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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 1, 2005

OR

For the transition period from                      to                     

Commission File Number 333-61713

American Tire Distributors, Inc.

(Exact name of registrant as specified in its charter)

12200 Herbert Wayne Court, Suite 150

Huntersville, North Carolina 28078

(Address, including zip code, of principal executive offices)

(704) 992-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant: None

Number of common shares outstanding at March 1, 2005: 5,161,917

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Cautionary Statements on Forward-Looking Information

This Annual Report on Form 10-K contains forward-looking statements relating to our business and financial outlook, which are based on our current expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or other comparable terminology. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any such statement to reflect new information, the occurrence of future events or circumstances or otherwise.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation. We would like to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act in connection with the forward-looking statements included in this document.

Factors that could cause actual results to differ materially from those indicated by the forward-looking statements or that could contribute to such differences include, but are not limited to, integration of new systems, unanticipated expenditures, acquisitions and the successful integration of acquisitions into the business, changing relationships with customers, suppliers and strategic partners, changes to governmental regulation of the tire industry, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, the economy, and world events. See “Item 1—Risk Factors” for further discussion.

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PART I

Item 1. Description of Business.

Our Company

We are the leading distributor of tires to the replacement tire market in the United States and provide a critical link between tire manufacturers and the highly fragmented retail tire sales channel. Through our 71 distribution centers, we offer approximately 60,000 stock keeping units, or SKUs, to our approximately 35,000 customers, generally on a same or next day basis. As a result, our customers utilize our broad product offering to offer a comprehensive product lineup that they would be unable to otherwise provide on a stand alone basis due to working capital, logistics and warehouse constraints. We believe our position as the leading intermediary between tire manufacturers and a very fragmented customer base makes us an important distribution partner to the tire manufacturers. Our industry leading market share increased from an estimated 1.7% in 1995 to 5.9% in 2004 as a result of above-market organic growth and targeted acquisitions, making our revenue approximately four times the estimated comparable revenue of our closest wholesale competitor. We believe that our size and broad geographic footprint give us a substantial scale advantage over our competitors, all of whom are regionally focused.

We believe we have the broadest product offering in our industry, supplying our customers with 11 of the top 12 leading tire brands. We believe we are the only distributor that carries the flag brands of all four of the largest tire manufacturers: Bridgestone, Continental, Goodyear and Michelin. In addition to flag brands, we also sell associate and private label brand tires, custom wheels and accessories and related service equipment. We believe our large, diverse product offering allows us to better penetrate markets by being able to provide a wide spectrum of products at multiple price points.

We serve a highly diversified customer base. Our core customers consist of approximately 11,000 independent tire outlets that generate over 75.0% of our net sales. In addition to our extensive inventory and same or next day distribution capabilities, we provide our customers with sales and product support services, including a sophisticated ordering and logistics system, to maximize their ability to sell tires, custom wheels and accessories. These valuable services, as well as the deep level of commitment we have to the business operations of our customers, have resulted in a strong and stable position within the industry.

We were founded in North Carolina as The J.H. Heafner Company, Inc. in 1935. In 1999, we reincorporated in Delaware and changed our name to Heafner Tire Group, Inc. In 2002, we changed our name to American Tire Distributors, Inc. The new name was part of our transition from a collection of companies joined through acquisition, into a single unified company. In the two years that followed, we divested our retail operations in order to concentrate on our core wholesale tire distribution business.

Recent Developments

Over the past year, we have completed and integrated two acquisitions. These acquisitions extended our distribution network, increased our scale, expanded our product offering and allowed us to realize significant cost savings.

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On February 4, 2005, American Tire Distributors Holdings, Inc. (“Holdings”), an investment vehicle formed by affiliates of Investcorp S.A., entered into a merger agreement with us. Pursuant to the merger agreement, and in exchange for an aggregate purchase price of $710.0 million, less the amount of our net debt at January 1, 2005 and certain dividends payable to holders of our preferred stock, our transaction expenses and certain payments to our management, ATD MergerSub, a subsidiary of Holdings, will merge into us. We refer to this transaction throughout this report as the “merger.” In connection with the merger, all of our existing redeemable preferred stock will either be redeemed or exchanged for redeemable preferred stock of Holdings and each holder of shares of our common stock will be entitled to receive a portion of the merger consideration. To the extent that any existing holder of options or warrants to acquire shares of our common stock does not exercise such options or warrants prior to the effective time of the merger, we will pay such holder an amount in cash equal to the per share consideration less the exercise price of such option or warrant in complete satisfaction of the option or warrant. We will continue as the surviving corporation with Holdings as our sole stockholder.

The merger agreement contains customary provisions for such agreements, including representations and warranties made by us and the purchasers, covenants with respect to the conduct of our business, and certain closing conditions, including the accuracy of the representations and warranties and receipt of required antitrust approvals. The merger agreement does not contemplate any closing or post closing balance sheet adjustment and does not provide for any post closing indemnity by the sellers.

On the date of the closing under the merger agreement, the following related transactions are expected to occur:

The proceeds from the equity contributions, the notes, and the borrowings under the amended credit facility will be used to effect the merger, to repay certain of our existing debt and to pay related fees and expenses and other amounts payable under the merger agreement. All fees and expenses are estimates, and if actual amounts differ, the equity investment by Investcorp, its co-investors and the co-sponsors will be adjusted proportionately, or we may draw borrowings under our revolving credit facility.

Industry Overview

The U.S. replacement tire market had annual retail sales of approximately $24.3 billion in 2004. Of that amount, passenger car and light truck tires accounted for approximately 60.5% and 16.5% of sales, respectively. Medium truck tires and farm, specialty and other types of tires accounted for approximately 19.4% and 3.6% of sales, respectively.

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The U.S. replacement tire market has experienced stable historical growth. The number of new replacement tires shipped in the United States for passenger cars and light trucks increased from 185.4 million tires in 1995 to 233.8 million tires in 2004, for a compound annual growth rate of 2.6%. During that period, annual retail tire sales declined only once, in 2001 when revenues decreased by 0.5%. We believe the decline in 2001 was primarily due to a tire recall by Firestone in 2000, where the manufacturer replaced customer tires earlier than customers would have otherwise required. We believe this stable market growth is due to the:

The replacement tire market for passenger cars and light trucks consists of three primary types of tires: “flag” brands, which are premium tires sold under recognized brands; associate brands, which are primarily lower priced tires; and private label brands, which are manufactured exclusively for and marketed by independent tire wholesale distributors and/or retailers. The market share of flag brand tires in the replacement tire market has increased from approximately 53.0% in 1990 to 66.0% in 2004.

In the United States, consumers purchase replacement tires from several principal sources, including independent tire outlets, manufacturer owned retail stores, mass merchandisers such as Sears and Wal-Mart, auto supply chain stores such as Pep Boys and wholesale clubs and discounters such as Costco and Sam’s Club. Independent tire outlets, our largest customer base, include small local tire stores as well as regional and national chains such as Tire Kingdom and Discount Tire. Independent tire outlets are the largest suppliers of new replacement passenger car tires in the United States, accounting for approximately 59.0% of retail sales of domestic replacement passenger car tires in 2004, up from 54.0% in 1990.

Independent tire outlets obtain their inventory of new replacement tires through three principal sources: tire manufacturers, independent wholesale distributors like us and dealer owned warehouses. Other sources include discount or price clubs and other tire outlet chains. We believe that, in recent years, certain tire manufacturers have reduced the extent to which they supply small independent tire outlets directly due to the inefficiencies of supplying small quantities of product to a large number of locations. At the same time, manufacturers have increased their supply to independent wholesale distributors who are able to deliver tires to a large number of independent tire outlets with greater efficiency. We believe that there are approximately 41,000 tire outlets that are being served either directly by manufacturers or by the approximately 200 wholesale distributors, most of which sell products from only a limited number of manufacturers.

Competitive Strengths

We believe our key competitive strengths include:

Leading Market Position. We are the leading replacement tire distributor in the United States with an estimated national market share of 5.9%. We believe our revenue is approximately four times the estimated comparable revenue of our closest wholesale competitor. We believe that the key benefits of our scale include: an ability to efficiently carry an extensive inventory; an ability to invest in sales tools and technologies to support our customers; and operating efficiencies from our scalable infrastructure. We believe our leading market position, combined with the fact that we, unlike our principal competitors, do not own retail businesses that compete with our customers, enhances our ability to increase sales to existing customers, attract new customers and enter into new markets.

