-------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 7, 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 - 333-56031 _____________ ADVANCE HOLDING CORPORATION (Exact name of registrant as specified in its charter) _____________ Virginia 54-1622754 (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) Not Applicable (Former name, former address and former fiscal year, if changed since last report). Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 16, 2000, the registrant had outstanding 28,288,550 shares of Class A Common Stock, par value $0.01 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. -------------------------------------------------------------------------------- ADVANCE HOLDING CORPORATION AND SUBSIDIARIES Twelve and Forty Week Periods Ended October 7, 2000 TABLE OF CONTENTS

~~July~~Page ~~15, January 1, Assets 2000 2000~~ ------ ~~-----------~~PART ~~----------~~I. ~~(unaudited)~~FINANCIAL ~~Current~~INFORMATION ~~assets:~~Item ~~Cash~~1. ~~and~~Condensed ~~cash~~Consolidated ~~equivalents~~Financial $Statements ~~16,598 $ 22,577 Receivables, net 98,615 100,323 Inventories 766,998 749,447 Other current assets 19,270 12,025 ----------- ----------- Total current assets 901,481 884,372 Property and equipment, net~~ of ~~accumulated~~Advance ~~depreciation~~Holding ofCorporation ~~$179,520~~ and ~~$146,647~~Subsidiaries: ~~396,331~~Condensed ~~402,476~~Consolidated ~~Assets~~Balance ~~held~~Sheets ~~for~~as ~~sale~~of ~~28,562~~October 297,~~694~~ ~~Other~~2000 ~~assets,~~and ~~net~~January ~~23,938 32,087 ----------- ----------- $~~ 1,~~350,312~~ $2000.................................................................. 1~~,348,629~~ ~~===========~~Condensed ~~===========~~Consolidated ~~Liabilities~~Statements ~~and Stockholders' Equity ------------------------------------ Current liabilities: Bank overdrafts $ 8,830 $ 11,715 Current portion~~ of ~~long-term~~Operations ~~debt~~for ~~4,313~~the ~~3,665~~Twelve ~~Accounts~~and ~~payable~~Forty ~~374,473~~Week ~~341,188~~Periods ~~Accrued~~Ended ~~expenses~~October ~~130~~7,~~981~~ ~~146,024~~2000 ~~Other~~and ~~current~~October ~~liabilities 37~~9,~~973~~ ~~26,172~~1999..................... ~~-----------~~2 ~~-----------~~Condensed ~~Total~~Consolidated ~~current~~Statements ~~liabilities~~of ~~556,570~~Cash ~~528,764~~Flows ~~-----------~~for ~~-----------~~the ~~Long-term~~Forty ~~debt~~Week ~~596,035~~Periods ~~634,664~~Ended ~~-----------~~October ~~----------- Other long-term liabilities 51~~7,~~080~~ ~~51,247~~2000 ~~----------- ----------- Commitments~~ and ~~contingencies~~October ~~Stockholders' equity: Preferred stock~~9, 8%1999..................... ~~noncumulative,~~3 ~~nonvoting,~~Notes ~~$10~~to ~~par value, redeemable by~~ the ~~Company~~Condensed atConsolidated ~~par;~~Financial ~~liquidation~~Statements......................... ~~value~~4 atItem ~~par;~~2. ~~100,000~~Management's ~~shares~~Discussion ~~authorized;~~and noAnalysis ~~shares~~of ~~issued~~Financial orCondition ~~outstanding~~and -Results -of ~~Common~~Operations............................................................ ~~stock,~~10 ~~Class~~Item ~~A, voting, $~~3.01 ~~par~~Quantitative ~~value, 62,500,000 shares authorized; 28,337,550~~ and ~~28,144,050~~Qualitative ~~issued~~Disclosures ~~and~~About ~~outstanding~~Market ~~283~~Risks...................... ~~281~~18 ~~Common~~PART ~~stock,~~II. ~~Class~~OTHER B,INFORMATION ~~nonvoting,~~Item $1.01 ~~par~~Legal ~~value,~~Proceedings................................................................ ~~21,875,000~~19 ~~shares~~Item ~~authorized;~~2. noChanges ~~shares issued or outstanding - - Additional paid-~~in ~~capital~~Securities ~~372,652~~and ~~369,399~~Use ~~Other~~of 62Proceeds........................................ 6919 ~~Accumulated~~Item ~~deficit~~6. ~~(226,370)~~Exhibits ~~(235,795)~~and ~~-----------~~Reports ~~-----------~~on ~~Total~~Form ~~stockholders' equity 146,627 133,954~~ 8-~~----------~~K................................................. ~~-----------~~19 $SIGNATURE........................................................................................... ~~1,350,312 $ 1,348,629~~ S-~~---------- -----------~~1

Advance Holding Corporation and Subsidiaries Condensed Consolidated Balance Sheets October 7, 2000 and January 1, 2000 (dollars in thousands, except per share data)

