=============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 21, 2001 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 May 24, 2001, the registrant had outstanding 28,292,550 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 Sixteen Week Period Ended April 21, 2001 TABLE OF CONTENTS

Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements of Advance Holding Corporation and Subsidiaries: Condensed Consolidated Balance Sheets as of ~~October~~April 721, ~~2000~~2001 and ~~January~~December 130, 2000...................................................................... 1 Condensed Consolidated Statements of Operations for the ~~Twelve~~Sixteen ~~and Forty~~ Week Periods Ended ~~October~~April 721, ~~2000~~2001 and ~~October~~April 922, ~~1999~~2000................................... 2 Condensed Consolidated Statements of Cash Flows for the ~~Forty~~Sixteen Week Periods Ended ~~October~~April 721, ~~2000~~2001 and ~~October~~April 922, ~~1999~~2000........................... 3 Notes to the Condensed Consolidated Financial Statements............................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 109 Item 3. Quantitative and Qualitative Disclosures About Market Risks............................ 1815 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................ ~~19 Item 2~~. ~~Changes in Securities and Use of Proceeds~~.....~~...................................~~ 1916 ~~Item 6~~SIGNATURE. ~~Exhibits and Reports on Form 8-K~~................................................. ~~19 SIGNATURE~~...............................................~~............................................~~ S-1

i Advance Holding Corporation and Subsidiaries Condensed Consolidated Balance Sheets April 21, 2001 and December 30, 2000 (dollars in thousands, except per share data)

~~October~~April 721, ~~January~~December 130, Assets ~~2000~~2001 2000 ------ ----------- ------------ (unaudited) Current assets: Cash and cash equivalents $ 16,~~353~~643 $ 2218,~~577~~009 Receivables, net 9294,~~422~~308 ~~100~~80,~~323~~578 Inventories ~~803~~782,~~107~~619 ~~749~~788,~~447~~914 Other current assets 2012,~~561~~398 1210,~~025~~274 ------------ ------------ Total current assets ~~932~~905,~~443~~968 ~~884~~897,~~372~~775 Property and equipment, net of accumulated depreciation of of $~~180~~201,~~470~~038 and $~~146~~191,~~647~~897 ~~404~~402,~~994~~658 ~~402~~410,~~476~~960 Assets held for sale 2622,~~166~~874 2925,~~694~~077 Other assets, net 18,~~342~~254 3222,~~087~~548 ------------ ------------ $ 1,~~381~~349,~~945~~754 $ 1,~~348~~356,~~629~~360 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Bank overdrafts $ 425,~~387~~452 $ 1113,~~715~~599 Current portion of long-term debt 35,~~555~~000 39,~~665~~985 Accounts payable ~~415~~354,~~858~~598 ~~341~~387,~~188~~852 Accrued expenses ~~136~~124,~~060~~985 ~~146~~124,~~024~~962 Other current liabilities 3743,~~278~~002 2642,~~172~~794 ------------ ------------ Total current liabilities ~~597~~553,~~138~~037 ~~528~~579,~~764~~192 ------------ ------------ Long-term debt ~~567~~593,~~744~~256 ~~634~~576,~~664~~964 ------------ ------------ Other long-term liabilities 5841,~~681~~388 5143,~~247~~933 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock, 8% noncumulative, nonvoting, $10 par value, redeemable by the Company at par; liquidation value at par; 100,000 shares authorized; no shares issued or outstanding -- -- Common stock, Class A, voting, $.01 par value, 62,500,000 shares authorized; 28,~~288~~273,550 and 28,~~144~~288,~~050~~550 issued and outstanding 283 ~~281~~283 Common stock, Class B, nonvoting, $.01 par value, 21,875,000 shares authorized; no shares issued or outstanding -- -- Additional paid-in capital 371,971 372,169 ~~369,399~~ Other ~~201~~1,562 69396 Accumulated deficit (~~214~~211,~~271~~743) (~~235~~216,~~795~~577) ------------ ------------ Total stockholders' equity ~~158~~162,~~382~~073 ~~133~~156,~~954~~271 ------------ ------------ $ 1,~~381~~349,~~945~~754 $ 1,~~348~~356,~~629~~360 ============ ============

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 Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (dollars in thousands) (unaudited)

