primarily with national and regional retail
automotive parts chains, wholesalers or jobber stores (some of which are
associated with national automotive parts distributors or associations),
independent operators, automobile dealers that supply original equipment
manufacturer parts and mass merchandisers that carry automotive replacement
parts and accessories. Some of the Company's competitors are larger and have
greater financial, marketing and other resources than the Company. In addition,
some e-commerce companies have recently established internet sites that
sell automotive parts, products and services. If these internet sites are
successful and the Company is unable to effectively sell its parts, products and
services over the internet through PartsAmerica.com, the Company may lose market
share.

     Dependence on Vendor Relationships

         The Company's business is dependent upon developing and maintaining
close relationships with its vendors and upon its ability to purchase products
from these vendors on favorable price and other terms. A disruption of these
vendor relationships could have a material adverse effect on the Company's
business.

     Dependence on Certain Key Personnel

         The Company is dependent upon the services and experience of its
executive officers and senior management team and there can be no assurance that
the Company's business would not be affected if one or more of these individuals
left the Company. The Company has entered into an employment agreement with
Lawrence P. Castellani, Chief Executive Officer, Jimmie L. Wade, President,
Chief Financial Officer and Secretary, David R. Reid, Executive Vice President
and Chief Operating Officer, Paul W. Klasing, Executive Vice President,
Merchandising and Marketing and Joe H. Vaughn, Jr., Senior Vice President, Human
Resources and Benefits and Assistant Secretary.

                                       20
<PAGE>

     Economic and Weather Conditions

         The Company's business is sensitive to the economic and weather
conditions of the regions in which it operates. In recent years, certain of
these regions have experienced economic recessions and extreme weather
conditions. Temperature extremes tend to enhance sales by causing a higher
incidence of parts failure and increasing sales of seasonal products. However,
unusually inclement weather can reduce sales by causing deferral of elective
maintenance. No prediction can be made as to future economic or weather
conditions in the regions in which the Company operates or the effect such
conditions may have on the business or results of operations of the Company.

                                       21
<PAGE>

Item 7A.   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 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 increased during fiscal 1999 due to increases in these rates.

         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 (see "Item 7.
Management's Discussion and Analysis and Results of Operations--Liquidity and
Capital Resources"). 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 January 1, 2000 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 January 1, 2000. Implied forward rates should not be considered a
predictor of actual future interest rates.

<TABLE>
<CAPTION>
                                                                                                                       Fair
                                 Fiscal      Fiscal    Fiscal     Fiscal      Fiscal     Thereafter     Total         Market
                                  2000        2001      2002       2003       2004                                    Value
                                --------    --------  --------   -------     --------   ------------  ----------    -----------
<S>                             <C>         <C>       <C>        <C>         <C>        <C>           <C>           <C>
                                                               (dollars in thousands)
Long-term debt:
   Fixed rate.........          $      -    $     -   $     -    $     -     $      -   $   200,000   $  200,000    $  170,000
   Weighted average
     interest rate....                 -          -         -          -            -          10.3%        10.3%
   Variable rate......          $  2,000    $ 3,000   $14,000    $ 4,000     $247,500   $    90,000   $  360,500    $  360,500
   Weighted average
      interest rate...               8.7%       9.1%      9.2%       9.3%         9.3%          9.6%         9.3%
</TABLE>

Item 8.      Financial Statements.

         See the Index included at "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K."

Item 9.      Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure.

         None.

                                       22
<PAGE>

                                    PART III

Item 10.     Directors and Executive Officers of the Registrant.

         The following table sets forth certain information regarding the
directors and executive officers of the Company as of March 31, 2000:

<TABLE>
<CAPTION>
                         Name                        Age                     Position
                         ----                      -------                   --------
     <S>                                           <C>       <C>
     Nicholas F. Taubman.......................      65      Chairman of the Board and Director of Holding
                                                             and the Company
     Garnett E. Smith..........................      60      Vice Chairman of the Board and Director of Holding
                                                             and the Company
     Lawrence P. Castellani....................      54      Chief Executive Officer and Director of Holding
                                                             and the Company
     Jimmie L. Wade ...........................      45      President and Chief Financial Officer, Secretary of Holding and
                                                             the Company
     David R. Reid.............................      37      Executive Vice President and Chief Operating Officer of Holding and
                                                             the Company
     Paul W. Klasing...........................      40      Executive Vice President, Merchandising and Marketing of Holdings and
                                                             the Company
     Joe H. Vaughn, Jr........................       39      Senior Vice President, Human Resources and Benefits,
                                                             Assistant Secretary of Holding and the Company
     John M. Roth.............................       41      Director of Holding and the Company
     Mark J. Doran............................       36      Director of Holding and the Company
     Timothy C. Collins.......................       43      Director of Holding and the Company
     Peter M. Starrett........................       51      Director of Holding and the Company
     Julian C. Day............................       47      Director of Holding and the Company
     William L. Salter........................       56      Director of Holding and the Company
     Joseph E. Laughlin.......................       35      Director of Holding and the Company
</TABLE>

         Mr. Taubman, Chairman of the Board of Holding and the Company, joined
the Company in 1956. Mr. Taubman has served as Chairman of the Company since
January 1985 and as Chief Executive Officer of the Company from January 1985 to
July 1997. From 1969 to 1984, Mr. Taubman served as President of the Company. In
addition, Mr. Taubman has served as Chairman of Holding since May 1992, the year
it was formed, as Chief Executive Officer of Holding from May 1992 to March
1998, and as Secretary and Treasurer of Holding from May 1992 to February 1998.

         Mr. Smith, Vice Chairman of the Board of Holding and the Company,
joined the Company in November 1959. Mr. Smith was named Vice Chairman of the
Board of Holding and the Company in January 2000. Prior to that Mr. Smith served
as President and Chief Operating Officer of the Company from January 1985 until
July 1997 at which time he became Chief Executive Officer. Mr. Smith has also
served in numerous other positions including Executive Vice President and
General Manager, Vice President of Purchasing, Buyer and Store Manager. In
addition, Mr. Smith has served as President of Holding from May 1992 to October
1999, as Chief Operating Officer of Holding from May 1992 to March 1998, and as
Chief Executive Officer from March 1998 to January 2000.

         Mr. Castellani, Chief Executive Officer and Director of Holding and the
Company, joined the Company in February 2000 and is responsible for overall
management and operations of the Company. Prior to joining the Company, Mr.
Castellani was President and Chief Executive Officer of Ahold Support Services
in Latin America from 1998 to 2000 and Chief Executive Officer of Tops Friendly
Markets from 1991 to 1998.

         Mr. Wade, President, Chief Financial Officer and Secretary, joined the
Company in February 1994. Mr. Wade was named President in October 1999 and Chief
Financial Officer and Secretary in March 2000. Mr. Wade is responsible for
finance, logistics, information services, inventory management, e-commerce and
quality practices. From 1987 to 1993, Mr. Wade was Vice President, Finance and
Operations, for S.H. Heironimus, and from 1979 to 1987, he was Vice President-
Finance of American Motor Inns. Mr. Wade is a certified public accountant.

                                       23
<PAGE>

          Mr. Reid, Executive Vice President and Chief Operating Officer, joined
the Company in October 1984 and has held his current position since October
1999. Mr. Reid is responsible for all retail operations, commercial sales, store
development and construction. In addition, since March 1999, Mr. Reid has served
as Chief Executive Officer of Western Auto. From 1994 to 1995, Mr. Reid was
Assistant Vice President, Store Support for the Company. Mr. Reid has also
served in training and store operations as Store Manager and Division Manager.

          Mr. Klasing, Executive Vice President, Merchandising and Marketing and
joined the Company in April 1995 and has held his current position since October
1999. Mr. Klasing is responsible for merchandising, marketing, quality control
and retail pricing. From 1981 to 1992, Mr. Klasing worked for Kragen Auto Parts
(now CSK Automotive) and from 1992 to 1995 for Montgomery Ward/Auto Express in
various positions.

          Mr. Vaughn, Senior Vice President, Human Resources and Benefits and
Assistant Secretary, joined the Company in May 1995 and has held his current
position since November 1999. Mr. Vaughn is responsible for human resources,
employee benefits, payroll and risk management. From 1983 to 1989, Mr. Vaughn
worked for KPMG Peat Marwick, from 1989 to 1992, he worked for Dominion Bank,
and from 1992 to 1995, he worked for Ferguson Andrews & Associates. Mr. Vaughn
is a certified public accountant.

          Mr. Roth, Director, became a member of the Board in connection with
the Recapitalization. Mr. Roth joined Freeman Spogli & Co. Incorporated
("Freeman Spogli") in March 1988 and became a principal in March 1993. Mr. Roth
is also a director of AFC Enterprises, Inc. and Envirosource, Inc.

          Mr. Doran, Director, became a member of the Board in connection with
the Recapitalization. Mr. Doran joined Freeman Spogli in 1988 and became a
principal in January 1998. Mr. Doran is also a director of AFC Enterprises, Inc.
and Century Maintenance Supply, Inc.

          Mr. Collins, Director, became a member of the Board in connection with
the Recapitalization. Mr. Collins is Senior Managing Director and Chief
Executive Officer of Ripplewood Holdings L.L.C., a private investment firm
formed by him in October 1995. From February 1990 to October 1995, Mr. Collins
was a Senior Managing Director of the New York office of Onex Corporation, an
Ontario corporation listed on the Toronto and Montreal Stock Exchanges. Mr.
Collins is also a director of WRC Media, Inc. and the Strong Schafer Value Fund.

          Mr. Starrett, Director, became a member of the Board in November 1998.
Since August 1998, Mr. Starrett has served as a consultant to Freeman Spogli.
Prior to August 1998, Mr. Starrett was President of Warner Bros. Studio Stores
Worldwide and had been employed by Warner Bros. since May 1990. Mr. Starrett is
also a director of AFC Enterprises, Inc., Guitar Center, Inc., Petco Animal
Supplies, Inc. and The Pantry, Inc.

          Mr. Day, Director, became a member of the Board in April 1999. Mr. Day
has been the Executive Vice President and Chief Operating Officer of Sears since
September 1999. Prior to this appointment, Mr. Day was Executive Vice President
and Chief Financial Officer of Sears. From July 1993 to June 1998, Mr. Day
served as the Executive Vice President and Chief Financial Officer of Safeway
Inc. and had been employed by Safeway since 1992.

          Mr. Salter, Director, became a member of the Board in April 1999. Mr.
Salter is the retired President of the Specialty Retail division of Sears. From
1995 to 1999, Mr. Salter served as President of the Home Stores and Hard Lines
division of Sears, and from 1993 to 1995 as the Vice President and General
Manager of the home appliances and electronics division of Sears.

          Mr. Laughlin, Director, became a member of the Board in July 1999. Mr.
Laughlin has served as Vice President of Corporate Finance and Business
Development for Sears since July 1999. From 1992 to 1999, Mr. Laughlin served as
Senior Vice President and Director of Strategic Planning for Wells Fargo Bank.
From 1990 to 1992, Mr. Laughlin served as a Special Assistant to the Director of
the Office of Thrift Supervision in Washington D.C., and from 1988 to 1990 as a
Senior Consultant with Booz, Allen & Hamilton, Inc.

          Directors of the Company and Holding are elected annually and hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified.

          Executive Officers are elected by, and serve at the discretion of, the
Board of Directors. The Company has entered into employment agreements with
certain of its executive officers. See "Item 11. Executive Employment
Contracts."

                                       24
<PAGE>

Item 11. Executive Compensation.

          The following table sets forth information with respect to
compensation earned by the Chief Executive Officer and the four other most
highly compensated executive officers who were serving as executive officers at
the end of the last completed fiscal year (collectively, the "Executive
Officers").

<TABLE>
<CAPTION>
                                                                     Summary Compensation Table
                                                                                                        Long Term
                                                                                                      Compensation
                                                                          Annual Compensation            Awards
                                                       -----------------------------------------------------------
                                                                                                       Securities
                                           Fiscal                                   Other Annual       Underlying      All Other
Name and Principal Position                 Year       Salary        Bonus (1)    Compensation (2)  Options/SARs   Compensation (3)
---------------------------                 ----       ------        ----------   ----------------  -------------- ----------------
<S>                                        <C>         <C>           <C>          <C>               <C>            <C>
Garnett E. Smith (4).....................    1999      $507,965      $  220,408      $         -        417,500     $   8,000
        Chief Executive                      1998       457,600       7,948,011                -        362,500         8,000
        Officer                              1997       453,580         471,553                -              -         7,500

David R. Reid............................    1999      $198,808      $  155,955      $         -         34,500     $   6,080
        Executive Vice                       1998       108,131         208,464                -         25,000         5,320
        President and Chief                  1997        87,119          50,400                -              -         6,096
        Operating Officer

J. O'Neil Leftwich (5)...................    1999      $188,092      $  145,826      $         -         86,500     $   6,080
        Senior Vice President                1998       164,415         828,220                -         72,500         6,932
        and Chief Financial                  1997       153,825          42,500                -              -         7,500
        Officer, Secretary and
        Treasurer

Jimmie L. Wade (5).......................    1999      $174,421      $  157,976      $         -         34,500     $   6,080
        President and Chief                  1998       108,537         221,887                -         25,000         6,665
        Administrative                       1997        97,116          51,625                -              -         7,500
        Officer

Paul W. Klasing..........................    1999      $151,031      $  116,023      $         -         34,500     $   6,080
        Senior Vice President,               1998       140,000         231,382                -         25,000         6,589
        Merchandising and Marketing          1997       107,692          18,778                -              -         6,129

Carroll R. Tilley, Jr. (6)...............    1999      $268,414      $  153,245      $         -              -     $   7,459
        Executive Vice                       1998       240,000       1,236,040                -        145,000         7,459
        President and General Manager        1997       219,014         110,429                -              -         7,500
</TABLE>

(1)  In connection with the Recapitalization, an aggregate of $11.5 million in
     extraordinary bonuses were paid to senior employees in April 1998.
(2)  While certain officers received perquisites, such perquisites do not exceed
     the lesser of $50,000 or 10% of each officer's respective salary and bonus.
(3)  Consists of matching contributions made by the Company under the Company's
     401(k) savings plan.
(4)  As of February 1, 2000, Mr. Smith serves as Vice Chairman of the Company.
(5)  In March of fiscal 2000, Mr. Wade was named President and Chief Financial
     Officer, and Mr. Leftwich was named Senior Vice President, Financial
     Management.
(6)  Mr. Tilley resigned from employment with the Company on October 10, 1999.

Executive Employment Contracts

         Mr. Castellani was appointed Chief Executive Officer and began
employment with the Company on February 1, 2000 at which time he signed an
employment and non-competition agreement. Mr. Castellani signed an irrevocable
acceptance letter with the Company in December 1999 that obligated the Company
to pay Mr. Castellani a signing bonus of $3.3 million. The signing bonus of $3.3
million was accrued at January 1, 2000 and was paid in the first quarter
fiscal 2000. Approximately $1.9 million of the bonus was used to purchase shares
of Holding common stock pursuant to a restricted stock agreement, which limits
the sale or transfer of rights to the stock during the term of the contract.
This portion of the bonus has been deferred and will be amortized over the two
year term of the contract. The

                                       25
<PAGE>

contract has an initial term of two years, and renews automatically each year
thereafter unless terminated by the Company or Mr. Castellani. The contract
provides for a base salary of $600,000, subject to annual increases at the
discretion of the Board of Directors, and an annual cash bonus based on the
Company's achievement of performance targets established by the Board of
Directors. In the event Mr. Castellani is terminated without cause, or
terminates his employment for "good reason" as defined in the employment
agreement, he will receive salary through the later of the end of the term of
employment or one year from the effective date of termination, less any amounts
earned in other employment. Mr. Castellani has agreed not to compete with the
Company, to preserve its confidential information, not to recruit or employ
employees of the Company to or in other businesses, and not to solicit customers
or suppliers of the Company for competitors.