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Extensive Distribution Network. We have the largest independent aftermarket tire distribution network in the industry with 71 distribution facilities and 700 trucks serving 36 states. Utilizing our sophisticated inventory management and logistics technology, we believe we deliver 88.0% of our orders on a same or next day basis. As a result, we believe that we have an excellent reputation with our customers for providing a high level of prompt customer service.

Broad Product Offering. We believe we offer the most comprehensive selection of tires in the industry, with timely access to approximately 60,000 SKUs. We supply 11 of the top 12 leading tire brands and we believe we are the only distributor that carries the flag brands of all four of the largest tire manufacturers: Bridgestone, Continental, Goodyear and Michelin. We also offer a number of high quality, private label product lines. In addition to branded and private label tires, we also sell associate brand tires, custom wheels and accessories and related service equipment. We believe that our broad product offering has been a significant factor in attracting and retaining many of our customers.

Diversified Customer Base. We sell our products to approximately 35,000 customers, including both national and regional tire dealer chains, car dealerships and other independent tire outlets. In 2004, no single customer accounted for more than 2.0% of our net sales while our top 25 customers accounted for less than 10.0% of our net sales.

Superior and Distinctive Technology. We have invested in sophisticated ordering and logistics technology that provides order processing, warehousing and fulfillment functions, which we believe to be the most efficient in the industry. Our Heafnet system, introduced in 1996, offers customers instant online access to our inventory, allowing dealers to check the price and availability of products and place orders on a 24/7 basis. Approximately 36.0% of our orders in 2004 were placed online using Heafnet, up from 7.0% in 2001. We have also invested in our logistics technology, including routing and global positioning software systems, to capture additional distribution efficiencies.

Strong Working Capital Management and Low Capital Expenditures. We are able to generate cash flows while maintaining sizeable inventory as our inventory controls and vendor relationships enable us to closely monitor and effectively manage our working capital. Furthermore, our scalable operating platform has allowed us to increase sales volume without significant incremental costs or capital expenditures. During the period from 2001 to 2004, our annual maintenance capital expenditures have averaged approximately $2.0 million to $3.0 million. In addition, our bad debt write-offs have historically been less than 0.1% of sales due to strong credit and collection procedures.

Experienced Senior Management Team. Our senior management team, led by our Chief Executive Officer, Dick Johnson, and our President, Bill Berry, is comprised of seasoned industry professionals and veterans of our company. Our senior management has an average of over 20 years of distribution experience and over 15 years with our predecessor companies or us.

Business Strategy

We intend to continue to expand our business, enhance our market position and increase our revenues and cash flow by focusing on the following:

Expand Our Share of Existing Customers’ Business. We plan to expand our market share with existing dealers through greater penetration of existing brands as well as branded product expansion. As part of our strategy to grow our market share with existing customers, we have expanded our supplier relationships. In 2002, we enhanced our long standing relationship with Goodyear by obtaining distribution rights for the Goodyear brand. In 2004, we established new relationships with Continental, General and Cooper. According to Modern Tire Dealer, these four brands have a combined market share of over 25.0% in the U.S. passenger car and light truck tire market. We expect to generate additional revenue from these brands through full distribution across our broad geographic footprint.

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Leverage Our Existing Infrastructure to Expand into Underserved Customer Markets. Our distribution infrastructure provides considerable operating leverage because the cost of adding additional customers that can be served by an existing distribution center, through the addition of truck routes or stops, is low. For example, we recently entered into a supply arrangement with General Motors covering approximately 3,700 GM automobile dealerships. These GM dealerships can be serviced by our existing distribution centers and are not currently expected to require any additional truck routes. Our technology platform is also fully scalable to accommodate additional distribution centers as necessary to expand efficiently into a new region. In addition, we also plan to continue increasing our fill-in business at national and regional chains and tire manufacturer owned stores.

Focus on Higher Profit Products. We plan to continue to focus on increasing the mix of high and ultra high performance tires in our product line and on shifting customers from private and associate brands to flag brands, which provide us with a higher profit per tire. The shift to larger rim diameter products also enhances profit per tire. In 2003, we established supply arrangements with Pirelli and Nitto, who selected us because of our distribution capability. We intend to build demand for both of these brands through our sales force and distribution network. We are also working closely with independent tire retailers, automobile dealers and specialty shops to increase our sales of high margin custom wheels and tire service equipment, tools and supplies.

Capitalize on Profit Enhancement Opportunities. We remain committed to managing our cost structure to increase profitability. As we have expanded our market presence, we have been able to effectively leverage our highly scalable distribution infrastructure to achieve higher growth and increased margins. For example, our utilization of logistics technology, including our GPS applications, has improved distribution efficiency and profitability. We are currently in the process of further enhancing our pricing discipline and expense controls through a strategic segmentation of our customer base. This initiative provides incentives for smaller customers to provide us with a larger share of their business and focuses our sales efforts on larger, more profitable customers.

Selectively Pursue Acquisitions. We believe we are well suited to capitalize on opportunities to acquire smaller companies with key customer relationships. Our acquisition strategy consists of increasing our share in existing markets, adding distribution in new or complementary regions and utilizing our scale to realize cost savings. In addition, we believe acquisitions in our existing geographic markets provide the opportunity for significant cost savings. Over the past year, we have successfully acquired and integrated two businesses representing approximately $160.0 million in annual net sales for fiscal 2003. We believe that this experience will help us to pursue suitable acquisition opportunities in the future and integrate them successfully. Consistent with this strategy, we continue to evaluate potential acquisition targets. However, at this time, we are not party to any definitive agreement for any such acquisition.

Products

We sell a broad selection of flag, associate and private label tires, as well as custom wheels and accessories and related service equipment. Tire sales accounted for approximately 86.7%, 87.1% and 86.8% of total net sales in fiscal years 2004, 2003 and 2002, respectively.

Tires

Sales of passenger car and light truck tires accounted for approximately 74.6% of our total net sales in fiscal 2004. The remainder of our tire sales come from tires for medium trucks, farm vehicles and other specialty tires. We carry 11 of the top 12 leading brands, with the 12th being one of our competitor’s private labels.

Flag brands. Our flag brands have high consumer recognition and generate higher per tire profit than associate or private label brands. We believe we are the only distributor that carries the flag brands from all four of the largest tire manufacturers: Bridgestone, Continental, Goodyear and Michelin. As a part of our flag brand portfolio, we also carry high and ultra high performance tires, including such brands as Nitto and Pirelli.

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We believe that our ability to effectively distribute a wide variety of SKUs for our flag brands is key to our success. The overall replacement tire market is highly fragmented and, according to Tire Review Magazine, the top ten passenger car tire brands account for less than 60.0% of total replacement units. We believe this is the result of two factors. First, automobile manufacturers utilize a wide variety of tire brands and sizes for original equipment. Second, owner loyalty to original equipment is relatively high, as approximately one half of all new passenger car and light truck owners replace their tires with the same equipment. As a result, in order to be competitive, tire dealers, and particularly independent tire outlets, must be able to access a broad range of inventory quickly. Our customers can use our wide product offering to sell a comprehensive product lineup that they would be unable to provide on a stand alone basis due to working capital constraints and limited warehouse capacity.

Our high and ultra high performance tires are our highest profit products and also have relatively shorter replacement cycles. For the same reasons as other flag brands, but to an even greater degree, we believe working capital and inventory constraints make these tires difficult for dealers to efficiently stock. High and ultra high performance tires have shown significant growth as compared to the overall market. According to Modern Tire Dealer magazine, the number of units sold in this subcategory increased by 18.3% industry wide from 2003 to 2004.

Associate brands. Associate brands are primarily lower priced tires, manufactured by well known manufacturers. Our associate brands include Dayton, Gillette, Monarch and SteelMark. These products allow us to offer tires in a wider price range. In addition, associate brands are attractive to our dealers because they may count towards the various manufacturer incentive programs.

Private label brands. Private label brands are lower priced tires made by tire manufacturers exclusively for and marketed by independent tire wholesale distributors and/or retailers. The private label brands we own include DynaTrac, Regul, Winston and Wynstar. Our private labels allow us to sell differently branded tires to locally competitive dealers, increasing our overall market penetration.