~~Twenty-Eight~~October ~~Week~~7, ~~Twelve~~January ~~Week~~1, ~~Periods~~Assets ~~Ended~~2000 ~~Periods~~2000 ~~Ended~~ ------------ ------------~~---~~ (unaudited) Current assets: Cash and cash equivalents $ 16,353 $ 22,577 Receivables, net 92,422 100,323 Inventories 803,107 749,447 Other current assets 20,561 12,025 ------------ ------------~~---~~ ~~July~~Total 15current assets 932,443 ~~July~~884,372 17Property and equipment, ~~July~~net 15of accumulated depreciation of $180,470 ~~July~~and 17$146,647 ~~2000~~404,994 ~~1999~~402,476 ~~2000~~Assets ~~1999~~held for sale 26,166 29,694 Other assets, net 18,342 32,087 ---------- --~~--------~~ ---------- --~~--------~~ ~~Net~~$ ~~sales~~1,381,945 $ ~~557~~1,~~650~~348,629 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Bank overdrafts $ ~~542~~4,~~320~~387 $1 11,~~235~~715 Current portion of long-term debt 3,~~232~~555 $13,~~212,773~~665 ~~Cost~~Accounts ofpayable ~~sales~~415,858 341,~~117~~188 ~~345~~Accrued expenses 136,~~794~~060 ~~759~~146,~~724~~024 ~~789~~Other current liabilities 37,~~886~~278 26,172 ------------ ------------ Total current liabilities 597,138 528,764 ------------ ------------ ~~Gross~~Long-term ~~profit~~debt ~~216~~567,~~533~~744 ~~196~~634,~~526~~664 ~~475,508 422,887 Selling, general and administrative expenses 184,284 182,430 424,075 425,793~~ ------------ ------------ Other long-term liabilities 58,681 51,247 ------------ ------------ ~~Operating~~Commitments ~~income~~and ~~(loss)~~contingencies 32Stockholders' equity: Preferred stock,~~249~~ 148% noncumulative,~~096~~ 51nonvoting,~~433~~ (2$10 par value,~~906)~~ ~~Other~~redeemable ~~(expense)~~by ~~income:~~the ~~Interest~~Company ~~expense~~at ~~(15,835)~~par; ~~(14,658)~~liquidation ~~(36,601)~~value ~~(32,217)~~at ~~Other~~par; 100,000 ~~net~~shares ~~302~~authorized; ~~130~~no ~~532~~shares ~~390~~issued ~~----------~~or ~~----------~~outstanding --~~--------~~ --~~--------~~ ~~Total~~Common ~~other expense~~stock, ~~net~~Class ~~(15~~A,~~533)~~ ~~(14~~voting,~~528)~~ ~~(36~~$.01 par value,~~069)~~ ~~(32~~62,~~827)~~500,000 ~~----------~~shares ~~----------~~authorized; ~~----------~~28,288,550 ~~----------~~and ~~Income~~28,144,050 ~~(loss)~~issued ~~before~~and ~~provision~~outstanding ~~(benefit)~~283 ~~for~~281 ~~income~~Common ~~taxes~~stock, 16Class B,~~716~~ ~~(432)~~nonvoting, 15$.01 par value,~~364~~ ~~(35~~21,~~733)~~875,000 ~~Provision~~shares ~~(benefit)~~authorized; ~~for~~no ~~income~~shares ~~taxes~~issued 6or outstanding -- -- Additional paid-in capital 372,~~335~~169 369,399 Other 201 69 Accumulated deficit (2214,~~499~~271) ~~5,939~~ (12235,~~858~~795) ------------ ------------ Total stockholders' equity 158,382 133,954 ------------ ------------ ~~Net income (loss)~~ $ 101,381 ~~$ 2~~,~~067~~945 $ 91,~~425 $ (22~~348,~~875)~~629 ========== ==~~========~~ ========== ==~~========~~

The accompanying notes to the condensed consolidated financial statements are an integral part of these balance sheets. 1 Advance Holding Corporation and Subsidiaries Condensed Consolidated Statements of Operations For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) (unaudited)

~~July~~Twelve ~~15,~~Week ~~July~~Periods ~~17,~~Ended ~~2000~~Forty ~~1999~~Week Periods Ended -------------------------------- ------------------------------- ~~Cash~~October ~~flows~~7, ~~from~~October ~~operating~~9, ~~activities:~~October ~~Net~~7, ~~income~~October ~~(loss) $~~ 9,~~425~~ $2000 ~~(22,875)~~1999 ~~Adjustments~~2000 to1999 ~~reconcile~~------------- ~~net~~-------------- ~~income~~------------- ~~(loss)~~------------ toNet ~~net~~sales ~~cash~~$ ~~provided~~552,138 by$ ~~(used~~522,846 ~~in)~~$ ~~operating~~1,787,370 ~~activities:~~$ ~~Depreciation 34~~1,~~402 29~~735,~~391~~619 ~~Amortization~~Cost of ~~stock~~sales, ~~option~~including ~~compensation~~purchasing ~~600~~and 1328,~~009~~235 ~~Amortization~~323,209 ~~of deferred debt issuance costs~~ 1,~~750~~087,959 1,~~954 Amortization of bond discount 5~~113,~~173~~095 ~~4,568~~warehousing ~~Amortization~~costs of------------- ~~interest~~-------------- on------------- ~~capital lease obligation 42~~ ------------ ~~Provision~~Gross ~~(benefit)~~profit ~~for~~223,903 ~~deferred~~199,637 ~~income~~699,411 ~~taxes 5~~622,~~452~~524 (6Selling,~~142)~~ ~~Net~~general ~~loss~~and ~~(gain)~~administrative onexpenses ~~sales~~193,792 of184,777 ~~property~~617,867 ~~and~~610,570 ~~equipment~~------------- ~~215~~-------------- ~~(4)~~------------- ~~Net~~------------ ~~decrease~~Operating ~~(increase)~~income ~~in:~~30,111 ~~Receivables~~14,860 ~~net 1~~81,~~706~~544 ~~(30~~11,~~784)~~954 ~~Inventories~~------------- ~~(17,551)~~-------------- ~~(45,780)~~------------- ~~Other~~------------ ~~assets~~Interest ~~(6,298)~~expense (15,~~886~~183) ~~Net increase~~ (~~decrease~~14,232) ~~in: Accounts payable 33,285 32,797 Accrued expenses~~ (1751,~~308~~784) (3347,~~977~~449) Other ~~liabilities~~527 ~~2,411~~102 271,~~551~~059 492 ------------- -------------- ~~Net cash provided by (used in) operating activities 53,304 (58,178)~~ ------------- ------------ ~~Cash~~Total ~~flows~~other ~~from~~expense, ~~investing~~net ~~activities: Purchases of property and equipment~~ (2814,~~031~~656) (5314,~~538~~130) ~~Other 2~~(50,~~531~~725) 2(46,~~012~~957) ------------- -------------- ~~Net cash used in investing activities (25,500) (51,526)~~ ------------- ------------ ~~Cash~~Income ~~flows~~(loss) ~~from~~before ~~financing~~provision ~~activities: Decrease in bank overdrafts~~ (~~2,885~~benefit) ~~(4,955)~~for ~~Borrowings~~income ~~under~~taxes ~~note~~and ~~payable~~extraordinary ~~2,313~~item ~~- Borrowings under credit facilities 191~~15,~~200~~455 ~~252,500~~730 ~~Payments on credit facilities (233~~30,~~200)~~819 (~~150~~35,~~500~~003) ~~Payment~~Provision ~~of debt issuance costs -~~ (~~919~~benefit) ~~Proceeds~~for ~~from~~income ~~issuance~~taxes ~~of Class A Common Stock 2~~5,~~650~~948 ~~385~~539 ~~Other 6~~11,~~139~~887 3(12,~~708~~319) ------------- -------------- ~~Net cash (used in) provided by financing activities (33,783) 100,219~~ ------------- ------------ ~~Net~~Income ~~decrease~~(loss) inbefore ~~cash~~extraordinary ~~and~~item ~~cash~~9,507 ~~equivalents~~191 (518,~~979)~~932 (922,~~485~~684) ~~Cash~~Extraordinary ~~and~~gain ~~cash~~on ~~equivalents~~debt atextinguishment, ~~beginning~~net of ~~period~~$1,759 22income taxes 2,~~577~~933 36- 2,~~115~~933 - ------------- -------------- ~~Cash~~------------- ~~and~~------------ ~~cash~~Net ~~equivalents~~income at(loss) ~~end~~$ of12,440 ~~period~~$ 191 $ 1621,~~598~~865 $ 26(22,~~630~~684) ============= ============== ~~Supplemental~~============= cash flow information: Interest paid $ 28,040 $ 22,922 Interest taxes paid, net of refunds received 321 2,603 Noncash transactions: Conversion of capital lease obligation $ 3,509 $ - Loans receivable related to issuance of common stock 669 302 Cancellation of shares under stockholder subscription receivable 34 - Obligations under capital lease - 3,345 Debt issuance and acquisition costs accrued - 290============

