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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 4, 2003

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 001-16797

ADVANCE AUTO PARTS, INC.
(Exact name of registrant as specified in its charter)

(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 [ ]

         Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

        As of November 3, 2003, the registrant had outstanding 36,908,978 shares of Common Stock, par value $0.0001 per share (the only class of common equity of the registrant outstanding).

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES

Twelve and Forty Week Periods Ended October 4, 2003

TABLE OF CONTENTS

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PART I.    FINANCIAL INFORMATION

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
October 4, 2003 and December 28, 2002
(in thousands, except per share data)

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

1

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Twelve and Forty Week Periods Ended
October 4, 2003 and October 5, 2002
(in thousands, except per share data)
(unaudited)

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

2

Advance Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Forty Week Periods Ended
October 4, 2003 and October 5, 2002
(in thousands)
(unaudited)

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

3

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

1.     Basis of Presentation:

        The accompanying condensed consolidated financial statements include the accounts of Advance Auto Parts, Inc. 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 4, 2003, the condensed consolidated statements of operations for the twelve and forty week periods ended October 4, 2003 and October 5, 2002 and the condensed consolidated statements of cash flows for the forty week periods ended October 4, 2003 and October 5, 2002 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 28, 2002.

        The results of operations for the interim 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.

        Earnings Per Share of Common Stock

        Basic earnings per share of common stock has been computed based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share of common stock reflects the increase in the weighted-average number of common shares outstanding assuming the exercise of outstanding stock options, calculated using the treasury stock method.

        Hedge Activities

        In March 2003, the Company entered into two interest rate swap agreements to limit its cash flow risk on an aggregate of $125,000 of its variable rate debt. The first swap allows the Company to fix its LIBOR rate at 2.269% on $75,000 of debt for a term of 36 months. The second swap allows the Company to fix its LIBOR rate at 1.79% on an additional $50,000 of debt for a term of 24 months.

        In September 2002, the Company entered into a hedge agreement in the form of a zero-cost collar, which protects the Company from interest rate fluctuations in the LIBOR rate on $150,000 of its variable rate debt under its senior 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 24 months. Under this hedge, the Company will continue to pay interest at prevailing rates plus any spread, as defined by the Company’s 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 financial institution that originated the collar if the LIBOR rate is less than the floor.

4

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

        In accordance with Statement of Financial Accounting Standard, SFAS, No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the fair value of these hedge arrangements is recorded as an asset or liability in the accompanying condensed consolidated balance sheet at October 4, 2003. The Company has adopted the “matched terms” accounting method as provided by Derivative Implementation Group, or DIG, Issue No. G20, “Assessing and Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge” for the zero-cost collar, and DIG Issue No. 9, “Assuming No Ineffectiveness When Critical Terms of the Hedging Instrument and the Hedge Transaction Match in a Cash Flow Hedge” for the interest rate swaps. Accordingly, the Company has matched the critical terms of each hedge instrument to the hedged debt and used the anticipated terminal value of zero to assume the hedges have no effectiveness. In addition, the Company will record all adjustments to the fair value of the hedge instruments in accumulated other comprehensive income (loss) through the maturity date of the applicable hedge arrangement. The fair value at October 4, 2003 was an unrecognized loss of $636 and $348 on the interest rate collar and swaps, respectively. Any amounts received or paid under these hedges will be recorded in the statement of operations as earned or incurred. Comprehensive income for the twelve and forty weeks ended October 4, 2003 and October 5, 2002 is as follows:

        Based on the estimated current and future fair values of the hedge arrangements at October 4, 2003, the Company estimates amounts currently included in accumulated other comprehensive income that will be reclassified to earnings in the next 12 months will consist of a loss of $619 under the interest rate collar and a loss of $989 associated with the interest rate swaps.

        Sales Returns and Allowances

        Our accounting policy for sales returns and allowances consists of establishing reserves for anticipated returns at the time of sale. We estimate anticipated returns based on current sales levels and our historical return experience on a specific product basis.

        Warranty Costs

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

5

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

        Recent Accounting Pronouncements

        In April 2002, the Financial Accounting Standards Board, or 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 Accounting Principles Board, or APB, Opinion 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 adopted SFAS No. 145 during the first quarter of fiscal 2003. For the twelve week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $125 and $482, respectively. For the forty week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $47,266 and $14,206, respectively.