Custom Wheels and Accessories

We offer over 140 different styles of wheels, resulting in over 8,000 total SKUs. In addition to branded wheel products, we distribute high quality custom wheels under brands owned by us, including ICW, Pacer, Drifz and CruiserWire. In addition to being a relatively high margin product, custom wheels are complimentary to our tire products. According to Modern Tire Dealer magazine, 72.0% of custom wheel consumers purchase tires when purchasing wheels. Customers can order custom wheels from us along with their regular tire shipments without the added complexity of being serviced by an additional vendor. Our net sales of custom wheels in 2004 were $96.8 million.

Equipment, Tools and Supplies

We supply our customers with tire service equipment, tools and supplies from leading manufacturers. This equipment includes wheel alignment, tire changer and automotive lift machinery. These products broaden our portfolio and leverage our customer relationships. We distribute alignment service equipment manufactured by Hunter Engineering Company and tire changers and balancers built by Hennessey Industries, Inc. (a division of the Danaher Corporation), both leading manufacturers in their respective fields. Our net sales of equipment, tools and supplies in 2004 were $77.8 million.

Distribution System

We have designed our distribution system to deliver products from a wide variety of vendors to our highly fragmented customer base. We believe that as tire manufacturers have reduced the number of direct customers they serve, we have become a more critical link between those two groups.

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We utilize a sophisticated inventory and delivery system to distribute most of our products to our customers on a same or next day basis. In most of our 71 distribution facilities, we have sophisticated bin locator systems, material handling equipment and routing software that tie customer orders, inventory and delivery routes in a seamless manner. We believe this system, which is integrated with our Heafnet online ordering system, gives us a competitive advantage by allowing us to ship customer orders quickly while reducing labor costs. Our logistics and routing technology uses UPS software packages and GPS systems to optimize route design and delivery capacity. Coupled with our fleet of over 700 trucks, this technology enables us to make multiple daily or weekly shipments to customers, as necessary. With this distribution infrastructure, we believe we fulfill approximately 88.0% of our customers’ orders on a same or next day basis.

Approximately 80.0% of our products are shipped directly by tire manufacturers to our distribution centers. The remaining 20.0% of our products are shipped by suppliers to our mixing centers in Maiden, North Carolina and Lincoln, Nebraska. These mixing centers allow us to warehouse slower moving and foreign manufactured products, which are forwarded to the distribution centers as needed.

Marketing and Customer Service

Our marketing efforts are focused on driving growth through customer service, additional product placement and market expansion. We market our products and services through a number of methods, including online initiatives and specialized sales teams. We have organized our sales organization to best service our existing customers and develop new prospective customers. As the manufacturers have reduced their own sales staffs, our sales force has assumed the consultative role manufacturers previously provided. Additionally, we have established a segmented pricing system that allows us to effectively manage pricing across our customer base.

Sales Force

Our tire sales force consists of sales personnel located at each distribution center and an administrative group located at our field support center in Huntersville, North Carolina. The sales personnel located at each distribution center consist of outside and inside sales people as well as customer service representatives. This sales team focuses on local independent dealer customers. The outside sales people visit their targeted customers to advance our business, while the inside sales people remain on site, making client contact by telephone to advance specific products or programs. The customer service representatives take orders from tire dealers. The administrative tire sales organization handles national accounts, including automobile dealerships, to maximize the benefits of centralized sales organization. This administrative tire sales organization also includes brand managers that coordinate the major tire manufacturers’ programs with our distribution center sales force. We also have a call center to handle calls at peak call times of the day to minimize customer wait time.

Our custom wheel sales group has sales and technical support personnel in the field and performance specialists in each region. The sales force’s responsibilities include cultivating new prospective wheel customers and coordinating with tire sales professionals to cover existing accounts. The technical support professionals provide answers to customer questions regarding style and fitment. We also have established a dedicated equipment, tools and supplies sales force that works with the administrative tire sales force specifically to sell related service equipment, tools and supplies.

Heafnet and Wheel Wizard

Heafnet provides our customers with web-based online ordering and 24/7 access to our inventory availability and pricing. The orders are automatically processed and printed in the appropriate distribution center within minutes of entry. Heafnet allows customers to track their account balances and we are enhancing its

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capability so that users can also track expected deliveries. As this system represents a lower cost method of order entry, we have encouraged our customers to use this system. In 2004, approximately 36.0% of our orders were placed online using Heafnet, up from 7.0% in 2001.

In addition to providing customer service around our suppliers’ incentive programs, we offer Heafnet Rewards for Heafnet online users. Dealers earn rewards points each time an order is placed online with us. Rewards points can be redeemed for airline tickets, gifts, vacation packages and other awards, depending on the point value of the prize chosen.

Wheel Wizard is a web-based program that serves as both a marketing tool and technical resource for our customers. As a marketing tool, it allows our customers’ clients to visualize our wheels on their cars, which we believe helps to encourage sales. As a technical resource, it provides detailed wheel mounting and other installation related data to assist our dealers in properly selling custom wheels.

Manufacturer Programs

Individual manufacturers offer a variety of programs for dealers that sell their products, such as Michelin’s Alliance, Goodyear’s G3X and Bridgestone’s Tirestarz. These programs, which are relatively complex, provide cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we manage these programs for the manufacturers and enhance these programs through dedicated staff to assist dealers in managing their participation. We believe these enhancements, combined with our customer service, provide significant value our customers.

In 2000, we introduced AutoEdge, a proprietary marketing program through which dealers can offer consumers the convenience of nationwide tire and service warranties (through third party warranty providers) and a nationally accepted credit card. In 2004, as a result of our acquisition of Target Tire, we acquired membership in the American Car Care organization for several areas we serve. This organization operates programs similar to AutoEdge throughout much of the country.

Our Xpress Performance program, also introduced in 2000, provides dealers with ultra high performance products shipped via UPS. In addition, Xpress Performance offers the technical knowledge to answer tire and wheel fitment questions and the ability to decrease inventory investment. By offering a business-to-business direct shipment program featuring performance tires, wheels and suspension products, dealers have the ability to better offer these premium products to their customers.

Customers

We distribute tires and related automotive products principally to independent tire outlets. Our other customers include national and regional retail chains, service stations, general automotive repair facilities, auto parts stores, automobile dealers and specialty automotive repair facilities. In 2004, our operations served approximately 35,000 customers each month in 36 states. Our customers are principally located in the mid-Atlantic, lower Midwestern and Southern states as well as California and Arizona. Our largest customer and its subsidiaries accounted for less than 2.0%, and our top twenty five customers accounted for less than 10.0%, of net sales.

Car dealerships are focused on growing their service business in an effort to expand profitability and we believe they view having replacement tire capabilities as an important service element. In this regard, we were approached by General Motors to service approximately 3,700 of their individual car dealerships located within our distribution footprint. We successfully tested this program in 2004 and we expect the program to be fully rolled out in the first half of 2005. We are currently in discussions with other car manufacturers to implement similar programs with them and their network of dealerships.

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Suppliers

We purchase our tires from several sources, including the four largest tire manufacturers: Bridgestone, Continental, Goodyear and Michelin. These companies also make many of our private label brands. For example, Winston tires are manufactured exclusively by Goodyear and Regul tires are manufactured by Michelin.

Our supply arrangements with our major suppliers are generally oral or written arrangements, which are renegotiated annually, with the exception of a long term contract with Kelly Springfield, a division of Goodyear. Although we can make no assurance that these arrangements will be renewed, or renewed on favorable terms, we have conducted business with our major tire suppliers for many years and we believe that we have good relationships with all of our major suppliers. We purchased approximately 71.5% of our tire products in 2004 from three tire suppliers and we do not have long term supply agreements with these vendors for purchases of the vendor’s branded products. Our operating results could be adversely affected if we were unable to purchase tires from these three suppliers.

There are a number of worldwide manufacturers of wheels and other automotive products and equipment. Most of the wheels we purchase are private label custom brands, namely Pacer, CruiserWire, Drifz and ICW, and are produced by a variety of manufacturers. We purchase equipment and other products from multiple sources, including industry leaders such as Hunter Engineering and Hennessey Industries.