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 2 Advance Holding Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flow For the Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) (unaudited)

~~July~~Forty ~~15,~~Week ~~January~~Periods 1,Ended ~~2000 2000~~ -------------------------- October 7, October 9, 2000 1999 ---------- ---------- ~~(unaudited)~~Cash ~~Trade~~flows from operating activities: ~~Wholesale~~Net income (loss) $ 1821,~~797~~865 $ (22,~~221~~684) ~~Retail~~Adjustments 16to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 50,~~664~~614 1043,~~525~~677 ~~Vendor~~Amortization 44of stock option compensation 533 989 Amortization of deferred debt issuance costs 2,~~958~~542 472,~~405~~715 ~~Installment~~Amortization 13of bond discount 7,~~850~~432 136,~~616~~586 ~~Related~~Amortization ~~parties~~of interest on capital lease obligation 42 61 Provision (benefit) for deferred income taxes 14,987 (4,~~682~~218) 6Extraordinary gain on extinguishment of debt,~~647~~ ~~Employees~~net ~~407~~of ~~552~~tax (2,933) - Net losses on sales of property and equipment 368 7 Net decrease (increase) in: Receivables, net 7,832 (18,799) Inventories (53,660) (32,521) Other assets (3,~~179~~148) 3(16,~~481~~058) Net increase (decrease) in: Accounts payable 74,670 (18,739) Accrued expenses (17,845) (13,029) Other liabilities (2,499) 17,873 ---------- ---------- Net cash provided by (used in) operating activities 100,800 (54,140) ---------- ---------- ~~Total~~Cash ~~receivables~~flows ~~102~~from investing activities: Purchases of property and equipment (46,~~537~~883) ~~104~~(81,~~447~~758) ~~Less~~Other 4,777 2,215 ---------- ---------- Net cash used in investing activities (42,106) (79,543) ---------- ---------- Cash flows from financing activities: ~~Allowance~~(Decrease) ~~for~~increase ~~doubtful~~in ~~accounts~~bank overdrafts (37,~~922~~328) 908 Net borrowings under note payable 1,555 - Early extinguishment of debt (424,~~124~~990) - Borrowings under credit facilities 191,200 358,500 Payments on credit facilities (233,200) (242,500) Payment of debt issuance costs - (972) Proceeds from issuance of common stock, net of repurchases 1,602 472 Other 6,243 5,261 ---------- ---------- Net cash (used in) provided by financing activities (64,918) 121,669 ---------- ---------- ~~Receivables~~Net decrease in cash and cash equivalents (6,224) ~~net~~(12,014) Cash and cash equivalents, beginning of period 22,577 36,115 ---------- ---------- Cash and cash equivalents, end of period $ 9816,~~615~~353 $ ~~100~~24,~~323~~101 ==========~~=====~~ ==========~~======~~ Supplemental cash flow information: Interest paid $ 36,089 $ 29,775 Income tax refunds (payments), net 6,700 (4,719) Non-cash transactions: Conversion of capital lease obligation $ 3,509 $ - Net issuances of common stock under stockholder subscription receivable plan 538 - Net management loans receivable used to purchase common stock 402 344 Appreciation of cancelled shares under stockholder subscription receivable plan 341 - Obligations under capital lease - 3,345 Debt issuance and acquisition costs accrued - 281

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 3 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) 1. Basis of Presentation: The accompanying condensed consolidated financial statements include the accounts of Advance Holding Corporation and its wholly owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of October 7, 2000, the condensed consolidated statements of operations for the twelve and forty week periods ended October 7, 2000 and October 9, 1999 and the condensed consolidated statements of cash flows for the forty week periods ended October 7, 2000 and October 9, 1999, have been prepared by the Company and have not been audited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's consolidated financial statements for the fiscal year ended January 1, 2000. The results of operations for the twelve week and forty week periods are not necessarily indicative of the operating results to be expected for the full fiscal year. Change in Accounting Estimate In July 2000, the Company adopted a change in an accounting estimate to reduce the depreciable lives of certain property and equipment on a prospective basis. The effect on operations for the third quarter of fiscal 2000 was to increase depreciation expense by $1,229. The Company expects to discontinue the operation of the effected assets by the third quarter of fiscal 2001, at which time they will be fully depreciated under the reduced useful lives. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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 SFAS No. 133," which delayed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging - an Amendment of SFAS No. 133," which amended the accounting and reporting standards for certain risks related to normal purchases and sales, interest and foreign currency transactions addressed by SFAS No. 133. The Company has not yet determined the impact SFAS No. 133 will have on its financial position or the results of its operations. 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. 4 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) Reclassifications Certain 1999 amounts have been reclassified to conform with their 2000 presentation. 2. Receivables: Receivables consist of the following:

~~July~~October 157, January 1, 2000 2000 -----------~~-----~~ -------------~~---~~ (unaudited) ~~Inventories~~Trade: atWholesale ~~FIFO~~ $ ~~755~~15,~~615~~999 $ ~~735~~22,~~762~~221 ~~Adjustment~~Retail to16,769 ~~state~~10,525 ~~inventories~~Vendor at41,043 ~~LIFO~~47,405 11Installment 14,~~383~~076 13,~~685~~616 Related parties 4,820 6,647 Employees 526 552 Other 3,005 3,481 ---------- ----------- Total receivables 96,238 104,447 Less - Allowance for doubtful accounts (3,816) (4,124) ---------- ----------- ~~Inventories~~Receivables, atnet ~~LIFO~~ $ ~~766~~92,~~998~~422 $ ~~749~~100,~~447~~323 ==========~~======~~ ===========~~=====~~

3. Inventories: Inventories are stated at the lower of cost or market using the last- in, first-out (LIFO) method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management's estimates of expected fiscal year-end inventory levels and costs. The Company capitalizes certain purchasing and warehousing costs into inventory. Purchasing and warehousing costs included in inventory at October 7, 2000 and January 1, 2000 were $53,376 and $49,252, respectively. Inventories consist of the following:

~~Other~~October ~~Exit~~7, ~~Severance~~January ~~Costs~~1, 2000 2000 ------------- ----------~~---~~ ~~Balance,~~(unaudited) ~~January~~Inventories 1,at ~~2000~~FIFO $ 18792,251 $ 9735,~~963~~762 ~~New~~Adjustment ~~provisions~~to -state ~~1,205~~inventories ~~Change~~at inLIFO ~~estimates~~10,856 ~~- 555 Reserves utilized (14) (2~~13,~~968)~~685 ----------~~---~~ ----------~~---~~ ~~Balance,~~Inventories ~~July~~at ~~15,~~LIFO ~~2000 (unaudited)~~ $ 4803,107 $ 8749,~~755~~447 ==========~~===~~ ==========~~===~~