          On April 15, 1998, Mr. Smith entered into an employment and non-
competition agreement with the Company. In January of fiscal 2000, Mr. Smith was
named Vice Chairman of Holding and the Company and subsequent to this filing
will serve the Company with less day to day responsibilities. The agreement has
an initial term of three years, and renews automatically each year thereafter
unless terminated by the Company or Mr. Smith. The agreement provides for a base
salary of $200,000, adjusted for his new responsibilities effective April 1,
2000 and subject to annual increases at the discretion of the Board of
Directors. Additionally, Mr. Smith may earn annual cash bonuses based on the
Company's achievement of performance targets established by the Board of
Directors. The bonus to be paid upon achievement of targets will be consistent
in amount with the bonuses paid to Mr. Smith by the Company historically. In the
event Mr. Smith is terminated without cause, or terminates his employment for
"good reason" as defined in the employment agreement, he will receive salary
through the later of the end of the term of employment or one year from the
effective date of termination, less any amounts earned in other employment. Mr.
Smith has agreed not to compete with the Company, to preserve its confidential
information, not to recruit or employ employees of the Company to or in other
businesses, and not to solicit customers or suppliers of the Company for
competitors.

          On April 15, 1998, Messrs. Reid, Leftwich, Wade and Klasing entered
into employment agreements with the Company. The agreements provide that each
Executive Officer will receive a base salary of $110,000, $162,000, $110,000 and
$140,000, respectively, subject to annual increases at the discretion of the
Board of Directors. Such agreements contain severance provisions that provide
for base salary for the remainder of the term of the agreement upon termination
of employment or one year, unless the termination is due to death, disability or
retirement, by the Company for "cause" (as defined in the agreements) or by the
employee other than for "good reason" (as defined in the agreements), less any
amounts earned in other employment. The initial term of the employment
agreements is two years, after which the term of employment will extend from
year-to-year unless terminated by either the Company or the employee. Other
provisions require the Company to pay bonuses earned by the employee upon the
Company's achievement of earnings targets established by the Board of Directors,
and an agreement by the employee not to compete with the Company, to preserve
its confidential information, not to recruit or employ employees of the Company
to or in other businesses, and not to solicit customers or suppliers of the
Company for competitors.

          On October 10, 1999, Mr. Tilley resigned from employment with the
Company. Under the employment contract between Mr. Tilley and the Company, Mr.
Tilley received one year of severance compensation including certain benefits.
Additionally, the Company repurchased Holding Common Stock owned by Mr. Tilley,
one half of the consideration for which was paid in fiscal 1999 and the
remainder of which will be paid in fiscal 2000, net of a loan from the Company
with Mr. Tilley. As of January 1, 2000, the Company had accrued obligations for
the buy back of stock and certain bonuses earned by Mr. Tilley prior to his
resignation.

Consulting Agreement

          On April 15, 1998, Mr. Taubman entered into a consulting and non-
competition agreement with Holding and the Company. The agreement, which has a
term of three years, requires Holding or the Company to pay consulting fees in
an amount of $300,000 per annum, plus an annual bonus of at least $300,000 based
upon the achievement of targeted performance goals established by the Board of
Directors. In fiscal 1999 and 1998, Mr. Taubman earned $400,000 and $708,222,
respectively, pursuant to the consulting agreement. Mr. Taubman has agreed not
to compete with the Company, to preserve its confidential information, not to
recruit or employ employees of the Company to or in other businesses, and not to
solicit customers or suppliers of the Company for competitors. Pursuant to the
consulting agreement, Holding and Mr. Taubman have entered into an indemnity
agreement whereby Holding will indemnify Mr. Taubman for actions taken as an
officer or director of or consultant to Holding or the Company to the fullest
extent permitted by law. The amount of time Mr. Taubman must devote to his
consultation duties declines throughout the term of the agreement. The Company
has entered into indemnification agreements similar to that with Mr. Taubman
with five of its other directors.

                                       26
<PAGE>

Compensation of Directors

         Directors of the Company receive no compensation as directors.
Directors are reimbursed for their reasonable expenses in attending meetings and
performing duties as directors.

Stock Subscription Plans

         Holding has adopted Stock Subscription Plans (the "Stock Subscription
Plans") pursuant to which certain directors, officers and key employees of the
Company have purchased 683,950 shares, net of cancellations, of the outstanding
Holding Common Stock at the same price as Freeman Spogli's purchase of its
shares in the Recapitalization, or fair market value at the time of purchase.
$2.1 million of the purchase price for such shares was paid by delivery of full
recourse promissory notes bearing interest at the prime rate and due five years
from the Recapitalization, secured by all of the stock each such executive owns
in Holding. Messrs. Smith, Wade, Reid, Leftwich and Klasing purchased 250,000
shares, 25,000 shares, 20,000 shares, 50,000 shares and 20,000 shares,
respectively. For these individuals, $0, $75,000, $115,000, $250,000 and
$110,000 of their purchase price, respectively, was financed through the
delivery of promissory notes on the terms described above. As of March 31, 2000,
the outstanding balance on the promissory notes was $115,000, $200,000 and
$110,000 for each of Messrs. Reid, Leftwich and Klasing, respectively. The
agreements entered into in connection with the Stock Subscription Plans provide
for restrictions on transferability, and acquired shares are subject to a right
of first refusal and a repurchase right at stated prices in favor of Holding and
co-sale rights in favor of the executive if Freeman Spogli sells its shares to a
third party. The agreements also include an obligation to sell at the request of
Freeman Spogli. These rights (but not the restrictions on transferability) will
terminate upon an initial public offering by Holding of Holding Common Stock, as
further defined in agreements entered into under the Stock Subscription Plans.

         Mr. Castellani entered into a stock subscription agreement under the
Stock Subscription Plan in fiscal 2000, pursuant to which he purchased 57,164
shares of Holding Common Stock. $600,000 of Mr. Castellani's purchase price was
financed through the delivery to the Company of a promissory note.

Stock Option Plans

         Holding has adopted stock option plans (the "Option Plans"), under
which Holding made initial grants of approximately 898,750 shares of Holding
Common Stock in April 1998. Each Option Plan participant has entered into an
option agreement (an "Option Agreement") with Holding. The Option Plans and each
outstanding option thereunder are subject to termination in the event of a
change in control of Holding or other extraordinary corporate transactions, as
more fully described in the Option Plans. In addition, all options granted
pursuant to the Option Plans will terminate 90 days after termination of
employment (unless termination was for cause, in which event an option will
terminate immediately) or 180 days in the event of termination due to death or
disability. Shares received upon exercise of options are subject to both a right
of first refusal and a repurchase right at stated prices in favor of Holding,
and co-sale rights in favor of the optionee. These rights will terminate upon an
initial public offering by Holding of its Common Stock, as further defined in
the Option Agreements. Shares received upon exercise of options, as well as all
outstanding options, are also subject to obligations to sell at the request of
Freeman Spogli. All options will terminate on the seventh anniversary of the
Option Agreement under which they were granted if not exercised prior thereto.

         Three different types of options may be granted pursuant to the Option
Plans. Fixed Price Service Options will vest over a three-year period in three
equal annual installments beginning in fiscal 1999. Performance Options will be
earned in installments based upon satisfaction of certain performance targets
for the four-year period ending in fiscal 2001. Variable Price Service Options
will vest in equal annual installments over a two-year period beginning in 2000,
and have an exercise price that increases over time.

                                       27
<PAGE>

Option Grants

         The following table sets forth information concerning Options granted
in fiscal 1999 to each of the Executive Officers.

<TABLE>
<CAPTION>
                                                    Individual Grants
                                ------------------------------------------------------------------

                                                                                                       Potential Realizable Value at
                                                         % of Total                                    Assumed Annual Rates of Stock
                                       Number of         Options/                                             Price Appreciation
                                      Securities           SARs                                               for Option Term
                                      Underlying        Granted to      Exercise or                         Fixed Price Options
                                                                                                    --------------------------------
                                     Options/SARs      Employees in     Base Price      Expiration
            Name                      Granted #         Fiscal Year      ($/Sh)(1)          Date     0% (2)  5% ($)(3)    10% ($)(3)
----------------------------    --------------------   -------------   -------------    ----------  ------  ----------   -----------
<S>                             <C>                    <C>             <C>              <C>         <C>     <C>          <C>
Garnett E. Smith............         55,000 (4)            26.3          16.82           4/14/06      -      376,609       877,658

J. O'Neil Leftwich..........         14,000 (5)             6.7          16.82           4/14/06      -       95,864       223,404

Jimmie L. Wade..............          9,500 (6)             4.6          16.82           4/14/06      -       65,051       151,596

David R. Reid ..............          9,500 (7)             4.6          16.82           4/14/06      -       65,051       151,596

Paul W. Klasing.............          9,500 (8)             4.6          16.82           4/14/06      -       65,051       151,596
</TABLE>

(1)  Represents the fair market value of the underlying shares of Common Stock
     at the time of the grant, as determined by Holding's Board of Directors.
(2)  Unless the stock price increases, which will benefit all stockholders
     commensurately, an Option holder will realize no gain.
(3)  Represents the value of the shares of Common Stock issuable upon the
     exercise of the Option, assuming the stated rates of price appreciation for
     seven years, compounded annually, with the aggregate exercise price
     deducted from the final appreciated value. The 5% and 10% rates are
     established by the SEC as examples only and are not intended to forecast
     future appreciation in the Common Stock price.
(4)  Represents 55,000 Fixed Price Service Options.
(5)  Represents 14,000 Fixed Price Service Options.
(6)  Represents 9,500 Fixed Price Service Options.
(7)  Represents 9,500 Fixed Price Service Options.
(8)  Represents 9,500 Fixed Price Service Options.

          On February 1, 2000, Mr. Castellani was granted Fixed Price Service
Options to purchase up to 1,050,000 shares of Holding Common Stock, at an
exercise price of (i) $16.82 with respect to 350,000 shares (the "Tranche A
Options"), (ii) $20.00 with respect to 350,000 shares (the "Tranche B Options")
and (iii) $25.00 with respect to the remaining 350,000 shares (the "Tranche C
Options"). The options vest and become exercisable in three equal, annual
installments of (i) 33 1/3% of the aggregate number of Tranche A Options, (ii)
33 1/3% of the aggregate number of Tranche B Options and (iii) 33 1/3% of the
aggregate number of Tranche C Options, on each anniversary date of Mr.
Castellani's option agreement.

                                       28
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values

          The following table sets forth information with respect to the
Executive Officers concerning option exercises for fiscal 1999 and exercisable
and unexercisable options held as of January 1, 2000.

<TABLE>
<CAPTION>
                                                                     Number of Securities
                                                                          Underlying                            Value of
                                                                          Options at                    In-the-Money Options at
                                   Shares                              January 1, 2000(#)                January 1, 2000($)(a)(b)
                                                                -------------------------------    -------------------------------
                                Acquired on        Value
        Name                    Exercise(#)     Realized($)      Exercisable     Unexercisable     Exercisable     Unexercisable
----------------------------   ------------     -----------     -------------    --------------    -----------     ---------------
<S>                            <C>              <C>             <C>              <C>               <C>             <C>
Garnett E. Smith ...........        -              -               12,500         405,000             $85,250        $2,387,000

J. O'Neil Leftwich .........        -              -                2,500          84,000              17,050           477,400

Jimmie L. Wade..............        -              -                1,000          33,500               6,820           163,680

David R. Reid ..............        -              -                1,000          33,500               6,820           163,680

Paul W. Klasing ............        -              -                1,000          33,500               6,820           163,680
</TABLE>

(a)  There is no established public trading market for the Holding Common Stock.
     Holding believes that the fair market value of the Holding Common Stock was
     $16.82 per share as of January 1, 2000.
(b)  Values for "in-the-money" outstanding options represent the positive spread
     between the respective exercise prices of the outstanding options and the
     fair market value underlying the Holding Common Stock of $16.82 as
     described in note (a).

Compensation Committee Interlocks and Insider Participation

         The Compensation Committee of the Board of Directors determines the
compensation of the Executive Officers. During fiscal 1999, Messrs. Roth, Salter
and Smith served on the Compensation Committee. Mr. Smith also served as an
officer of the Company during fiscal 1999.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

         Not applicable.

                                       29
<PAGE>

Item 13. Certain Relationships and Related Transactions.

Affiliated Leases

     The Company leases its Roanoke, Virginia distribution center, an
office/warehouse, two warehouses, 25 of its stores and three former stores from
Nicholas F. Taubman or members of his immediate family, and its corporate
headquarters from Ki, L.C., a Virginia limited liability company owned by two
trusts for the benefit of a child of Mr. Taubman. Rents for the affiliated
leases may be slightly higher than rents for non-affiliated leases, but the
Company does not believe the amount of such difference to be material. In
addition, certain terms of the affiliate leases may be more favorable to the
landlord than those contained in leases with non-affiliates, primarily terms
relating to the maintenance of the facilities. However, in connection with the
Recapitalization, certain other terms of the leases with affiliates (including
provisions relating to assignment, damage by casualty and default cure periods)
were amended so that they would be no less favorable to the Company than non-
affiliated leases. All affiliate leases are on a triple net basis. Lease expense
for leases with these affiliates has been $3.2 million, $2.9 million and $3.3
million for fiscal 1997,1998 and 1999, respectively.

     Three Western Auto Puerto Rico stores are on the premises of Sears stores
and the buildings are subleased from Sears. The rental rates were established
prior to the Western Merger by arm's-length negotiation between the Company and
Sears, and the Company believes that the rent under and terms of the subleases
reflect market rates and terms at the time of the Western Merger. During fiscal
1999, the Company paid Sears approximately $681,000, of which $97,000 was
accrued during fiscal 1998.

Stockholders Agreement

     Mr. Taubman and the Arthur Taubman Trust Dated July 13, 1964 (the "Taubman
Trust" and, together with Mr. Taubman, the "Continuing Stockholders"), Freeman
Spogli, Ripplewood Partners, L.P. and Ripplewood Advance Auto Parts Employee
Fund I L.L.C. (collectively, "Ripplewood"), WAH and Holding have entered into an
Amended and Restated Stockholders Agreement (the "Stockholders Agreement").
Under the Stockholders Agreement, Freeman Spogli, Ripplewood, WAH and the
Continuing Stockholders have the right to purchase their pro rata share of
certain new issuances of securities, including capital stock by Holding. In
addition, the Stockholders Agreement provides for restrictions on the
transferability of the shares of Holding Common Stock of the parties until the
earlier of April 1, 2000 or upon consummation of a public offering. Prior to
April 15, 2001 (or if earlier, the date of an initial public offering), any
transfers of Holding Common Stock by any Continuing Stockholder and Ripplewood
are subject to rights of first offer in favor of Freeman Spogli and WAH on a pro
rata basis. Prior to an initial public offering, any transfers of Holding Common
Stock are subject to rights of first refusal in favor of (i) Freeman Spogli and
WAH on a pro rata basis, in the case of a transfer by Ripplewood, (ii) WAH, in
the case of a transfer by Freeman Spogli and (iii) Freeman Spogli, in the case
of a transfer by WAH. The Stockholders Agreement further provides tag-along
rights such that (i) upon transfers of Holding Common Stock by Freeman Spogli
(excluding transfers to affiliates of Freeman Spogli), the Continuing
Stockholders, Ripplewood and WAH will have the right to participate in such
sales on a pro rata basis, (ii) upon transfers of Holding Common Stock by WAH
(excluding transfers to affiliates of WAH), Freeman Spogli, the Continuing
Stockholders and Ripplewood will have the right to participate in such sales on
a pro rata basis and (iii) upon transfers of Holding Common Stock by Ripplewood
(excluding transfers to affiliates of Ripplewood), Freeman Spogli will have the
right to participate in such sales on a pro rata basis, and if Freeman Spogli
exercises such right, the Continuing Stockholders and WAH will have the right to
participate in such sales on a pro rata basis. In addition, from and after April
1, 2000, or earlier with the consent of WAH, if Freeman Spogli sells all of its
holdings of Holding Common Stock, Ripplewood and the Continuing Stockholders
will be obligated to sell all of their shares of Holding Common Stock at the
request of Freeman Spogli. Without the consent of the majority of the other
stockholders, Sears will not sell WAH to a third party so as to dispose of its
indirect interest in Holding.