Competition

The industry in which we operate is highly competitive and fragmented. Tire manufacturers distribute tires to the retail market by direct shipments to independent tire outlets, national retail chains and manufacturer owned retail stores, as well as through shipments to independent wholesale distributors like us. There are approximately 200 independent wholesale distributors in the United States. We compete with a number of tire distributors on a regional basis. Our main competitors include: TCI Tire Centers, Carroll and Am-Pac Tire, some of whom have retail operations which compete with their distribution customers. We also face some competition from mail order and smaller regional companies.

We believe that the principal competitive factors in our business are reputation, breadth of product offering, delivery frequency, price and service. We believe that we compete effectively in all aspects of our business due to our ability to offer a broad selection of flag and private label branded products, our competitive prices and our ability to provide quality services in a timely manner.

Information Systems

Our main computer system consists of programs developed in-house by our programming staff. The main functions of the system include order entry, invoicing, inventory control, procurement, accounts payable, accounts receivable and warehouse management. We are currently implementing a three year program conversion to Oracle in order to accommodate our integrated operations and increased volume of business. We have already implemented the general ledger as well as a portion of accounts payable and inventory functions on Oracle. We expect to complete the conversion to Oracle in 2006. For more information, see “Risk Factors—We are currently implementing the migration of critical financial functions to a new computer system. If this transition is not successful, our business and operations could be disrupted and our operating results would be harmed.”

Trademarks

The private label brand names under which we market our products are trademarks of our company. Those private label brand names are considered to be important to our business because they develop brand identification and foster customer loyalty. All of our trademarks are of perpetual duration as long as they are periodically renewed. We currently intend to maintain all of them in force. The principal private label brand names under which we market our products are:

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Our other trademarks include:

Seasonality and Inventory

We typically experience our highest sales levels from March through October of each fiscal year, while sales levels are generally lower during the period from November through February. Our inventories generally fluctuate with anticipated seasonal sales volumes. We believe that we maintain levels of inventory that are adequate to meet our customers’ needs on short notice. Since customers look to us to fulfill their needs on short notice, backlog of orders is not a meaningful statistic for us.

Environmental Matters

Our operations and properties are subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and clean up of contaminated properties, including off-site disposal locations. We do not incur significant costs complying with environmental laws and regulations. However, we could be subject to material environmental costs, liabilities or claims in the future, especially in the event of changes in existing laws and regulations or in their interpretation.

Employees

As of January 31, 2005, our continuing operations employed approximately 2,074 people. None of our employees are represented by a union. We believe our employee relations are satisfactory.

Risk Factors

We depend on our relationships with our vendors and a disruption of these relationships or of our vendors’ operations could have an adverse effect on our business and results of operations.

There are a limited number of tire manufacturers worldwide and, accordingly, we rely on a limited number of tire manufacturers for our products, including flag and associate brands as well as our private label brands. Our business depends on developing and maintaining productive relationships with these vendors. In particular, we rely on Michelin and Goodyear, our top two suppliers, who supplied 37.7% and 19.7%, respectively, of the tires we sold in 2004. Although in most cases we have long term relationships with these manufacturers, our contracts with all but one of our suppliers are short term in nature, and there can be no assurance that these suppliers will continue to supply products to us on favorable terms, or at all. In addition, our growth strategy depends on our ability to make selective acquisitions. Our vendors may not be willing to supply the companies

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we acquire, which could have a material adverse effect on our business. Furthermore, in the event that any of our vendors were to experience financial, operational, production, supply, labor or quality assurance difficulties that resulted in a reduction or interruption in our supply, or if they otherwise failed to meet our manufacturing requirements, we could be materially adversely affected. In addition, our failure to promptly pay or order sufficient quantities from our vendors may result in an increase in the cost of the products we purchase or a reduction in cooperative advertising and marketing funds or may lead to vendors refusing to sell products to us at all. To the extent that we would be required to find replacements for our manufacturers, a change in manufacturers could result in cost increases, time delays in deliveries and a loss of customers, any of which could have a material adverse effect on us. Finally, although the majority of tires manufactured by the major tire manufacturers are sold to the replacement tire market, the manufacturers pay disproportionate attention to automobile companies that purchase tires for use as original equipment on vehicles sold to consumers. Increased demand from the automobile companies could also result in cost increases and time delays in deliveries from manufacturers to us, any of which could have a material adverse effect on us.

While the independent tire outlet share of the replacement tire market has been relatively stable in the recent past, the share of larger dealers has grown at the expense of smaller tire dealers. Our business would be adversely affected if the vendors determined that, due to the increasing size of such dealers, they could deal directly with such dealers.

Our business could be adversely affected by consolidation among customers as it may reduce our importance as a holder of sizable inventory, thereby reducing our revenues and earnings.

Our success has been dependent, in part, on the fragmented customer base in our industry. Because of the small size of most customers, they cannot support substantial inventory positions and thus we fill an important role as our size permits us to maintain a sizable inventory. We generally do not have long term contracts with our customers and they can cease doing business with us at any time. If a trend towards consolidation among customers develops in the future, it could reduce our importance and reduce our revenues, margins and earnings. While the independent tire outlet share of the replacement tire market has been relatively stable in the recent past, the share of larger dealers has grown at the expense of smaller tire dealers. If that trend continues, the number of dealers able to handle sizable inventory could increase, reducing the importance of distributors to the independent dealer market.

We would also be adversely affected if other channels in the replacement tire market, including mass merchandisers and wholesale clubs, gain market share from the independent tire outlet channel. Our market share in those other channels is lower, as these channels are generally sizable enough to deal directly with vendors.

The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations and our ability to service our debt obligations.

The industry in which we operate is highly competitive, and some of our competitors have resources greater than ours. Tire manufacturers distribute tires to the retail market by direct shipments to independent tire outlets, national retail chains and manufacturer owned retail stores as well as through shipments to independent wholesale distributors. A number of independent wholesale tire distributors also compete in the regions in which we do business. Most of our customers buy products from our competitors and us. Although we believe that we have been able to compete successfully in our markets to date, there can be no assurance that we will be able to continue to do so in the future. See Item 1 “Description of Business—Competition.”

The automotive replacement tire industry is subject to cycles in the general economy. A downturn in the economy could reduce consumer spending on our products which could decrease our net sales and operating margins.

A downturn in the economy may delay or reduce consumer purchases of our products and services or lead consumers to purchase more associate or private label brands and reduce spending on higher margin products, which could adversely affect our revenues, cash flow and profits. Sales in our industry declined in 2001 due in

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part to the recession as well as the effect of the Firestone recall in 2000, and sales in our industry have declined on an annual basis in prior recessions. A slowdown in economic activity could adversely affect our results. Many factors affect the level of consumer spending on replacement tires, including, among others, general business conditions, interest rates, gasoline prices, the availability of consumer credit and consumer confidence in future economic conditions. While the number of automobiles registered in the United States has steadily increased over time, should a reduction in the number of automobiles driven by automobile owners or a reduction in new car purchases occur, it would adversely affect the demand for our products.

Our business is subject to seasonal and other fluctuations that affect our cash flows which could affect our ability to service our debt during certain periods.

Demand for tires tends to fluctuate from quarter to quarter, with the highest demand generally from March through October of each calendar year and the lowest demand typically from November through February of each calendar year. In addition, the popularity, supply and demand for particular tire products may change from year to year based on consumer confidence, the volume of tires reaching the replacement tire market, the level of personal discretionary income and other factors. Local economic, weather, transportation and other conditions also affect the volume of tire sales, on both a wholesale and retail basis. Such fluctuations may adversely affect our cash flows and our ability to service our debt in certain periods.

We are currently implementing the migration of critical financial functions to a new computer system. If this transition is not successful, our business and operations could be disrupted and our operating results would be harmed.

We are currently implementing a three year conversion of our computer system to Oracle. We have already implemented the general ledger as well as a portion of the accounts payable and inventory functions on Oracle but still must transition other key functions. We cannot be sure that the transition will be fully implemented on a timely basis if at all. If we do not successfully implement this project, our operations may be disrupted and our operating results could be harmed. Even if the integration is completed on time, the new system may not operate as we expect it to. In addition, we may have to expend significant resources to find an alternative source for performing these functions and we cannot guarantee this would be accomplished in a timely manner or without significant additional disruption to our business.

If we experience problems with our fleet of trucks or are otherwise unable to make timely deliveries of our products to our customers, our business and reputation could be harmed.