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure an amendment of FASB Statement No. 123.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation” to allow for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock issued to employees. This statement also amends FASB No. 123 to require disclosure of the accounting method used for valuation in both annual and interim financial statements. This statement permits an entity to recognize compensation expense under the prospective method, modified prospective method or the retroactive restatement method. If an entity elects to adopt this statement, fiscal years beginning after December 15, 2003 must include this change in accounting for stock-based compensation. The Company is currently evaluating the effect of voluntarily adopting the fair value provisions of SFAS No. 123 and will elect a transition method if the fair value method is adopted. The Company accounts for its stock-based compensation using the intrinsic value method prescribed in APB No. 25, “Accounting for Stock Issued to Employees.” No stock-based compensation cost is reflected in net income, due to the fixed option grants completed under our option plans. The following table reflects the impact on net income and earnings per share as if the Company had adopted the fair value method of recognizing compensation costs as prescribed by SFAS No. 123.

6

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” Interpretation No. 46 prescribes how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not have interests in variable interest entities; therefore, the adoption of Interpretation No. 46 will have no impact on its financial position or results of operations.

        In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted this statement during third quarter of fiscal 2003 with no impact to its financial position or results of operations.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes additional standards on how to classify and measure certain financial instruments with characteristics of both liabilities and equity, which under previous guidance were accounted for as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 or otherwise for interim periods beginning after June 15, 2003. The Company adopted this statement during third quarter of fiscal 2003 with no impact to its financial position or results of operations.

        Reclassifications

        Certain 2002 amounts have been reclassified to conform with their 2003 presentation.

7

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

2.     Closed Store and Restructuring Liabilities:

        The Company continually reviews the operating performance of its existing store locations and closes certain locations identified as under performing. Closing an under performing location does not result in the elimination of the operations and associated cash flows from the Company’s ongoing operations as the Company transfers those operations to another location in the local market. Accordingly, the Company maintains closed store liabilities that include liabilities for these exit activities and liabilities assumed through past acquisitions that are similar in nature but recorded by the acquired companies prior to acquisition. The Company also maintains restructuring liabilities recorded through purchase accounting that reflect costs of the plan to integrate the acquired operations into the Company’s business. These integration plans relate to the operations acquired in the fiscal 1998 merger with Western Auto Supply Company, or Western, and the fiscal 2001 acquisition of Discount. The following table presents a summary of the activity for both of these liabilities:

        New provisions established for closed store liabilities include the present value of the remaining lease obligations and management’s estimate of future costs of insurance, property tax and common area maintenance reduced by the present value of estimated revenues from subleases and are established by a charge to selling, general and administrative costs in the accompanying condensed consolidated statements of operations at the time the facilities actually close. The Company currently uses discount rates ranging from 5.0% to 7.8% for estimating these liabilities.

        From time to time these estimates require revisions that affect the amount of the recorded liability. The above change in estimates relate primarily to changes in assumptions associated with the revenue from subleases. The effect of changes in estimates for the closed store liabilities is netted with new provisions and included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

        Changes in estimates associated with restructuring liabilities result in adjustments to the carrying value of property and equipment, net on the accompanying condensed consolidated balance sheets and do not affect the Company’s condensed consolidated statement of operations. The liabilities are recorded in accrued expenses (current portion) and other long-term liabilities (long-term portion) in the accompanying condensed consolidated balance sheets.

8

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

        The following table presents the Company’s stores identified in 2001, 2002 and 2003 for closure or relocation which had yet to be closed or relocated at December 28, 2002 and October 4, 2003 and the stores the Company closed and relocated during the forty weeks ended October 4, 2003:

3.     Receivables:

        Receivables consist of the following:

9

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

4.     Inventories, net:

        Inventories are stated at the lower of cost or market. Cost is determined 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 4, 2003 and December 28, 2002 were $71,127 and $69,160, respectively.

        The following table sets forth inventories at October 4, 2003 and December 28, 2002:

        Replacement cost approximated FIFO cost at October 4, 2003 and December 28, 2002.