4. Restructuring Liabilities: In November 1998, the Company consummated a plan of merger (the "Western Merger") with Sears, Roebuck and Co. ("Sears") to acquire Western Auto Supply Company ("Western"). The Company's restructuring activities relate to the settlement of restructuring activities undertaken as a result of the Western Merger and the ongoing analysis of the profitability of store locations. Expenses associated with restructuring are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. 5 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) During the first three quarters of fiscal 2000, the Company closed five stores included in the fiscal 1999 restructuring activities and made the decision to close or relocate 18 additional stores not meeting profitability objectives, of which 16 have been closed as of October 7, 2000. The Company assumed the restructuring accrual related to Western's restructuring activities prior to the Western Merger. As of October 7, 2000, this restructuring accrual relates primarily to ongoing lease obligations on closed facilities and estimated severance payments. The Company actively pursues subleasing these closed stores, including certain service bays in stores obtained through the Western Merger that currently do not produce revenue. A reconciliation of activity with respect to these restructuring accruals is as follows:

Other Exit Severance Costs ------------- ----------~~---~~ Balance, January 1, 2000 $ ~~3,510~~18 $ 79,~~825~~963 New provisions -- 1,435 Change in estimates -- ~~(77)~~250 Reserves utilized (~~2,449~~14) (13,~~408~~666) ------------- ----------~~---~~ Balance, ~~July~~October 157, 2000 (unaudited) $ ~~1,061~~4 $ 67,~~340~~982 ============= ==========~~===~~

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. Additionally, as a result of the Western Merger, the Company established restructuring reserves in connection with the decision to close certain Parts America stores, to relocate certain Western administrative functions, to exit certain facility leases and to terminate certain employees of Western. As of October 7, 2000, all employees have been terminated and all leased stores have been closed. A reconciliation of activity with respect to these restructuring accruals is as follows:

~~Twenty-Eight~~Other ~~Week~~Exit ~~Periods~~Severance ~~Ended~~Costs ------------ -----------~~------------~~ ~~July 15~~Balance, ~~2000~~January ~~July 17~~1, ~~1999~~2000 ~~---------------- ----------------- (unaudited) (unaudited) Net sales to Sears~~ $ 3,~~976~~510 $ 27,~~311~~825 ~~Shared~~Change ~~services~~in ~~revenue~~estimates - ~~1,711~~(221) ~~Shared~~Reserves ~~services~~utilized ~~expense - 842 Credit card fee expense 228 1~~(3,~~459~~146) ~~Sears Logistic Systems fee expense 68 - July 15~~(2,139) ~~2000 January 1, 2000~~ -----------~~-----~~ -----------~~------~~ ~~(unaudited)~~Balance, ~~Receivables~~October ~~from~~7, ~~Sears~~2000 (unaudited) $ ~~4,672~~364 $ 65,~~625~~465 ~~Payables~~=========== ~~to Sears 1,163 4,304~~===========

The above liabilities related to severance costs will primarily be settled during fiscal 2000. Other exit cost liabilities will be settled over the remaining terms of the underlying lease agreements. 6 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) 5. Early Extinguishment of Debt: During the third quarter of fiscal 2000, the Company repurchased $30,550 face value of Senior Subordinated Notes at a price ranging from 81.5 to 82.5 percent of their face value. Accordingly, the Company recorded a gain related to the extinguishment of this debt of $2,933, net of $1,759 provided for income taxes and $868 of associated deferred debt issuance costs. 6. Contingencies: In March 2000, the Company was notified that it was 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 litigation 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 cannot be ascertained at this time. The Company is also involved in various other claims, lawsuits and environmental issues 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 future results of operations. 7. Related Parties: The following table presents the related party transactions with Sears included in the condensed consolidated statements of operations for the forty week periods ended October 7, 2000 and October 9, 1999 and the condensed consolidated balance sheets as of October 7, 2000 and January 1, 2000:

~~Twelve~~Forty Week ~~Period~~Periods Ended ~~Advance July 15, 2000 (unaudited) Holding Retail Wholesale Totals~~ ----------------------------------------~~-----------------------------------------------------------------~~ ~~Net~~October ~~sales $ - $ 525~~7,~~249~~ $2000 ~~32,401~~October ~~$ 557~~9,~~650~~ ~~Income (loss) before provision (benefit) for income taxes (2,264) 18,963 17 16,716 Segment assets (b) 1,766 1,284,113 64,433 1,350,312 Twelve Week Period Ended July 17,~~ 1999 ~~(unaudited)~~ ----------------- -----------------~~-----------------------------------------------------------------------~~ ~~Net sales $ - $ 492,654 $ 49,666 $ 542,320 Income~~ (~~loss~~unaudited) ~~before provision~~ (~~benefit) for income taxes (2,002) 1,638 (68) (432) Segment assets (a) (b) 1,543 1,259,977 120,701 1,382,221 Twenty-Eight Week Period Ended Advance July 15, 2000 (~~unaudited) ~~Holding Retail Wholesale Totals ---------------------------------------------------------------------------------------------------------~~ Net sales $to -Sears $ 15,~~150,318~~905 $ 843,~~914~~790 ~~$1,235,232~~Shared ~~Income~~services ~~(loss)~~revenue ~~before provision (benefit) for income taxes (5,149) 22,438 (1,925) 15,364 Segment assets (b) 1,766 1,284,113 64,433 1,350,312 Twenty~~-~~Eight~~ ~~Week Period Ended July 17~~2,001 ~~1999~~Shared ~~(unaudited)~~services ~~---------------------------------------------------------------------------------------------------------~~expense ~~Net sales $~~ - $ 1,~~080,160~~072 $Credit ~~132,613~~card ~~$1,212,773~~fee ~~Loss~~expense ~~before~~325 ~~(benefit) for income taxes (4,579) (24,244) (6,910) (35,733) Segment assets (a) (b)~~ 1,~~543 1,259,977 120,701 1,382,221~~800