We use a fleet of trucks to deliver our products to our customers, most of which are leased from third parties. We are subject to the risks associated with providing trucking services, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements, availability and price of fuel, and liabilities arising from accidents to the extent we are not covered by insurance. Our failure to deliver tires and other products in a timely and accurate manner could harm our reputation and brand, which could have an adverse effect on our business.

Our business could be adversely affected by the current high price of fuel and any further increases in the price of fuel.

Both the industry in which we operate and our distribution methods are affected by the availability and price of fuel. Because we use a fleet of trucks to deliver tires and other products to our customers, the current high price of fuel or any further increases in the price of fuel may cause us to incur increased costs in operating our fleet, which may have an adverse effect on our business, financial condition and results of operations.

Our growth strategy of identifying and consummating acquisitions and expanding our services into new regions entails integration, financing and other risks, including expenditures associated with developing a distribution infrastructure with new distribution centers and routes.

As part of our business strategy, we have expanded, and intend to expand, our operations through selective acquisitions. This growth strategy entails risks inherent in identifying desirable acquisition candidates, in

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integrating the operations of acquired businesses into our existing operations and risks relating to potential unknown liabilities associated with acquired businesses. In addition, we may not be able to finance a desirable acquisition or to pay as much as our competitors because of our leveraged financial condition, restrictions under the instruments governing our debt or general economic conditions.

In connection with future acquisitions, we may assume the liabilities of the companies we acquire. These liabilities could materially and adversely affect our business. Difficulties that we may encounter in integrating the operations of acquired businesses could also have a material adverse effect on our results of operations and financial condition. Moreover, we may not realize any of the anticipated benefits of an acquisition and integration costs may exceed anticipated amounts. While our most recent acquisitions have been successfully integrated to-date, our prior management experienced significant difficulties in integrating an acquisition several years ago. Difficulties with that entity, as well as problems with an information technology upgrade, led to the restructuring of our debt in 2002. See Item 7, “Managements Discussion and Analysis of Financial Condition and Results of Operations—Discontinued Operations” and “—Liquidity and Capital Resources—Repurchase of Senior Notes.”

The launch of our distribution services into new regions will require expenditures to develop a distribution infrastructure, including new distribution centers and routes, and we generally do not expect to achieve profitability from new regions for a period of time. We may also face competition from existing distributors in those regions that could reduce the benefits we anticipate from such expansion.

We could be subject to product liability, personal injury or other litigation claims which could have an adverse effect on our business, financial condition and results of operations.

Purchasers of our products, or their employees or customers, could be injured or suffer property damage from exposure to, or defects in, products we sell or distribute, or have sold or distributed in the past, and we could be subject to claims, including product liability or personal injury claims and claims due to injuries caused by our truck drivers. These claims may not be covered by insurance and vendors may be unwilling or unable to satisfy their indemnification obligations to us with respect to these claims. As a result, the defense, settlement or successful assertion of any future product liability, personal injury or other litigation claims could cause us to incur significant costs and could have an adverse effect on our business, financial condition, results of operations or cash flows.

Loss of key personnel and/or failure to attract and retain highly qualified personnel could make it more difficult for us to generate cash flow from operations and service our debt.

We are dependent on the continued services of our senior management team. We may not be able to retain our existing senior management, fill new positions or vacancies created by expansion or turnover or attract additional senior management personnel. We believe the loss of such key personnel could adversely affect our financial performance. In addition, our ability to manage our anticipated growth will depend on our ability to identify, hire and retain qualified management personnel. We cannot assure you that we can attract and retain sufficient qualified personnel to meet our business needs.

Our business strategy relies increasingly upon online commerce and we may not be able to adapt to rapid technological change.

Customers’ access to our website directly affects the volume of orders we fulfill and thus affects our revenues. Approximately 36.0% of our orders in 2004 were placed online, up from 7.0% in 2001. We expect our internet generated business to continue to grow as a percentage of overall sales. Technology in the online commerce industry changes rapidly. Customer functionality requirements and preferences also change. Competitors often introduce new products and services with new technologies, all of which could render our existing website and proprietary technology obsolete. To succeed, we must continually enhance website responsiveness, functionality and features, acquire and license leading technologies, enhance our existing services and respond to technological advances and emerging industry standards and practices on a cost effective and timely basis. If we do not adapt quickly enough to changing customer requirements and industry standards, there could be a decline in online orders and a decrease in net sales.

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If we are not able to adequately implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and are the subject of sanctions or investigation, our results of operations and our ability to provide timely and reliable financial information may be adversely affected.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the SEC and the Public Company Accounting Oversight Board, or PCAOB, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We will be evaluating our internal control over financial reporting to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, which we are required to comply within our annual report which we will file in 2007 for our 2006 fiscal year. As a result, we expect to incur substantial additional expenses and diversion of management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 by our deadline, we cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations since there is presently no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities such as the SEC or the PCAOB. Any such action could adversely affect our financial results or investors’ confidence in our company and could cause the price of our securities to fall. In addition, if we fail to develop and maintain effective controls and procedures, we may be unable to provide the financial information in a timely and reliable manner.

Item 2. Description of Property.

Our principal properties are geographically situated to meet sales and operating requirements. All of our properties are considered to be adequate to meet current operating requirements. As of January 1, 2005, we had a total of 71 warehouse distribution centers located in 23 states, aggregating approximately 5.3 million square feet. Of these centers, four are owned and the remainder are leased.

We also lease our principal executive office, located in Huntersville, North Carolina. This lease will expire in 2010.

Many of our leases contain provisions prohibiting a change in control of the lessee or permitting the landlord to terminate the lease or increase rent upon a change in control of the lessee. These provisions will be applicable to the merger. Based primarily upon our belief that (i) we maintain good relations with the substantial majority of our landlords, (ii) most of our leases are at market rates and (iii) we have historically been able to secure suitable leased property at market rates when needed, we believe that these provisions will not have a material adverse effect on our business or financial position.

Item 3. Legal Proceedings.

We are involved from time to time in various lawsuits, including alleged class action lawsuits arising out of the ordinary conduct of our business. Although no assurances can be given, we do not expect that any of these matters will have a material adverse effect on our business or financial condition. We are also involved in various proceedings incidental to the ordinary course of our business. We believe, based on consultation with legal counsel, that none of these will have a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable

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PART II

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

As of March 1, 2005, there were eleven holders of record of our common stock. There is no public trading market for our common stock.

As of January 1, 2005, we have not declared or paid dividends on our common stock and have no intention to do so in the foreseeable future. In addition, our revolving credit facility contains certain covenants and we expect that our new debt will contain similar covenants, which among other things, restricts our ability to pay dividends. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

Information regarding securities authorized for issuance under equity compensation plans is set forth in Item 12 of this Form 10-K.

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Item 6. Selected Financial Data.

The following table sets forth our selected historical consolidated financial data for the periods indicated as restated for the presentation of Winston Tire Company (“Winston”), our retail segment that we sold in May 2001, as a discontinued operation. Selected historical financial data as of the end of and for the fiscal years 2000 through 2004 is derived from our consolidated financial statements as of and for those years. Our fiscal year is based on either a 52 or 53 week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to the prior or subsequent fiscal years. The 2004 fiscal year (ended January 1, 2005) contains operating results for 53 weeks. The 2003 fiscal year (ended December 27, 2003), the 2002 fiscal year (ended December 28, 2002), the 2001 fiscal year (ended December 29, 2001) and the 2000 fiscal year (ended December 30, 2000) all contain operating results for 52 weeks. The following selected historical consolidated financial information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included under Item 8 in this report.

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

The following discussion and analysis of our results of operations, financial condition and liquidity should be read in conjunction with our consolidated financial statements and the related notes included in this report.

Our fiscal year is based on either a 52 or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to the prior or subsequent fiscal years. The 2004 fiscal year (ended January 1, 2005) contains operating results for 53 weeks. The 2003 fiscal year (ended December 27, 2003) and the 2002 fiscal year (ended December 28, 2002) contain operating results for 52 weeks.

Overview

We are the leading distributor of tires to the U.S. replacement tire market, a $24.3 billion industry. Despite a recent economic slowdown, the U.S. replacement market is stable and has been growing at approximately 2% to 3% annually over the past ten years. Growth has historically been driven by several positive industry trends such as an increase in the number of vehicles on the road, an increase in the number of licensed drivers, an increase in the number of miles driven, and an increase in the average age of vehicles.