        Inventory quantities are tracked through a perpetual inventory system. The Company uses a cycle counting program in all distribution centers, Parts Delivered Quickly warehouses, or PDQs, Local Area Warehouses, or LAWs, and retail stores to ensure the accuracy of the perpetual inventory quantities. The Company establishes reserves for estimated shrink based on historical accuracy of the cycle counting program. The Company also establishes reserves for potentially excess and obsolete inventories based on current inventory levels of discontinued product, which are anticipated to be returned to vendors for less than full credit, and the historical analysis of the liquidation of discontinued inventory below cost. The nature of the Company’s inventory is such that the risk of obsolescence is minimal and excess inventory has historically been returned to the Company’s vendors for credit. The Company’s reserves against inventory for these matters were $12,129 and $12,435 at October 4, 2003 and December 28, 2002, respectively.

10

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

5.     Long-term Debt:

        Long-term debt consists of the following:

        In March 2003, the tranche A-1 term loan facility of $75,000 and tranche C-1 term loan facility of $275,000 were added. These incremental facilities were used to complete the redemption of the Company’s outstanding senior subordinated notes and senior discount debentures on April 15, 2003. During the third quarter of fiscal 2003, the Company repaid $80,000 million of its term loans under the senior credit facility. In conjunction with this redemption and partial repayment, the Company recognized a loss on extinguishment of debt of $125 and $47,266 in the accompanying condensed consolidated statements of operations for the twelve and forty weeks ended October 4, 2003, respectively. At October 4, 2003, the senior credit facility provided for (1) $456,089 in term loans (as detailed above) and (2) $160,000 under a revolving credit facility (which provides for the issuance of letters of credit with a sublimit of $35,000). As of October 4, 2003, the Company had $23,085 in letters of credit outstanding, which reduced availability under the senior credit facility to $136,915.

11

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

        The Company’s voluntary prepayment of its term loans during the third quarter resulted in the following amended amortization schedule:

        Under the senior credit facility, the Company is required to comply with financial covenants with respect to limits on annual capital expenditures, a maximum leverage ratio, a minimum interest coverage ratio, a minimum current assets to funded senior debt ratio and a maximum senior leverage ratio. The Company was in compliance with the above covenants under the senior credit facility at October 4, 2003.

6.     Segment and Related Information:

        The Company has the following operating segments: Advance, Retail and Wholesale. Advance has no operations but holds certain assets and liabilities. Retail consists of the retail operations of the Company, operating under the trade names “Advance Auto Parts”, “Advance Discount Auto Parts” and “Discount Auto Parts” in the United States and “Western Auto” primarily in Puerto Rico and the Virgin Islands. Wholesale consists of the wholesale operations, including distribution services to independent dealers and franchisees primarily operating under the “Western Auto” trade name.

12

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

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

7.     Subsequent Events:

        On October 6, 2003, the Company announced that it will no longer supply merchandise and services to its wholesale distribution network of approximately 350 independent Western Auto dealers and other independent retailers. Due to the wide variety of products supplied to the dealers and the reduced concentration of stores spread over a wide geographic area, it has become difficult to serve these dealers effectively. This business was part of the purchase of Western Auto Supply Company from Sears, Roebuck & Co. in 1998 and has been reported as the wholesale segment since that point. The operating results of the wholesale segment along with any exit costs incurred as a result of the discontinuance will be reported as discontinued operations beginning in the fourth quarter of 2003, including the comparative historical operating results. In addition to these results, the Company expects to record certain expenses during the fourth quarter associated with discontinuing the wholesale distribution network, which will also be presented as discontinued operations.

        On October 29, 2003, the Company announced its board of directors had declared a two-for-one stock split to be effected in the form of a dividend. The dividend shares will be distributed on January 2, 2004 to stockholders of record on December 11, 2003. Accordingly, the effect of the stock split will be reflected in the Company’s consolidated balance sheet and earnings per share calculations beginning in the fourth quarter of fiscal 2003 and will be retroactively applied to all periods presented. The following table reflects the pro-forma effect of the stock split.

13

Advance Auto Parts, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002
(in thousands, except per share and per store data)

14

        The following discussion of our consolidated historical results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q. Our first quarter consists of 16 weeks and our other three quarters consist of 12 weeks each, with the exception of the fourth quarter which will contain 13 weeks due to our 53 week fiscal year in 2003.

        Certain statements in this Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are usually identified by the use of words such as “will,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “should” or similar expressions. We intend those forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are included in this Form 10-Q for purposes of complying with these safe harbor provisions.

        These forward-looking statements reflect current views about our plans, strategies and prospects, which are based on the information currently available and on current assumptions.

        Although we believe that our plans, intentions and expectations as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions or expectations will be achieved. Listed below and discussed elsewhere in our annual report on Form 10-K for the year ended December 28, 2002 are some important risks, uncertainties and contingencies which could cause our actual results, performances or achievements to be materially different from the forward-looking statements made in this Form 10-Q. These risks, uncertainties and contingencies include, but are not limited to, the following:

        We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other risks described from time to time in our reports and documents filed with the Securities and Exchange Commission, and you should not place undue reliance on those statements.

        We operate in the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pick-ups, vans, minivans and sport utility vehicles). We are the second largest specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself, or DIY, customers in the United States, based on store count and sales. We are currently the largest specialty retailer of automotive products in the majority of the states in which we operate, based on store count. At October 4, 2003, we had 2,460 stores operating under the “Advance Auto Parts,” “Advance Discount Auto Parts,” and “Discount Auto Parts” trade names in 38 states in the Northeastern, Southeastern and Midwestern regions of the United States. We also had 36 stores operating under the “Western Auto” trade name primarily located in Puerto Rico and the Virgin Islands.

15

        Our combined operations are conducted in two operating segments, retail and wholesale. The retail segment consists of our retail operations operating under the trade names “Advance Auto Parts”, “Advance Discount Auto Parts” and “Discount Auto Parts” in the United States and “Western Auto” primarily located in Puerto Rico and the Virgin Islands. Our wholesale segment includes a wholesale distribution network which provides distribution services of automotive parts, accessories and specialty items to approximately 350 independently owned dealer stores in 39 states primarily operating under the “Western Auto” trade name.

        On October 6, 2003, we announced that we will no longer supply merchandise and services to our wholesale distribution network of approximately 350 independent Western Auto dealers and other independent retailers. This business is reported in the wholesale segment. The operating results of the wholesale segment will be reported as discontinued operations beginning in the fourth quarter of 2003, including the comparative historical operating results.

Critical Accounting Policies

        Due to the implementation of Statement of Financial Accounting Standard, or SFAS, No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” in 2003, we changed our accounting policy related to the timing of the recognition of closed store provisions. Currently, a provision is recognized for the estimated future minimum lease payments, common area maintenance and taxes when a store location is closed. These provisions were previously recognized once the store location was identified to be closed. For a complete discussion regarding our critical accounting policies, refer to our annual report on Form 10-K for the fiscal year ended December 28, 2002.

Components of Statement of Operations

Net Sales

        Net sales consist primarily of comparable store sales, new store net sales, service net sales, net sales to the wholesale dealer network and finance charges on installment sales. Comparable store sales is calculated based on the change in net sales starting once a store has been opened for 13 complete accounting periods (each accounting period represents four weeks). Relocations are included in comparable store sales from the original date of opening. Stores acquired in the Discount acquisition were included in the comparable stores sales calculation beginning in December 2002, which was 13 complete accounting periods after the acquisition date of November 28, 2001. We do not include net sales from the 36 Western Auto retail stores in the comparable store sales calculation as a result of their unique product offerings, including specialty merchandise and services.

Cost of Sales

        Our cost of sales includes merchandise costs, net of incentives under vendor programs, and warehouse and distribution expenses as well as service labor costs for the Western Auto stores. Gross profit as a percentage of net sales may be affected by variations in our product mix, price changes in response to competitive factors and fluctuations in merchandise costs and vendor programs. We seek to avoid fluctuation in merchandise costs and instability of supply by entering into long-term purchasing agreements with vendors when we believe it is advantageous.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses are comprised of store payroll, store occupancy (including rent), net advertising expenses, other store expenses and general and administrative expenses, including salaries and related benefits of corporate team members, administrative office expenses, data processing, professional expenses and other related expenses including expenses associated with merger and integration. We lease a significant portion of our stores.

16

Results of Operations

        The following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated.

Twelve Weeks Ended October 4, 2003 Compared to Twelve Weeks Ended October 5, 2002

        Net sales for the twelve weeks ended October 4, 2003 were $849.3 million, an increase of $60.7 million, or 7.7%, over net sales for the twelve weeks ended October 5, 2002. Net sales for the retail segment increased $66.4 million, or 8.6%, to $839.1 million. The net sales increase for the retail segment was due to an increase in the comparable store sales of 3.1% and contributions from new stores opened within the last year. The comparable store sales increase was a result of growth in both the DIY and DIFM market segments and the continued maturation of new stores. Net sales for the wholesale segment decreased $5.7 million during the twelve weeks ended October 4, 2003. This decrease was a result of the continued decline in the number of dealer stores we serviced and lower average sales to each dealer.

        During the twelve weeks ended October 4, 2003, we opened 19 new stores, relocated 6 stores and closed 5 stores, bringing the total number of retail stores to 2,496. As of October 4, 2003, we had 1,546 stores participating in our commercial delivery program, as a result of adding 69 net programs during the twelve weeks ended October 4, 2003.

        Gross profit for the twelve weeks ended October 4, 2003 was $388.7 million, or 45.8% of net sales, as compared to $349.7 million, or 44.3% of net sales, for the twelve weeks ended October 5, 2002. The increase in gross profit as a percentage of net sales reflected benefits realized from our category management initiatives and the continued leveraging of our logistics costs. The gross profit for the retail segment was $386.9 million, or 46.1% of net sales, for the twelve weeks ended October 4, 2003, as compared to $346.8 million, or 44.9% of net sales, for the twelve weeks ended October 5, 2002.

        Selling, general and administrative expenses increased to $309.4 million, or 36.5% of net sales, for the twelve weeks ended October 4, 2003, from $287.1 million, or 36.4% of net sales, for the twelve weeks ended October 5, 2002. The net increase in selling, general and administrative expenses as a percentage of net sales is primarily a result of a 0.4% increase in advertising to grow our brand recognition and a 0.4% increase in store labor from expanded customer service levels offset by an 0.8% decrease in merger and integration expenses related to the integration of Discount. These integration expenses are related to, among other things, overlapping adminsitrative functions and store conversion expenses. The decrease in merger and integration expenses was anticipated as we near the completion of the Discount integration in 2003.

17

        Interest expense for the twelve weeks ended October 4, 2003 was $5.9 million, or 0.7% of net sales, as compared to $16.0 million, or 2.0% of net sales, for the twelve weeks ended October 5, 2002. The decrease in interest expense is a result of both lower overall interest rates and reduced debt levels for the twelve weeks ended October 4, 2003 as compared to the twelve weeks ended October 5, 2002.

        Income tax expense for the twelve weeks ended October 4, 2003 was $28.3 million, as compared to $18.0 million for the twelve weeks ended October 5, 2002. Our effective income tax rate decreased to 38.5% for the twelve weeks ended October 4, 2003, from 38.8% for the twelve weeks ended October 5, 2002.

        We recorded net income of $45.2 million, or $1.20 per diluted share, for the twelve weeks ended October 4, 2003, as compared to $28.4 million, or $0.77 per diluted share, for the twelve weeks ended October 5, 2002. As a percentage of net sales, net income for the twelve weeks ended October 4, 2003 was 5.3%, as compared to 3.6% for the twelve weeks ended October 5, 2002. The effect of the expenses associated with merger and integration and loss on extinguishment of debt on net income was $1.6 million, or $0.04 per diluted share, for the twelve weeks ended October 4, 2003 and $5.3 million, or $0.15 per diluted share, for the twelve weeks ended October 5, 2002.

Forty Weeks Ended October 4, 2003 Compared to Forty Weeks Ended October 5, 2002

        Net sales for the forty weeks ended October 4, 2003 were $2,722.0 million, an increase of $136.6 million, or 5.3%, over net sales for the forty weeks ended October 5, 2002. Net sales for the retail segment increased $157.5 million, or 6.3%, to $2,672.4 million. The net sales increase for the retail segment was due to an increase in the comparable store sales of 2.0% and contributions from new stores opened within the last year. The comparable store sales increase was a result of growth in both the DIY and DIFM market segments and the continued maturation of new stores. Net sales for the wholesale segment decreased $20.9 million during the forty weeks ended October 4, 2003. This decrease was a result of the continued decline in the number of dealer stores we serviced and lower average sales to each dealer.

        During the forty weeks ended October 4, 2003, we opened 79 new stores, relocated 24 stores and closed 18 stores, bringing the total number of retail stores to 2,496. As of October 4, 2003, we had 1,546 stores participating in our commercial delivery program, as a result of adding 135 net programs during the forty weeks ended October 4, 2003.

        Gross profit for the forty weeks ended October 4, 2003 was $1,237.8 million, or 45.5% of net sales, as compared to $1,135.2 million, or 43.9% of net sales, for the forty weeks ended October 5, 2002. The increase in gross profit as a percentage of net sales reflected benefits realized from our category management initiatives and the continued leveraging of our logistics costs. The gross profit for the retail segment was $1,230.4 million, or 46.0% of net sales, for the forty weeks ended October 4, 2003, as compared to $1,123.8 million, or 44.7% of net sales, for the forty weeks ended October 5, 2002.

        Selling, general and administrative expenses increased to $1,006.0 million, or 37.0% of net sales, for the forty weeks ended October 4, 2003, from $967.0 million, or 37.4% of net sales, for the forty weeks ended October 5, 2002. The net decrease in selling, general and administrative expenses as a percentage of net sales is primarily a result of a 0.2% increase in store labor partially driven by our third quarter initiative to expand customer service and a 0.1% increase in advertising partially driven by our third quarter increase initiated to grow our brand recognition offset by a 0.7% decrease in merger and integration expenses related to the integration of Discount. These integration expenses are related to, among other things, overlapping administrative functions and store conversion expenses. The decrease in merger and integration expenses was anticipated as we near the completion of the Discount integration in 2003.

        Interest expense for the forty weeks ended October 4, 2003 was $32.7 million, or 1.2% of net sales, as compared to $62.7 million, or 2.4% of net sales, for the forty weeks ended October 5, 2002. The decrease in interest

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expense is a result of both lower overall interest rates and reduced debt levels for the forty weeks ended October 4, 2003 as compared to the forty weeks ended October 5, 2002.

        During the forty weeks ended October 4, 2003, we recorded $47.3 million in a loss on extinguishment of debt. This loss reflects the write-off of deferred loan costs and premiums paid to redeem our senior subordinated notes and senior discount debentures during the first quarter fiscal 2003, and also includes the related financing costs associated with amending our senior credit facility to finance this redemption. Additionally, this loss includes the ratable portion of deferred loans costs associated with the partial repayment of our term loans during the second and third quarters of fiscal 2003.

        Income tax expense for the forty weeks ended October 4, 2003 was $58.6 million, as compared to $35.8 million for the forty weeks ended October 5, 2002. Our effective income tax rate decreased to 38.5% for the forty weeks ended October 4, 2003, from 38.8% for the forty weeks ended October 5, 2002.

        We recorded net income of $93.7 million, or $2.52 per diluted share, for the forty weeks ended October 4, 2003, as compared to $56.4 million, or $1.57 per diluted share, for the forty weeks ended October 5, 2002. As a percentage of net sales, net income for the forty weeks ended October 4, 2003 was 3.4%, as compared to 2.2% for the forty weeks ended October 5, 2002. The effect of the expenses associated with merger and integration and loss on extinguishment of debt on net income was $34.5 million, or $0.93 per diluted share, for the forty weeks ended October 4, 2003 and $24.9 million, or $0.69 per diluted share, for the forty weeks ended October 5, 2002.

Liquidity and Capital Resources

        At October 4, 2003, we had outstanding indebtedness consisting of borrowings of $456.1 million under our senior credit facility. Additionally, we had $23.1 million in letters of credit outstanding, which reduced our availability under the revolving credit facility to $136.9 million.

        Our primary capital requirements have been the funding of our continued store expansion program, including new store openings and store acquisitions, store relocations and remodels, capitalizable store improvements, inventory requirements, the construction and upgrading of distribution centers, the development and implementation of proprietary information systems and our strategic acquisitions. We have financed our growth through a combination of cash generated from operations, borrowings under the credit facility and issuances of equity.

        Our future capital requirements will depend on the number of new stores we open or acquire and the timing of those openings or acquisitions within a given year. We anticipate adding approximately 125 stores during fiscal 2003 through new store openings and selective acquisitions, of which 79 had been added as of October 4, 2003.

        Historically, we have negotiated extended payment terms from suppliers that help finance inventory growth, and we believe that we will be able to continue financing much of our inventory growth through such extended payment terms. We anticipate that inventory levels will continue to increase primarily as a result of new store openings.

        Our capital expenditures were $70.3 million for the forty weeks ended October 4, 2003. These amounts related to the new store openings, the upgrade of our information systems, remodels and relocations of existing stores, including our physical conversion of Discount stores, and capitalizable store improvements. During the remainder of 2003, we anticipate that our capital expenditures will be approximately $24.7 million.

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        As part of normal operations, we continually review the operating performance of existing store locations and close certain locations identified as under performing. Closing an under performing location does not result in the elimination of the operations and associated cash flows from our ongoing operations as we transfer those operations to another location in the local market. The following table presents the stores we identified in 2001, 2002 and 2003 for closure or relocation, which had yet to be closed or relocated at December 28, 2002 and October 4, 2003 and the stores we closed and relocated during the forty weeks ended October 4, 2003:

        In addition to the reserves established for the store activity above, the Western merger and Discount acquisition resulted in restructuring liabilities recorded in purchase accounting for the closure of certain stores, severance and relocation costs and other facility exit costs. Through these acquisitions, we also assumed certain closed store liabilities previously recorded by these companies. At October 4, 2003, the closed store and restructuring reserves collectively had a remaining balance of $8.8 million, of which $3.7 million is recorded as a current liability. These reserves are utilized through the settlement of the corresponding liabilities with cash provided by operations and therefore do not affect our consolidated statement of operations.

        As a result of Western merger and Discount acquisition, we also assumed deferred compensation liabilities previously recorded by these companies. At October 4, 2003, the total liability for the deferred compensation plans was $2.9 million, of which $1.0 million, is recorded as a current liability. The classification for deferred compensation is determined by payment terms elected by plan participants, primarily former Western team members, which can be changed upon 12 months’ notice.

        We provide certain health care and life insurance benefits for eligible retired team members through our postretirement plan. Our accrued benefit cost related to this plan was $18.0 million and $19.1 million at October 4, 2003 and December 28, 2002, respectively. The plan has no assets and is funded on a cash basis as benefits are paid/incurred. The discount rate that we utilize for determining our postretirement benefit obligation is actuarily determined. The discount rate utilized at December 28, 2002 was 6.75%, and remained unchanged through the forty weeks ended October 4, 2003. We reserve the right to change or terminate the benefits or contributions at any time. We also continue to evaluate ways in which we can better manage these benefits and control costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant impact on the amount of the reported obligation and annual expense.

        We expect that funds provided from operations and available borrowings under our revolving credit facility at October 4, 2003, will provide sufficient funds to operate our business, make expected capital expenditures, finance our closed store and restructuring activities, complete the physical conversion of the remaining Discount store locations and fund future debt service on our senior credit facility over the next 12 months.

        For the forty weeks ended October 4, 2003, net cash provided by operating activities was $360.2 million. Of this amount, $93.7 million was provided by net income and $99.9 million was provided as a result of a net decrease in working capital and other long-term assets and liabilities. Significant items added back for operating cash flow purposes include depreciation and amortization of $77.5 million, amortization of bond discounts and deferred debt issuance costs of $4.9 million, provision for deferred income taxes of $36.9 million and loss on extinguishment of debt of $47.3 million. Net cash used for investing activities was $58.2 million and was comprised primarily of capital expenditures. Net cash used in financing activities was $266.1 million and was comprised primarily of a $283.1 million decrease in our net borrowings, $36.9 million of expenses to complete the redemption

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of our senior subordinated notes and senior discount debentures in April 2003, offset by proceeds from the exercise of stock options of $24.4 million.

        Our future contractual obligations related to long-term debt and operating leases at October 4, 2003 were as follows:

Long Term Debt

        The tranche A-1 term loan facility of $75,000 and tranche C-1 term loan facility of $275,000 were added in March 2003. These incremental facilities were used to complete the redemption of our senior subordinated notes and senior discount debentures on April 15, 2003. At October 4, 2003, our senior credit facility consisted of (1) a tranche A term loan facility with a balance of approximately $55.6 million, a tranche A-1 term loan facility with a balance of $50.2 million, a tranche C term loan facility with a balance of $166.1 million and a tranche C-1 term loan facility with a balance of $184.2 million, and (2) a $160 million revolving credit facility (which provides for the issuance of letters of credit with a sublimit of $35 million). During the third quarter of fiscal 2003, we repaid $80.0 million of our term loans under the senior credit facility. As of October 4, 2003, we had $23.1 million in letters of credit outstanding, which reduced availability under the credit facility to $136.9 million.

        We are required to comply with financial covenants in the senior credit facility with respect to (a) limits on annual aggregate capital expenditures, (b) a maximum leverage ratio, (c) a minimum interest coverage ratio, (d) a ratio of current assets to funded senior debt and (e) a maximum senior leverage ratio. We were in compliance with the above covenants under the senior credit facility at October 4, 2003. For additional information regarding our senior credit facility, refer to our annual report on Form 10-K for the fiscal year ended December 28, 2002.

Seasonality

        Our business is somewhat seasonal in nature, with the highest sales occurring in the spring and summer months. In addition, our business can be affected by weather conditions. While unusually heavy precipitation tends to soften sales as elective maintenance is deferred during such periods, extremely hot and cold weather tends to enhance sales by causing parts to fail.

New Accounting Pronouncements

        In April 2002, the Financial Accounting Standards Board, or 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 Accounting Principles Board, or APB, Opinion 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 adopted SFAS No. 145 during the first quarter of fiscal 2003. For the twelve week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $0.1 million and $0.5 million, respectively. For the forty week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $47.3 million and $14.2 million, respectively.

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        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure an amendment of FASB Statement No. 123.” This statement amends SFAS 123, “Accounting for Stock-Based Compensation” to allow for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock issued to team members. This statement also amends FASB No. 123 to require disclosure of the accounting method used for valuation in both annual and interim financial statements. This statement permits an entity to recognize compensation expense under the prospective method, modified prospective method or the retroactive restatement method. If an entity elects to adopt this statement, fiscal years beginning after December 15, 2003 must include this change in accounting for stock-based compensation. The Company is currently evaluating the effect of voluntarily adopting the fair value provisions of SFAS No. 123 and will elect a transition method if the fair value method is adopted (see the accompanying notes to condensed consolidated financial statements for proforma disclosure under this statement).

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” Interpretation No. 46 prescribes how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We do not have interests in variable interest entities; therefore, the adoption of Interpretation No. 46 will have no impact on our financial position or results of operations.

        In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We adopted this statement during third quarter of fiscal 2003 with no impact on our financial position or results of operations.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes additional standards on how to classify and measure certain financial instruments with characteristics of both liabilities and equity, which under previous guidance were accounted for as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 or otherwise for interim periods beginning after June 15, 2003. We adopted this statement during third quarter of fiscal 2003 with no impact on our financial position or results of operations.

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        We are exposed to cash flow risk due to changes in interest rates with respect to our long-term debt. While we cannot predict the impact that interest rate movements will have on our debt, exposure to rate changes is managed through the use of variable rate debt and hedging activities. Our variable rate debt is primarily vulnerable to movements in the LIBOR rate. Our future exposure to interest rate risk increased during the forty weeks ended October 4, 2003 due to the addition of variable rate debt and subsequent redemption of our fixed rate senior subordinated notes and senior discount debentures, all offset by decreased interest rates, a reduction in overall debt levels and the addition of the two interest rate swaps entered during the first quarter.

        In March 2003, we entered into two interest rate swap agreements on an aggregate of $125 million of our variable rate debt under our senior credit facility. The first swap allows us to fix our LIBOR rate at 2.269% on $75 million of variable rate debt for a term of 36 months. The second swap allows us to fix our LIBOR rate at 1.79% on $50 million of variable rate debt for a term of 24 months.

        In September 2002, we entered into a hedge agreement in the form of a zero-cost collar, which protects us against interest rate fluctuations in the LIBOR rate on $150 million of our variable rate debt under our senior credit facility. The collar consists of an interest rate ceiling of 4.5% and an interest floor of 1.56% for a term of 24 months. Under this hedge, we will continue to pay interest at prevailing rates plus any spread, as defined by our credit facility, but will be reimbursed for any amounts paid on the LIBOR rate in excess of the ceiling. Conversely, we will be required to pay the financial institution that originated the collar if the LIBOR rate is less than the 1.56% floor.

        The table below presents principle cash flows and related weighted average interest rates on our long-term debt outstanding at October 4, 2003 by expected maturity dates. Additionally, the table includes the notional amounts of our debt hedged and the impact of the anticipated average pay and receive rates of our hedges through their maturity dates. Expected maturity dates approximate contract terms. Weighted average variable rates are based on implied forward rates in the yield curve at October 4, 2003, as adjusted by the limitations of the hedge agreement. Implied forward rates should not be considered a predictor of actual future interest rates.

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