~~Twelve~~Sixteen Week Periods Ended ~~Forty Week Periods Ended~~ ----------------------------~~----~~ ~~-------------------------------~~April ~~October 7~~21, ~~October~~April 922, ~~October~~2001 ~~7, October 9,~~ 2000 ~~1999 2000 1999~~ ----------~~---~~ ----------~~----~~ ~~------------- ------------~~ Net sales $ ~~552~~729,~~138~~359 $ ~~522~~677,~~846~~582 ~~$ 1,787,370 $ 1,735,619~~ Cost of sales, including purchasing and ~~328,235~~warehousing ~~323,209~~costs 1433,~~087,959~~420 1418,~~113,095~~607 ~~warehousing costs~~ ----------~~---~~ ----------~~----~~ ~~------------- ------------~~ Gross profit ~~223~~295,~~903~~939 ~~199~~258,~~637~~975 ~~699,411 622,524~~ Selling, general and administrative expenses ~~193~~268,~~792~~260 ~~184~~239,~~777~~791 ~~617,867 610,570~~ ----------~~---~~ ----------~~----~~ ~~------------- ------------~~ Operating income 3027,~~111~~679 1419,~~860~~184 ~~81,544 11,954~~ ----------~~---~~ ----------~~----~~ ~~-------------~~Other ~~------------~~(expense) income: Interest expense (1519,~~183~~631) (1420,~~232~~766) ~~(51,784) (47,449)~~ Other ~~527~~174 ~~102~~230 ~~1,059 492~~ ----------~~---~~ ----------~~----~~ ~~------------- ------------~~ Total other expense, net (1419,~~656~~457) (1420,~~130~~536) ~~(50,725) (46,957)~~ ----------~~---~~ ----------~~----~~ ~~------------- ------------~~ Income (loss) before (provision) (benefit) for income taxes ~~and extraordinary item 15~~8,~~455~~222 ~~730 30,819~~ (351,~~003~~352) (Provision) (benefit) for income taxes ~~5,948 539 11,887~~ (123,~~319~~271) ~~-------------~~396 ----------~~----~~ ----------~~---~~ ------------ Income (loss) before extraordinary item 9,507 191 18,932 (22,684) Extraordinary gain on debt extinguishment, net of $1,759 income taxes 2,933 - 2,933 - ------------- -------------- ------------- ------------ Net income (loss) $ 124,~~440~~951 $ ~~191 $ 21,865 $~~ (~~22,684~~956) ==========~~===~~ ==========~~==== ============= ============~~

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 Flows For the Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (dollars in thousands) (unaudited)

~~Forty~~Sixteen Week Periods Ended ------------------------------- ~~October~~April 721, ~~October~~April 922, 2001 2000 ~~1999~~ ------------- ------------- Cash flows from operating activities: Net income (loss) $ 214,~~865~~951 $ (~~22,684~~956) Adjustments to reconcile net income (loss) to net cash ~~provided by (~~used in) operating activities: Depreciation 5020,~~614~~856 4319,~~677~~234 Amortization of stock option compensation ~~533~~1,109 ~~989~~352 Amortization of deferred debt issuance costs ~~2,542~~981 ~~2,715~~992 Amortization of bond discount 73,~~432~~292 62,~~586~~887 Amortization of interest on capital lease obligation - 42 61Losses ~~Provision~~on ~~(benefit)~~sales ~~for~~of ~~deferred~~property ~~income~~and ~~taxes 14~~equipment,~~987~~ (4net 1,~~218)~~308 ~~Extraordinary~~310 ~~gain~~Impairment ~~on extinguishment~~ of ~~debt,~~assets ~~net~~held offor ~~tax~~sale (21,~~933)~~600 - ~~Net~~Provision ~~losses~~(benefit) onfor ~~sales~~deferred ofincome ~~property~~taxes ~~and~~1,140 ~~equipment~~(666) ~~368 7~~ Net ~~decrease~~ (increase) decrease in: Receivables, net 7(13,~~832~~730) (186,~~799~~587) Inventories ~~(53~~6,~~660)~~295 (3215,~~521~~369) Other assets (32,~~148~~792) (161,~~058~~698) Net ~~increase~~ (decrease) increase in: Accounts payable ~~74,670~~ (1833,~~739~~254) 21,874 Accrued expenses ~~(17~~4,~~845)~~151 (1328,~~029~~141) Other liabilities (~~2,499~~34) 174,~~873~~248 ---------- ---------- Net cash ~~provided by (~~used in) operating activities ~~100~~(4,~~800~~127) (543,~~140~~478) ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (4617,~~883~~627) (8112,~~758~~692) ~~Other~~Proceeds ~~4,777~~from 2sales of property and equipment 908 1,~~215~~294 ---------- ---------- Net cash used in investing activities (4216,~~106~~719) (7911,~~543~~398) ---------- ---------- Cash flows from financing activities: ~~(Decrease)~~Increase ~~increase~~ in bank overdrafts (711,~~328)~~853 ~~908~~5,750 ~~Net~~Payment ~~borrowings~~of ~~under~~ note payable ~~1,555 - Early extinguishment of debt~~ (~~24,990~~784) - Borrowings under credit facilities ~~191~~147,~~200~~300 ~~358~~155,~~500~~200 Payments on credit facilities (~~233~~138,~~200~~501) (~~242~~157,~~500~~200) ~~Payment~~(Repurchases of ~~debt issuance costs - (972~~) ~~Proceeds~~proceeds from ~~issuance~~Class ofA common stock, ~~net~~under ofthe ~~repurchases~~stockholder ~~1,602~~subscription ~~472~~plan ~~Other~~(999) 62,~~243~~192 5Other 611 2,~~261~~160 ---------- ---------- Net cash ~~(used in)~~ provided by financing activities ~~(64~~19,~~918)~~480 ~~121~~8,~~669~~102 ---------- ---------- Net decrease in cash and cash equivalents (61,~~224~~366) (126,~~014~~774) Cash and cash equivalents, beginning of period 18,009 22,577 ~~36,115~~ ---------- ---------- Cash and cash equivalents, end of period $ 16,~~353~~643 $ 2415,~~101~~803 ========== ========== Supplemental cash flow information: Interest paid $ 3617,~~089~~678 $ 2920,~~775~~037 Income ~~tax~~taxes ~~refunds~~paid ~~(payments),~~113 ~~net~~190 ~~6,700 (4,719)~~ Non-cash transactions: ~~Conversion~~Accrued purchases of ~~capital~~property ~~lease~~and ~~obligation~~equipment $5,912 31,~~509~~910 $Equity -transactions ~~Net issuances of common stock~~ under the stockholder subscription ~~receivable~~and ~~plan~~employee ~~538~~stock -option ~~Net~~plans ~~management~~226 ~~loans~~934 ~~receivable~~Conversion ~~used to purchase common stock 402 344 Appreciation~~ of ~~cancelled shares under stockholder subscription receivable plan 341 - Obligations under~~ capital lease obligation - 3,~~345~~509 ~~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 Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (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 April 21, 2001, the condensed consolidated statements of operations for the sixteen week periods ended April 21, 2001 and April 22, 2000 and the condensed consolidated statements of cash flows for the sixteen week periods ended April 21, 2001 and April 22, 2000, 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 December 30, 2000. The results of operations for the sixteen-week period are not necessarily indicative of the operating results to be expected for the full fiscal year. 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 FASB Statement 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 adopted SFAS No. 133 on December 31, 2000 with no material impact on its financial position or the results of its operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing Financial Assets and Extinguishment of Liabilities". This statement replaces SFAS No. 125, but carries over most of the provisions of SFAS No. 125 without reconsideration. The Company implemented SFAS No. 140 during first quarter of fiscal 2001. The implementation had no impact on the Company's financial position or the results of its operations. 4 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (dollars in thousands) 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. Reclassifications Certain 2000 amounts have been reclassified to conform with their 2001 presentation. 2. Accounts Receivable: Receivables consist of the following: April 21, December 30, 2001 2000 -------------- ------------ (unaudited) Trade: Wholesale $ 25,754 $ 12,202 Retail 16,276 15,666 Vendor 39,342 36,260 Installment 14,095 14,197 Related parties 780 3,540 Employees 467 607 Other 2,863 3,127 -------- -------- Total receivables 99,577 85,599 Less: Allowance for doubtful accounts (5,269) (5,021) -------- -------- Receivables, net $ 94,308 $ 80,578 ======== ======== 5 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (dollars in thousands) 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 April 21, 2001 and December 30, 2000 were $56,643 and $56,305, respectively. Inventories consist of the following: April 21, December 30, 2001 2000 -------------- -------------- (unaudited) Inventories at FIFO $ 772,284 $ 779,376 Adjustments to state inventories at LIFO 10,335 9,538 -------------- -------------- Inventories at LIFO $ 782,619 $ 788,914 ============== ============== 4. Restructuring Liabilities: The Company's restructuring activities relate to the ongoing analysis of the profitability of store locations and the settlement of restructuring activities undertaken as a result of the fiscal 1998 merger with Western Auto Supply Company ("Western") ("Western Merger"). Expenses associated with restructuring are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the first quarter of fiscal 2001, the Company closed one store included in the fiscal 2000 restructuring activities and made the decision to close or relocate 18 additional stores not meeting profitability objectives, of which 10 had been closed as of April 21, 2001. As of April 21, 2001, this liability represents the current value required for certain facility exit costs, which will be settled over the remaining terms of the underlying lease agreements. A reconciliation of activity with respect to these restructuring accruals is as follows: Other Exit Costs --------------- Balance, December 30, 2000 $ 6,788 New provisions 2,668 Change in estimates 40 Reserves utilized (1,485) --------------- Balance, April 21, 2001 (unaudited) $ 8,011 =============== 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 April 21, 2001, this restructuring reserve represents the current value required for certain facility exit costs, which 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 Sixteen Week Periods Ended April 21, 2001 and April 22, 2000 (dollars in thousands) A reconciliation of activity with respect to these restructuring accruals is as follows: Other Exit Costs --------------- Balance, December 30, 2000 $ 3,797 Purchase accounting adjustments (73) Reserves utilized (482) --------------- Balance, April 21, 2001 (unaudited) $ 3,242 =============== 5. Assets Held for Sale: During the first quarter of fiscal 2001, the Company recorded an impairment charge of $1,600 reducing the carrying value of the facility to $6,000. The facility, which is held in the Wholesale segment, consists of excess space not required by the Company's current needs. The Company expects to dispose of this property during fiscal 2001. 6. Related Parties: The following table presents the related party transactions with Sears, Roebuck & Co. ("Sears") included in the condensed consolidated statements of operations for the sixteen week periods ended April 21, 2001 and April 22, 2000 and the condensed consolidated balance sheets as of April 21, 2001 and December 30, 2000: Sixteen Week Periods Ended ------------------------------- April 21, April 22, 2001 2000 -------------- --------------- (unaudited) (unaudited) Net sales to Sears $ 2,023 $ 2,086 Credit card fees expense 101 128 April 21, December 30, 2001 2000 -------------- --------------- (unaudited) Receivables from Sears $ 635 $ 3,160 Payables to Sears 1,220 1,321 7. Segment and Related Information: 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" and "Western Auto" in the United States and "Western Auto" in Puerto Rico and the Virgin Islands. Wholesale consists of the wholesale operations, including distribution services to independent dealers and franchisees all operating under the "Western Auto" trade name. 7 Advance Holding Corporation and Subsidiaries Notes to the Condensed Consolidated Financial Statements For the Sixteen Week Periods Ended April 21,2001 and April 22, 2000 (dollars in thousands) During the first quarter of fiscal 2001, the Company realigned its retail operations to include the Company-owned store operating under the "Western Auto" trade name in California, which was previously included in the Wholesale segment. Therefore, the following segment disclosures for the sixteen weeks ended April 22, 2000 have been restated to reflect this new structure. The accounting policies of the consolidated company have been consistently applied to the reportable segments listed below.

~~October~~Sixteen 7,Weeks ~~January~~Ended 1Advance April 21, ~~2000~~2001 ~~2000~~(unaudited) Holding Retail Wholesale Eliminations Totals ----------- ------------------------------------------------------------------------------------------------------- ~~(unaudited)~~Net ~~Trade:~~sales ~~Wholesale~~$ - $ 15688,~~999~~786 $ 2240,~~221~~573 ~~Retail~~$ 16- $ 729,~~769~~359 10(Loss) income before benefit (provision) for income taxes (3,~~525~~330) ~~Vendor~~13,599 41(2,~~043~~047) 47- 8,~~405~~222 ~~Installment~~Segment 14assets (a) 11,~~076~~304 131,~~616~~306,309 ~~Related~~49,382 ~~parties 4~~(17,~~820~~241) 61,~~647~~349,754 ~~Employees~~Sixteen ~~526~~Weeks ~~552~~Ended ~~Other~~Advance ~~3,005~~April 322,~~481~~ 2000 (unaudited) Holding Retail Wholesale Eliminations Totals ---------- -------------------------------------------------------------------------------------------------------- ~~Total~~Net ~~receivables~~sales 96$ - $ 630,~~238~~390 ~~104~~$ 47,~~447~~192 ~~Less~~$ - ~~Allowance~~$ 677,582 (Loss) income before benefit (provision) for ~~doubtful~~income ~~accounts~~taxes (32,~~816~~885) 3,401 (41,~~124~~868) -~~---------~~ ~~----------- Receivables~~(1,352) ~~net~~Segment $assets 92(a) 14,~~422~~409 $1,282,907 ~~100~~83,~~323~~757 ~~==========~~(22,748) ~~===========~~1,358,325