     The Stockholders Agreement further provides that the parties will vote at
each annual meeting of Holding to elect to the Board of Directors; Mr. Taubman,
the Chief Executive Officer of Holding, three nominees of Freeman Spogli, three
nominees of WAH and one nominee of Ripplewood. Certain transfers of Holding
Common Stock by either Freeman Spogli or WAH will reduce the number of directors
such parties are entitled to nominate. Ripplewood has granted Freeman Spogli an
irrevocable proxy to vote Ripplewood's stock in Holding on all matters, expiring
upon an initial public offering of common stock by Holding, but Freeman Spogli
will nominate one director designated by Ripplewood. The Ripplewood director
will agree to vote with the Freeman Spogli directors on all matters prior to an
initial public offering of common stock by Holding. Pursuant to the Stockholders
Agreement, Mr. Taubman has certain approval rights with respect to major
corporate transactions.

                                       30
<PAGE>

Options Granted to the Continuing Stockholders

     In connection with the Recapitalization, Holding entered into an Option
Agreement with Mr. Taubman and the Taubman Trust whereby each of them has been
granted immediately exercisable options to purchase 250,000 shares of Holding
Common Stock. The options have an initial exercise price of $10.00, with the
exercise price increasing by $2.00 on each anniversary of the Recapitalization.
Both the exercise price and the number of shares which may be purchased pursuant
to the options are subject to certain adjustments. The options will expire if
not exercised by the seventh anniversary of the Recapitalization. Shares
received upon exercise of all or any part of the option by the Continuing
Stockholders will be subject to the Stockholders Agreement.

Sale of Airplane

     In fiscal 1998, in connection with the Recapitalization, Mr. Taubman
purchased an airplane from the Company for $4.1 million, a price equal to the
approximate net book value of the airplane, which amount also equaled the
approximate fair market value of the airplane (based on estimates of value
provided by the airplane's manufacturer). The airplane was purchased in 1995 for
$5.2 million.

Registration Rights Agreement

     Pursuant to the Stockholders Agreement, Holding agreed, beginning 180 days
after consummation of an initial public offering of common stock by Holding,
that upon the request of Freeman Spogli, WAH and the Continuing Stockholders it
will register under the Securities Act and applicable state securities laws the
sale of Holding Common Stock owned by Freeman Spogli, WAH and the Continuing
Stockholders subject to certain limitations. Holding has granted unlimited
piggy-back registration rights to Freeman Spogli, Ripplewood, WAH and the
Continuing Stockholders. Holding also granted three demand registrations to each
of Freeman Spogli and WAH, two demand registrations to the Continuing
Stockholders and one demand registration to Ripplewood. Holding granted WAH the
right, beginning 180 days after the consummation of an initial public offering,
to distribute its shares of Holding Common Stock to Sears' stockholders.
Holding's obligation is subject to certain limitations relating to the minimum
amount required for registration, the timing of registrations and other similar
matters. Holding is obligated to pay any registration expenses incidental to
such registrations, excluding underwriters' commissions and discounts. Holding
has agreed to indemnify Freeman Spogli, Ripplewood, WAH, the Continuing
Stockholders and the control person of any of the foregoing against certain
liabilities including liabilities under the Securities Act.

Management Equity Plans

     See "Item 11. Executive Compensation--Stock Subscription Plans" and "--
Stock Option Plans."

Indemnification Agreements

     In connection with the Recapitalization, the Company entered into
indemnification agreements with certain of the directors of the Company.

Certain Payments

     In connection with the Recapitalization, a portion of the common stock and
all of the preferred stock of Holding were converted into the right to receive
in the aggregate approximately $351.0 million in cash and certain options to
purchase shares of Holding Common Stock. In addition, Freeman Spogli and
Ripplewood, stockholders of Holding, received collectively a $5.0 million fee
for arranging the financing, performing advisory and consulting services and
negotiating the Recapitalization, and Freeman Spogli, Ripplewood and the
Continuing Stockholders received collectively a $3.5 million fee for performing
similar services with respect to the Western Merger. In connection with the
Recapitalization, certain employees of the Company, including the Executive
Officers, received an aggregate of approximately $11.5 million in bonuses with
Messrs. Smith, Tilley, Leftwich, Reid, Wade and Klasing receiving $7.0 million,
$1.0 million, $750,000, $150,000, $150,000 and $150,000, respectively.

                                       31
<PAGE>

Other Transactions with Sears

     On November 2, 1998, Western Auto Supply Company merged into a subsidiary
of the Company. In the Western Merger, WAH was issued 11,474,606 shares of
Holding Common Stock, representing approximately 40.6% of the outstanding
Holding Common Stock. In connection with the Western Merger, WAH became
entitled, under the Stockholders Agreement described above, to nominate three
directors to the Board of Directors of Holding. At January 1, 2000, Joseph
Laughlin, Julian C. Day and William L. Salter serve on the Board of Directors as
the WAH nominees.

     In connection with the Western Merger, Western entered into agreements with
Sears in order to continue to obtain supplies of certain products bearing
trademarks owned by Sears for the wholesale dealer network and the Service
Stores for three years. Pursuant to these agreements, Western purchased directly
from the manufacturers approximately $13.5 million and $6.0 million of these
products in fiscal 1999 and 1998, respectively, and the Company believes that
Sears received fees in association with such sales. The prices paid per unit for
the products sold in the Western Auto stores were determined prior to the
Western Merger by arm's-length negotiation between the Company and Sears.

     In connection with the Western Merger, Western entered into agreements with
Sears and its affiliates whereby consumers can make retail purchases at Western
Auto, Parts America (prior to Physical Conversion) and Western Auto Puerto Rico
stores and the dealer network using the Sears credit card and other Western Auto
private label credit cards. The Sears affiliates are paid a discount fee on each
retail transaction that is competitive with the fees paid by Western and the
Company to third party credit card providers such as Visa, MasterCard and
American Express. Under this agreement, Western incurred approximately $348,000
and $657,000 in discount fees in fiscal 1999 and fiscal 1998, respectively. In
addition, a portion of Western Auto's Puerto Rico administrative facility and
certain Western employees are leased to Sears for use in Sears' administration
of the credit card program. The lease payments, which aggregated approximately
$2.3 million and $697,000 in fiscal 1999 and 1998, respectively, are intended to
reimburse the Company for its expense in connection with the facility and the
employees.

     In connection with the Western Merger, Sears provided certain services to
effect an orderly transition of Western Auto Supply Company from a subsidiary of
Sears to a subsidiary of the Company. Such services include payroll and accounts
payable. As of January 1, 2000, these services were completed and transitioned
to the Company. Pursuant to this arrangement, the Company incurred $887,000 and
$844,000 for services performed by Sears for the Company in fiscal 1999 and
fiscal 1998 of which $844,000 was accrued at January 2, 1999. As of January 1,
2000, all amounts under the arrangement had been paid.

     During fiscal 1999, the Company signed an agreement with Sears Logistic
Systems ("SLS"), an affiliate of Sears, to provide the Company billing
administration services related to certain courier firms used by the Company.
SLS manages the invoice processing procedure and bills the Company for the
courier services provided by the outside firm plus a four-percent administration
fee. During 1999, the Company paid SLS approximately $62,000.

     Under the terms of an insurance program established by a Sears subsidiary
on behalf of Western Auto Supply Company prior to the Western Merger, with
respect to certain insurable losses where the Company may otherwise have a
retention obligation or deductible under the applicable insurance policy
providing coverage, the Company will be entitled to be reimbursed by Sears for
its losses. No material payments were made under the insurance program in fiscal
1999 and 1998. Western is currently processing a claim with Sears under the
insurance program from which the Company expects to receive approximately $1.5
million.

     In connection with the Western Merger, Sears and the Company entered into
an agreement under which the Company may be given a priority position as a local
supplier to up to approximately 250 Sears Auto Centers or NTB Stores that are
located near Company stores. Under this agreement, upon request from a Sears
Auto Center or NTB Store, the Company will deliver parts and charge a price
negotiated prior to the Western Merger between the Company and Sears. In
addition, if the volume of activity under this agreement meets certain agreed-
upon thresholds, Sears will receive rebates on its purchases. The supply
arrangement was phased in by the Company and Sears during late 1998; therefore,
no material purchases were made by Sears in fiscal 1998. During fiscal 1999, the
Company sold $5.3 million of merchandise to Sears under the supply agreement.

     In connection with the Western Merger, Sears arranged to buy from the
Company certain products in bulk for its automotive centers, at cost plus a set
handling fee. In fiscal 1998, the Company shipped approximately $2.1 million in
products to Sears. The Company made final shipments to Sears under this
arrangement of $530,000 in first quarter of fiscal 1999.

                                       32
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

<TABLE>
<S>                                                                                                            <C>
               (a)  Documents filed as part of this Report:

                    (1 & 2)  Index to Consolidated Financial Statements and Schedules:

                             Advance Stores Company, Incorporated and Subsidiaries
                             Consolidated Financial Statements:

                             Report of Independent Public Accountants--Arthur Andersen
                              LLP..........................................................................     F-1

                             Consolidated Balance Sheets as of January 1, 2000 and
                              January 2, 1999..............................................................     F-2

                             Consolidated Statements of Operations for the Years Ended
                              January 1, 2000, January 2, 1999 and January 3, 1998.........................     F-3

                             Consolidated Statements of Changes in Stockholder's Equity for
                              the Years Ended January 1, 2000, January 2, 1999 and
                              January 3, 1998..............................................................     F-4

                             Consolidated Statements of Cash Flows for the Years Ended
                              January 1, 2000, January 2, 1999 and January 3, 1998.........................     F-5

                             Notes to Consolidated Financial Statements January 1, 2000,
                              January 2, 1999 and January 3, 1998..........................................     F-6

                             Schedule II--Valuation and Qualifying Accounts................................    II-1
</TABLE>

                    (3)      Exhibits:

                             Exhibit
                             Number                         Description
                             ------                         -----------
                              3.1(1)   Articles of Incorporation of the
                                       Company, as amended to date.

                              3.2(1)   Bylaws of the Company, as amended to
                                       date.

                              4.1(1)   Indenture dated as of April 15, 1998
                                       among the Company, LARALEV, INC., as
                                       guarantor, and United States Trust
                                       Company of New York, as Trustee, with
                                       respect to the 10.25% Senior Subordinated
                                       Notes due 2008 (including the form of
                                       10.25% Senior Subordinated Note due
                                       2008).

                              4.2(2)   Supplemental Indenture dated as of
                                       November 2, 1998 between Western Auto and
                                       United States Trust Company of New York,
                                       as trustee.

                             10.1(3)   Amended and Restated Stockholders
                                       Agreement dated November 2, 1998 among FS
                                       Equity Partners IV, L.P. Ripplewood
                                       Partners, L.P., Ripplewood Advance Auto
                                       Parts Employee Fund I L.L.C., Nicholas F.
                                       Taubman, The Arthur Taubman Trust dated
                                       July 13, 1964, WA Holding Co. and Holding
                                       (including the Terms of the Registration
                                       Rights of Common Stock).

                             10.2(4)   Amended and Restated Credit Agreement
                                       dated as of October 19, 1998 among
                                       Holding, the Registrant, the lenders
                                       party thereto, The Chase Manhattan Bank
                                       ("Chase"), Chase Securities Inc., DLJ
                                       Capital Funding, Inc. and First Union
                                       National Bank.

                             10.3(5)   Pledge Agreement dated as of April 15,
                                       1998, as amended and restated as of
                                       November 2, 1998, among the Registrant,
                                       Holding, the Subsidiary Pledgors listed
                                       therein and Chase, as collateral agent.

                                       33
<PAGE>

               Exhibit
               Number                           Description
               -----                            -----------
               10.4(6)   Guarantee Agreement dated as of April 15, 1998, as
                         amended and restated as of November 2, 1998, among
                         Holding, the Subsidiary Guarantors listed therein and
                         Chase, as collateral agent.

               10.5(7)   Indemnity, Subrogation and Contribution Agreement dated
                         as of April 15, 1998, as amended and restated as of
                         November 2, 1998, among the Registrant, Holding, the
                         Guarantors listed therein and Chase, as collateral
                         agent.

               10.6(8)   Security Agreement dated as of April 15, 1998, as
                         amended and restated as of November 2, 1998, among the
                         Registrant, Holding, the Subsidiary Guarantors listed
                         therein and Chase, as collateral agent.

               10.7(1)   Lease Agreement dated as of March 16, 1995 between Ki,
                         L.C. and the Company for the Company's headquarters
                         located at 5673 Airport Road, Roanoke, Virginia, as
                         amended.

               10.8(1)   Lease Agreement dated as of January 1, 1997 between
                         Nicholas F. Taubman and the Company for the
                         distribution center located at 1835 Blue Hills Drive,
                         N.E., Roanoke, Virginia, as amended.

               10.9(1)   Trust Indenture dated as of December 1, 1997 among
                         McDuffie County Development Authority, First Union
                         National Bank, as trustee, and Branch Banking and Trust
                         Company, as credit facility trustee, relating to the
                         $10,000,000 Taxable Industrial Development Revenue
                         Bonds (Advance Stores Company, Incorporated Project)
                         Series 1997 (the "IRB").

               10.10(1)  Lease Agreement dated as of December 1, 1997 between
                         Development Authority of McDuffie County and the
                         Company relating to the IRB.

               10.11(1)  Letter of Credit and Reimbursement Agreement dated as
                         of December 1, 1997 among the Company, Holding and
                         First Union National Bank relating to the IRB.

               10.12(1)  Advance Holding Corporation 1998 Senior Executive Stock
                         Option Agreement.

               10.13(1)  Form of Advance Holding Corporation 1998 Senior
                         Executive Stock Option Agreement.

               10.14(1)  Advance Holding Corporation 1998 Executive Stock Option
                         Plan.

               10.15(1)  Form of Advance Holding Corporation 1998 Stock Option
                         Agreement.

               10.16(1)  Advance Holding Corporation 1998 Senior Executive Stock
                         Subscription Agreement.

               10.17(1)  Form of Advance Holding Corporation Senior Executive
                         Stock Subscription Agreement.

               10.18(1)  Advance Holding Corporation 1998 Employee Stock
                         Subscription Plan.

               10.19(1)  Form of Advance Holding Corporation Employee Stock
                         Subscription Agreement.

               10.20(1)  Form of Secured Promissory Note.

               10.21(1)  Form of Stock Pledge Agreement.

               10.22(1)  Form of Employment and Non-Competition Agreement
                         between Childs, Co, Dickerson, Gcarheart, Gerald, Gray,
                         Gregory, Hale, Helms, Jeter, Knighten, Kyle, Livesay,
                         McDaniel, Miley, Quinn, Rakes, Richardson, Smith,
                         Turner and Williams and the Company (one-year
                         agreement).

                                       34
<PAGE>

                    Exhibit
                    Number                             Description
                    -----                              -----------

                    10.23(1)       Form of Employment and Non-Competition
                                   Agreement between Tilley, Bigoney, Buskirk,
                                   Felts, Fralin, Haan, Klasing, Leftwich, Reid,
                                   Stevens, Vaughn, Wade, Weatherly and Wirth
                                   and the Company (two-year agreement).

                    10.24(1)       Form of Indemnity Agreement between certain
                                   directors of Holding (other than Nicholas F.
                                   Taubamn) and Holding.

                    10.25(1)       Form of Consulting and Non-Competition
                                   Agreement among Nicholas F. Taubman, Holding
                                   and the Company.

                    10.26(1)       Indemnity Agreement dated as of April 15,
                                   1998 between Nicholas F. Taubman and Holding.