The industry has recently experienced growth from an increase in high and ultra-high performance and larger rim diameter tires, proliferation of larger vehicles such as SUVs, and shorter tire replacement cycles. Our high and ultra-high performance tires are our highest profit products and also have relatively shorter replacement cycles. High and ultra-high performance tires have shown significant sales growth as compared to the overall market. According to Modern Tire Dealer magazine, industry wide, the number of units sold in this subcategory increased by 18.3% from 2003 to 2004. We expect the trend of selling more high and ultra-high performance tires as well as larger auto rim diameter tires to be an ongoing area of strategic focus for us, and the industry as a whole. Due to our breadth and depth of product offering, we believe that we are well positioned to handle this new demand.

Our revenues are primarily generated from sales of passenger car and light truck tires, which represent approximately 74.6% of our total net sales in fiscal 2004. The remainder of net sales is derived from other tire sales (12.1%), custom wheels (7.6%), automotive service equipment (4.4%), and other products (1.3%). We sell our products to a variety of customers and geographic markets.

We have continued to expand and geographically diversify our operations in the recent years by executing a strategy that includes both organic growth and growth through acquisitions. Over the past year, we have successfully acquired and integrated two businesses representing approximately $160 million in annual net sales. The acquisition of Big State expanded our operations into Texas, New Mexico and Oklahoma, while the acquisition of Target Tire strengthened our presence with retailers in the Southeast, a region where we already have a strong market presence. As we continue to expand our market presence, we have been able to effectively leverage our scalable distribution infrastructure to achieve higher growth and increased margins.

We are currently in the process of further enhancing our pricing discipline and expense control through a strategic segmentation of our customer base. This initiative is expected to provide incentives for smaller customers to provide us with a larger share of their business and by focusing on larger, more profitable customers.

During fiscal 2004, we completed the purchase of all the outstanding stock of Big State and Target Tire. These acquisitions have been accounted for using the purchase method of accounting and, accordingly, results of operations for the acquired businesses have been included in the consolidated statements of operations from the acquisition date.

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On February 4, 2005, American Tire Distributors Holdings, Inc. (“Holdings”), an investment vehicle formed by affiliates of Investcorp S.A., entered into a definitive agreement with us under which Holdings will purchase us for a price of $710.0 million less the amount of net debt outstanding at January 1, 2005, our incurred transaction expenses and certain payments to our management. The acquisition of us by Holdings will be accounted for under the purchase method of accounting. Under purchase accounting, the purchase price will be allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values, with the remainder being allocated to goodwill. The increase in the basis of these assets will result in increased amortization and depreciation charges in future periods. In addition, our interest expense will increase significantly as a result of the acquisition. As part of the acquisition, we will generate substantial tax deductions relating to the exercise of stock options.

Results of Operations

Year Ended January 1, 2005 Compared to the Year Ended December 27, 2003

The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:

Net Sales

Net sales increased $167.7 million, or 15.0%, from $1,114.4 million in fiscal 2003 to $1,282.1 million in fiscal 2004. The operations acquired from Big State accounted for $24.0 million of the increase in net sales. The inclusion of an additional week of sales in fiscal 2004 contributed approximately $19.0 million to the increase. The increase in net sales is also a result of increased volume in our existing distribution centers due to the consolidation of the Target Tire locations, and from higher average per unit selling prices and a continuing trend of selling more high performance, higher priced tires. We cannot determine the precise effect on sales of the acquisition of Target Tire after the consolidation date, as operations acquired from Target Tire were merged into our existing facilities, with the exception of one facility. The higher average selling prices are a result of manufacturer price increases that were part of an overall industry increase. Increased wheel, light truck, and medium truck tire sales have also contributed to higher sales dollars.

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Gross Profit

The increase in gross profit in fiscal 2004 is primarily due to increased sales resulting from higher volume, the acquisitions of Big State and Target Tire and from higher gross margins. The increase in margin percentage of 0.3% was a result of improved product mix and purchasing efficiencies. Big State and Target Tire, prior to the consolidation of Target Tire’s distribution centers, contributed $7.9 million in gross profit.

Selling, General and Administrative Expenses

The increase in selling, general and administrative expenses is due, in part, to the inclusion of acquired operations. Of the $20.9 million increase, the acquisitions of Big State and Target Tire accounted for approximately $7.6 million, prior to the consolidation of Target Tire’s distribution centers. Employee related expenses increased $11.9 million primarily due to incentive based compensation associated with an increase in sales and profits and the inclusion of an additional week in fiscal 2004. The remaining net increase in selling, general, and administrative expenses is primarily due to costs related to the Big State and Target Tire acquisitions and our pending acquisition by Holdings. The increase in selling, general and administrative expenses in 2004 was offset by a $0.9 million reduction in medical insurance reserves.

Interest Expense

The decrease in interest expense is due primarily to a decline in interest rates during the first half of fiscal 2004, a reduction in “other long-term debt” levels and a $0.3 million net reduction in interest expense relating to the change in fair value of the interest rate swap agreement, partially offset by increased borrowings on our credit facility as a result of the two acquisitions completed in third quarter 2004.

Income Tax Expense

We recognized an income tax provision of $16.2 million in fiscal 2004 compared to $11.1 million in fiscal 2003. The effective tax rate for fiscal 2004 is approximately 39% compared to 41% in fiscal 2003.

Discontinued Operations

We did not record a loss from discontinued operations in fiscal 2004. The loss from discontinued operations in fiscal year 2003 is primarily due to adjustments to estimated liabilities on leases, for which we are a guarantor. For more information see, “—Discontinued Operations.”

Net Income

The increase in net income is due primarily to the increase in operating income partially offset by the increase in the income tax provision.

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Year Ended December 27, 2003 Compared to the Year Ended December 28, 2002

The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:

Net Sales

Net sales increased $52.4 million, or 4.9%, from $1,062.0 million in fiscal 2002 to $1,114.4 million in fiscal 2003. The increase in net sales is primarily due to an industry-wide increase in the average selling price of passenger car and light truck tires. In addition, we continued a trend of selling a higher mix of high performance, higher priced tires.

Gross Profit

The increase in gross profit for fiscal 2003 is due primarily to an increase in sales of our higher margin tires and wheels, partially offset by an aggressive first quarter 2003 marketing program, which resulted in reduced margins on certain products.

Selling, General and Administrative Expenses

The slight increase in selling, general and administrative expenses is primarily due to $2.3 million of increased costs associated with our group health plan and other miscellaneous net increases, partially offset by a $2.0 million reduction in amortization expense relating to noncompete agreements that ended during fiscal 2003 and a $1.1 million reduction in the provision for doubtful accounts. The reduction in the provision for doubtful accounts is a result of improved billing and collection efforts in fiscal 2003.

Interest Expense

The decrease in interest expense was due primarily to our repurchase of the majority of our Series D Senior Notes in 2002 (see “Repurchase of Senior Notes” below), as well as a decline in interest rates on our credit facility.

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Income Tax Expense

We recognized an income tax provision of $11.1 million in fiscal 2003 compared to $24.8 million in fiscal 2002. The income tax provision for fiscal 2002 includes $19.7 million relating to the gain on repurchase of Series D Senior Notes. The effective tax rate for fiscal 2003 is approximately 41% compared to 40% in fiscal 2002.

Discontinued Operations

The loss from discontinued operations in fiscal years 2003 and 2002 is primarily due to adjustments to estimated liabilities on leases, for which we are a guarantor. For more information see, “—Discontinued Operations.”

Net Income

Net income for fiscal 2002 includes a $49.8 million gain on repurchase of Series D Senior Notes and the related income tax provision of $19.7 million. Excluding the net gain on repurchase of Series D Senior Notes, fiscal 2003 net income increased $8.7 million from fiscal 2002.