~~Twelve~~October ~~Week Periods Ended Twenty-Eight Week Periods Ended (dollars in thousands) (dollars in thousands) (unaudited) (unaudited) ---------------------------- ------------------------------- July 15~~7, ~~July 17, July 15, July 17,~~ 2000 ~~1999~~January ~~2000 1999 ------------ ------------ ------------ ------------ Net sales $ 557,650 $ 542,320 $~~ 1,~~235,232~~ $2000 ~~1,212,773 Cost of sales 341,117 345,794 759,724 789,886~~ ------------ -----~~-------~~ ------------ -----~~-------~~ Gross profit 216,533 196,526 475,508 422,887 Selling, general and administrative expenses 184,036 173,743 423,475 399,631 ------------ ------------ ------------ ------------ Operating income, as adjusted 32,497 22,783 52,033 23,256 Expenses associated with merger integration - 8,235 - 25,153 Expenses associated with non-cash compensation 248 452 600 1,009 ------------ ------------ ------------ ------------ Operating income (~~loss~~unaudited), asReceivables ~~reported~~from ~~32,249~~Sears 14,096 51,433 (2,906) Interest expense (15,835) (14,658) (36,601) (33,217) Other income, net 302 130 532 390 Provision (benefit) for income taxes 6,335 (2,499) 5,939 (12,858) ------------ ------------ ------------ ------------ Net income (loss) $ 104,~~381~~759 $ 26,~~067~~625 $Payables ~~9,425~~to $Sears (22,875) ============ ============ ============ ============ Twelve Week Periods Ended Twenty-Eight Week Periods Ended (unaudited) (unaudited) ---------------------------- ------------------------------- July 15, July 17, July 15, July 17, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 61.2 63.8 61.5 65.1 ~~------------ ------------ ------------ ------------ Gross profit 38.8 36.2 38.5 34.9 Selling~~,332 ~~general and administrative expenses 33.0 32.0 34.3 33.0 ------------ ------------ ------------ ------------ Operating income, as adjusted 5.8~~ 4.2 4.2 1.9 Expenses associated with merger integration - 1.5 - 2.1 Expenses associated with non-cash compensation - 0.1 - 0.1 ------------ ------------ ------------ ------------ Operating income (loss), as reported 5.8 2.6 4.2 (0.3) Interest expense (2.8) (2.7) (3.0) (2.7) Other income, net 0.1 0.0 0.0 0.0 Provision (benefit) for income taxes 1.1 (0.5) 0.5 (1.1) ------------ ------------ ------------ ------------ Net income (loss) 2.0 % 0.4 % 0.7 % (1.9)% ============ ============ ============ ============304

7 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) 8. Segment and Related Information: SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires entities to report financial and descriptive information related to segments within the organization. The Company has the following operating segments: Holding, Retail and Wholesale. Holding has no operations but holds certain assets and liabilities. Retail consists of the retail operations of the Company, operating under the trade name "Advance Auto Parts" in the United States and "Western Auto" in Puerto Rico and the Virgin Islands. Wholesale consists of the wholesale operations, including distribution services to independent dealers, franchisees and one Company-owned store in California all operating under the "Western Auto" trade name. The California store location generates approximately 12% of the total Wholesale segment revenues. 8 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Twelve and Forty Week Periods Ended October 7, 2000 and October 9, 1999 (dollars in thousands) Prior to January 1, 2000, management received and used financial information at the Advance Stores and consolidated Western levels. The Advance Stores segment consisted of the same operations described above and the Western segment consisted of the "Western Auto" retail locations and wholesale operations described above. The accounting policies of the consolidated company have been consistently applied to the reportable segments listed below.

~~Fair~~Twelve ~~Fiscal~~Week ~~Fiscal~~Periods ~~Fiscal~~Ended ~~Fiscal~~Advance ~~Fiscal~~October ~~Market~~7, 2000 ~~2001~~(unaudited) ~~2002~~Holding ~~2003~~Retail ~~2004~~Wholesale ~~Thereafter~~Eliminations ~~Total~~Totals ~~Value~~ -------- -------- -------- -------- -------- ------------ -------- ------------------------------------------------------- ~~(dollars~~Net insales ~~thousands)~~$ ~~Long~~-~~term~~ ~~debt:~~$ ~~Fixed~~523,243 ~~rate........~~ $ -28,895 $ -- $ -552,138 $Income -(loss) $before -provision ~~$312,000~~(benefit) $for ~~312,000~~income $taxes ~~207,920~~and ~~Weighted~~extraordinary ~~average~~item ~~interest~~(2,272) ~~rate...~~15,773 -1,954 - - -15,455 -Segment ~~11.2%~~assets ~~11.~~(b) 2%,234 ~~Variable~~1,309,455 ~~rate.....~~70,482 $(26) 1,~~000~~381,945 $3Twelve Week Periods Ended October 9,~~000~~ 1999 (unaudited) ------------------------------------------------------------------------------------------------------------------- Net sales $~~14,000~~ -- $4 485,~~000~~776 $ ~~206~~37,~~500~~070 $ ~~90,000~~-- $ ~~318~~522,~~500~~846 $Income ~~318~~(loss) before provision (benefit) for income taxes (2,~~500~~023) ~~Weighted~~2,912 ~~average~~(159) ~~interest~~-- ~~rate...~~730 ~~8.9%~~Segment ~~9.1%~~assets ~~9.3%~~(a) ~~9.5%~~(b) ~~9.6%~~20,341 ~~9.6%~~1,298,800 ~~9.2%~~74,627 (23,233) 1,370,535

(a) During fiscal 1999, certain assets, liabilities and the corresponding activity related to the Parts America store operations and a distribution center were transferred to the Retail segment through a dividend. (b) Excludes investment in and equity in net earnings or losses of subsidiaries. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Advance Holding Corporation ("Holding") conducts all of its operations through its wholly owned subsidiary, Advance Stores Company, Incorporated and its subsidiaries (the "Company"). The Company was formed in 1929. In the 1980's, 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 1980's through the present, the Company has grown significantly through new store openings, strategic acquisitions and a merger with Western Auto Supply Company (the "Western Merger"). Additionally, in 1996, the Company began to aggressively expand its sales to "do-it-for-me" ("DIFM") customers by implementing a commercial delivery program that supplies parts and accessories to third party automotive service and repair providers. As of October 7, 2000, the Company had 1,701 stores in 37 states, Puerto Rico and the Virgin Islands operating under the "Advance Auto Parts" and "Western Auto" trade names (the "Retail" segment). Advance Auto Parts is the second largest retailer of automotive parts and accessories in the United States and, based on store count, the Company believes it is the largest retailer in a majority of its markets. The Western Auto stores (the "Service Stores") included in the Retail segment offer home and garden merchandise in addition to automotive parts, accessories and service. The Company also operates a wholesale distribution network which includes distribution services of automotive parts and accessories and home and garden merchandise to approximately 600 independently owned dealer stores and three franchisees in 48 states and one Company-owned retail store in California all operating under the "Western Auto" trade name (the "Wholesale" segment). During the first quarter of fiscal 2000, the Company announced and finalized a plan to partner 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 operates independently from its partners and will utilize the Company's and CSK's existing logistics systems to support its web-based operations. The Company contributed the use of the "Parts America" domain name 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 began selling product to PartsAmerica.com during the third quarter of fiscal 2000. The following discussion of the consolidated historical results of operations and financial condition of Holding should be read in conjunction with the unaudited condensed consolidated financial statements of Holding and the notes thereto included elsewhere in this Form 10-Q. Holding's first quarter consists of 16 weeks and its other three quarters consist of 12 weeks. Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain certain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements include without limitation the words "believes," "anticipates," "estimates," "intends," "expects," and words of similar import. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Holding and the Company or the retail 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, among others, the following: general economic and business conditions; Holding's and the Company's substantial leverage and debt service obligations; restrictive loan covenants on Holding's and the Company's ability to pursue its business strategies; changes in business strategy or development plans; competition; weather conditions; extent of the market demand for auto parts; availability of inventory supply; unexpected fluctuation in merchandise costs; adequacy and perception of customer service, product quality and defect experience; availability of and ability to take advantage of vendor pricing programs and incentives; rate of new store openings; cannibalization of store sites; mix and types of merchandise sold; governmental regulation of products; new store development; performance of information systems; effectiveness of deliveries from distribution centers; ability to hire, train and retain qualified employees and environmental risks. Forward-looking statements regarding revenues, expenses, cash flows and liquidity are particularly subject to a variety of assumptions, some or all of which may not be realized. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. 10 Holding 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. Results of Operations The following tables set forth the statement of operations data for Holding expressed in dollars and as a percentage of net sales for the periods indicated.

11 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 is included in the comparable store net sales calculation after thirteen complete accounting periods following its conversion to an Advance Auto Parts store. Holding has historically not included the Service Stores in the comparable store net sales calculation but intends to during fiscal 2001. Holding's cost of sales includes merchandise costs and warehouse and distribution expenses as well as service labor costs for the Service Stores and the one Company-owned retail store in California. Gross profit as a percentage of net sales may be affected by variations in Holding's product mix, price changes in response to competitive factors and fluctuations in merchandise costs and vendor programs. The Company seeks to avoid fluctuation in merchandise costs by entering into long-term purchasing agreements with vendors in exchange for pricing certainty, but there can be no assurance such measures will in fact mitigate the effect of fluctuations in merchandise costs on gross profits. Selling, general and administrative expenses are comprised of store payroll, store occupancy, net advertising expenses, depreciation and amortization, other store expenses and general and administrative expenses, including salaries and related benefits of corporate employees, administrative office expenses, data processing, professional expenses and other related expenses. Twelve Weeks Ended October 7, 2000 Compared to Twelve Weeks Ended October 9, 1999 Net sales for the twelve weeks ended October 7, 2000 were $552.1 million, an increase of $29.3 million or 5.6% over net sales for the twelve weeks ended October 9, 1999. Net sales for the Retail segment increased $37.5 million or 7.7%. The net sales increase for the Retail segment was due to an increase in the comparable store sales of 4.0%, contributions from new stores opened within the last year and increased net sales from converted Parts America stores not included in the comparable store sales calculation. The comparable store sales increase of 4.0% was primarily a result of growth in both the DIY and DIFM market segments, as well as the continued maturation of new stores and the converted Parts America stores included in the comparable store sales calculation. Comparable store sales increased 8.6% for the twelve weeks ended October 9, 1999 as compared to the comparable period of fiscal 1998. Net sales for the Wholesale segment decreased 22.1% or $8.2 million due to a decline in the number of independently owned dealer stores and increased local competition for the dealers. During the twelve weeks ended October 7, 2000, the Company opened 32 new stores, relocated three stores and closed five stores, bringing the total retail stores to 1,701. The Company has 1,216 stores participating in its commercial delivery program, a result of no net program changes during the third quarter of fiscal 2000. Gross profit for the twelve weeks ended October 7, 2000 was $223.9 million or 40.6% of net sales, as compared to $199.6 million or 38.2% of net sales in the twelve weeks ended October 9, 1999. The increase in the gross profit percentage is reflective of the realization of certain purchasing synergies, fewer product liquidations, lower inventory shrinkage and freight costs and the continued decline in net sales of the lower margin Wholesale segment. The higher shrinkage and freight costs in fiscal year 1999 were primarily related to merchandise conversions and product liquidations resulting from the Western Merger. The gross profit for the Retail segment was $217.9 million or 41.7% of net sales for the twelve week period ended October 7, 2000, as compared to $191.8 million or 39.5% of net sales for the twelve week period ended October 9, 1999. Selling, general and administrative expenses, before integration expenses and non-cash compensation, increased to $193.9 million or 35.1% of net sales for the twelve week period ended October 7, 2000, from $174.5 million or 33.4% of net sales for the twelve week period ended October 9, 1999. The increase in selling, general and administrative expenses is primarily attributable to the continued sales decline in the Wholesale segment, which carries lower selling, general and administrative expenses as a percentage of sales as compared to the Retail segment. Additionally, the Company has incurred higher than expected medical claims as well as higher payroll, depreciation and supplies expense, partially offset by a decrease in net advertising costs, as a percentage of sales, as compared to the twelve week period ended October 9, 1999. The Company's commitment to its goal of making human resources a core competency, which it believes is critical to the Company's long-term success, has resulted in additional staffing in the stores and increased medical plan costs. The Company expects this commitment to increase the productivity of store personnel, which will positively impact store profitability and customer service. The increase in depreciation expense is primarily related to the change in an accounting estimate to reduce the depreciable lives of certain property and equipment on a prospective basis. Additionally, the decrease in net advertising costs is a result 12 of advertising dedicated to the converted Parts America store grand openings during third quarter of fiscal 1999. Operating income, as adjusted for expenses associated with integration expenses and non-cash compensation, in the twelve weeks ended October 7, 2000 was $30.0 million or 5.5% of net sales, as compared to $25.1 million or 4.8% of net sales in the twelve weeks ended October 9, 1999. The Retail segment contributed $26.9 million to operating income, while the Wholesale segment contributed $3.1 million to operating income. EBITDA (operating income plus depreciation and amortization), as adjusted for integration expenses and non-cash compensation, was $46.3 million in the twelve week period ended October 7, 2000 or 8.4% of net sales, as compared to $39.4 million or 7.5% of net sales in the twelve week period ended October 9, 1999. 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. Holding's method for calculating EBITDA may differ from similarly titled measures reported by other companies. Management believes certain one-time expenses, expenses associated with merger integration and non-cash compensation should be eliminated from the EBITDA calculation to evaluate the operating performance of the Company. Interest expense for the twelve week period ended October 7, 2000 was $15.2 million or 2.7% of net sales, as compared to $14.2 million or 2.7% of net sales for the twelve week period ended October 9, 1999. Interest expense increased as a result of higher interest rates, offset by a reduction in average borrowings during the twelve week period ended October 7, 2000. During the third quarter of fiscal 2000, the Company repurchased $30.6 million of Senior Subordinated Notes. As a result of the early extinguishment of debt, the Company expects to benefit from lower interest expense in the future. Income tax expense for the twelve weeks ended October 7, 2000 was $5.9 million compared to $0.5 million in the twelve weeks ended October 9, 1999. This increase was primarily due to the increase in income before taxes for the twelve weeks ended October 7, 2000 as compared to the twelve weeks ended October 9, 1999. Holding recorded net income of $12.4 million for the twelve week period ended October 7, 2000, as compared to a net income of $0.2 million for the twelve week period ended October 9, 1999. In addition to the items previously discussed, Holding also recorded an extraordinary gain related to the early extinguishment of debt of $2.9 million, net of $1.8 million provided for income taxes and $0.9 million of associated deferred debt issuance costs. As a percentage of sales, net income for the twelve week period ended October 7, 2000 was 2.3% as compared to net income of 0.0% for the twelve week period ended October 9, 1999. Forty Weeks Ended October 7, 2000 Compared to Forty Weeks Ended October 9, 1999 Net sales for the forty weeks ended October 7, 2000 were $1,787.4 million, an increase of $51.8 million or 3.0% over net sales for the forty weeks ended October 9, 1999. Net sales for the Retail segment increased $107.6 million or 6.9%. The net sales increase for the Retail segment was due to an increase in the comparable store sales of 3.8%, contributions from new stores opened within the last year and increased net sales from converted Parts America stores not included in the comparable store sales calculation. The comparable sales increase of 3.8% was primarily a result of growth in both the DIY and DIFM market segments, as well as the continued maturation of new stores and the converted Parts America stores included in the comparable store sales calculation. Comparable store sales increased 11.4% for the forty weeks ended October 9, 1999 as compared to the comparable quarter of fiscal 1998. Net sales for the Wholesale segment decreased 32.9% or $55.9 million due to a decline in the number of independently owned dealer stores and increased local competition for the dealers. During the forty weeks ended October 7, 2000, the Company opened 106 new stores, relocated nine stores and closed 21 stores, bringing the total retail stores to 1,701. The Company has 1,216 stores participating in its commercial delivery program, a result of adding 122 net stores during fiscal 2000. Gross profit for the forty weeks ended October 7, 2000 was $699.4 million or 39.1% of net sales, as compared to $622.5 million or 35.9% of net sales in the forty weeks ended October 9, 1999. The increase in the gross profit percentage is reflective of the realization of certain purchasing synergies, fewer product liquidations, lower inventory shrinkage and freight costs and the continued decline in net sales of the lower margin Wholesale segment. The higher shrinkage and freight costs in fiscal year 1999 were primarily related to merchandise 13 conversions and product liquidations resulting from the Western Merger. The gross profit for the Retail segment was $681.6 million or 40.7% of net sales for the forty week period ended October 7, 2000, as compared to $595.6 million or 38.0% of net sales for the forty week period ended October 9, 1999. Selling, general and administrative expenses, before integration expenses and non-cash compensation, increased to $617.3 million or 34.5% of net sales for the forty week period ended October 7, 2000, from $574.2 million or 33.1% of net sales for the forty week period ended October 9, 1999. The increase in selling, general and administrative expenses is primarily attributable to the continued sales decline in the Wholesale segment, which carries lower selling, general and administrative expenses as a percentage of sales as compared to the Retail segment. Additionally, the Company has incurred higher than expected medical claims as well as higher payroll, insurance and depreciation expense, partially offset by a decrease in net advertising costs, as a percentage of sales, as compared to the forty week period ended October 9, 1999. The Company's commitment to its goal of making human resources a core competency, which it believes is critical to the Company's long-term success, has resulted in additional staffing in the stores and increased medical plan costs. The Company expects this commitment to increase the productivity of store personnel, which will positively impact store profitability and customer service. The increase in depreciation expense is primarily related to the change in an accounting estimate to reduce the depreciable lives of certain property and equipment on a prospective basis. Additionally, the decrease in net advertising costs is a result of advertising dedicated to the converted Parts America store grand openings during fiscal 1999. Operating income, as adjusted for expenses associated with integration expenses and non-cash compensation, in the forty weeks ended October 7, 2000 was $82.1 million or 4.6% of net sales, as compared to $48.4 million or 2.8% of net sales in the forty weeks ended October 9, 1999. The Retail segment contributed $77.7 million to operating income, while the Wholesale segment contributed $4.4 million to operating income for the forty weeks ended October 7, 2000. EBITDA (operating income plus depreciation and amortization), as adjusted for integration expenses and non-cash compensation, was $132.7 million in the forty week period ended October 7, 2000 or 7.4% of net sales, as compared to $92.0 million or 5.3% of net sales in the forty week period ended October 9, 1999. 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. Holding's method for calculating EBITDA may differ from similarly titled measures reported by other companies. Management believes certain one-time expenses, expenses associated with merger integration and non-cash compensation should be eliminated from the EBITDA calculation to evaluate the operating performance of the Company. Interest expense for the forty week period ended October 7, 2000 was $51.8 million or 2.9% of net sales, as compared to $47.4 million or 2.7% of net sales for the forty week period ended October 9, 1999. The increase in interest expense is a result of an increase in interest rates over the similar period of fiscal year 1999 offset by a decrease in net outstanding borrowings. During the third quarter of fiscal 2000, the Company repurchased $30.6 million of Senior Subordinated Notes. As a result of the early extinguishment of debt, the Company expects to benefit from lower interest expense in the future. Income tax expense for the forty weeks ended October 7, 2000 was $11.9 million compared to a benefit of $12.3 million in the forty weeks ended October 9, 1999. This increase was primarily due to having income before taxes for the forty week period ended October 7, 2000 as compared to a net loss for the forty week period ended October 9, 1999. Holding recorded net income of $21.9 million for the forty week period ended October 7, 2000, as compared to a net loss of $22.7 million for the forty week period ended October 9, 1999. In addition to the items previously discussed, Holding also recorded an extraordinary gain related to the early extinguishment of debt of $2.9 million, net of $1.8 million provided for income taxes and $0.9 million of associated deferred debt issuance costs. As a percentage of sales, net income for the forty week period ended October 7, 2000 was 1.3% as compared to a net loss of 1.3% for the forty week period ended October 9, 1999. 14 Liquidity and Capital Resources As a holding company, Holding relies on dividends from the Company as its primary source of liquidity. Holding does not have and in the future may not have any assets other than the capital stock of the Company. The ability of the Company to pay cash dividends to Holding when required is restricted by law and the terms of the Company's debt instruments, including the Credit Facility and the Senior Subordinated Notes (see below). No assurance can be made that the Company will be able to pay cash dividends to Holding when required to redeem the Debentures (see below). Holding'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 and the development and implementation of proprietary information systems. Holding has financed its growth through a combination of internally generated funds, borrowings under the Credit Facility and issuances of equity. During fiscal 2000, the Company expects to open approximately 140 new stores, of which 106 have been opened as of October 7, 2000. The average new store opening requires 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 and are expensed when incurred. 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. The Company continually monitors store performance, which results in closing certain store locations not meeting profitability objectives. During the first three quarters of fiscal 2000, the Company closed five stores included in the fiscal 1999 restructuring activities and made the decision to close or relocate 18 additional stores not meeting profitability objectives, 16 of which have been closed as of October 7, 2000. As a result of the Western Merger, the Company decided to close certain Advance Auto Parts stores due to store performance or because such stores were in overlapping markets with Parts America stores. As part of normal operations, the Company will continue 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 October 7, 2000, these reserves had a remaining balance of $10.5 million. The Company also assumed certain restructuring and deferred compensation liabilities previously recorded by Western Auto Supply Company. At October 7, 2000, the remaining assumed liability for the restructuring and deferred compensation plans was $3.4 million and $5.7 million, respectively, of which $2.0 million and $1.5 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. For the forty weeks ended October 7, 2000, net cash provided by operating activities was $100.8 million. Of this amount, $21.9 million was provided by net income. Depreciation and amortization provided an additional $50.6 million, amortization of deferred debt issuance costs and bond discount provided $10.0 million and $18.3 million was provided as a result of a net decrease in working capital and other, primarily attributable to the Company's successful efforts in maintaining extended payment terms from its vendors. Net cash used for investing activities was $42.1 million and was comprised primarily of net capital expenditures. Net cash used in financing activities was $64.9 million and was comprised primarily of a decrease in net borrowings, including the repurchase of the Senior Subordinated Notes during the third quarter of fiscal 2000 with cash flows provided by operating activities through the forty week period ended October 7, 2000. Holding believes it will have sufficient liquidity to fund its debt service obligations and implement its growth strategy over the next twelve months. As of October 7, 2000, Holding and the Company had reduced their outstanding indebtedness by $67.0 million since January 1, 2000 to $571.3 million consisting of $81.8 million of Senior Discount Debentures (the "Debentures"), $169.4 million of Senior Subordinated Notes (the "Senior Subordinated Notes"), borrowings of $308.5 million under the bank credit facility (the "Credit Facility"), $10.0 million of indebtedness under the McDuffie County Development Authority Taxable Industrial Bonds ("IRB") 15 and $1.6 million of other notes payable. The Debentures accrete at a rate of 12.875%, compounded semiannually, to an aggregate principal amount of $112.0 million by April 15, 2003. Commencing April 15, 2003, cash interest on the Debentures will accrue and be payable semiannually at a rate of 12.875% per annum. The indenture governing the Debentures contains certain covenants that, among other things, limit the ability of Holding and its restricted subsidiaries to incur indebtedness and issue preferred stock, repurchase stock and certain indebtedness, engage in transactions with affiliates, create or incur certain liens, pay dividends or certain other distributions, make certain investments, enter into new businesses, sell stock of restricted subsidiaries, sell assets and engage in certain mergers and consolidations. The Senior Subordinated Notes bear interest at a rate of 10.25%, payable semiannually, and require no principal payments until maturity in April 2008. 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 IRB bears interest at a variable rate, payable monthly, and will require no principal payments until maturity in November 2002. During the third quarter of fiscal 2000, the Company repurchased $30.6 million face value of Senior Subordinated Notes at a price ranging from 81.5 to 82.5 percent of their face value. Accordingly, the Company recorded a gain related to the extinguishment of this debt of $2.9 million, net of $1.8 million provided for income taxes and $.9 million of associated deferred debt issuance costs. The Company has access to a total of $463.5 million through the Credit Facility in addition to its operating cash flow. The Credit Facility provides for (i) a $124.0 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 $11.9 million was outstanding for letters of credit, at October 7, 2000, (iii) a $124.5 million delayed draw term loan of which $94.5 million was borrowed at October 7, 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 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 October 7, 2000, the margins were 1.75% and 0.75% for Eurodollar and base rate borrowings, respectively. Additionally, at October 7, 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 in fiscal 2000. 16 The loans under the Credit Facility are secured by a first priority security interest in all tangible and intangible assets of the Company. Amounts available to the Company under the revolver and delayed draw term loans are subject to a borrowing base formula, which is based on certain percentages of the Company's inventories. As of October 7, 2000, $142.4 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. 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 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 October 7, 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. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Holding currently utilizes no material derivative financial instruments that expose it to significant market risk. Holding is exposed to cash flow and fair value risk due to changes in interest rates with respect to its long-term debt. While Holding cannot predict the impact that interest rate movements will have on its debt, exposure to rate changes is managed through the use of fixed and variable rate debt. Holding's exposure to interest rate risk decreased during the first three quarters of fiscal 2000 due to decreased outstanding borrowings offset by increased interest rates. Holding's fixed rate debt consists primarily of outstanding balances on the Debentures and Senior Subordinated Notes. Holding's variable rate debt relates to borrowings under the Credit Facility and the IRB. Holding'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 Holding's long-term debt at October 7, 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 October 7, 2000. Implied forward rates should not be considered a predictor of actual future interest rates.

18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 2000, the Company was notified that it was 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 litigation 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. The Company is also involved in various other claims, lawsuits and environmental issues 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 future results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 11, 2000, Holding issued and sold 1,000 shares of its Class A common stock, $0.01 par value per share (the "Shares"), at a price per share of $16.82 or an aggregate purchase price of $16,820 to certain employees of the Company (the "Purchasers"). Holding offered and sold the Shares pursuant to the Advance Holding Corporation 1998 Employee Stock Subscription Plan, as amended (the "Plan"), which Holding filed as an exhibit to its Registration Statement on Form S-4, effective October 30, 1998 (Registration No. 333-56013). As consideration for the Shares, Holding received $8,410 in cash, and $8,410 in the form of secured promissory notes, the payment of which are secured by individual stock pledge agreements with the Purchasers. The issuances of the Shares were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 701 which exempts certain offers and sales of securities pursuant to certain compensatory benefit plans. The Plan is a compensatory benefit plan within the meaning of Rule 701 and the aggregate amount of securities sold by Holding in reliance on Rule 701 during the applicable period has not exceeded 15% of the outstanding amount of Class A common stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description ------ ----------- 27.1 Financial Data Schedule. (b) Reports on Form 8-K None. 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVANCE HOLDING CORPORATION, a Virginia corporation November 16, 2000 By: /s/ Jimmie L. Wade ---------------------------------------- Jimmie L. Wade President and Chief Financial Officer, Secretary (as principal executive and accounting officer) S-1

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