                    10.27(1)       Option Agreement dated as of April 15, 1998
                                   between Nicholas F. Taubman and Holding.

                    10.28(1)       Option Agreement dated as of April 15, 1998
                                   between Arthur Taubman Trust dated July 13,
                                   1968 and Holding.

                    10.29(1)       Employment and Non-Competition Agreement
                                   among Garnett E. Smith, Holding and the
                                   Company.

                    10.30(1)       Form of Series B Debenture.

                    10.31(9)       First Amendment dated as of June 30, 1999, to
                                   the Credit Agreement dated as of April 15,
                                   1998 as amended and restated as of October
                                   19, 1998, among Holding, the Company, the
                                   lenders party thereto and The Chase Manhattan
                                   Bank ("Chase"), as administrative agent.

                    10.32(10)      Supplement No. 1 dated as of June 30, 1999,
                                   to the Guarantee Agreement dated as of April
                                   15, 1998 as amended an restated as of
                                   November 2, 1998, among Holding, the
                                   Subsidiary Guarantors listed therein and
                                   Chase, as collateral agent.

                    10.33(11)      Supplement No. 1 dated as of June 30, 1999,
                                   to the Pledge Agreement dated as of April 15,
                                   1998 as amended and restated as of November
                                   2, 1998, among the Company, Holding, the
                                   Subsidiary Pledgors listed therein and Chase,
                                   as collateral agent.

                    10.34(12)      Supplement No. 1 dated as of June 30, 1999,
                                   to the Security Agreement dated as of April
                                   15, 1998 as amended and restated as of
                                   November 2, 1998, among the Company, Holding,
                                   the Subsidiary Guarantors listed therein and
                                   Chase, as collateral agent.

                    10.35(13)      Supplement No. 1 dated as of June 30, 1999,
                                   to the indemnity, Subrogation and
                                   Contribution Agreement dated as of April 15,
                                   1998 as amended and restated as of November
                                   2, 1998 among the Company, Holding, the
                                   Guarantors listed therein and Chase, as
                                   collateral agent.

                    10.36(14)      Employment and Noncompetition agreement dated
                                   as of February 1, 2000, between the Company,
                                   Holding and Lawerence P. Castellani

                    10.37(15)      Senior Executive Stock Subscription Agreement
                                   dated as of February 1, 2000, between Holding
                                   and Lawerence P. Castellani

                    10.38(16)      Restricted Stock Agreement dated as of
                                   February 1, 2000, between Holding and
                                   Lawerence P. Castellani

                    10.39(17)      Second Amendment and Consent, dated as of
                                   December 1, 1999, to the Credit Agreement
                                   dated as of April 15, 1998, among Holding,
                                   the Company, lenders party thereto and Chase,
                                   as Administrative Agent.

                    10.40(18)      Third Amendment, dated as of February 11,
                                   2000, to the Credit Amendment dated as of
                                   April 15, 1998, among Holding, the Company
                                   and Chase, as Administrative Agents

                                       35
<PAGE>

                    Exhibit
                    Number                             Description
                    -----                              -----------


                      21.1              Subsidiaries of the Company.

                      24.1              Power of Attorney (contained in the
                                        signature pages hereof).

                      27.1              Financial Data Schedule.

                    __________________________
                    (1)  Incorporated herein by reference to the exhibit
                         designated by the same number filed with the Company's
                         Registration Statement on Form S-4 effective October
                         30, 1998 (File No. 333-56013).
                    (2)  Incorporated herein by reference to the exhibit
                         designated as exhibit 4.3 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (3)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.31 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (4)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.32 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (5)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.33 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (6)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.34 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (7)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.35 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (8)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.36 filed with the Company's
                         Current Report on Form 8-K dated November 2, 1998.
                    (9)  Incorporated herein by reference to the exhibit
                         designated as exhibit 10.1 filed with the Company's
                         Quarterly Report on Form 10-Q for the period ended July
                         17, 1999.
                    (10) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.2 filed with the Company's
                         Quarterly Report on Form 10-Q for the period ended July
                         17, 1999.
                    (11) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.3 filed with the Company's
                         Quarterly Report on Form 10-Q for the period ended July
                         17, 1999.
                    (12) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.4 filed with the Company's
                         Quarterly Report on Form 10-Q for the period ended July
                         17, 1999.
                    (13) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.5 filed with the Company's
                         Quarterly Report on Form 10-Q for the period ended July
                         17, 1999.
                    (14) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.35 in the Annual Report on
                         Form 10-K filed by Advance Holding Corporation for
                         the year ended January 1, 2000 (File No. 333-56031).
                    (15) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.36 in the Annual Report on
                         Form 10-K filed by Advance Holding Corporation for
                         the year ended January 1, 2000 (File No. 333-56031).
                    (16) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.37 in the Annual Report on
                         Form 10-K filed by Advance Holding Corporation for
                         the year ended January 1, 2000 (File No. 333-56031).
                    (17) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.38 in the Annual Report on
                         Form 10-K filed by Advance Holding Corporation for
                         the year ended January 1, 2000 (File No. 333-56031).
                    (18) Incorporated herein by reference to the exhibit
                         designated as exhibit 10.39 in the Annual Report on
                         Form 10-K filed by Advance Holding Corporation for
                         the year ended January 1, 2000 (File No. 333-56031).

               (4)  Reports on Form 8-K.

                    None

                                       36
<PAGE>

Report of Independent Public Accountants

To the Board of Directors and Stockholder of
Advance Stores Company, Incorporated:

We have audited the accompanying consolidated balance sheets of Advance Stores
Company, Incorporated (a Virginia company) and subsidiaries (the "Company"), as
of January 1, 2000, and January 2, 1999, and the related consolidated statements
of operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended January 1, 2000. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advance Stores
Company, Incorporated and subsidiaries as of January 1, 2000, and January 2,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended January 1, 2000, in conformity with accounting
principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to consolidated
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audits of basic financial statements and, in our opinion, fairly
states in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.


                                                           ARTHUR ANDERSEN LLP

Greensboro, North Carolina
 March 17, 2000

                                      F-1
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

       Consolidated Balance Sheets - January 1, 2000 and January 2, 1999

                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                        January 1,     January 2,
                 Assets                                                   2000           1999
                 ------                                              -------------- --------------
<S>                                                                  <C>            <C>
Current assets:
    Cash and cash equivalents                                        $    22,577    $    34,220
    Receivables, net                                                     100,442         91,659
    Inventories                                                          749,447        726,172
    Other current assets                                                  15,268         10,617
                                                                     -----------    -----------
       Total current assets                                              887,734        862,668
Property and equipment, net                                              401,502        343,395
Assets held for sale                                                      30,668         34,366
Other assets, net                                                         24,974         21,087
                                                                     -----------    -----------
                                                                     $ 1,344,878    $ 1,261,516
                                                                     ===========    ===========

Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
    Bank overdrafts                                                  $    12,182    $    20,250
    Borrowings secured by receivables                                     10,525          5,000
    Current portion of long-term debt                                      3,665          1,026
    Current portion of deferred revenue                                   15,647          8,049
    Accounts payable                                                     341,188        346,909
    Accrued expenses                                                     148,215        170,601
                                                                     -----------    -----------
       Total current liabilities                                         531,422        551,835
                                                                     -----------    -----------
Long-term debt                                                           560,302        434,500
                                                                     -----------    -----------
Deferred revenue                                                           9,368          1,389
                                                                     -----------    -----------
Other long-term liabilities                                               41,258         52,781
                                                                     -----------    -----------
Commitments and contingencies
Stockholder's equity:
    Common stock, Class A, voting, $100 par value; 5,000
     shares authorized; 536 issued and outstanding                            54             54
    Additional paid-in capital                                           273,598        273,598
    Other                                                                  1,777            695
    Accumulated deficit                                                  (72,901)       (53,336)
                                                                     -----------    -----------
       Total stockholder's equity                                        202,528        221,011
                                                                     -----------    -----------
                                                                     $ 1,344,878    $ 1,261,516
                                                                     ===========    ===========
</TABLE>


          The accompanying notes to consolidated financial statements
                 are an integral party of these balance sheets.

                                      F-2
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                     Consolidated Statements of Operations

                      For the Years Ended January 1, 2000

                     January 2, 1999, and January 3, 1998

                            (dollars in thousands)

<TABLE>
<CAPTION>
                                                                      1999          1998          1997
                                                                  ------------  -----------  ---------------
                                                                    (52 weeks)    (52 weeks)   (53 weeks)
<S>                                                               <C>           <C>          <C>
Net sales                                                         $ 2,206,945   $ 1,220,759  $   848,108
Cost of sales, including purchasing and warehousing costs           1,404,113       766,198      524,586
                                                                  -----------   -----------  -----------
              Gross profit                                            802,832       454,561      323,522
Selling, general and administrative expenses                          782,669       401,100      279,924
Expenses associated with the Recapitalization of the Parent                 -        14,277            -
Expenses associated with restructuring                                      -         6,774            -
                                                                  -----------   -----------  -----------
              Operating income                                         20,163        32,410       43,598
Other (expense) income:
   Interest expense                                                   (53,844)      (29,517)      (7,732)
   Other, net                                                           4,488           606         (824)
                                                                  -----------   -----------  -----------
              Total other expense, net                                (49,356)      (28,911)      (8,556)
                                                                  -----------   -----------  -----------
(Loss) income before (benefit) provision for income taxes             (29,193)        3,499       35,042
(Benefit) provision for income taxes                                   (9,628)        1,887       14,670
                                                                  -----------   -----------  -----------
Net (loss) income                                                 $   (19,565)  $     1,612  $    20,372
                                                                  ===========   ===========  ===========
</TABLE>

          The accompanying notes to consolidated financial statements
                  are an integral part of theses statements.

                                      F-3
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

          Consolidated Statements of Changes in Stockholder's Equity

                     For the Years Ended January 1, 2000,

                     January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                                       Retained
                                                          Class A           Additional                 Earnings        Total
                                                       Common Stock          Paid-in                (Accumulated    Stockholder's
                                                 -----------------------
                                                 Shares        Amount       Capital       Other      Deficit)        Equity
                                                 ------       ---------   -----------   --------- -------------   --------------
<S>                                              <C>           <C>         <C>           <C>       <C>             <C>
Balance, December 28, 1996                          273        $    27    $     940      $      -   $    107,830    $   108,797
  Net income                                                         -            -             -         20,372         20,372
                                                 ------        -------    ---------      --------   ------------    -----------
Balance, January 3, 1998                            273             27          940                      128,202        129,169
  Dividend to parent                                  -              -            -             -       (183,150)      (183,150)
  Issuance of Class A common
     stock associated with Western Merger,
     net of issuance costs of $575                  263             27      262,399             -              -        262,426
  Other                                               -              -       10,259           695              -         10,954
  Net income                                          -              -            -             -          1,612          1,612
                                                 ------        -------    ---------      --------   ------------    -----------
Balance, January 2, 1999                            536             54      273,598           695        (53,336)       221,011
  Other                                               -              -            -         1,082              -          1,082
  Net income                                          -              -            -             -        (19,565)       (19,565)
                                                 ------        -------    ---------      --------   ------------    -----------
Balance, January 1, 2000                            536        $    54    $ 273,598      $  1,777   $    (72,901)   $   202,528
                                                 ======        =======    =========      =========  ============    ===========
</TABLE>

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

                                      F-4
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                     Consolidated Statements of Cash Flows

                     For the Years Ended January 1, 2000,

                     January 2, 1999, and January 3, 1998

                            (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                        1999         1998        1997
                                                                                    ------------ ----------- -------------
Cash flows from operating activities:                                                (52 weeks)   (52 weeks)  (53 weeks)
<S>                                                                                  <C>          <C>         <C>
   Net (loss) income                                                                 $   (19,565)  $    1,612  $   20,372
   Adjustments to reconcile net (loss) income to net cash (used in)
     provided by operating activities:
     Depreciation and amortization                                                        58,147       29,964      21,801
     Amortization of stock option compensation                                             1,082          695           -
     Amortization of deferred debt issuance costs                                          3,230        1,891           -
     Amortization of interest on capital lease obligation                                    201            -           -
     Net losses on sales of property and equipment                                           119          150         362
     (Benefit) provision for deferred income taxes                                        (9,657)      (3,453)      4,211
     Restructuring charge                                                                      -        6,774           -
     Net (increase) decrease in:
      Receivables, net                                                                    (8,783)       4,844      (7,546)
      Inventories                                                                        (23,090)     (99,653)    (27,723)
      Other assets                                                                        (6,919)      (3,036)     (1,005)
     Net (decrease) increase in:
      Accounts payable                                                                    (5,721)      55,329      27,072
      Accrued expenses                                                                   (17,351)      33,943       3,553
      Deferred revenue                                                                    15,577        7,215         195
      Other long-term liabilities                                                         (6,590)       1,622         387
                                                                                     -----------   ----------  ----------
       Net cash (used in) provided by operating activities                               (19,320)      37,897      41,679
                                                                                     -----------   ----------  ----------
Cash flows from investing activities:
   Purchases of property and equipment                                                  (105,017)     (65,790)    (48,864)
   Proceeds from sales of property and equipment                                           3,130        6,073         257
   Payment for purchase of Advance Holding Corporation Common Stock                            -     (193,003)          -
   Western Merger, net of cash aquired                                                   (13,028)    (170,955)          -
   Other                                                                                   1,091            -           -
                                                                                     -----------   ----------  ----------
       Net cash used in investing activities                                            (113,824)    (423,675)    (48,607)
                                                                                     -----------   ----------  ----------
Cash flows from financing activities:
   (Decrease) increase in bank overdrafts                                                 (8,068)      13,016      (7,032)
   Proceeds from issuance of long-term debt                                                    -          581      13,121
   Principal payments on long-term debt                                                        -      (97,117)       (232)
   Borrowings under debt facilities                                                      465,000      425,000           -
   Payments on debt facilities                                                          (339,500)           -           -
   Payment of debt issuance costs                                                           (930)     (20,786)          -
   Contributed capital from Advance Holding Corporation                                        -       10,259           -
   Dividend paid to Advance Holding Corporation                                                -     (183,150)          -
   Proceeds from issuance of Class A common stock                                              -      262,425           -
   Other                                                                                   4,999        2,323       1,586
                                                                                     -----------   ----------  ----------
       Net cash provided by financing activities                                         121,501      412,551       7,443
                                                                                     -----------   ----------  ----------
Net (decrease) increase in cash and cash equivalents                                     (11,643)      26,773         515
Cash and cash equivalents, beginning of year                                              34,220        7,447       6,932
                                                                                     -----------   ----------  ----------
Cash and cash equivalents, end of year                                               $    22,577   $   34,220  $    7,447
                                                                                     ===========   ==========  ==========

Supplemental cash flow information:
   Interest paid                                                                     $    46,264   $   21,792  $    8,440
   Income taxes paid, net of refunds received                                              4,953        6,540      12,454
Noncash transaction:
   Obligations under capital lease                                                         3,266            -           -
   Property and equipment included in accrued expenses                                       543            -           -
   Forfeiture of stock options                                                               562            -           -
   Debt issuance and acquisition costs accrued
     at January 2, 1999                                                                        -        3,597           -
   Accrued credit card liability - Western Merger                                              -       10,000           -
</TABLE>

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

                                      F-5
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

1.   Description of Business:

Advance Stores Company, Incorporated and Subsidiaries (the "Company"), a wholly
owned subsidiary of Advance Holding Corporation (the "Parent"), maintains two
operating segments within the United States, Puerto Rico and the Virgin Islands.
The Advance Store segment operates 1,576 retail stores under the "Advance Auto
Parts" name that offer automotive replacement parts, accessories and maintenance
items located throughout the Eastern and Midwest portions of the United States.
The Western segment operates 38 retail stores in Puerto Rico, two retail stores
in the Virgin Islands, one store in California (the "Service Stores") and a
wholesale business all operating under the "Western Auto" name. These additional
41 retail stores, obtained in the Western Merger (Note 4) with Western Auto
Supply Company ("Western"), provide automotive service and home and garden
merchandise in addition to auto parts sales. The wholesale business consists of
the Company selling inventory and providing selected services to approximately
670 independent dealers located throughout the United States.