EBITDA

We evaluate performance based on several factors, of which the primary financial measure is earnings from continuing operations before interest, taxes, depreciation and amortization, and gain on repurchase of Series D Senior Notes, (“EBITDA”). EBITDA should not be considered an alternative to, or more meaningful than, net income or cash flow as determined in accordance with accounting principles generally accepted in the United States. EBITDA as calculated and presented here may not be comparable to EBITDA as calculated and presented by other companies. The following table is a reconciliation of income from continuing operations to EBITDA:

EBITDA increased $13.2 million to $61.4 million in fiscal 2004 compared to $48.2 million in fiscal 2003. The increase in EBITDA is due primarily to the increase in sales and improvements in our gross profit margins, partially offset by the increase in selling, general and administrative expenses. EBITDA from the acquired operations of Big State and Target Tire, prior to the consolidation of Target Tire’s distribution centers, accounted for approximately $1.2 million of this increase.

EBITDA from continuing operations increased $8.0 million to $48.2 million in fiscal 2003 compared to $40.2 million in fiscal 2002. The increase in EBITDA is a result of higher gross profit margins partially offset by an increase in selling, general and administrative expenses.

Discontinued Operations

Effective May 15, 2001, we completed a transaction pursuant to a Stock Purchase Agreement to sell all the capital stock in Winston Tire Company (“Winston”), our retail segment, to Performance Management, Inc. for a purchase price of approximately $11.3 million, a portion of which was deferred and not paid at closing. We

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entered into a supply agreement to supply tires to Winston in connection with the sale. As of January 1, 2005, $2.8 million of the purchase price remains outstanding and a reserve is maintained for the full amount of the remaining purchase price. We have initiated legal proceedings to collect the $2.8 million.

On January 15, 2002, Winston filed for protection from creditors under Chapter 11 of the United States Bankruptcy Code. In connection therewith, we agreed to provide Winston with a $2.0 million trade credit facility to acquire inventory from us, which was terminated in December 2002. Following the bankruptcy filing, we reached a settlement agreement with Winston relating to all outstanding matters between the parties that was approved by the Bankruptcy Court by order on February 6, 2002. We have assessed the terms of the settlement and believe that any potential liability has been adequately considered in prior provisions.

Our receivable/administrative claim of approximately $2.0 million due from Winston was fully recovered in the third quarter of 2002 by a return of merchandise of approximately $0.5 million and the receipt of certain unencumbered trademark rights in the state of California as a result of the rejection of licenses by Winston. The intangible asset recorded for this trademark is being amortized on a straight-line basis over a period of five years.

On September 12, 2002, the United States Bankruptcy Court for the Central District of California approved a sale of substantially all the assets of Winston to the Goodyear Tire and Rubber Company, Inc. The sale closed in late December 2002. In January 2003 upon motion, the Bankruptcy Court converted the Winston bankruptcy case from a Chapter 11 to a Chapter 7 proceeding.

The only significant remaining liability related to discontinued operations is the exposure related to leases that we have guaranteed. As of January 1, 2005, our total obligations, as guarantor on the Winston leases, are approximately $11.2 million extending over 14 years. However, we have secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rental of approximately $10.7 million. A provision has been made for the net present value of the estimated shortfall. The accrual for lease liabilities could be materially affected by factors such as the credit worthiness of lessors, assignees and sublessees and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions. While we believe that our current estimates of discontinued operations liabilities are adequate, it is possible that future events could require significant adjustments to those estimates.

Liquidity and Capital Resources

At January 1, 2005, our combined net debt (total debt less cash) was $230.6 million compared to $179.4 million at December 27, 2003. Total commitments by the lenders under our credit facility were $245.0 million at January 1, 2005, of which $39.5 million was available for additional borrowings. The amount available to borrow is limited by the Borrowing Base computation, as defined in the agreement.

The following table summarizes our cash flows for fiscal years 2002, 2003 and 2004:

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Operating Activities. The increase in cash provided by operating activities for fiscal 2004 was primarily due to improvements in our gross profit margins and an overall increase in our profitability partially offset by an increase in our net working capital requirements as a result of increased business activity and the acquisition of Big State and Target Tire. In addition, we had an increase in income taxes paid in fiscal 2004, which partially offset the increase in cash provided by operating activities. The increase in income taxes paid is due to the utilization of net operating loss carryforwards in fiscal 2003, which were not available in fiscal 2004. Net working capital at January 1, 2005 totaled $133.7 million compared to $99.0 million at December 27, 2003, an increase of $34.7 million.

The increase in cash provided by operating activities for fiscal 2003 was primarily due to improvements in our gross profit margins and an overall increase in our profitability (excluding the gain on repurchase of the Series D Senior Notes in 2002), partially offset by an increase in our ending inventory balance at December 27, 2003.

Investing Activities. The increase in cash used in investing activities for fiscal 2004 was due primarily to the acquisition of Big State and Target Tire in third quarter 2004. Capital expenditures increased $1.9 million to $4.4 million in fiscal 2004 compared to $2.5 million in fiscal 2003. Capital expenditures during fiscal 2004 were primarily for information technology upgrades, warehouse racking, and leasehold improvements. During fiscal 2004, we also had capital expenditures financed by debt of $5.2 million relating to information technology upgrades.

Net cash used in investing activities for 2003 consisted primarily of cash paid for capital expenditures. During 2002, we had net cash provided by investing activities due primarily to the proceeds received from our sales/leaseback transaction, which generated net proceeds of $13.3 million.

Financing Activities. The increase in cash provided by financing activities for fiscal 2004 was primarily due to increased borrowings on our credit facility as a result of the two acquisitions completed in third quarter 2004, partially offset by the partial redemption of the Series A preferred stock and payment for deferred financing costs.

The decrease in cash used in financing activities for fiscal 2003 was due primarily to the repurchase of Series D Senior Notes in fiscal 2002, offset by proceeds from the issuance of preferred stock and additional borrowings on the credit facility, both of which were used in part for the Series D Senior Note repurchase.

Credit Facility. On March 19, 2004, we executed a Third Amended and Restated Loan and Security Agreement (“credit facility”), to increase our borrowing capacity. The Borrowers to the credit facility are us and our subsidiaries. The credit facility provides for borrowings in the aggregate principal amount of up to the lesser of $245.0 million, less defined reserves, or the Borrowing Base, as defined in the agreement. Fees incurred in connection with the amendment of $1.5 million are being deferred and amortized over the life of the loan. On April 2, 2004, we and our lenders executed an amendment to the credit facility to amend the requirements and form of the officer’s compliance certificate to be issued to the lenders.

On February 14, 2005, we and our lenders executed a letter agreement to the credit facility to amend the capital expenditures covenant contained therein.

Borrowings under the credit facility bear interest at (i) the Base Rate, as defined, plus the applicable margin (0.75% as of January 1, 2005) or (ii) the Eurodollar Rate, as defined, plus the applicable margin (2.25% as of January 1, 2005). These margins are subject to performance-based step-downs resulting in margins ranging from 0.25% to 1.25% for Base Rate loans and 1.75% to 2.75% for Eurodollar Rate loans, respectively. At January 1, 2005, borrowings under the credit facility were at a weighted average interest rate of 4.8%.

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The credit facility, as amended, requires us to meet a fixed charge coverage test, as defined, as well as certain covenants, which among other things, limits our ability to incur additional debt; enter into guarantees; make loans and investments; make capital expenditures; declare dividends; engage in mergers, consolidations and asset sales; enter into transactions with affiliates; create liens and encumbrances; enter into sale/leaseback transactions; modify material agreements; and change the business we conduct. As of January 1, 2005, we were in compliance with these covenants, as amended. Obligations under the credit facility are secured by all of our inventories, accounts receivable and certain other collateral. The credit facility expires February 15, 2008.

On September 2, 2004, we and our lenders executed a Second Amendment to the credit facility to provide us with a $20.0 million term loan to facilitate the acquisition of Target Tire. On November 4, 2004, we repaid the term loan, without penalty, with borrowings from the credit facility.

We anticipate that our principal use of cash going forward will be to meet working capital and debt service requirements, to make capital expenditures, and to fund acquisitions. Based upon current and anticipated levels of operations, we believe that our cash flow from operations, together with amounts available under our credit facility, will be adequate to meet our anticipated requirements. There can be no assurance, however, that our business will continue to generate sufficient cash flow from operations in the future to meet these requirements or to service our debt, and we may be required to refinance all or a portion of our existing debt, or to obtain additional financing. These increased borrowings may result in higher interest payments. In addition, there can be no assurance that any refinancing would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on us.