(a) Excludes investment in and equity in net earnings or losses of subsidiaries. 8. Contingencies: During the first quarter of fiscal 2001, the Company recorded a net gain of $8,300 as a result of a settlement reached with a vendor, in which the vendor repudiated a long-term supply agreement. This gain was recognized as a reduction to cost of sales in the accompanying statement of operations. The Company received notification from Sears during the first quarter of fiscal 2001 that certain environmental matters of Western Auto Supply Company, existing as of the merger date and fully indemnified by Sears, have been settled. Accordingly, the Company reversed $2,500 of a receivable due from Sears and reduced the corresponding environmental liability. 9. Subsequent Event: On April 23, 2001, the Company signed a definitive agreement to acquire substantially all the assets of Carport Auto Parts, Inc. ("Carport") and assume selected liabilities. Upon signing the definitive agreement, the Company assumed the operation of 51 auto parts stores in Alabama and Mississippi. The acquisition will be accounted for under the purchase method of accounting and, accordingly, the results of operations for Carport will be included in the Company's financial records beginning April 23, 2001. 8 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 April 21, 2001, the Company had 1,733 stores in 38 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 530 independently owned dealer stores and three franchisees in 48 states operating under the "Western Auto" trade name (the "Wholesale" segment). The Company continually monitors store performance, which results in closing certain store locations not meeting profitability objectives. During the first quarter of fiscal 2001, the Company closed one store included in the fiscal 2000 restructuring activities and made the decision to close or relocate 18 additional stores not meeting profitability objectives, 10 of which were closed in the first quarter of fiscal 2001. On April 23, 2001, the Company signed a definitive agreement to purchase certain assets of Carport Auto Parts, Inc. ("Carport") and assume selected liabilities. Upon signing the definitive agreement, the Company assumed the operation of 51 auto parts stores in Alabama and Mississippi, which makes the Company the largest retailer of automotive parts in this market. The Company plans to integrate the Carport operations into its current operations of the Retail Segment by the end of fiscal 2001. The acquisition will be accounted for under the purchase method of accounting. 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 9 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. 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. 10 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.

~~October~~Sixteen 7Week Periods Ended (dollars in thousands) (unaudited) -------------------------- April 21, ~~January~~April 122, ~~2000~~2001 2000 --------- --------- Net sales $ 729,359 $ 677,582 Cost of sales 433,420 418,607 --------- --------- Gross profit 295,939 258,975 Selling, general and administrative expenses 266,664 238,968 Non-cash and other employee compensation 1,596 823 --------- --------- Operating income 27,679 19,184 Interest expense (~~unaudited~~19,631) ~~Inventories~~(20,766) atOther ~~FIFO~~income, $net ~~792~~174 230 (Provision) benefit for income taxes (3,~~251~~271) 396 --------- --------- Net income (loss) $ ~~735~~4,~~762~~951 ~~Adjustment~~$ to(956) ~~state~~========= ~~inventories~~========= atSixteen ~~LIFO~~Week 10Periods Ended (unaudited) -------------------------- April 21,~~856~~ 13April 22,~~685~~ 2001 2000 --------- --------- Net sales 100.0% 100.0% Cost of sales 59.4 61.8 --------- --------- ~~Inventories~~Gross atprofit ~~LIFO~~40.6 $38.2 ~~803~~Selling,~~107~~ $general ~~749~~and administrative expenses 36.6 35.3 Non-cash and other employee compensation 0.2 0.1 --------- --------- Operating income 3.8 2.8 Interest expense (2.7) (3.1) Other income,~~447~~ net 0.0 0.0 (Provision) benefit for income taxes (0.4) 0.1 --------- --------- Net income (loss) 0.7% (0.2)% ========== ==========

Net sales consist primarily of comparable store net sales, new store net sales, Service Store net sales, net sales for Wholesale and finance charges on installment sales. Comparable store net sales is calculated based on the change in net sales starting once a store has been 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. Holding has not included the Service Stores in the comparable store net sales calculation but does plan to in the future. 11 Holding's 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 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. Sixteen Weeks Ended April 21, 2001 Compared to Sixteen Weeks Ended April 22, 2000 Net sales for the sixteen weeks ended April 21, 2001 were $729.4 million, an increase of $51.8 million or 7.6% over net sales for the sixteen weeks ended April 22, 2000. Net sales for the Retail segment increased $58.4 million or 9.3%. The net sales increase for the Retail segment was due to an increase in the comparable store sales and contributions from new stores opened within the last year. The comparable store sales increase of 5.7% was primarily a result of growth in both the DIY and DIFM market segments. Comparable store sales increased 4.4% for the sixteen weeks ended April 22, 2000 as compared to the comparable period of fiscal 1999. Net sales for the Wholesale segment decreased 14.0% or $6.6 million due to a decline in the number of dealer stores serviced by the Company and lower average sales to each dealer. During the sixteen weeks ended April 21, 2001, the Company opened 15 new stores, relocated four stores and closed 11 stores, bringing the total retail stores to 1,733. During the first quarter of fiscal 2001, the Company reduced the total number of stores participating in its commercial delivery program to 1,193 through the consolidation of 16 programs. Gross profit for the sixteen weeks ended April 21, 2001 was $295.9 million or 40.6% of net sales, as compared to $259.0 million or 38.2% of net sales in the sixteen weeks ended April 22, 2000. The increase in the gross profit percentage is reflective of a net gain recorded as a reduction to cost of sales during the first quarter of fiscal 2001. The gain of $8.3 million is a result of a settlement reached between the Company and a vendor in which the vendor had repudiated a long-term supply agreement entered into with the Company. The remaining increase in gross profit is a result of a positive shift in product mix, reduction in logistics cost and a net sales decline of the lower margin Wholesale segment. The gross profit for the Retail segment was $291.6 million or 42.3% of net sales for the sixteen week period ended April 21, 2001, as compared to $254.3 million or 40.3% of net sales for the sixteen week period ended April 22, 2000. Selling, general and administrative expenses, before non-cash and other employee compensation, increased to $266.7 million or 36.6% of net sales for the sixteen week period ended April 21, 2001, from $239.0 million or 35.3% of net sales for the sixteen week period ended April 22, 2000. Selling, general and administrative expenses have increased due to the closure of certain store locations not meeting profitability objectives and the devaluation of an administrative facility obtained in the Western Merger totaling $5.1 million. Additionally, as a percentage of sales, the increase in selling, general and administrative expenses is attributable to increased store labor costs and the continued sales decline in the Wholesale segment, which carries lower selling, general and administrative expenses as a percentage of sales compared to the Retail segment. EBITDA (operating income plus depreciation and amortization), as adjusted for non-cash and other employee compensation, was $50.1 million in the sixteen week period ended April 21, 2001 or 6.9% of net sales, as compared to $39.2 million or 5.8% of net sales in the sixteen week period ended April 22, 2000. 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 and other employee compensation should be eliminated from the EBITDA calculation to evaluate the operating performance of the Company. 12 Interest expense for the sixteen week period ended April 21, 2001 was $19.6 million or 2.7% of net sales, as compared to $20.8 million or 3.1% of net sales for the sixteen week period ended April 22, 2000. Interest expense decreased as a result of an overall reduction in average borrowings and a significant decrease in interest rates for the sixteen week period ended April 21, 2001 as compared to the sixteen week period ended April 22, 2000. Income tax expense for the sixteen weeks ended April 21, 2001 was $3.3 million compared to a benefit of $0.4 million in the sixteen weeks ended April 22, 2000. This increase was primarily due to the increase in income before taxes for the sixteen weeks ended April 21, 2001 as compared to the sixteen weeks ended April 22, 2000. Holding recorded net income of $5.0 million for the sixteen week period ended April 21, 2001, as compared to a net loss of $1.0 million for the sixteen week period ended April 22, 2000. As a percentage of sales, net income for the sixteen week period ended April 21, 2001 was 0.7% as compared to net loss of 0.2% for the sixteen week period ended April 22, 2000. 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 and the Company believe they will have sufficient liquidity to fund its debt service obligations and implement its growth strategy over the next twelve months. As of April 21, 2001, Holding and the Company had outstanding indebtedness consisting of $87.5 million of Senior Discount Debentures (the "Debentures"), $169.5 million of Senior Subordinated Notes (the "Senior Subordinated Notes"), borrowings of $331.3 million under the bank credit facility (the "Credit Facility") and $10.0 million of indebtedness under the McDuffie County Development Authority Taxable Industrial Bonds ("IRB"). The loans under the Credit Facility are secured by a first priority security interest in substantially all tangible and intangible assets of the Company. Amounts available to the Company under portions of the Credit Facility are subject to a borrowing base formula, which is based on certain percentages of the Company's inventories, and certain debt covenants. The Company was in compliance with the above covenants under the Credit Facility as of April 21, 2001. As of April 21, 2001, $100.8 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 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. 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 $300,000 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. The Company expects to open approximately 130 new stores through internal growth or strategic acquisitions during fiscal 2001, of which 15 have been opened as of April 21, 2001. 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. 13 As a result of the Western Merger, the Company closed certain Advance Auto Parts stores in overlapping markets with Parts America stores or stores not meeting profitability objectives. 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 April 21, 2001, these reserves had a remaining balance of $11.3 million. The Company also assumed certain restructuring and deferred compensation liabilities previously recorded by Western Auto Supply Company. At April 21, 2001, the total liability for the restructuring and deferred compensation plans was $2.5 million and $4.8 million, respectively, of which $1.4 million and $1.5 million, respectively, is recorded as a current liability. The classification for deferred compensation is determined by payment terms elected by the employee, which can be changed upon 12 months' notice. For the sixteen weeks ended April 21, 2001, net cash used in operating activities was $4.1 million. Of this amount, $5.0 million was provided by net income. Depreciation and amortization provided an additional $20.9 million, amortization of deferred debt issuance costs and bond discount provided $4.4 million and $34.4 million was used as a result of a net increase in working capital. Net cash used for investing activities was $16.7 million and was comprised primarily of net capital expenditures. Net cash provided by financing activities was $19.4 million and was comprised primarily of an increase in net borrowings. 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. 14 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 quarter of fiscal 2001 due to decreased 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 April 21, 2001 by expected maturity dates. Expected maturity dates approximate contract terms. Fair values included herein have been determined based on quoted market prices. Weighted average variable rates are based on implied forward rates in the yield curve at April 21, 2001. Implied forward rates should not be considered a predictor of actual future interest rates.

~~Other~~Fair ~~Exit~~Fiscal ~~Severance~~Fiscal ~~Costs~~Fiscal Fiscal Fiscal Market 2001 2002 2003 2004 2005 Thereafter Total Value -------- ------- ------- --------- ~~Balance,~~--------- ~~January~~------------ 1,-------- ~~2000~~-------- Long-term debt: (dollars in thousands) Fixed rate............................ $ 18- $ ~~9,963~~- ~~New~~$ ~~provisions~~- $ - $ - 1$281,~~435~~450 ~~Change~~$ in281,450 ~~estimates~~$ --222,003 ~~250~~Weighted ~~Reserves~~average ~~utilized~~interest ~~(14)~~rate..................... ~~(3,666)~~- - - -~~--------~~ -~~---------~~ ~~Balance,~~11.3% ~~October~~11.3% 7Variable rate......................... $ 3,000 ~~2000~~$ ~~(unaudited)~~14,000 $ 4,000 $ 7232,~~982~~711 ~~===========~~$ ~~==========~~60,000 $ 27,588 $ 341,299 $ 341,299 Weighted average interest rate..................... 6.2% 6.8% 7.7% 8.4% 8.6% 8.6% 7.1%

15 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. 16 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 May 24, 2001 By: /s/ Jimmie L. Wade ------------------------------------- Jimmie L. Wade President and Chief Financial Officer, Secretary (as principal executive and accounting officer) S-1

Other Exit Severance Costs ------------ ----------- Balance, January 1, 2000 $ 3,510 $ 7,825 Change in estimates - (221) Reserves utilized (3,146) (2,139) ----------- ----------- Balance, October 7, 2000 (unaudited) $ 364 $ 5,465 =========== ===========

Forty Week Periods Ended ---------------------------------------- October 7, 2000 October 9, 1999 ----------------- ----------------- (unaudited) (unaudited) Net sales to Sears $ 5,905 $ 3,790 Shared services revenue - 2,001 Shared services expense - 1,072 Credit card fee expense 325 1,800

October 7, 2000 January 1, 2000 ----------------- ----------------- (unaudited) Receivables from Sears $ 4,759 $ 6,625 Payables to Sears 1,332 4,304

Twelve Week Periods Ended Advance October 7, 2000 (unaudited) Holding Retail Wholesale Eliminations Totals ------------------------------------------------------------------------------------------------------------------- Net sales $ - $ 523,243 $ 28,895 $ -- $ 552,138 Income (loss) before provision (benefit) for income taxes and extraordinary item (2,272) 15,773 1,954 -- 15,455 Segment assets (b) 2,234 1,309,455 70,482 (26) 1,381,945 Twelve Week Periods Ended October 9, 1999 (unaudited) ------------------------------------------------------------------------------------------------------------------- Net sales $ -- $ 485,776 $ 37,070 $ -- $ 522,846 Income (loss) before provision (benefit) for income taxes (2,023) 2,912 (159) -- 730 Segment assets (a) (b) 20,341 1,298,800 74,627 (23,233) 1,370,535

Forty Week Periods Ended Advance October 7, 2000 (unaudited) Holding Retail Wholesale Eliminations Totals ------------------------------------------------------------------------------------------------------------------- Net sales $ - $1,673,561 $ 113,809 $ -- $1,787,370 Income (loss) before provision (benefit) for income taxes and extraordinary item (7,421) 38,211 29 -- 30,819 Segment assets (b) 2,234 1,309,455 70,482 (226) 1,381,945 Forty Week Periods Ended Advance October 9, 1999 (unaudited) Holding Retail Wholesale Eliminations Totals ------------------------------------------------------------------------------------------------------------------- Net sales $ -- $1.565,936 $ 169,683 $ -- $1,735,619 Loss before benefit for income taxes (6,602) (21,332) (7,069) -- (35,003) Segment assets (a) (b) 20,341 1,298,800 74,627 (23,233) 1,370,535

Twelve Week Periods Ended Forty Week Periods Ended (dollars in thousands) (dollars in thousands) (unaudited) (unaudited) ----------------------------- ------------------------------ October 7, October 9, October 7, October 9, 2000 1999 2000 1999 ------------ ------------- ------------- -------------- Net sales $ 552,138 $ 522,846 $ 1,787,370 $ 1,735,619 Cost of sales, including purchasing and warehousing costs 328,235 323,209 1,087,959 1,113,095 ------------ ------------- ------------- -------------- Gross profit 223,903 199,637 699,411 622,524 Selling, general and administrative expenses 193,859 174,536 617,334 574,167 ------------ ------------- ------------- -------------- Operating income, as adjusted 30,044 25,101 82,077 48,357 Expenses associated with merger integration - 10,261 - 35,414 Expenses associated with non-cash compensation (67) (20) 533 989 ------------ ------------- ------------- -------------- Operating income 30,111 14,860 81,544 11,954 ------------ ------------- ------------- -------------- Interest expense (15,183) (14,232) (51,784) (47,449) Other, net 527 102 1,059 492 ------------ ------------- ------------- -------------- Income (loss) before provision (benefit) for income taxes and extraordinary item 15,455 730 30,819 (35,003) Provision (benefit) for income taxes 5,948 539 11,887 (12,319) ------------ ------------- ------------- -------------- Net income (loss) before extraordinary item 9,507 191 18,932 (22,684) Extraordinary gain, net of $1,759 income taxes 2,933 - 2,933 - ------------ ------------- ------------- -------------- Net income (loss) $ 12,440 $ 191 $ 21,865 $ (22,684) ============ ============= ============= ============== Twelve Week Periods Ended Forty Week Periods Ended (unaudited) (unaudited) ----------------------------- ------------------------------ October 7, October 9, October 7, October 9, 2000 1999 2000 1999 ------------ ------------- ------------- -------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales, including purchasing and warehousing costs 59.4 61.8 60.9 64.1 ------------ ------------- ------------- -------------- Gross profit 40.6 38.2 39.1 35.9 Selling, general and administrative expenses 35.1 33.4 34.5 33.1 ------------ ------------- ------------- -------------- Operating income, as adjusted 5.5 4.8 4.6 2.8 Expenses associated with merger integration -- 2.0 -- 2.0 Expenses associated with non-cash compensation (0.0) (0.0) 0.0 0.1 ------------ ------------- ------------- -------------- Operating income 5.5 2.8 4.6 0.7 ------------ ------------- ------------- -------------- Interest expense (2.7) (2.7) (2.9) (2.7) Other, net 0.1 0.0 0.1 0.0 ------------ ------------- ------------- -------------- Income (loss) before provision (benefit) for income taxes and extraordinary item 2.9 0.1 1.8 (2.0) Provision (benefit) for income taxes 1.1 0.1 0.7 (0.7) ------------ ------------- ------------- -------------- Net income (loss) before extraordinary item 1.8 -- 1.1 (1.3) Extraordinary gain, net of $1,759 income taxes 0.5 -- 0.2 -- ------------ ------------- ------------- -------------- Net income (loss) 2.3% 0.0% 1.3% (1.3)% ============ ============ ============= ==============

Fair Fiscal Fiscal Fiscal Fiscal Fiscal Market 2000 2001 2002 2003 2004 Thereafter Total Value --------- --------- --------- -------- ----------- ------------ ----------- ----------- Long-term debt: (dollars in thousands) Fixed rate............ $ - $ - $ - $ - $ - $ 281,450 $ 281,450 $ 183,720 Weighted average interest rate....... - - - - - 11.3% 11.3% Variable rate......... $ 1,000 $ 3,000 $ 14,000 $ 4,000 $ 206,500 $ 90,000 $ 318,500 $ 318,500 Weighted average interest rate....... 9.2% 8.7% 8.7% 8.9% 8.9% 9.0% 8.7%

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