2.   Summary of Significant Accounting Policies:

Accounting Period

The Company's fiscal year ends on the Saturday nearest the end of December. The
consolidated financial statements reflect the results of operations for the 52-
week periods ended January 1, 2000 ("fiscal 1999") and January 2, 1999 ("fiscal
1998") and the 53-week period ended January 3, 1998 ("fiscal 1997").

Principles of Consolidation

The consolidated financial statements include the accounts of Advance Stores
Company, Incorporated and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of 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.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks, money market funds and
commercial paper with original maturities of three months or less.

                                      F-6
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for approximately 89% and 90% of
inventories at January 1, 2000 and January 2,1999, respectively, and the first-
in, first-out (FIFO) method for remaining inventories. The Company capitalizes
certain purchasing and warehousing costs into inventory. Purchasing and
warehousing costs included in inventory at FIFO, at January 1, 2000 and January
2, 1999, were $49,252 and $41,168, respectively. Inventories consist of the
following:

                                                    January 1,   January 2,
                                                      2000         1999
                                                    ----------   ----------
     Inventories at FIFO                            $  735,762   $  715,550
     Reserve to state inventories at LIFO               13,685       10,622
                                                    ----------   ----------
     Inventories at LIFO                            $  749,447   $  726,172
                                                    ==========   ==========

Replacement cost approximated FIFO cost at January 1, 2000. As a result of price
decreases on certain inventory items that went into effect in the last quarter
of fiscal 1998, replacement cost of inventory was approximately $709,559 at
January 2, 1999.

Property and Equipment

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

Depreciation of land improvements, buildings, furniture, fixtures and equipment
and vehicles is provided over the estimated useful lives, which range from 2 to
40 years, of the respective assets using the straight-line method. Amortization
of leasehold improvements is provided over the shorter of the estimated useful
lives of the respective assets or the term of the lease using the straight-line
method.

Long-Lived Assets

The Company applies Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires that long-lived assets and certain
identifiable intangible assets to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In the event assets
are impaired, losses are recognized based on the excess carrying amount over the
estimated fair value of the asset. SFAS No. 121 also requires that assets to be
disposed of be reported at the lower of the carrying amount or the fair market
value less selling costs.

Allowances

The Company receives cooperative advertising allowances, rebates and various
other incentives from vendors that are recorded as a reduction of cost of sales
or selling, general and administrative expenses when earned. Cooperative
advertising revenue is earned as advertising expenditures are incurred. Rebates
and other incentives are earned based on purchases. Amounts received or
receivable from vendors that are not yet earned are reflected as deferred
revenue in the accompanying consolidated balance sheets. Management's estimate
of the portion of deferred revenue that will be realized within one year of the
balance sheet date has been reflected as a current liability in the accompanying
consolidated balance sheets. Total deferred revenue is $25,015 and $9,438 at
January 1, 2000 and January 2, 1999, respectively.

                                      F-7
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

Closed Stores

The Company recognizes a provision for future obligations at the time a decision
is made to close a store. The provision for closed stores 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 cost of
insurance, property tax and common area maintenance.

Postretirement Benefits

The Company provides certain health care and life insurance benefits for
eligible retired employees. Employees retiring from the Company with 20
consecutive years of service after age 40 are eligible for these benefits,
subject to deductibles, copayment provisions and other limitations.

The estimated cost of retiree health and life insurance benefits is recognized
over the years that the employees render service as required by SFAS No. 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions." The
initial accumulated liability, measured as of January 1, 1995, the date the
Company adopted SFAS No. 106, is being recognized over a 20-year amortization
period.

In connection with the Western Merger (Note 4), the Company assumed Western's
benefit obligation under its postretirement health care plan. Under Western's
postretirement plan, employees retiring from the Company on or after age 55 who
have rendered at least 10 years of service and have participated in the group
health insurance plan are entitled to extend their participation in the plan and
purchase postretirement coverage for themselves and their dependents. The plan
was frozen in fiscal year 1996. This plan was merged into the Company's plan
effective July 1, 1999.

During 1998, the Company adopted SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits". SFAS No. 132 revises employers'
disclosure about pension and other postretirement benefit plans. It does not
change the measurement or recognition of these plans.

Preopening Expenses

Preopening expenses, which consist primarily of payroll and occupancy costs, are
expensed as incurred.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense incurred
was approximately $65,524, $35,972 and $23,274 in fiscal 1999, 1998 and 1997,
respectively.

Warranty Costs

The Company's vendors are primarily responsible for warranty claims. Warranty
costs relating to merchandise and services sold under warranty, which are not
covered by vendors' warranties are estimated based on the Company's historical
experience and are recorded in the period the product is sold.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period-end, based on enacted income tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.

                                      F-8
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

Revenue Recognition

The Company recognizes merchandise revenue at the point of sale to a retail
customer and point of shipment to a wholesale customer, while service revenue is
recognized upon performance of service. The majority of sales are made for cash;
however, the Company extends credit through a third-party provider of private
label credit cards. Receivables under the private label credit card program are
transferred to the third-party provider on a limited recourse basis. The Company
provides an allowance for doubtful accounts on receivables sold with recourse
based upon factors related to credit risk of specific customers, historical
trends and other information. In fiscal 1997, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which provides that this arrangement be accounted for as a
secured borrowing. Receivables under the private label credit card and the
related payable to the third-party provider were $10,525 and $5,000 at January
1, 2000 and January 2, 1999, respectively.

Stock Options

As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for its employee stock options using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). Under APB No. 25, compensation cost for
stock options is measured as the excess, if any, of the market price of the
Parent's common stock at the measurement date over the exercise price. Pro-forma
information is presented as if net income had been calculated under the fair
value based method as prescribed by SFAS No. 123 (Note 21).

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires companies to recognize all derivatives as either assets or
liabilities in their statement of financial position and measure those
instruments at fair value. In September 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133," which delayed the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company has not
yet determined the impact SFAS No. 133 will have on its financial position or
the results of its operations.

Effective January 3, 1999, the Company adopted the American Institute of
Certified Public Accountant's Statement of Position ("SOP") 98-1, "Accounting
for the Cost of Computer Software Developed or Obtained for Internal Use". The
SOP requires companies to capitalize certain expenditures related to development
of or obtaining computer software for internal use. The adoption of the SOP
resulted in the Company capitalizing approximately $561 in costs incurred during
fiscal year 1999.

Reclassifications

Certain items in the fiscal 1998 and fiscal 1997 financial statements have been
reclassified to conform with the fiscal 1999 presentation.

                                      F-9
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

3.   Recapitalization:

On April 15, 1998, the Parent consummated its recapitalization pursuant to an
Agreement and Plan of Merger dated March 4, 1998 (the "Merger Agreement").
Pursuant to the Merger Agreement, AHC Corporation ("AHC"), a corporation
controlled by an investment fund organized by Freeman Spogli & Co. Incorporated
("FS&Co."), merged into the Parent (the "Merger"), with the Parent as the
surviving corporation. In the Merger, a portion of the Parent's common stock and
all its preferred stock were converted into the right to receive in the
aggregate approximately $351,000 in cash and certain stock options for 500,000
shares of the Parent's common stock. Certain shares representing approximately
14% of the Parent's outstanding Class A common stock remained outstanding upon
consummation of the Merger. Immediately prior to the Merger, FS&Co. purchased
approximately $80,500 of the common stock of AHC, which was converted in the
Merger into approximately 64% of the Parent's outstanding common stock, and
Ripplewood Partners, L.P. and its affiliates ("Ripplewood") purchased
approximately $20,000 of the common stock of AHC, which was converted in the
merger into approximately 16% of the Parent's outstanding common stock. In
connection with the Merger, management purchased approximately $8,000, or
approximately 6%, of the Parent's outstanding common stock.

On April 15, 1998, the Company entered into a new bank credit facility that
provided for (i) three senior secured term loan facilities in the aggregate
amount of $250,000 and (ii) a secured revolving credit facility of up to
$125,000. At the closing of the Merger, $125,000 was borrowed under one of the
term loan facilities. On April 15, 1998, the Company also issued $200,000 of
senior subordinated notes and the Parent issued approximately $112,000 of senior
discount debentures with an original discount of $51,983. Proceeds from the new
bank facility and senior subordinated notes were used to pay a $183,000 dividend
to the Parent and to extinguish a substantial portion of the Company's long-term
debt.

The Merger, the dividend, the retirement of debt, borrowings under the new bank
credit facility, the Parent's issuance of the senior discount debentures and the
Company's issuance of the senior subordinated notes collectively represent the
"Recapitalization". The Recapitalization transactions affecting the Company have
been accounted for as the issuance of debt, the repayment of intercompany debt
to the Parent and as a dividend to the Parent for financial reporting purposes.

Concurrent with the Recapitalization, the Company paid $11,500 in bonuses to
certain employees, including executive officers. The Company also incurred
expenses of $2,777 related to the Recapitalization, of which $1,807 has been
allocated to the Company by the Parent for expenses incurred by the Parent on
behalf of the Company.

The employee bonuses and Recapitalization expenses, primarily professional
service fees, are presented as expenses associated with the Recapitalization of
the Parent in the accompanying consolidated statement of operations for the year
ended January 2, 1999.

The Company has deferred $17,700 of debt issuance costs related to the new debt
incurred in connection with the Recapitalization.

In connection with the Recapitalization, FS&Co. and Ripplewood collectively
received $5,000 in fees for negotiating the Recapitalization, advisory and
consulting services, arranging financing and raising equity funding.
Approximately $3,935 of the fee has been recorded by the Company, with $2,935
classified as deferred debt issuance costs and $1,000 charged to expenses
associated with the Recapitalization of the Parent. Approximately $1,065 of the
fee has been recorded by the Parent.

                                      F-10
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

4.   Western Merger:

On November 2, 1998, the Company consummated a Plan of Merger (the "Western
Merger") with Sears to acquire Western for $175,000 in cash and 11,474,606
shares of the Parent's common stock. Additionally, the Company agreed to share
losses incurred by Sears as a result of the sale, or as a result of continuing
the private label credit card programs up to a maximum of $10,000 ("Credit Card
Liability"). The Company recorded the $10,000, which was paid in fiscal 1999, as
additional purchase price. In connection with the transaction, the Parent sold
4,161,712 shares of common stock to certain stockholders for $70,000 and the
Company borrowed $90,000 under a new deferred term loan facility. The remainder
of the $175,000 was funded through cash on hand. As of the transaction date,
Sears owned approximately 40.6% of the Parent's issued and outstanding common
stock.

The Western Merger has been accounted for under the purchase method of
accounting. Accordingly, the results of operations of Western for the periods
from November 2, 1998 are included in the accompanying consolidated financial
statements. The purchase price has been allocated to assets acquired and
liabilities assumed based on their respective fair values. The Company's initial
purchase price allocation resulted in an excess fair value over purchase price
of $11,738, which was allocated primarily as a reduction to property and
equipment. In fiscal 1999, the Company recognized additional net liabilities of
$6,634 and $437 of acquisition costs associated with the Western Merger, which
resulted in a $7,071 increase to property and equipment on the consolidated
balance sheet as of October 9, 1999. The final purchase price allocation
resulted in total excess fair value over the purchase price of $4,667.

A summary of the fair value of the net assets acquired and cash paid in the
Western Merger is as follows:

       Fair value of assets acquired                             $ 661,305
       Liabilities assumed                                        (278,319)
                                                                 ---------
                                                                   382,986
       Common stock issued                                        (193,003)
                                                                 ---------
       Cash paid, including acquisition costs of $4,983            189,983
       Less - Cash acquired                                         (6,000)
                                                                 ---------
       Net cash paid                                             $ 183,983
                                                                 =========

The following unaudited pro-forma information presents the results of operations
of the Company as if the Recapitalization (Note 3) and the Western Merger had
taken place on December 29, 1996:

                       1998           1997
                   -----------    -----------
       Net sales   $ 2,174,076    $ 2,122,019
       Net loss         (1,324)       (38,125)
                   ===========    ===========

The pro-forma amounts give effect to certain adjustments, including changes in
interest expense amortization, the net costs of credit card programs retained by
Sears 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 pro-forma results of operations have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the Western Merger occurred on the date
indicated, or which may result in the future.

                                      F-11
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

In addition to the acquisition costs, the Company incurred $4,708 of costs and
fees, of which $3,903 has been recorded as deferred debt issuance costs, $575
has been recorded as a reduction of the proceeds from the sale of common stock
and $230 has been expensed. Of the $4,708, FS&Co., an affiliate of Ripplewood,
the Chairman of the Board and an affiliated trust (the "Continuing
Stockholders") collectively received $3,575 in fees and expenses for assistance
in the Western Merger, arranging financing, raising equity funding and general
consultation.

5.   Restructuring Charges:

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 the Western Merger (Note 4). During fiscal 1998, as a
result of the Western Merger, the Company decided to close 31 Advance Auto Parts
locations in overlapping markets with certain Parts America stores. During
fiscal 1999, the Company developed and implemented its exit plan for 15 store
locations not meeting profit expectations set by management. As of January 1,
2000, the Company had closed the 31 stores and nine of the stores related to
fiscal 1999 restructuring activities. Store exit costs represent the present
value, discounted at rates ranging from 6.5% to 7.7%, of remaining lease
obligations, reduced by management's estimate of future sublease revenue and
management's estimate of future cost of insurance, property tax and common area
maintenance.

In connection with the Western Merger, the Company assumed the restructuring
accrual related to Western's restructuring activities prior to the Western
Merger. As of January 1, 2000, this restructuring accrual relates primarily to
ongoing lease obligations on closed facilities and estimated severance payments.

The Company actively pursues subleasing closed stores, including certain service
bays in stores obtained through the Western Merger that are currently not
involved in the production of revenue.

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

                                                                    Other
                                                                     Exit
                                                    Severance       Costs
                                                    ---------      --------
         Restructuring reserves assumed
            in Western Merger                         $ 1,092      $  8,569
         Restructuring provision for Advance store
            exit costs and fixed asset write-downs          -         6,774
         Reserves utilized                               (410)         (570)
                                                      -------      --------
         Balance, January 2, 1999                     $   682      $ 14,773
         New provisions                                     -         1,307
         Change in estimates                                -        (1,249)
         Reserves utilized                               (664)       (4,868)
                                                      -------      --------
         Balance, January 1, 2000                     $    18      $  9,963
                                                      =======      ========

The above liabilities related to severance costs will be settled during fiscal
2000.  Other exit cost liabilities will be settled over the remaining terms of
the underlying lease agreements.

                                      F-12
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

As of the date of the Western Merger, management began to assess and formulate a
plan to close certain Parts America stores in overlapping markets or stores not
meeting the Company's profitability objectives, to exit certain other facility
leases, to relocate certain Western administrative functions to the Company's
headquarters and to terminate certain management, administrative and support
employees of Western.  In fiscal 1999, the Company finalized its plan for
termination of employees and closure of Parts America stores and other Western
facilities.  As of January 1, 2000, 457 employees have been terminated and 51
leased stores have been closed.  One store remains open, but is expected to
close in the first quarter of fiscal 2000.

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

<TABLE>
<CAPTION>
                                                                              Other
                                                                               Exit
                                                Severance     Relocation      Costs
                                                ---------     ----------     --------
         <S>                                    <C>           <C>            <C>
         Recognized as liabilities assumed
            in purchase accounting and
            included in purchase price
            allocation                          $   8,000     $      970     $ 14,384
         Reserves utilized                           (262)          (132)        (652)
                                                ---------     ----------     --------
         Balance at January 2, 1999                 7,738            838       13,732
         Purchase accounting adjustments            3,630           (137)      (1,833)
         Reserves utilized                         (7,858)          (701)      (4,074)
                                                ---------     ----------     --------
         Balance at January 1, 2000             $   3,510     $       -      $  7,825
                                                =========     ==========     ========
</TABLE>

The above liabilities related to severance costs will be settled during fiscal
2000. Other exit cost liabilities will be settled over the remaining terms of
the underlying lease agreements.

6.   Investments:

Marketable securities, included in cash and cash equivalents, include the
following:

<TABLE>
<CAPTION>
                                     January 1, 2000          January 2, 1999
                                 ---------------------     ---------------------
                                   Fair                      Fair
                                   Value        Cost         Value        Cost
                                 ---------   ---------     ---------   ---------
         <S>                     <C>         <C>           <C>         <C>
         Commercial paper        $   1,903   $   1,903     $  13,713   $  13,713
         Money market funds            462         462         1,341       1,341
                                 ---------   ---------     ---------   ---------
                                 $   2,365   $   2,365     $  15,054   $  15,054
                                 =========   =========     =========   =========
</TABLE>

                                      F-13
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

7.  Receivables:

Receivables consist of the following:

<TABLE>
<CAPTION>
                                                        January 1,  January 2,
                                                           2000        1999
                                                        ----------  ----------
       <S>                                              <C>         <C>
       Trade:
            Wholesale                                   $   22,221  $   26,463
            Retail                                          10,525       6,470
       Vendor                                               47,405      38,142
       Installment (Note 15)                                13,616      11,311
       Related parties                                       6,970       6,236
       Employees                                               348         555
       Other                                                 3,481       6,262
                                                        ----------  ----------
       Total receivables                                   104,566      95,439
       Less: Allowance for doubtful accounts                (4,124)     (3,780)
                                                        ----------  ----------
       Receivables, net                                 $  100,442  $   91,659
                                                        ==========  ==========
</TABLE>

8.   Property and Equipment:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                    Estimated   January 1,  January 2,
                                                  Useful Lives    2000        1999
                                                  ------------  ----------  ----------
       <S>                                        <C>           <C>         <C>
       Land and land improvements                 0 - 10 years  $   40,927  $   35,845
       Buildings                                      40 years      70,788      56,361
       Building and leasehold improvements        (See Note 2)      76,605      68,194
       Furniture, fixtures and equipment          3 - 12 years     331,238     253,387
       Vehicles                                   2 - 10 years      27,555      22,892
       Construction in progress                                      2,010       5,065
                                                                ----------  ----------
                                                                   549,123     441,744
       Less: Accumulated depreciation and amortization            (147,621)    (98,349)
                                                                ----------  ----------
       Property and equipment, net                              $  401,502  $  343,395
                                                                ==========  ==========
</TABLE>

As of January 1, 2000 and January 2, 1999, the Company's assets held for sale
consist of real property acquired in the Western Merger (Note 4) of $30,668 and
$34,366, respectively.

9.   Other Assets:

As of January 1, 2000 and January 2, 1999, other assets include deferred debt
issuance costs of $16,683 and $19,914, respectively (net of accumulated
amortization of $4,834 and $1,678, respectively), relating to the
Recapitalization (Note 3) and the Western Merger (Note 4).  Such costs are being
amortized over the term of the related debt (6 years to 11 years).  Other assets
also include the non-current portion of deferred income tax assets (Note 13).

                                      F-14
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999, and January 3, 1998

                 (dollars in thousands, except per share data)

10.  Accrued Expenses:

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                     January 1,   January 2,
                                                        2000         1999
                                                     ----------   ----------
       <S>                                           <C>          <C>
       Payroll and related benefits                  $   32,682   $   36,671
       Restructuring                                      8,238       20,604
       Warranty                                          19,780       21,249
       Other                                             87,515       92,077
                                                     ----------   ----------
       Total accrued expenses                        $  148,215   $  170,601
                                                     ==========   ==========
</TABLE>

11.  Other Long-Term Liabilities:

Other long-term liabilities consist of the following:

<TABLE>
<CAPTION>
                                                     January 1,   January 2,
                                                        2000         1999
                                                     ----------   ----------
       <S>                                           <C>          <C>
       Other postretirement employee benefits        $   26,587   $   30,460
       Restructuring                                     13,078       17,159
       Other                                              1,593        5,162
                                                     ----------   ----------
       Total other long-term liabilities             $   41,258   $   52,781
                                                     ==========   ==========
</TABLE>

                                      F-15
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


12.  Long-term Debt:

Long-term debt consists of the following:


<TABLE>
<CAPTION>
                                                                            January 1,     January 2,
                                                                               2000           1999
                                                                           -------------- --------------
<S>                                                                        <C>            <C>
Senior Debt:
   Deferred term loan at variable interest
    rates (9.00% at January 1, 2000), due April 2004                            $ 90,000       $ 90,000
   Delayed draw facilities at variable interest rate
    (8.75% at January 1, 2000), due April 2004                                    70,000              -
   Revolving facility at variable interest rates
    (8.75% at January 1, 2000), due April 2004                                    66,000         10,000
   Tranche B facility at variable interest rates
     (9.00% at January 1, 2000), due April 2006                                  124,500        125,000
   McDuffie County Authority taxable industrial development
    revenue bonds, issued December 31, 1997, intereset due monthly at an
    adjustable rate established by the Remarketing Agent (6.75% at January 1,
    2000), principal due on
    November 1, 2002                                                              10,000         10,000
   Capital lease obligation                                                        3,467            526
Subordinated debt:
   Subordinated notes payable, interest due semi-annually at 10.25%,
    due April 2008                                                               200,000        200,000
                                                                           -------------- --------------
     Total long-term debt                                                        563,967        435,526
Less: Current portion of long-term debt                                            3,665          1,026
                                                                           -------------- --------------
Long-term debt, excluding current portion                                      $ 560,302      $ 434,500
                                                                           ============== ==============
</TABLE>

The deferred term loan, delayed draw facilities, revolving facility and Tranche
B facility ("Credit Facility") are with a syndicate of banks.  The Credit
Facility provides for the Company to borrow up to $465,000 in the form of senior
secured credit facilities, consisting of (i) $90,000 senior secured deferred
term loan, (ii) $50,000 senior secured delayed draw term loan facility (the
"Delayed Draw Facility I"), (iii) $75,000 senior secured delayed draw term loan
facility (the "Delayed Draw Facility II") and, together with the Delayed Draw
Facility I, (the "Delayed Draw Facilities"), (iv) a $125,000 Tranche B senior
secured term loan facility (the "Tranche B Facility") and (v) a $125,000 senior
secured revolving credit facility (the "Revolving Facility").  The Revolving
Facility has a letter of credit sub-limit of $25,000.  Amounts available under
the Credit Facility are subject to certain debt covenants and a borrowing base
formula based on a specified percentage of the Company's eligible inventory.  As
of January 1, 2000, $63,800 was available under these facilities.

Borrowings under the Credit Facility are required to be prepaid, subject to
certain exceptions, with (a) 50% of the Excess Cash Flow (as defined), (b) the
net cash proceeds of all asset sales or other dispositions of property (as
defined), (c) the net proceeds of issuances of debt obligations and (d) the net
proceeds of issuance of equity securities.  Excess Cash Flow is defined as the
excess of (A) the sum of the Company's, (i) consolidated net income (excluding
certain gains and losses and restricted payments made to its parent), (ii)
depreciation, amortization and other noncash charges, (iii) any decrease in Net
Working Capital (as defined), (iv) increases in the deferred revenues and (v)
proceeds of certain indebtedness incurred, over (B) the sum of (a) any noncash
gains, (b) any increases in Net Working Capital, (c) decreases in consolidated
deferred revenues, (d) capital expenditures, and (e) repayments of indebtedness
(subject to certain exceptions).  No mandatory Excess Cash Flow prepayments were
made in fiscal 1999 nor are any due as of January 1, 2000.

                                      F-16
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


The interest rates under the delayed draw facilities and the revolver are
determined by reference to a pricing grid that will provide for reductions in
the applicable interest rate margins based on the Company's trailing total debt
to EBITDA ratio (as defined in the Credit Facility).  Based upon the Company's
operating ratios at January 1, 2000, the margins were 2.25% and 1.25% for
Eurodollar and base rate borrowings, respectively, and can step down to 1.75%
and 0.75%, respectively, if the Company's total debt to EBITDA ratio is less
than or equal to 4.00 to 1.00.  Additionally, at January 1, 2000, the margin
under the Tranche B term loan and the deferred term loan facility was 2.50% on a
Eurodollar rate and 1.50% on the base rate borrowings.  A commitment fee of
0.50% per annum will be charged on the unused portion of the Credit Facility.

The Credit Facility is secured by all of the assets of the Company.  The Credit
Facility contains certain covenants restricting the ability of the Company and
its subsidiaries to, among others, (i) declare dividends or redeem or repurchase
capital stock, (ii) make loans and investments and (iii) engage in transactions
with affiliates or the Parent to change its passive holding company status of
the Company.  The Company is required to comply with financial covenants with
respect to (a) a maximum leverage ratio, (b) a minimum interest coverage ratio
and (c) a minimum retained cash earnings test.

On December 31, 1997, the Company entered into an agreement with McDuffie County
Authority under which bond proceeds of $10,000 were issued to construct a
distribution center.  Proceeds of the bond offering have been fully expended as
of January 1, 2000.  These industrial development revenue bonds currently bear
interest at a variable rate, with a one-time option to convert to a fixed rate,
and are secured by a letter of credit.

The $200,000 Senior Subordinated Notes (the "Notes") are unsecured and are
subordinate in right of payment to all existing and future Senior Debt.  The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after April 15, 2003.  In addition, at any time prior to April 15,
2001, the Company may redeem up to 35% of the initially outstanding aggregate
principal amount of the Notes at a redemption price equal to 110.25% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of redemption, with the net proceeds of one
or more equity offerings; provided that, in each case, at least 65% of the
initially outstanding aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of any such redemption; and
provided further, that such redemption shall occur within 90 days of the date of
the closing of such equity offering.

Upon the occurrence of a change of control, each holder of the Notes will have
the right to require the Company to repurchase all or any part of such holder's
Notes at an offering price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of purchase.

The Notes contain various non-financial restrictive covenants that limit, among
other things, the ability of the Company to issue preferred stock, repurchase
stock and certain indebtedness, engage in transactions with affiliates, pay
dividends or certain other distributions, make certain investments and sell
stock of subsidiaries.

As of January 1, 2000, the Company was in compliance with the covenants of the
Credit Facility and the Notes.  Substantially all of the net assets of the
Company are restricted at January 1, 2000.

                                      F-17
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


The aggregate future annual maturities of long-term debt are as follows:


               2000                3,665
               2001                4,802
               2002               14,000
               2003                4,000
               2004              247,500
               Thereafter        290,000
                               ---------
                               $ 563,975
                               =========

13.  Income Taxes:

(Benefit) provision for income taxes for fiscal 1999, fiscal 1998 and fiscal
1997 consists of the following:



                               Current    Deferred      Total
                            ------------ ---------- ------------
     1999-
      Federal                 $  (1,934)  $ (3,895)  $   (5,829)
      State                       1,963     (5,762)      (3,799)
                            ------------ ---------- ------------
                              $      29   $ (9,657)  $   (9,628)
                            ============ ========== ============
     1998-
      Federal                 $   3,858   $ (2,863)  $      995
      State                       1,482       (590)         892
                            ------------ ---------- ------------
                              $   5,340   $ (3,453)  $    1,887
                            ============ ========== ============
     1997-
      Federal                 $   9,037   $  2,194   $   11,231
      State                       1,422      2,017        3,439
                            ------------ ---------- ------------
                              $  10,459   $  4,211   $   14,670
                            ============ ========== ============


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

<TABLE>
<CAPTION>
                                                           1999           1998            1997
                                                       --------------   -------------   -----------
    <S>                                                <C>              <C>             <C>
    Pre-tax (loss) income at statutory U.S. federal
        income tax rate                                   $ (10,218)       $ 1,225        $ 12,265
    State income taxes, net of federal
        income tax benefit                                   (2,469)           580           2,235
    Changes in certain tax accounting methods                     -           (366)           (196)
    Puerto Rico dividend withoholding tax                       150            120               -
    Nondeductible expenses                                      740            391             384
    Valuation allowance                                         596              -               -
    Other, net                                                1,573            (63)            (18)
                                                       --------------   -------------   -----------
                                                           $ (9,628)       $ 1,887        $ 14,670
                                                       ==============   =============   ===========
</TABLE>

                                      F-18
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


Deferred income taxes reflect the net income tax effect of temporary differences
between the basis of assets and liabilities for financial reporting purposes and
for income tax reporting purposes.  Net deferred income tax balances are
comprised of the following:


                                         January 1,  January 2,
                                            2000        1999
                                       ----------- -----------
     Deferred income tax assets           $60,661     $41,082
     Deferred income tax liabilities      (54,731)    (43,031)
                                       ----------- -----------
     Net deferred income taxes            $ 5,930     $(1,949)
                                       =========== ===========


Net deferred income tax assets of $8,792 were recorded in the purchase price
allocation of Western.

The Company incurred financial reporting and tax losses in 1999 primarily due to
integration and interest costs incurred as a result of the Western Merger and
the Recapitalization (See Notes 3 and 4).  As of January 1, 2000, the Company
has cumulative net deferred income tax assets of $5,930.  The gross deferred
income tax assets include federal and state net operating loss carryforwards
("NOLs") of approximately $22,090.  These NOLs may be used to reduce future
taxable income and expire periodically through fiscal year 2019.  The Company
believes it will realize these tax benefits through a combination of the
reversal of temporary differences, available tax planning strategies and
projected future taxable income during the NOL carryforward periods.  Due to
uncertainties related to the realization of deferred tax assets related to
certain state NOLs, the Company recorded a valuation allowance of $596 as of
January 1, 2000.  The amount of deferred income tax assets realizable, however,
could change in the near future if estimates of future taxable income are
changed.

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

<TABLE>
<CAPTION>
                                                                 January 1,   January 2,
                                                                    2000         1999
                                                                ------------ ------------
    <S>                                                         <C>          <C>
    Current deferred income taxes-
       Inventory valuation differences                             $(30,708)    $(23,228)
       Accrued medical and workers compensation                       2,462        2,133
       Accrued expenses not currently deductible for tax             26,778       21,548
       Net operating loss carryforwards                               4,000            -
       Other, net                                                         -         (230)
                                                                ------------ ------------
       Total current deferred income taxes                          $ 2,532        $ 223
                                                                ============ ============
    Long-term deferred income taxes-
       Property and equipment                                       (24,023)     (11,851)
       Postretirement benefit obligation                              8,580        8,591
       Net operating loss carryforwards                              18,090            -
       Valuation allowance                                             (596)           -
       Other, net                                                     1,347        1,088
                                                                ------------ ------------
       Total long-term deferred income taxes                        $ 3,398     $ (2,172)
                                                                ============ ============
</TABLE>

For federal and Virginia state income tax reporting purposes, the taxable income
of the Company is included in the consolidated income tax returns of the Parent.
Accordingly, any current and deferred federal and Virginia state income taxes,
computed on a separate company basis, are payable to or receivable from the
Parent.

The Parent currently has three years that are open to audit by the Internal
Revenue Service.  In addition, various Parent and Company state income and
franchise tax returns for several years are open to audit.  In management's
opinion, adequate reserves have been established and any amounts assessed will
not have a material effect on the Company's financial position or results of
operations.

                                      F-19
<PAGE>

           Advance Stores Company, Incorporated and Subsidiaries

                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


14.  Lease Commitments:

The Company leases store locations, distribution centers, office space,
equipment and vehicles under lease arrangements, some of which are with related
parties.

At January 1, 2000, future minimum lease payments due under non-cancelable
capital and operating leases are as follows:

<TABLE>
<CAPTION>
                                                     Operating (a)
                                              -------------------------
                                   Capital       Related
                                   Leases        Parties        Other        Total
                               ------------   ------------  -----------  -----------
        <S>                    <C>            <C>           <C>          <C>
        2000                      $ 1,856       $ 3,585     $ 110,969    $ 116,410
        2001                        1,857         3,255       101,412      106,524
        2002                            -         3,255        93,077       96,332
        2003                            -         3,063        83,132       86,195
        2004                            -         2,275        70,303       72,578
        Thereafter                      -         4,692       236,102      240,794
                               ------------   ------------  -----------  -----------
                                  $ 3,713      $ 20,125     $ 694,995    $ 718,833
        Less: imputed interest       (246)          (68)       (3,904)      (4,218)
                               ------------   ------------  -----------  -----------
                                  $ 3,467      $ 20,057     $ 691,091    $ 714,615
                               ============   ============  ===========  ===========
</TABLE>


     (a) The Related Parties and Other columns include stores closed as a result
     of the Company's restructuring plans (See Note 5).

At January 1, 2000, future minimum sub-lease income to be received under non-
cancelable operating leases is $7,278.

Net rent expense for fiscal 1999, fiscal 1998 and fiscal 1997 was as follows:


                                           1999          1998         1997
                                       -----------   ------------  ----------
        Minimum facility rentals        $ 103,807      $ 63,787     $ 44,707
        Contingent facility rentals         2,086           718          413
        Equipment rentals                   3,831         1,804        1,532
        Vehicle rentals                     4,281         2,391        1,658
                                       -----------   ------------  ----------
                                          114,005        68,700       48,310
        Less: sub-lease income             (1,085)         (426)        (100)
                                       -----------   ------------  ----------
                                        $ 112,920      $ 68,274     $ 48,210
                                       ===========   ============  ==========

Contingent facility rentals are determined on the basis of a percentage of sales
in excess of stipulated minimums for certain store facilities.  Most of the
leases provide that the Company pay taxes, maintenance, insurance and certain
other expenses applicable to the leased premises and include options to renew.
Certain leases contain rent escalation clauses, which are recorded on a
straight-line basis.  Management expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases.

Rental payments to related parties of approximately $3,998 in fiscal 1999,
$2,984 in fiscal 1998 and $3,171 in fiscal 1997 are included in net rent
expense.

                                      F-20
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)

15.  Installment Sales Program:

A subsidiary of the Company maintains an in-house finance program, which offers
financing to retail customers. Finance charges of $2,662 and $376 on the
installment sales program are included in net sales on the consolidated
statements of operations for the years ended January 1, 2000 and January 2,
1999, respectively. The cost of administering the installment sales program is
included in selling, general and administrative expenses as a cost of
operations.

16.  Contingencies:

In the case of all known contingencies, the Company accrues for an obligation
when it is probable and the amount is reasonably estimable. As facts concerning
contingencies become known to the Company, the Company reassesses its position
both with respect to gain contingencies and accrued liabilities and other
potential exposures. Estimates that are particularly sensitive to future change
include tax and legal matters, which are subject to change as events evolve and
as additional information becomes available during the administrative and
litigation process.

In March 2000, the Company was notified it has been named in a lawsuit filed on
behalf of independent retailers and jobbers against the Company and others for
various claims under the Robinson-Patman Act. The suit is in preliminary
stages. The Company 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 January 1999, the Company was notified by the United States Environmental
Protection Agency ("EPA") that Western Auto may have potential liability under
the Comprehensive Environmental Response Compensation and Liability Act relating
to two battery salvage and recycling sites that were in operation in the 1970's
and 1980's. The EPA has indicated the total cleanup for this site will be
approximately $1,600. Management is continuing their investigation of the EPA
notification. An estimate of the range of liability is not reasonably possible
until technical studies are sufficiently completed and the amount of potential
indemnification from Sears, if any, is further investigated. The ultimate
exposure will also depend upon the participation of other parties named in the
notification who are believed to share in responsibility. The Company believes
the claim could be settled for an amount not material to the Company's results
of operations.

Sears has agreed to indemnify the Company for certain litigation and
environmental matters of Western that existed as of the Western Merger date. The
Company has recorded a receivable from Sears of approximately $2,685, which is
included in the fair value of Western's assets (Note 4), relating to certain
environmental matters that had been accrued by Western as of the Western Merger
date. Sears has agreed to partially indemnify the Company for up to 5 years for
certain additional environmental matters that may arise relating to the period
prior to the Western Merger. The Company's maximum exposure during the
indemnification period for certain matters covered in the Western Merger
agreement is $3,750.

In November 1997 a plaintiff, on behalf of himself and others similarly
situated, filed a class action complaint and motion of class certification
against the Company in the circuit court for Jefferson County, Tennessee,
alleging misconduct in the sale of automobile batteries. The complaint seeks
compensatory and punitive damages. The Company believes it has no liability for
such claims and intends to defend them vigorously. In addition, three lawsuits
were filed against the Company on July 28, 1998, for wrongful death relating to
an automobile accident involving an employee of the Company. The Company
believes the financial exposure is covered by insurance. The Company is also
involved in various other claims and lawsuits arising in the normal course of
business. The damages claimed against the Company in some of these proceedings
are substantial. Although the final outcome of these legal matters cannot be
determined, based on the facts presently known, it is management's opinion that
the final outcome of such claims and lawsuits will not have a material adverse
effect on the Company's financial position or results of operations.

                                     F-21
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


The Company has certain periods open to examination by taxing authorities in
various states for sales and use tax. In management's opinion, adequate reserves
have been established and any amounts assessed will not have a material effect
on the Company's financial position or results of operations.

The Company is self-insured with respect to workers' compensation and health
care claims for eligible active employees. The Company maintains certain levels
of stop-loss insurance coverage for these claims through an independent
insurance provider. The cost of workers' compensation and general health care
claims is accrued based on actual claims reported plus an estimate for claims
incurred but not reported. These estimates are based on historical information
along with certain assumptions about future events, and are subject to change as
additional information comes available.

The Company has entered into employment agreements with certain employees that
provide severance pay benefits under certain circumstances after a change in
control of the Company or upon termination by the Company. The maximum
contingent liability under these employment agreements is approximately $2,250
and $6,400 at January 1, 2000 and January 2, 1999, respectively.

18.  Related-party Transactions:

Rents for related-party leases may be slightly higher than rents for non-
affiliated leases, and certain terms of the related-party leases are more
favorable to the landlord than those contained in leases with non-affiliates.

The Company allocated certain payroll and insurance costs to the Parent in
fiscal 1997, resulting in a $1,017 reduction in selling, general and
administrative expenses in the accompanying fiscal 1997 statement of income. No
such allocations were made in fiscal 1999 and 1998.

At April 1998, the Company sold its airplane to the Chairman of the Board, an
existing stockholder, for its net book value of approximately $4,100, which
approximated fair value.

Under the terms of a shared services agreement, Sears provided certain services
to the Company, including payroll and payable processing for Western, among
other services, through the third quarter of fiscal year 1999. The Company and
Sears have entered into agreements that provide for the Western stores to
continue to purchase and carry certain Sears branded products during periods
defined in the agreements. The Company is also a first-call supplier of certain
automotive products to certain Sears Automotive Group stores.

During fiscal 1999, the Company signed an agreement with an affiliate of Sears,
Sears Logistics Systems ("SLS"). SLS provides the company with invoice
processing services for charges from certain couriers used by the Company.

In connection with the Merger, Sears arranged to buy from the Company certain
products in bulk for its automotive centers through January 1999. These amounts
are included in net sales to Sears in the following table.

                                     F-22
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


The following table presents the related party transactions with Sears for
fiscal 1999 and 1998:

<TABLE>
<CAPTION>
                                                       1999           1998
                                                  -------------   ------------
          <S>                                     <C>             <C>
          Net sales to Sears                      $     5,326     $    2,124
          Shared services revenue                       2,286            697
          Shared services expense                        (887)          (844)
          Credit card fees expense                       (348)          (657)
          Sears Logisitic Systems fee expense              62              -
          Receivables from Sears                        6,625          6,036
          Payables to Sears                            (4,304)        (5,457)
</TABLE>

The Company also enters into intercompany transactions with the Parent in the
normal course of its business. These transactions are primarily related to
intercompany loans and current and deferred income tax assets and liabilities.
Balances and transactions are as follows:

<TABLE>
<CAPTION>
                                              January 1,        January 2,
                                                2000              1999
                                           --------------   ----------------
        <S>                                <C>              <C>
        Income tax receivables from Parent    $  22,540           $  7,332
        Income tax payables to Parent            14,043              1,195
</TABLE>


<TABLE>
<CAPTION>
                                                 1999            1998
                                            -------------   --------------
          <S>                               <C>             <C>
          Interest expense                  $        -      $    1,915
</TABLE>


19.  Subsequent Events:

On January 10, 2000, the Company announced a joint venture with CSK Auto, Inc.
("CSK") and Sequoia Capital to form PartsAmerica.com, Inc. ("PartsAmerica.com"),
an e-commerce destination in the automotive aftermarket that will operate
independently from its partners and will utilize the Company's and CSK's
existing logistic systems to support its web-based operations. The Company has
contributed the use of the "Parts America" trade name to PartsAmerica.com under
a royalty free license agreement and the use of certain other assets. Also, the
Company is party to a service agreement with PartsAmerica.com that defines the
wholesale sale of merchandise to PartsAmerica.com and certain other services to
be provided by the Company. The Company finalized the PartsAmerica.com agreement
subsequent to January 1, 2000 and expects to begin selling product to
PartsAmerica.com by third quarter of fiscal 2000. The Company plans to account
for its investment in PartsAmerica.com under the equity method of accounting.

Subsequent to January 1, 2000, the Parent purchased two additional shares of the
Company's Class A common stock for approximately $2,000.

20.  Benefit Plans:

401(k) Plan

The Company maintains a defined contribution employee benefit plan, which covers
substantially all employees after one year of service. The plan allows for
employee salary deferrals, which are matched at the Company's discretion.
Company contributions were $4,756 in fiscal 1999, $2,634 in fiscal 1998 and
$3,196 in fiscal 1997.

                                      F-23
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


The Company also maintains a profit sharing plan covering Western employees that
was frozen prior to the Western Merger on November 2, 1998 (Note 4).  This plan
covered all full-time employees who have completed one year of service and have
attained the age of 21 on the first day of each month.  All employees covered
under this plan were included in the Company's plan on January 1, 1999.

Deferred Compensation

The Company maintains an unfunded deferred compensation plan established for
certain key employees of Western prior to the Western Merger (Note 4).  The
Company assumed the plan liability of $15,253 through the Western Merger.  The
plan was frozen at the date of the Western Merger.  As of January 1, 2000 and
January 2, 1999, $8,504 and $15,253, respectively was accrued related to the
plan.

Postretirement Plan

The Company provides certain health care and life insurance benefits for
eligible retired employees.  The Company maintains the existing plan and the
assumed plan covering Western employees.  Financial information related to the
plans was determined by the Company's independent actuaries as of January 1,
2000 and January 2, 1999. The following provides a reconciliation of the benefit
obligation and the funded status of the plan.


<TABLE>
<CAPTION>
                                                                    1999          1998
                                                                ------------   ------------
     <S>                                                        <C>            <C>
     Change in benefit obligation:
        Benefit obligation at beginning of the year             $   23,559     $   3,225
        Obligation assumed in Western Merger (Note 4)                    -        20,257
        Service cost                                                   336           240
        Interest cost                                                1,401           440
        Benefits paid                                               (1,843)         (367)
        Actuarial loss                                              (1,358)         (236)
                                                                ----------     ---------
        Benefit obligation at end of the year                       22,095        23,559
     Change in plan assets:
        Fair value of plan assets at beginning of the year               -             -
        Employer contributions                                       1,843           367
        Benefits paid                                               (1,843)         (367)
                                                                ----------     ---------
        Fair value of plan assets at end of year                         -             -
     Reconciliation of funded status:
        Funded status                                              (22,095)      (23,559)
        Unrecognized transition obligation                             868           926
        Unrecognized actuarial (loss) gain                            (300)        1,101
                                                                ----------     ---------
     Accrued postretirement benefit cost                        $  (21,527)    $ (21,532)
                                                                ==========     =========
</TABLE>

Net periodic postretirement benefit cost is as follows:

<TABLE>
<CAPTION>
                                                                   1999          1998          1997
                                                               ------------- ------------- -------------
     <S>                                                       <C>           <C>           <C>
     Service Cost                                                  $    336      $    240      $    139
     Interest Cost                                                    1,401           440           195
     Amortization of the transition obligation                           58            58            58
     Amortization of unrecognized net actuarial losses                   43            60            54
                                                                   --------      --------      --------
                                                                   $  1,838      $    798      $    446
                                                                   ========      ========      ========
</TABLE>

                                      F-24
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)

The postretirement benefit obligation was computed using an assumed discount
rate of 6.5% in 1999 and 1998. The health care cost trend rate was assumed to be
8.5% for 1999, 8.0% for 2000, 7.5% for 2001, 7.0% for 2002, 6.5% for 2003, 6.0%
for 2004 and 5.5% for 2005 and thereafter.

If the health care cost were increased 1% for all future years, the accumulated
postretirement benefit obligation would have increased by $171 as of January 1,
2000. The effect of this change on the combined service and interest cost would
have been an increase of $17 for 1999.

If the health care cost were decreased 1% for all future years, the accumulated
postretirement benefit obligation would have decreased by $169 as of January 1,
2000. The effect of this change on the combined service and interest cost would
have been a decrease of $17 for 1999.

The Company reserves the right to change or terminate the benefits at any time.
The Company also continues to evaluate ways in which it can better manage these
benefits and control costs. Any changes in the plan or revisions to assumptions
that affect the amount of expected future benefits may have a significant impact
on the amount of the reported obligation and annual expense.

21.  Stock Options:

The Company maintains a senior executive stock option plan and an executive
stock option plan (the "Option Plans") for key employees of the Company. The
Option Plans provide for the granting of non-qualified stock options to purchase
the Parent's common stock. All options will terminate on the seventh anniversary
of the grant date. Shares authorized for grant under the senior executive and
the executive stock option plans are 580,000 and 1,240,000 at January 1, 2000
and January 2, 1999, respectively. Subsequent to January 1, 2000, an additional
1,070,000 shares were authorized for grant under the senior executive stock
option plan.

Three different types of options are granted pursuant to the Option Plans. Fixed
Price Service Options will vest over a three-year period in three equal
installments beginning on the first anniversary of the grant date. Performance
Options will be earned in installments based upon satisfaction of certain
performance targets for the four-year period ending in fiscal 2001. Variable
Price Service Options will vest in equal annual installments over a two-year
period beginning in 1999, and have an exercise price that increases over time.

                                      F-25
<PAGE>

             Advance Stores Company, Incorporated and Subsidiaries
                  Notes to Consolidated Financial Statements
             January 1, 2000, January 2, 1999, and January 3, 1998
                 (dollars in thousands, except per share data)


Total options outstanding at January 1, 2000 and January 2, 1999, were as
follows:

<TABLE>
<CAPTION>
                                                         1999                             1998
                                               -------------------------------  -------------------------------
                                                                 Weighted-                       Weighted-
                                                 Number of        Average        Number of        Average
                                                  Shares       Exercise Price      Shares      Exercise Price
                                               ------------  -----------------  -----------  ------------------
     <S>                                       <C>           <C>                <C>          <C>
     Fixed Price Service Options
     ---------------------------
     Outstanding at beginning of year                104,580         $   10.00             -           $     -
     Granted                                         230,000             16.82       104,580             10.00
     Exercised                                             -                 -             -                 -
     Forfeited                                       (37,925)            13.90             -                 -
                                                  ----------         ---------      --------           -------
     Outstanding at end of year                      296,655         $   14.79       104,580           $ 10.00
                                                  ==========         =========      ========           =======

     Variable Price Service Options
     ------------------------------
     Outstanding at beginning of year                397,085         $   15.00             -           $     -
     Granted                                               -                 -       397,085             15.00
     Exercised                                             -                 -             -                 -
     Forfeited                                       (67,850)            15.00             -                 -
                                                  ----------         ---------      --------           -------
     Outstanding at end of year                      329,235         $   15.00       397,085           $ 15.00
                                                  ==========         =========      ========           =======

     Performance Options
     -------------------
     Outstanding at beginning of year                397,085         $   10.00             -           $     -
     Granted                                               -                 -       397,085             10.00
     Exercised                                             -                 -             -                 -
     Forfeited                                       (67,850)            10.00             -                 -
                                                  ----------         ---------      --------           -------
     Outstanding at end of year                      329,235         $   10.00       397,085           $ 10.00
                                                  ==========         =========      ========           =======
     Other Options (Note 3)
     ----------------------
     Outstanding at beginning of year                500,000         $   12.00             -           $     -
     Granted                                               -                 -       500,000             10.00
     Exercised                                             -                 -             -                 -
     Forfeited                                             -                 -             -                 -
                                                  ----------         ---------      --------           -------
     Outstanding at end of year                      500,000         $   12.00       500,000           $ 10.00
                                                  ==========         =========      ========           =======
</TABLE>

As of January 1, 2000, 500,000 of the other options and 29,385 of the Fixed
Price Service Options were exercisable. Only the 500,000 of other options were
exercisable at January 2, 1999.

                                      F-26
<PAGE>

            Advance Stores Company, Incorporation and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999 and January 3, 1998

                 (dollars in thousands, except per share data)

The Company applies APB No. 25, "Accounting for Stock Issued to Employees" in
accounting for its stock options. Accordingly, the Company did not recognize
compensation expense on the issuance of its Fixed Price Service Options because
the exercise price equaled the fair market value of the underlying stock on the
grant date. The fair market value of the stock as of January 1, 2000 and January
2, 1999, as determined by the Board of Directors, was $16.82. The excess of the
fair market value per share over the exercise price per share for the
Performance Options and Variable Price Service Options is recorded as
outstanding stock options and unamortized stock option compensation and is
included in other stockholder's equity. At January 1, 2000, outstanding stock
options and unamortized stock option compensation was $2,869 and $1,092,
respectively. This compensation is amortized to expense over the vesting
periods. Compensation expense related to these options of $1,082 and $695 is
included in selling, general and administrative expenses in the accompanying
consolidated statements of operations for the 52-week periods ended January 1,
2000 and January 2, 1999, respectively.

The following information is presented as if the Company elected to account for
compensation cost related to the stock options using the fair value method as
prescribed by SFAS No. 123:

<TABLE>
<CAPTION>
                                   1999      1998
                                --------- ----------
          <S>                   <C>       <C>
          Net (loss) income:

           As reported          $(19,565) $  1,612
           Pro-forma             (19,081)    2,094
</TABLE>

For the above information, the fair value of each option granted in fiscal 1999
was estimated on the grant date using the Black-Scholes option-pricing model
with the following assumptions; (i) risk-free interest rate of 5.19% and 5.27%;
(ii) weighted-average expected life of options of two and three years and (iii)
expected dividend yield of zero. As permitted for companies with non-public
equity securities by SFAS No. 123, the Company used the assumption of zero
volatility in valuing their options.

For the above information, the fair value of each option granted in fiscal 1998
was estimated on the grant date using the Black-Scholes option-pricing model
with the following assumptions; (i) risk-free interest rate of 5.61%, 5.62% and
5.65%; (ii) weighted-average expected life of options of two, three and four
years and (iii) expected dividend yield of zero. As permitted for companies with
non-public equity securities by SFAS No. 123, the Company used the assumption of
zero volatility in valuing their options.

22.  Fair Value of Financial Instruments:

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                  January 1, 2000               January 2, 1999
                                            ---------------------------    -------------------------
                                               Carrying          Fair        Carrying         Fair
                                                Amount          Value         Amount         Value
                                            ------------      ----------   ------------   -----------
<S>                                         <C>               <C>          <C>            <C>
Assets:
   Cash and cash equivalents                     $ 22,577       $ 22,577       $ 34,220       $ 34,220
   Receivables, net                               100,442        100,442         91,659         91,659
Liabilities:
   Accounts payable                             $ 341,188      $ 341,188      $ 346,909      $ 346,909
   Bank overdraft                                  12,182         12,182         20,250         20,250
   Borrowings secured by receivables               10,525         10,525          5,000          5,000
   Current portion of long-term debt                3,665          3,665          1,026          1,026
   Long-term debt                                 560,302        530,302        434,500        438,000
</TABLE>

                                      F-27
<PAGE>

            Advance Stores Company, Incorporation and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999 and January 3, 1998

                 (dollars in thousands, except per share data)


The carrying amount of the cash and cash equivalents, receivables, accounts
payable and borrowings secured by receivables approximates fair value because of
the short maturity of those instruments. The fair value of all fixed rate long-
term debt was determined based on current market prices. The carrying amount for
variable rate long-term debt approximates fair value for similar issues
available to the Company.

23.  Segment and Related Information:

During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires entities to report
financial and descriptive information related to segments within the
organization.

The Company has two operating segments: Advance Stores and Western. The Advance
Store segment consists primarily of the retail operations of the Company, which
offer only automotive replacement parts, accessories and maintenance items.
Western consists of retail stores and wholesale operations, all operating under
the "Western Auto" name, obtained through the Western Merger (Note 4). These
stores carry non-automotive items as well as auto parts and accessories and
perform certain services for retail customers. The wholesale operation consists
of distribution services to independent dealers operating under the "Western
Auto" name, including three franchises.

For the period from November 2, 1998 to January 1, 2000, management received and
used financial information aggregated at the Western level in evaluating the
performance of the acquired operations. The accounting policies of the
reportable segments are the same as those described in Note 2.

                                      F-28
<PAGE>

            Advance Stores Company, Incorporation and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999 and January 3, 1998

                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                              Advance
1999                                          Stores          Western (b)     Eliminations       Totals
----------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>             <C>            <C>
Net sales (a)                               $1,810,040        $ 396,905       $       -      $ 2,206,945
Gross profit                                   716,541           86,291               -          802,832
Operating income (loss)                         30,947          (10,784)              -           20,163
Net interest expense                           (50,789)          (2,654)              -          (53,443)
Loss before provision
    for income taxes                           (19,846)          (9,347)              -          (29,193)
Segment assets                               1,355,798          217,100        (228,020)       1,344,878
Depreciation and amortization                   51,863            6,284               -           58,147
Capital expenditures                            94,582           10,435               -          105,017

1998
----------------------------------------------------------------------------------------------------------
Net sales (a)                               $1,042,434        $ 178,325       $       -     $  1,220,759
Gross profit                                   404,990           49,571               -          454,561
Operating income                                32,175              235               -           32,410
Net interest (expense) income                  (28,310)             416               -          (27,894)
Income (loss) before provision
    for income taxes                             4,201             (702)              -            3,499
Segment assets                               1,036,411          225,105               -        1,261,516
Depreciation and amortization                   26,778            3,186               -           29,964
Capital expenditures                            55,428           10,362               -           65,790

1997
----------------------------------------------------------------------------------------------------------
Net sales (a)                               $  848,108        $       -       $       -     $    848,108
Gross profit                                   323,522                -               -          323,522
Operating income                                43,598                -               -           43,598
Net interest expense                            (7,709)               -               -           (7,709)
Income before provision
    for income taxes                            35,042                -               -           35,042
Segment assets                                 449,626                -               -          449,626
Depreciation and amortization                   21,801                -               -           21,801
Capital expenditures                            48,864                -               -           48,864
</TABLE>

(a)  For fiscal years 1999, 1998 and 1997 net sales include approximately
     $245,000, $130,000 and $100,000, respectively, related to revenues derived
     from commercial sales including Advance Auto Parts stores and Parts America
     stores after the store level information system conversion.

(b)  On January 2, 1999, the Company transferred approximately $425,000 of net
     assets related to the Parts America operations to the Advance Stores
     segment through a dividend. Additionally, throughout fiscal 1999, the
     Advance Stores assumed approximately $7,000 of net liabilities related to
     the Parts America operations

                                      F-29
<PAGE>

            Advance Stores Company, Incorporation and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999 and January 3, 1998

                 (dollars in thousands, except per share data)


24.  Guarantor Subsidiaries:

The Company has wholly owned subsidiaries, LARALEV, INC., Advance Trucking
Corporation and Western (the "Guarantor Subsidiaries") that are guarantors of
the Company's subordinated notes, new term loan facility and revolving credit
facility. The guarantees are joint and several in addition to full and
unconditional. LARALEV, INC. holds certain trademarks, tradenames and other
intangible assets for which it receives royalty income from the Company. Advance
Trucking holds substantially all of the Company's inventory delivery vehicles.
Advance Trucking Corporation became a guarantor subsidiary in the second quarter
of fiscal 1999. The Guarantor Subsidiaries comprise all direct and indirect
subsidiaries. The Company has not presented separate financial statements for
the subsidiaries because management has determined that such information is not
material to investors.

Combined condensed financial information for the guarantor subsidiaries is as
follows:

<TABLE>
<CAPTION>
                                                  For the Years Ended
                                           ----------------------------------
                                              January 1,          January 2,
                                             2000 (a) (b)          1999 (b)
                                           ----------------   ---------------
          <S>                              <C>                <C>
          Net sales                           $ 407,899           $ 180,451
          Gross profit                           97,285              51,697
          Royalty income from the Company        36,200              20,848
          Operating  Income                      26,197              21,402
          Net loss                              (17,090)             (1,508)
</TABLE>


<TABLE>
<CAPTION>
                                                January 1,       January 2,
                                               2000 (a) (b)     1999 (a) (b)
                                               ------------    --------------
          <S>                                  <C>              <C>
          Current assets                        $ 282,419        $ 227,898
          Non-current assets                       82,390           92,350
          Current liabilities                     238,924          250,676
          Non-current liabilities                 662,302          469,303

</TABLE>


(a)  On January 2, 1999, approximately $425,000 of net assets related to the
     Parts America operations were transferred to Advance Stores through a
     dividend.  Additionally, throughout fiscal 1999, Advance Stores assumed
     approximately $7,000 of net liabilities related to the Parts America
     operations.

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

                                      F-30
<PAGE>

            Advance Stores Company, Incorporation and Subsidiaries

                  Notes to Consolidated Financial Statements

             January 1, 2000, January 2, 1999 and January 3, 1998

                 (dollars in thousands, except per share data)

25.  Quarterly Financial Data (unaudited):

The following table summarizes quarterly financial data for fiscal years 1999
and 1998:

<TABLE>
<CAPTION>
     1999                              First          Second          Third          Fourth
     -------------------------------------------------------------------------------------------
     <S>                              <C>             <C>            <C>             <C>
     Net sales                        $670,453        $542,320       $522,846        $471,326
     Gross profit                      226,361         196,526        199,637         180,308
     Operating (loss) income           (16,654)         13,953         14,714           8,150
     Net (loss) income                 (23,394)          3,569          1,530          (1,270)


     1998
     -------------------------------------------------------------------------------------------
     Net sales                        $288,963        $255,037       $258,839        $417,920
     Gross profit                      112,586          98,589         98,357         145,029
     Operating (loss) income              (597)         18,966         16,961          (2,920)
     Net (loss) income                  (2,439)          6,091          5,253          (7,293)
</TABLE>

Results of operations for the first three quarters of fiscal 1999 differ from
the amounts previously reported in the Company's 1999 Form 10-Q Quarterly
Reports due to the reclassification of certain income and expense items as
follows: service labor and other miscellaneous costs from selling, general and
administrative expenses to cost of sales; finance charges from selling, general
and administrative expenses to net sales; and other miscellaneous income and
expense items from other, net to selling, general and administrative expenses.
These reclassifications were made to conform the acquired entities to the
Company's reporting classifications. Results of operations as previously
reported in the Company's 1999 Form 10-Q Quarterly Reports for the first three
quarters of fiscal 1999 were as follows:

<TABLE>
<CAPTION>
     1999                              First          Second          Third
     ----------------------------------------------------------------------------
     <S>                               <C>            <C>            <C>
     Net sales                         $669,728       $541,760       $522,239
     Gross profit                       231,744        200,329        203,499
     Operating (loss) income            (16,797)        14,068         14,747
     Net (loss) income                  (23,394)         3,569          1,530
</TABLE>

                                      F-31
<PAGE>

             ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                            (dollars in thousands)

<TABLE>
<CAPTION>
                                                     Balance at                                                  Balance at
                                                     Beginning      Charges to                                     End of
Allowance for doubtful account receivable:           of Period       Expenses    Deductions          Other         Period
                                                     ----------     ----------   ----------         -------      ----------
      <S>                                            <C>            <C>          <C>                <C>          <C>
      January 3, 1998.........................       $        -     $    1,040   $     (465) (2)    $     -      $      575
      January 2, 1999.........................              575          1,193         (582) (2)      2,594 (1)       3,780
      January 1, 2000.........................            3,780          1,098         (754) (2)          -           4,124
                                                     ==========     ==========   ==========         =======      ==========

     (1)  Allowance for doubtful accounts receivable assumed in the Western Merger.
     (2)  Accounts written off during the period.

Restructuring reserves:
      January 3, 1998.........................       $        -     $        -   $        -         $     -      $        -
      January 2, 1999.........................                -          6,774       (2,026) (2)     33,015 (1)      37,763
      January 1, 2000.........................           37,763             58      (18,165) (2)      1,660 (1)      21,316
                                                     ==========     ==========   ==========         =======      ==========
</TABLE>

     (1)  Restructuring reserves assumed and established in the Western Merger.
     (2)  Represents amounts paid for restructuring charges.

                                      II-1
<PAGE>

                                   SIGNATURE

     Pursuant to the requirements of the Section 15(d) of the Securities Act of
1934, the Registrant has duly caused this Report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in Roanoke,
Commonwealth of Virginia, on March 31, 2000.

                                    ADVANCE STORES COMPANY, INCORPORATED

                                    By:  /s/ Jimmie L. Wade
                                         ----------------------------------
                                         Jimmie L. Wade
                                         President and Chief Financial Officer,
                                         Secretary


                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jimmie L. Wade his true and lawful attorney-in-
fact with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in and any all capacities, to sign any and all
amendments to this Report on Form 10-K and to file same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                                   Title                                      Date
<S>                                 <C>                                                   <C>
/s/ Garnett E. Smith                Vice Chairman of the Board                              March 31, 2000
-------------------------------     and Director
      Garnett E. Smith

/s/ Lawrence P. Castellani          Chief Executive Officer and Director                    March 31, 2000
-------------------------------     (Principal Executive Officer)
      Lawrence P. Castellani

/s/ Jimmie L. Wade                  President and Chief Financial Officer,                  March 31, 2000
-------------------------------     Secretary
      Jimmie L. Wade

/s/ Nicholas F. Taubman             Chairman of the Board and Director                      March 31, 2000
-------------------------------
      Nicholas F. Taubman

/s/ Mark J. Doran                   Director                                                March 31, 2000
-------------------------------
      Mark J. Doran

/s/ John M. Roth                    Director                                                March 31, 2000
-------------------------------
      John M. Roth

/s/ Timothy C. Collins              Director                                                March 31, 2000
-------------------------------
      Timothy C. Collins

/s/ Peter M. Starrett               Director                                                March 31, 2000
-------------------------------
      Peter M. Starrett

/s/ Julian C. Day                   Director                                                March 31, 2000
-------------------------------
      Julian C. Day
</TABLE>

                                      S-1
<PAGE>

<TABLE>
<S>                                 <C>                                              <C>
/s/ William L. Salter               Director                                         March 31, 2000
-------------------------------
      William L. Salter

/s/ Joseph E. Laughlin              Director                                         March 31, 2000
-------------------------------
      Joseph E. Laughlin
</TABLE>

                                      S-2
<PAGE>

    Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act

     Other than this Report on Form 10-K, no other annual report and no proxy
materials have been or will be furnished to the Company's security holders.