Repurchase of Senior Notes. As a result of significant losses in fiscal 2000 and 2001 at our discontinued operating retail segment, we encountered difficulty meeting debt service requirements. We completed a capital restructuring in March of 2002 to reduce our long-term debt, as well as to meet working capital needs. As a part of this recapitalization, we repurchased $121.4 million in outstanding principal amount of the Series D Senior Notes at a purchase price of $535 per $1,000 in face amount of the Series D Senior Notes, plus accrued and unpaid interest of $4.5 million. We funded the repurchase of the the Series D Senior Notes through several debt restructuring transactions. The restructuring transactions consisted of (i) an amendment to our credit facility to provide additional availability, (ii) a sale and leaseback of our three tire distribution warehouses generating cash proceeds of $13.9 million and (iii) an equity investment of $28.9 million from the issuance of 9,637,592 shares of Series D preferred stock to our existing stockholders. Concurrent with the repurchase of the Series D Senior Notes, we, the Subsidiary Guarantors and the Trustee executed a fourth supplemental indenture to the Series D Senior Notes indenture. The amendments to the Series D Senior Notes indenture were effected primarily to permit the restructuring transactions and make other related modifications.

Contractual Commitments

As of January 1, 2005, we had certain cash obligations associated with contractual commitments. The amounts due under these commitments are as follows (dollars in millions):

We also have certain letters of credit outstanding at January 1, 2005 in the aggregate amount of $7.0 million.

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Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions (see Note 1 in the Notes to Consolidated Financial Statements included under Item 8 of this report). We consider certain accounting policies, as described below, to be critical policies due to the high degree of judgment and complexity involved in each.

Revenue Recognition

We recognize revenue when title and risk of loss pass to the customer, which is upon delivery under free on board (“FOB”) destination terms. We also permit customers from time to time to return certain products but there is no contractual right of return. We continuously monitor and track such returns and record an estimate of such future returns, which is based on historical experience of actual returns. While such returns have historically been within management’s expectations and the provisions established have been adequate, we cannot guarantee that we will continue to experience the same return rates that we have in the past. If future returns increase significantly, operating results would be adversely affected.

Inventories

Inventories are valued at the lower of cost, determined on the first-in, first-out (“FIFO”) method, or market. We perform periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and record necessary provisions to reduce such inventories to net realizable value. If actual market conditions are less favorable than those projected by management, additional inventory provisions may be required.

Vendor Rebates

We receive rebates from our vendors under a number of different programs. These rebates are recorded in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Considerations Received from a Vendor.” Many of the vendor programs provide for us to receive rebates when any of a number of measures is achieved, generally related to the volume of purchases. These rebates are accounted for as a reduction to the price of the product, which reduces the carrying value of inventory until the product is sold. Throughout the year, the amount of rebates is estimated based upon the expected level of purchases. These estimates are continually revised to reflect rebates earned based on actual purchase levels. Historically, actual rebates have been within the expectations used in the estimates.

If market conditions were to change, vendors may change the terms of some or all of these programs. Although these changes would not affect the amounts that have been recorded related to product already purchased, it may impact gross margins on products sold or revenues earned in future periods to the extent that the changes are not passed along to the customer.

Cooperative Advertising and Marketing Programs

We participate in cooperative advertising and marketing programs (“co-op”) with our vendors. Co-op funds used to offset specific costs in selling and marketing the vendor’s products are reported as a reduction of selling, general, and administrative expenses at the time the qualifying advertising and marketing expenses are incurred. Co-op funds not used to offset specific costs are used to offset cost of goods sold in accordance with EITF Issue No. 02-16.

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Post Retirement Benefits

We account for post retirement benefits in accordance with SFAS No. 106, “Employers’ Accounting for Post Retirement Benefits Other than Pensions” and SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Post Retirement Benefits—an amendment of FASB Statements No. 87, 88, and 106.” SFAS No. 106 requires us to accrue the cost of post retirement benefit obligations based on a number of actuarial assumptions including assumptions about the discount rate, expected return on plan assets, health care cost trend rates, and rate of future compensation increases. The actuarial assumptions used may differ materially from actual results, which may have a significant impact on the amount of post retirement expenses to be recognized in future periods.

Allowance for Doubtful Accounts

The allowance for doubtful accounts provides for losses believed to be inherent within our accounts receivable balance. Management evaluates both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables, past collection trends, and general economic conditions. Management believes, based on our review, that the allowance for doubtful accounts is adequate to cover potential losses. Actual results may vary as a result of unforeseen economic events and the impact those events could have on our customers.

Valuation of Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 revises the accounting for purchased goodwill and intangible assets. Under SFAS No. 142, goodwill and intangible assets with indefinite useful lives are no longer amortized, but are tested for impairment annually and more frequently in the event of an impairment indicator. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives, and reviewed for impairment at least annually. We adopted the provisions of SFAS No. 142 effective first quarter of fiscal 2002. In accordance with SFAS No. 142, we performed the required annual impairment test in fourth quarter of fiscal years 2004, 2003 and 2002 and determined that no goodwill impairment existed. Fair value was computed by utilizing a variety of methods, including discounted cash flow and market multiple models. We will continue to perform goodwill impairment reviews annually or more frequently if facts or circumstances warrant a review. Future adverse developments in market conditions or our current or projected operating results could cause the fair value of our goodwill to fall below the carrying value, requiring an impairment charge.

Deferred Taxes

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Management has evaluated our deferred tax assets and has concluded that the realizability of the deferred tax assets is more likely than not. As a part of this evaluation, we determined that a decrease in the valuation allowance previously established for certain deferred tax assets for state net operating loss carry-forwards relating to the sale of Winston was required. Accordingly, we recorded a non-cash benefit in the fourth quarter of fiscal 2004 of $0.5 million to reduce the valuation allowance from $1.0 million to $0.5 million. The valuation allowance was further adjusted to zero in connection with writing off the remaining deferred tax asset as we determined these assets would not be recoverable. Our ability to generate future taxable income is dependent on numerous factors including general economic conditions, the state of the replacement tire market, and other factors beyond our control. Therefore, there can be no assurance that we will meet this expectation of future taxable income. Changes in expected future income could lead to an additional valuation allowance against deferred tax assets.

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Recently Issued Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” The amendments made by SFAS No. 151 will improve financial reporting by requiring that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption SFAS No. 151 to have a material impact on our consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). For non-public companies, as defined, the provisions of SFAS No. 123R are effective for reporting periods beginning after December 15, 2005. The new statement requires compensation expense associated with share-based payments to employees to be recognized in the financial statements based on their fair values. We currently account for stock option grants in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and its related interpretations. Accordingly, no compensation expense has been recorded in our consolidated statements of operations. Upon the adoption of SFAS 123R, we will be required to apply the provisions of the statement prospectively for any newly issued, modified or settled award after the date of initial adoption. We are in the process of evaluating the impact the requirements of this statement will have on our consolidated financial statements.

Item 7a. Quantitative and Qualitative Disclosure About Market Risk.

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facility, where interest rates are tied to the Base Rate, as defined in the agreement, or LIBOR. At January 1, 2005, we had $186.1 million outstanding under our credit facility, of which $136.1 million was not hedged by an interest rate swap agreement and was thus subject to exposure to interest rate changes. An increase of 1% in such interest rate percentages would increase our annual interest expense by $1.4 million, based on borrowings that have not been hedged at January 1, 2005.

During second quarter 2003, we entered into an interest rate swap agreement, or Swap, to manage our exposure to fluctuations in interest rates. The Swap represents a contract to exchange floating rate interest payments for fixed interest payments periodically over the life of the agreement without exchange of the underlying notional amount. The notional amount of the Swap is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. At January 1, 2005, the Swap covers a notional amount of $50.0 million of debt at a fixed interest rate of 2.14% and expires in June 2006. This Swap has not been designated for hedge accounting treatment. Accordingly, we recognize the fair value of the Swap in the accompanying consolidated balance sheets and any changes in the fair value are recorded as adjustments to interest expense in the accompanying consolidated statements of operations. The fair value of the Swap is the estimated amount that we would pay or receive to terminate the agreement at the reporting date. The fair value of the Swap was an asset of $0.8 million and $0.2 million at January 1, 2005 and December 27, 2003, respectively, and is included in other assets in the accompanying consolidated balance sheets. As a result of the change in fair value, $0.5 million and $0.2 million net reductions to interest expense were recorded for the years ended January 1, 2005 and December 27, 2003, respectively.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS