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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q

(Mark One)

For the quarterly period ended October 5, 2002

OR

For the transition period from ________ to ________.

Commission file number  333-56013

          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. 

          As of November 13, 2002, the registrant had outstanding 539 shares of Class A Common Stock, par value $100 per share (the only class of common stock of the registrant outstanding).  The registrant’s Class A Common Stock is not traded in a public market.

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ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES

Twelve and Forty Week Periods Ended October 5, 2002

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PART I.  FINANCIAL INFORMATION

Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
October 5, 2002 and December 29, 2001
(in thousands, except per share data)

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

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Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
For the Twelve and Forty Week Periods Ended
October 5, 2002 and October 6, 2001
(in thousands)
(unaudited)

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

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Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Forty Week Periods Ended
October 5, 2002 and October 6, 2001
(in thousands)
(unaudited)

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

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Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows – (continued)
For the Forty Week Periods Ended
October 5, 2002 and October 6, 2001
(in thousands)
(unaudited)

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

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

1.       Basis of Presentation:

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

          The condensed consolidated balance sheet as of October 5, 2002, the condensed consolidated statements of operations for the twelve and forty week periods ended October 5, 2002 and October 6, 2001 and the condensed consolidated statements of cash flows for the forty week periods ended October 5, 2002 and October 6, 2001, have been prepared by the Company and have not been audited.  In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made.

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

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

          Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

          Change in Accounting Method

          Effective December 31, 2000, the Company changed its method of accounting for unrestricted cooperative advertising funds received from certain vendors to recognize these payments as a reduction to the cost of inventory acquired from these vendors.  Previously, these funds were accounted for as a reduction to selling, general and administrative expenses as advertising expense was incurred.  The new method was adopted to better align the reporting of these payments with the Company’s and the vendors’ use of these payments as reductions to the price of inventory acquired from the vendors.  The effect of the change for the twelve and forty weeks ended October 6, 2001 was to decrease income from continuing operations by $273 and $3,680, respectively.

          Hedge Activities

          On September 25, 2002, the Company entered into a hedge agreement in the form of a zero-cost collar, which will protect the Company from interest rate fluctuations in the LIBOR rate on $150 million of the Company’s variable rate debt under its credit facility.  The collar consists of an interest rate ceiling at 4.5% and an interest rate floor of 1.56% for a term of twenty-four months.  Under this hedge, the Company will continue to pay interest at prevailing rates plus any spread, as defined by the credit facility, but will be reimbursed for any amounts paid on the LIBOR rate, in excess of the ceiling.  Conversely, the Company will be required to pay the originator if the LIBOR rate is less than the floor.

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

          In accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” the fair value of the hedge arrangement is recorded as an asset or liability in the accompanying condensed consolidated balance sheet at October 5, 2002.  The Company has assumed no ineffectiveness in this hedge and plans to use the “matched terms” accounting method as provided by Derivative Implementation Group (“DIG”) Issue No. G20, “Assessing and Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge”.  Under this method the Company will include all adjustments to fair value in other comprehensive income (loss) caption of stockholders’ equity on the condensed consolidated balance sheet.  Any amounts received or paid under this hedge will be recorded in the statement of operations as earned or incurred.

          Recent Accounting Pronouncements

          In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, “Accounting for Asset Retirement Obligations”.  SFAS No. 143 establishes accounting standards for recognition and measurement of an asset retirement obligation and an associated asset retirement cost.  This statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and is effective for fiscal years beginning after June 15, 2002.  The Company does not expect SFAS No. 143 to have a material impact on its financial position or the results of its operations.

          In August 2001, the FASB also issued SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.”  This statement replaces both SFAS No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of” and Accounting Principles Board (APB) Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  SFAS No. 144 retains the basic provisions from both SFAS No. 121 and APB No. 30, but includes changes to improve financial reporting and comparability among entities.  The provisions of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001.  The Company adopted SFAS No. 144 during the first quarter of fiscal 2002 with no material impact on its financial position or the results of its operations.

          In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.”  As a result of rescinding FASB Statement No. 4, “Reporting Gains Losses from Extinguishment of Debt,” gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB No. 30.  This statement also amends FASB Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  Additional amendments include changes to other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions.  The Company will adopt the provisions of SFAS No. 145 during the first quarter of fiscal 2003.  For the twelve and forty week periods ended October 5, 2002, the Company recorded extraordinary losses on the extinguishment of debt, net of tax, of $295 and $7,538, respectively.  Accordingly, reclassifications of these losses to income from continuing operations will be made throughout fiscal 2003 to maintain comparability for the reported periods.

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

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

adopting this statement will have a material impact on its financial position or the results of its operations.

          Reclassifications

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

2.       Discount Acquisition:

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

          In accordance with SFAS No. 141, the acquisition has been accounted for under the purchase method of accounting and was effective for accounting purposes on December 2, 2001.  The purchase price has been allocated to the assets acquired and liabilities assumed based upon their respective fair values.  The initial purchase price allocation resulted in excess fair value over the purchase price of $75,724, and was allocated proportionately as a reduction to certain noncurrent assets, primarily property and equipment.  During the forty weeks ended October 5, 2002, the Company reduced the excess fair value by $18,709 due to purchase accounting adjustments made primarily to adjust the fair market value of certain inventory and property and equipment and the related deferred income tax effects.

          Total acquisition costs related to the transaction were approximately $9,451.  During the forty weeks ended October 5, 2002, the Company also incurred $26,442 of merger and integration expenses.  These expenses represent non-recurring costs associated with integrating the Discount operations.

          The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had taken place December 31, 2000:

          The pro forma amounts give effect to certain adjustments, including changes in interest expense, depreciation and amortization and related income tax effects.  These amounts are based on certain assumptions and estimates and do not reflect any benefit from efficiencies that might be achieved from combined operations.  The pro forma results of operations have been prepared for comparative purposes only.

3.       Restructuring and Closed Store Liabilities:

          The Company’s restructuring activities relate to the ongoing analysis of the profitability of store locations and the settlement of restructuring activities undertaken as a result of mergers and acquisitions, including the fiscal

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

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

          Closed Store Liabilities

          During the forty weeks ended October 5, 2002, the Company closed or relocated nine of the 12 stores identified in 2001 as not meeting profitability objectives and decided to close or relocate 49 additional stores that did not meet profitability objectives, 28 of which closed or relocated at October 5, 2002.  As part of the integration of Discount, the Company has closed substantially all of the Advance Auto Parts stores that were identified in overlapping markets with certain Discount Auto Parts stores at December 29,2001.

          In connection with the Western merger and the Discount acquisition, the Company assumed the restructuring reserves related to the acquired operations.  As of October 5, 2002, these restructuring reserves relate primarily to ongoing lease obligations for closed store locations.

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

          As of October 5, 2002, this liability represents the current value required for certain facility exit costs, which will be settled over the remaining terms of the underlying lease agreements.  This liability, along with those associated with mergers and acquisitions, is recorded in accrued expenses (current portion) and other long-term liabilities (long-term portion) in the accompanying condensed consolidated balance sheets.

          Restructuring Associated with Mergers and Acquisitions

          As a result of the Western merger, the Company established restructuring reserves in connection with the decision to close certain retail stores, to relocate certain Western administrative functions, to exit certain facility leases and to terminate certain team members of Western. Additionally, the Carport acquisition resulted in restructuring reserves for closing certain acquired stores not expected to meet long-term profitability objectives and the termination of certain administrative team members.  At October 5, 2002, the remaining liabilities associated with these activities primarily relate to the settlement of facility exit costs.

          As of the date of the Discount acquisition, management formalized a plan to close certain Discount Auto

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

Parts stores in overlapping markets or stores not meeting the Company’s profitability objectives, to relocate certain Discount administrative functions to the Company’s headquarters and to terminate certain management, administrative and support team members of Discount.  During the forty weeks ended October 5, 2002, the Company reduced its purchase price liabilities for severance and relocation costs by $2,715, primarily for voluntary terminations and certain Discount team members that accepted positions with the Company. Additionally, the Company reduced its liabilities for store and other exit costs, previously recorded in purchase accounting, by $1,042 as a result of executing lease buyouts or subleases. At October 5, 2002, 107 Discount stores were closed, 105 of which were closed during the first, second and third quarters of fiscal 2002.  The Company has substantially completed the closure of Discount Auto Parts stores in overlapping markets.  Additionally, the Company has finalized its plan for termination of Discount team members and expects to terminate the last team members in 2003. Additionally, changes in the established liabilities for severance, relocation, store and other facility exit costs, primarily including lease settlements, may result in an adjustment to the purchase price.

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

          Severance and relocation liabilities will be settled in fiscal 2003.  Other exit cost liabilities will primarily be settled over the remaining terms of the underlying lease agreements.

4.       Trak Auto Acquisition:

          On July 23, 2002, the Company announced that it had received bankruptcy court approval to acquire certain assets of Trak Auto Corporation, or Trak, including the leases on 55 stores in Virginia, Washington, D.C. and Maryland.  The closing of the acquisition occurred July 26, 2002, although the legal transfer and conversion of these stores will take place over time through the end of November 2002.  On September 20, 2002, the Company agreed to acquire two additional Trak stores.  Under this agreement, the Company will pay up to $16,000 to purchase inventory and fixtures for all the acquired stores.  The acquisition will be accounted for under the purchase method of accounting and, accordingly, each store’s results of operations will be included in the Company’s financial records from the date transferred to the Company.  As of October 5, 2002, the Company had taken ownership and converted 22 of the 57 stores for $2,764 and assumed the respective lease obligations.

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

5.       Receivables:

          Receivables consist of the following:

6.       Inventories, net:

          Inventories are stated at the lower of cost or market.  Inventory quantities are tracked through a perpetual inventory system.  The Company uses a cycle counting program to ensure the accuracy of the perpetual inventory quantities and establishes reserves for estimated shrink based on historical accuracy of the cycle counting program.  Cost is determined using the last-in, first-out, or LIFO, method.  An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time.  Accordingly, interim LIFO calculations must be based on management’s estimates of expected fiscal year-end inventory levels and costs.   The Company capitalizes certain purchasing and warehousing costs into inventory.  Purchasing and warehousing costs included in inventory at October 5, 2002 and December 29, 2001 were $67,192 and $69,398, respectively.  The nature of the Company’s inventory is such that the risk of obsolescence is minimal.  In addition, the Company has historically been able to return excess items to the vendor for credit.  The Company  provides reserves where less than full credit will be received for such returns and where the Company anticipates that items will be sold at retail for prices that are less than recorded cost.  Inventories consist of the following:

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

           Replacement cost approximated FIFO cost at October 5, 2002 and December 29, 2001.

7.       Assets Held for Sale:

          The Company applies SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” which requires that long-lived assets and certain identifiable intangible assets to be disposed of be reported at the lower of the carrying amount or the fair market value less selling costs.  At October 5, 2002 and December 29, 2001, the Company’s assets held for sale were $38,569 and $60,512, respectively, primarily consisting of real property acquired in the Western merger and Discount acquisition.

8.       Long-term Debt:

          Long-term debt consists of the following:

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

          During the second quarter of fiscal 2002, the Company repaid a portion of its Tranche A and Tranche B term loans and refinanced the remaining portion of its Tranche B term loan under its credit facility by amending and restating the credit facility to add a new $250,000 Tranche C term loan facility.  The Tranche B term loan was initially issued for $305,000 in fiscal 2001 and had a balance of $265,000 prior to the refinancing.  The Company also repurchased and retired a portion of its senior subordinated notes at prices approximating 107 percent on the total face value purchased of $20,630.   Additionally, during the third quarter, the Company repaid a portion of its Tranche A and Tranche C term loans and repurchased and retired a portion of its senior subordinated notes.  In conjunction with the extinguishment of this debt, the Company wrote-off deferred financing costs in accordance with Emerging Issues Task Force Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”.  The write-off of these costs and the premiums paid are classified as an extraordinary loss of  $7,538, net of $4,779 income taxes, in the accompanying condensed consolidated statements of operations.

         The amended Tranche A term loan facility amortization schedule currently reflects required repayments of $1,549 on May 31, 2003, $7,804 on November 30, 2003, $12,418 million in May and November 2004 and $13,956 each May and November in 2005 and 2006 through maturity on November 30, 2006. The Tranche C term loan facility requires scheduled repayments of $2,083 semi-annually beginning November 30, 2003 through May 31, 2007, at which time the Company will be required to pay the remaining balance at maturity on November 30, 2007.

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

          The interest rate on the Tranche C term loan facility is based, at the Company's option, on either an adjusted LIBOR rate, plus a margin, or an alternate base rate, plus a margin. The interest rate under the Tranche C term loan facility is subject to adjustment according to a pricing grid based upon the Company's leverage ratio (as defined in our credit facility). The initial margins for the Tranche C term loan facility are 2.5% and 1.5% per annum for the adjusted LIBOR rate and alternative base rate borrowings, respectively, and can step down to 2.25% and 1.25% per annum, respectively, if the Company's leverage ratio is less than 2.00 to 1.00. The initial margins can step up to a maximum of 3.00% and 2.00% per annum, respectively, if the Company's leverage ratio is greater than 3.50 to 1.00. Subsequent to October 5, 2002, the Company applied for a reduction in these rates based on its leverage ratio being 1.95 to 1.00 at October 5, 2002. The amended credit facility contains the prepayment provisions, covenant requirements and guarantees from the previous credit agreement entered into November in 2001.

9.       Related Party Transactions:

          The following table presents the related party transactions with Sears, Roebuck and Co., or Sears, included in the condensed consolidated statements of operations for the twelve and forty week periods ended October 5, 2002 and October 6, 2001 and the condensed consolidated balance sheets as of October 5, 2002 and December 29, 2001:

          The Company also enters into intercompany transactions with Advance in the normal course of its business.  These transactions are primarily related to intercompany loans and current and deferred income tax assets and liabilities.  As of October 5, 2002 and December 29, 2001, the Company had a net payable to Advance of $1,987 and $1,102, respectively.

10.    Segment and Related Information:

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

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

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

11.    Subsequent Events:

          On November 1, 2002, Advance filed a registration statement on Form S-3 with the United States Securities and Exchange Commission to register the sale of 9,442,331 shares of its common stock, of which 8,596,937 shares will be offered by certain selling stockholders and 858,394 shares will be offered by Advance and one of the selling stockholders to cover over-allotments of shares, if any.  Neither Advance nor the Company will receive any of the proceeds from the shares sold in the offering by the selling stockholders.  The Company intends to use the net proceeds it receives form the sale of Advance’s shares in the over-allotment option, if any, to repay outstanding indebtedness.

          Additionally, on November 1, 2002, the Company purchased $10,000 of indebtedness under the McDuffie County Authority industrial revenue bonds, from which the proceeds were used to construct one of our distribution centers.  The Company has leased this facility since its opening in 1999. Upon repayment of this indebtedness, the Company also exercised its option to purchase the distribution center for a nominal amount.  Subsequent to the end of the third quarter, the Company also repurchased and retired $8,500 in face value of the 10.25% senior subordinated notes.

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Advance Stores Company, Incorporated and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 5, 2002 and October 6, 2001
(in thousands, except per store data)

12.    Guarantor Subsidiaries:

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