-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fed9tH4KdnPeGDi4hGyesZ4dhtFp/CPa7L3P0b4leS0hHVID9hPnRj5bwfJmkmon tJTyvBaqbcj5t45BUPHqkg== 0001158449-03-000020.txt : 20031106 0001158449-03-000020.hdr.sgml : 20031106 20031106151101 ACCESSION NUMBER: 0001158449-03-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031004 FILED AS OF DATE: 20031106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCE AUTO PARTS INC CENTRAL INDEX KEY: 0001158449 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 542049910 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16797 FILM NUMBER: 03982178 BUSINESS ADDRESS: STREET 1: 5673 AIRPORT RD CITY: ROANOKE STATE: VA ZIP: 24012 BUSINESS PHONE: 5405613225 MAIL ADDRESS: STREET 1: 5673 AIRPORT RD CITY: ROANOKE STATE: VA ZIP: 24012 10-Q 1 aap3rdq200310q.htm ADVANCE AUTO PARTS, INC. 3RD QUARTER 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 4, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission file number 001-16797

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


Delaware	54-2049910
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)


5673 Airport Road
Roanoke, Virginia	24012
(Address of Principal Executive Offices)	(Zip Code)

(540) 362-4911
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

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

Yes [X] No [ ]

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

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES

Twelve and Forty Week Periods Ended October 4, 2003

		Page
PART I.	FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements of Advance Auto Parts, Inc. and Subsidiaries:
	Condensed Consolidated Balance Sheets as of October 4, 2003 and December 28, 2002	1
	Condensed Consolidated Statements of Operations for the Twelve and Forty Week Periods Ended October 4, 2003 and October 5, 2002	2
	Condensed Consolidated Statements of Cash Flows for the Forty Week Periods Ended October 4, 2003 and October 5, 2002	3
	Notes to the Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	23
Item 4.	Controls and Procedures	24


PART II.	OTHER INFORMATION


Item 6.	Exhibits and Reports on Form 8-K	24
	(a) Exhibits	24
	(b) Reports on Form 8-K	24


SIGNATURE		S-1

PART I. FINANCIAL INFORMATION


ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES

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

Assets	October 4, 2003			December 28, 2002

		(unaudited)
Current assets:
Cash and cash equivalents	$	49,858		$	13,885
Receivables, net		92,828			102,574
Inventories, net		1,102,565			1,048,803
Other current assets		24,453			20,210

Total current assets		1,269,704			1,185,472
Property and equipment, net of accumulated depreciation of
$377,339 and $313,841		707,309			728,432
Assets held for sale		23,177			28,346
Other assets, net		11,059			22,975

	$	2,011,249		$	1,965,225

Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts	$	24,233		$	869
Current portion of long-term debt		–			10,690
Accounts payable		606,343			470,740
Accrued expenses		214,649			208,176
Other current liabilities		44,121			32,101

Total current liabilities		889,346			722,576

Long-term debt		456,089			724,832

Other long-term liabilities		68,527			49,461

Commitments and contingencies
Stockholders' equity:
Preferred stock, nonvoting, $0.0001 par value,
10,000 shares authorized; no shares issued or outstanding		–			–
Common stock, voting, $0.0001 par value, 100,000
shares authorized; 36,906 and 35,735 issued
and outstanding		4			4
Additional paid-in capital		644,896			610,195
Stockholder subscription receivables		(17	)		(976	)
Accumulated other comprehensive loss		(984	)		(592	)
Accumulated deficit		(46,612	)		(140,275	)

Total stockholders' equity		597,287			468,356

	$	2,011,249		$	1,965,225

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

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

	Twelve Week Periods Ended						Forty Week Periods Ended

	October 4, 2003			October 5, 2002			October 4, 2003			October 5, 2002

Net sales	$	849,323		$	788,662		$	2,722,028		$	2,585,466
Cost of sales, including purchasing and warehousing costs		460,579			439,000			1,484,188			1,450,282

Gross profit		388,744			349,662			1,237,840			1,135,184
Selling, general and administrative expenses		306,868			278,869			997,183			940,593
Expenses associated with merger and integration		2,522			8,248			8,793			26,442

Operating income		79,354			62,545			231,864			168,149
Other, net:
Interest expense		(5,935	)		(16,016	)		(32,684	)		(62,734	)
Loss on extinguishment of debt		(125	)		(482	)		(47,266	)		(14,206	)
Other income, net		138			299			377			949

Total other, net		(5,922	)		(16,199	)		(79,573	)		(75,991	)

Income before provision for income taxes		73,432			46,346			152,291			92,158
Provision for income taxes		28,268			17,983			58,628			35,758

Net income	$	45,164		$	28,363		$	93,663		$	56,400

Net income per share:
Basic	$	1.23		$	0.80		$	2.58		$	1.62
Diluted		1.20			0.77			2.52			1.57
Average common shares outstanding		36,825			35,673			36,372			34,851
Dilutive effect of stock options		949			1,052			832			1,163

Average common shares outstanding - assuming dilution		37,774			36,725			37,204			36,014

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

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

	Forty Week Periods Ended

	October 4, 2003			October 5, 2002

Cash flows from operating activities:
Net income	$	93,663		$	56,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		77,483			71,455
Amortization of deferred debt issuance costs		1,248			2,869
Amortization of bond discount		3,640			10,134
Compensation for stock issued under the employee stock purchase plan		2,869			667
Gain on disposal of property and equipment, net		(339	)		(891	)
Provision for deferred income taxes		36,945			35,540
Tax benefit related to exercise of stock options		7,397			5,010
Loss on extinguishment of debt		47,266			14,206
Net decrease (increase) in:
Receivables, net		9,746			(35,310	)
Inventories, net		(53,677	)		(110,030	)
Other assets		(11,120	)		(16,178	)
Net increase (decrease) in:
Accounts payable		135,603			126,960
Accrued expenses		12,750			53,452
Other liabilities		(3,257	)		4,596

Net cash provided by operating activities		360,217			218,880

Cash flows from investing activities:
Purchases of property and equipment		(70,331	)		(68,524	)
Acquisitions, net of cash acquired		–			(3,411	)
Proceeds from sales of property and equipment		12,165			19,989

Net cash used in investing activities		(58,166	)		(51,946	)

Cash flows from financing activities:
Increase (decrease) in bank overdrafts		23,364			(34,748	)
Early extinguishment of debt		(631,374	)		(433,103	)
Borrowings under credit facilities		433,600			286,700
Payments on credit facilities		(85,300	)		(46,700	)
Payment of debt related costs		(36,895	)		(8,982	)
Repayment of management loans		959			857
Proceeds from issuance of common stock, net of related expenses		–			88,677
Proceeds from exercise of stock options		24,435			16,321
Increase in borrowings secured by trade receivables		5,133			2,770

Net cash used in financing activities		(266,078	)		(128,208	)

Net increase in cash and cash equivalents		35,973			38,726
Cash and cash equivalents, beginning of period		13,885			18,117

Cash and cash equivalents, end of period	$	49,858		$	56,843

Supplemental cash flow information:
Interest paid	$	28,914		$	37,810
Income tax payments, net		225			285
Non-cash transactions:
Accrued purchases of property and equipment		9,358			10,147
Unrealized loss on hedge arrangements		392			289
Short-term note received on sale of fixed asset		–			1,000

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

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

1. Basis of Presentation:

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

The condensed consolidated balance sheet as of October 4, 2003, the condensed consolidated statements of operations for the twelve and forty week periods ended October 4, 2003 and October 5, 2002 and the condensed consolidated statements of cash flows for the forty week periods ended October 4, 2003 and October 5, 2002 have been prepared by the Company and have not been audited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s consolidated financial statements for the fiscal year ended December 28, 2002.

The results of operations for the interim periods are not necessarily indicative of the operating results to be expected for the full fiscal year.

Use of Estimates

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

Earnings Per Share of Common Stock

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

Hedge Activities

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

In September 2002, the Company entered into a hedge agreement in the form of a zero-cost collar, which protects the Company from interest rate fluctuations in the LIBOR rate on $150,000 of its variable rate debt under its senior credit facility. The collar consists of an interest rate ceiling at 4.5% and an interest rate floor of 1.56% for a term of 24 months. Under this hedge, the Company will continue to pay interest at prevailing rates plus any spread, as defined by the Company’s credit facility, but will be reimbursed for any amounts paid on the LIBOR rate in excess of the ceiling. Conversely, the Company will be required to pay the financial institution that originated the collar if the LIBOR rate is less than the floor.

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

	Twelve Week Periods Ended					Forty Week Periods Ended

	October 4, 2003		October 5, 2002			October 4, 2003			October 5, 2002

		(unaudited)		(unaudited)			(unaudited)			(unaudited)
Net income	$	45,164	$	28,363		$	93,663		$	56,400
Unrealized gain (loss) on hedge
arrangements		1,295		(289	)		(392	)		(289	)

Comprehensive income	$	46,459	$	28,074		$	93,271		$	56,111

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

Sales Returns and Allowances

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

Warranty Costs

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

	October 4, 2003			December 28, 2002

	(unaudited)
Defective and warranty reserve, beginning of period	$	15,620		$	21,587
Reserves established		10,788			11,632
Reserves utilized		(12,202	)		(16,015	)
Other adjustments (1)		–			(1,584	)

Defective and warranty reserve, end of period	$	14,206		$	15,620

(1)

Represents subsequent adjustments to our original purchase price allocation from the acquisition of Discount Auto Parts, Inc., or Discount. These adjustments were the result of obtaining additional information related to the estimated costs of outstanding warranties and have been allocated proportionately to our non-current assets, primarily property and equipment. These adjustments had no direct impact on the statement of operations, but reduced the depreciable base of the associated non-current assets.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” As a result of rescinding FASB Statement No. 4, “Reporting Gains Losses from Extinguishment of Debt,” gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in Accounting Principles Board, or APB, Opinion No. 30. This statement also amends FASB Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Additional amendments include changes to other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The Company adopted SFAS No. 145 during the first quarter of fiscal 2003. For the twelve week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $125 and $482, respectively. For the forty week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $47,266 and $14,206, respectively.

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

	Twelve Week Periods Ended						Forty Week Periods Ended

	October 4, 2003			October 5, 2002			October 4, 2003			October 5, 2002

		(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net income, as reported	$	45,164		$	28,363		$	93,663		$	56,400
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects		(775	)		(493	)		(2,304	)		(1,353	)

Pro forma net income	$	44,389		$	27,870		$	91,359		$	55,047

Net income per share:
Basic, as reported	$	1.23		$	0.80		$	2.58		$	1.62
Basic, pro forma		1.21			0.78			2.51			1.58
Diluted, as reported		1.20			0.77			2.52			1.57
Diluted, pro forma		1.18			0.76			2.46			1.53

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

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

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

Reclassifications

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

2. Closed Store and Restructuring Liabilities:

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

	Severance			Relocation			Other Exit Costs			Total

Closed Store Liabilities, December 28, 2002	$	–		$	–		$	8,892		$	8,892
New provision		–			–			522			522
Change in estimate		–			–			1,462			1,462
Reserves settled from cash		–			–			(4,148	)		(4,148	)

Closed Store Liabilities, October 4, 2003 (unaudited)		–			–			6,728			6,728

Restructuring Liabilities, December 28, 2002		1,652			25			2,626			4,303
Change in estimate		–			–			(888	)		(888	)
Reserves settled from cash		(947	)		(16	)		(354	)		(1,317	)

Restructuring Liabilities, October 4, 2003 (unaudited)		705			9			1,384			2,098

Total Closed Store and Restructuring Liabilities
at October 4, 2003 (unaudited)	$	705		$	9		$	8,112		$	8,826

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

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

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

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



Remaining stores to be closed or relocated at December 28, 2002	1		19		–
Stores identified to be closed or relocated during 2003	–		–		16
Stores closed or relocated during 2003:
Stores permanently closed	–		(5	)	(5	)
Stores closed and subsequently relocated	(1	)	(10	)	(11	)

	(1	)	(15	)	(16	)

Remaining stores to be closed or relocated at October 4, 2003	–		4		–

3. Receivables:

Receivables consist of the following:

	October 4, 2003			December 28, 2002

		(unaudited)
Trade:
Wholesale	$	4,561		$	7,042
Retail		24,991			18,810
Vendor		59,399			67,057
Installment		11,567			15,409
Employees		435			749
Other		1,757			2,472

Total receivables		102,710			111,539
Less - Allowance for doubtful accounts		(9,882	)		(8,965	)

Receivables, net	$	92,828		$	102,574

4. Inventories, net:

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (“LIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected fiscal year-end inventory levels and costs. The Company capitalizes certain purchasing and warehousing costs into inventory. Purchasing and warehousing costs included in inventory at October 4, 2003 and December 28, 2002 were $71,127 and $69,160, respectively.

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

	October 4, 2003		December 28, 2002

		(unaudited)
Inventories at FIFO	$	1,040,325	$	988,856
Adjustments to state inventories at LIFO		62,240		59,947

Inventories at LIFO	$	1,102,565	$	1,048,803

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

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

5. Long-term Debt:

Long-term debt consists of the following:

	October 4, 2003		December 28, 2002

Senior Debt:		(unaudited)
Tranche A, Senior Secured Term Loan at variable interest
rates (3.88% at October 4, 2003), due November 2006	$	55,573	$	82,989
Tranche A-1, Senior Secured Term Loan at variable interest
rates (3.93% at October 4, 2003), due November 2006		50,224		–
Tranche C, Senior Secured Term Loan at variable interest
rates (3.89% at October 4, 2003), due November 2007		166,139		248,099
Tranche C-1, Senior Secured Term Loan at variable interest
rates (3.88% at October 4, 2003), due November 2007		184,153		–
Revolving facility at variable interest rates
(3.88% at October 4, 2003), due November 2006		–		1,700
Subordinated Debt:
Senior subordinated notes payable, interest due semi-annually
at 10.25%, due April 2008 (redeemed April 2003)		–		151,450
Senior subordinated notes payable, interest due semi-annually
at 10.25%, due April 2008, face amount of $174,365
less unamortized discount of $10,912 at December 28, 2002
(redeemed April 2003)		–		163,453
Senior discount debentures, interest at 12.875%, due April 2009,
face amount of $91,050 less unamortized discount of
$3,219 at December 28, 2002 (redeemed April 2003)		–		87,831

		456,089		735,522
Less: Current portion of long-term debt		–		(10,690	)

Long-term debt, excluding current portion	$	456,089	$	724,832

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

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

	Total

November 2004		22,220
May 2005		24,605
November 2005		24,605
May 2006		24,605
November 2006		24,605
May 2007		2,969
November 2007		332,480

Total	$	456,089

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

6. Segment and Related Information:

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

	Twelve Week Periods Ended

October 4, 2003 (unaudited)	Advance			Retail		Wholesale		Eliminations			Totals

Net sales	$	–		$	839,101	$	10,222	$	–		$	849,323
(Loss) income before (benefit) provision
for income taxes		(34	)		73,312		154		–			73,432
Segment assets (a)		327			2,009,279		12,286		(10,643	)		2,011,249

October 5, 2002 (unaudited)	Advance			Retail		Wholesale		Eliminations			Totals

Net sales	$	–		$	772,723	$	15,939	$	–		$	788,662
(Loss) income before (benefit) provision
for income taxes		(2,553	)		46,879		2,020		–			46,346
Segment assets (a)		15,112			2,072,626		27,698		(32,233	)		2,083,203

	Forty Week Periods Ended

October 4, 2003 (unaudited)	Advance			Retail		Wholesale		Eliminations			Totals

Net sales	$	–		$	2,672,417	$	49,611	$	–		$	2,722,028
(Loss) income before (benefit) provision
for income taxes		(10,407	)		161,994		704		–			152,291
Segment assets (a)		327			2,009,279		12,286		(10,643	)		2,011,249

October 5, 2002 (unaudited)	Advance			Retail		Wholesale		Eliminations			Totals

Net sales	$	–		$	2,514,945	$	70,521	$	–		$	2,585,466
(Loss) income before (benefit) provision
for income taxes		(11,064	)		100,003		3,219		–			92,158
Segment assets (a)		15,112			2,072,626		27,698		(32,233	)		2,083,203

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

7. Subsequent Events:

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

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

	Twelve Week Periods Ended				Forty Week Periods Ended

	October 4, 2003		October 5, 2002		October 4, 2003		October 5, 2002

Net income	$	45,164	$	28,363	$	93,663	$	56,400

Net income per share:
Basic	$	1.23	$	0.80	$	2.58	$	1.62
Diluted		1.20		0.77		2.52		1.57

Average common shares outstanding		36,825		35,673		36,372		34,851
Dilutive effect of stock options		949		1,052		832		1,163

Average common shares outstanding - assuming dilution		37,774		36,725		37,204		36,014


Proforma net income per share:
Basic	$	0.61	$	0.40	$	1.29	$	0.81
Diluted		0.60		0.39		1.26		0.78

Average common shares outstanding		73,650		71,346		72,744		69,702
Dilutive effect of stock options		1,898		2,104		1,664		2,326

Average common shares outstanding - assuming dilution		75,548		73,450		74,408		72,028


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

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

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

•	our ability to expand our business;
•	the implementation of our business strategies and goals;
•	integration of our previous and future acquisitions;
•	a decrease in demand for our products;
•	competitive pricing and other competitive pressures;
•	our relationships with our vendors;
•	our involvement as a defendant in litigation or incurrence of judgments, fines or legal costs;
•	deterioration in general economic conditions;
•	our ability to meet debt obligations and adhere to the restrictions and covenants imposed under our senior credit facility; and
•	our critical accounting policies.

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

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

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

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

Critical Accounting Policies

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

Components of Statement of Operations

Net Sales

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

Cost of Sales

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

Selling, General and Administrative Expenses

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

Results of Operations

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

	Twelve Week Periods Ended						Forty Week Periods Ended
	(unaudited)						(unaudited)

	October 4, 2003			October 5, 2002			October 4, 2003			October 5, 2002

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		54.2			55.7			54.5			56.1

Gross profit		45.8			44.3			45.5			43.9
Selling, general and administrative expenses		36.5			36.4			37.0			37.4

Operating income		9.3			7.9			8.5			6.5
Interest expense		(0.7	)		(2.0	)		(1.2	)		(2.4	)
Loss on extinguishment of debt		0.0			0.0			(1.7	)		(0.5	)
Other income, net	$	0.0		$	0.0		$	0.0		$	0.0
Provision for income taxes		3.3			2.3			2.2			1.4

Net income		5.3	%		3.6	%		3.4	%		2.2	%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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



Remaining stores to be closed or relocated at December 28, 2002	1		19		–
Stores identified to be closed or relocated during 2003	–		–		16
Stores closed or relocated during 2003:
Stores permanently closed	–		(5	)	(5	)
Stores closed and subsequently relocated	(1	)	(10	)	(11	)

	(1	)	(15	)	(16	)

Remaining stores to be closed or relocated at October 4, 2003	–		4		–

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

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

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

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

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

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

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

Contractual Obligations at October 4, 2003	Total		Fiscal 2003		Fiscal 2004		Fiscal 2005		Fiscal 2006		Fiscal 2007		Thereafter

Long-term Debt	$	456,089	$	–	$	22,220	$	49,210	$	49,210	$	335,449	$	–
Operating Leases	$	938,010	$	26,799	$	150,108	$	129,497	$	112,458	$	96,854	$	422,294

Long Term Debt

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

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

Seasonality

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

New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” As a result of rescinding FASB Statement No. 4, “Reporting Gains Losses from Extinguishment of Debt,” gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in Accounting Principles Board, or APB, Opinion No. 30. This statement also amends FASB Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Additional amendments include changes to other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The Company adopted SFAS No. 145 during the first quarter of fiscal 2003. For the twelve week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $0.1 million and $0.5 million, respectively. For the forty week periods ended October 4, 2003 and October 5, 2002, the Company recorded losses on the extinguishment of debt of $47.3 million and $14.2 million, respectively.

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

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

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

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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

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

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

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

	Fiscal 2003		Fiscal 2004		Fiscal 2005		Fiscal 2006		Fiscal 2007		Total		Fair Market Liability

Long-term debt:	(dollars in thousands)

Variable rate	$	–	$	22,220	$	49,210	$	49,210	$	335,449	$	456,089	$	456,089
Weighted average interest rate		3.9%		4.3%		5.8%		6.9%		7.7%		5.3%		–

Interest rate swap:

Variable to fixed	$	125,000	$	125,000	$	125,000	$	75,000	$	–	$	125,000	$	348
Average pay rate		0.9%		0.5%		–		–		–		0.7%		–
Average receive rate		–		–		0.8%		1.5%		–		0.9%		–

Interest rate collar:

Variable to fixed	$	150,000	$	150,000	$	–	$	–	$	–	$	150,000	$	636
Average pay rate		0.4%		0.2%		–		–		–		0.3%		–
Average receive rate		–		–		–		–		–		–		–


ITEM 4.	CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

3.1(1)				Restated Certification of Incorporation of Advance Auto Parts, Inc.

3.2(1)				Bylaws of Advance Auto Parts, Inc.

4.1(2)				Amended and Restated Stockholders’ Agreement dated as of November 2, 1998,as amended, among FS Equity Partners IV, L.P., Ripplewood Partners, L.P., Ripplewood Advance Auto Parts Employee Fund I L.L.C., Nicholas F. Taubman, Arthur Taubman Trust dated July 13, 1964, WA Holding Co. and Advance Auto Parts, Inc., as successor in interest to Advance Holding Corporation (including the Terms of the Registration Rights of the Common Stock).

10.45				Severance Agreement and Amendment to Employment and Non-Competition Agreement dated August 15, 2003 among Advance Auto Parts, Inc. and Advance Stores Company, Incorporated and David R. Reid.

31.1				Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2				Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1				Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

(i)

On August 6, 2003, we furnished a current report on Form 8-K under Item 12 thereof relating to the issuance of a press release announcing our operating results for the second quarter ended July 12, 2003.

(ii)

On August 15, 2003, we filed a current report on Form 8-K under Item 9 thereof relating to the issuance of a press release announcing the promotion of four of our senior executives.

(iii)

On August 22, 2003, we filed a current report on Form 8-K under Item 9 thereof relating to the sale by a stockholder of 1.5 million shares of our common stock.

(iv)

On September 8, 2003, we filed a current report on Form 8-K under Item 9 thereof relating to the sale by a stockholder of 1.25 million shares of our common stock.

(1)

Filed on August 31, 2001 as an exhibit to Registration Statement on Form S-4 (No. 333-68858) of Advance Auto Parts, Inc.

(2)

Filed on February 6, 2002 as an exhibit to Registration Statement on Form S-1 (No. 333-82298) of Advance Auto Parts, Inc.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ADVANCE AUTO PARTS, INC.


November 6, 2003	BY:	/s/ Jeffrey T. Gray

		Jeffrey T. Gray Senior Vice President and Chief Financial Officer
		(as principal accounting officer)

S-1

EX-10 3 exhibit_10-45.htm SEVERANCE AGREEMENT

Exhibit 10.45

Severance Agreement and Amendment to Employment and
Noncompetition Agreement

This Severance Agreement and Amendment to Employment and Noncompetition Agreement (“Agreement”) is entered into as of August 15, 2003, by and among Advance Auto Parts, Inc. (“AAP”), Advance Stores Company, Incorporated (“ASCI”) (“AAP” and “ASCI” are jointly and severally hereinafter referred to as “Advance”) and David R. Reid (“Employee”).

WHEREAS, on April 15, 1998, ASCI and Employee entered into an Employment and Noncompetition Agreement, a copy of which is attached hereto as Exhibit A (“Employment Agreement”), which, among other things, provides the terms and conditions of Employee’s employment by ASCI, including but not limited to the right to certain compensation and certain rights and duties of the parties in connection with the termination of Employee’s employment with ASCI, including but not limited to certain severance benefits and confidentiality and noncompete obligations;

WHEREAS, Advance and Employee have determined that their mutual interests are best served if Employee terminates his employment with Advance, and have further agreed that Employee will resign from his employment with Advance effective as of August 15, 2003;

WHEREAS, Advance has agreed to provide to Employee the benefits and payments provided for in this Agreement, which are in addition to the benefits and payments which Advance is obligated to provide to Employee in connection with the termination of Employee’s employment with Advance under the terms of the Employment Agreement (which additional benefits and payments include, but are not limited to, salary continuation for twelve (12) months without reduction for other salary paid, bonus eligibility continuation for the remainder of the year and the provision of outplacement services, all as described further herein ) in return for the additional covenants, agreements and obligations of Employee provided for in this Agreement; and

WHEREAS, Employee is willing to accept the additional benefits and payments to him provided for in this Agreement and to comply with the terms and conditions of this Agreement and the terms and conditions of the Employment Agreement which survive the termination of Employee’s employment with Advance, including but not limited to the provisions of Sections 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 16 of the Employment Agreement, and the terms and conditions of all other agreements between Advance and Employee (as modified herein) which survive the termination of Employee’s employment with Advance.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises of the parties set forth herein, and other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Recitals. The parties hereto agree that the foregoing recitals in this Agreement are true and accurate.

Discharge of Severance Obligations. Section 4 of the Employment Agreement (Section 4 of Exhibit A) is hereby rescinded in full. In full discharge of all of its obligations to Employee under the Employment Agreement, Advance shall pay to Employee and Employee accepts from Advance the following:

2.01.

A lump sum payment, less all applicable withholding taxes and payroll deductions, which shall be paid to Employee within two weeks after the Effective Date, and which shall represent payment for the amount of his hours of accrued but unused vacation time to which Employee would have been entitled as of the date hereof had he not terminated his employment with Advance.

2.02.

(a) The lump sum bonus payment of $36,933.24, less applicable withholding taxes and payroll deductions, which shall be paid to Employee on the same date as Advance pays bonuses under the comparable plans applicable to other executives for the second fiscal quarter.

(b) Lump sum bonus payments attributable to the third and fourth fiscal quarters of those amounts which Employee would have been entitled to (if any) had Employee remained an Employee through the time required to receive such bonus payments. Such bonus payments shall be made at the time third and fourth quarter bonus payments are made to other executives and shall include any annual roll-up amounts that would have been earned.

(c) When items 2.02(a) and 2.02(b) above are paid to Employee, such payment shall constitute payment in full of Advance’s obligations under the 2003 Bonus Plan for Employee, a copy of which is attached hereto as Exhibit B (“2003 Bonus Plan”), as provided in Section 4.3(a)(ii) of the Employment Agreement. Employee shall be entitled to no further bonus payments.

2.03.

The sum of $285,750, Employee’s applicable annual salary as of the date of his termination of his employment with Advance, as provided in Section 4.3(a)(i) of the Employment Agreement, which

shall be paid in equal installments (on the normal management pay cycle) during the twelve (12) month period commencing on August 16, 2003, less all applicable withholding taxes and payroll deductions.

2.04.

All payments to Employee under the provisions of Section Two (2) of this Agreement (Sections 2.01, 2.02, 2.03, and 2.04) will not be eligible for deferral or matching contributions under any pension or benefit plan.

2.05.

Outplacement services for 12 months shall be provided to Employee under the Executive Program by Lee Hecht Harrison to include consulting, search support and administrative services.

Medical Insurance Coverage. Advance will provide continued group health insurance coverage pursuant to federal law under the regulations governing COBRA continuation coverage, and under the terms of the applicable group health plan(s) or successor plan(s). The date of the qualifying event is August 15, 2003, for COBRA continuation coverage purposes. From the starting date of the period of COBRA continuation coverage for Employee and his dependants, until the earlier of (a) 12 months, or (b) the date the Employee is covered under another health insurance program, Advance will pay the normal employer contribution towards such coverage (as though Employee were still an active employee) and Employee (and/or his dependants) will be responsible for paying the normal employee contribution towards such coverage. For the duration of Employee’s payments pursuant to Section 2.03 of this Agreement, Advance may permit Employee to have his required contribution for COBRA continuation coverage deducted from said payments.

Employee Employment Agreements and Resignation. Employee agrees to comply fully, faithfully, and unconditionally with the terms of the Employment Agreement which survive the termination of Employee’s employment with Advance, including but not limited to Sections 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 16 thereof, and with the terms of all other contracts and agreements with Advance (as modified by this Agreement) which survive his termination. Employee agrees that Advance’s obligations under this Agreement are expressly conditioned upon Employee’s compliance with the terms of this provision, and with the terms of all other agreements, covenants and obligations of Employee under this Agreement and any other contracts and agreements with Advance which service this Agreement. By signing this Agreement

Employee will be deemed to have submitted his voluntary resignation from employment with Advance effective as of August 15, 2003.

Release and Waiver. Employee for himself, his heirs, executors, administrators and assigns, hereby knowingly, voluntarily and unconditionally releases, waives, and forever discharges Advance and Advance’s subsidiaries (including but not limited to Western Auto Supply Company), parents, affiliates, and their joint and several employees, officers, directors, shareholders, investors, benefit plans, trustees, and their successors and assigns (hereinafter jointly and severally referred to for purposes of this Agreement as “Releasees”), from any and all obligations, claims, demands, liabilities, judgments, causes of action, suits at law or in equity, in tort, contract, by statute or on any other basis, for pay and/or benefits, for compensatory, punitive or other damages, attorney fees, expenses, reimbursements, or costs of any kind, including, but not limited to, any and all claims, demands, rights and/or causes of action under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Family and Medical Leave Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the Workers Adjustment Retraining and Notification Act, the Employee Retirement Income Security Act or any other federal, state, or local statute or ordinance or any other claims, whether statutory or based on common law, arising: (a) by reason of his employment with Advance or the cessation of that employment or circumstances related thereto; or (b) by reason of any other matter, cause, or thing done, omitted or suffered to be done prior to and including the date on which Employee signs below. The parties agree and understand that this is not to be construed as an admission of liability by the Releasees or any other person or entity released hereby, by whom any liability is expressly denied. The Releasees expressly deny violation of any of their policies, procedures or agreements, or of any federal, state or local laws or regulations. Employee further acknowledges that he may subsequently discover facts which were in existence at the time this Agreement and general release is signed in addition to or different from those which he now knows or believes to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected this Agreement and settlement. Nevertheless, Employee hereby waives any right, claim or cause of action that might arise as a result of such different or additional facts provided such facts were in existence at the time this Agreement and general release is signed.

Derogatory or Defamatory Statements. Employee agrees that he will not, by any means or in any media, make or provide any comment, information, communication, expression, statement or depiction detrimental, injurious or derogatory to the interests of Advance (including its directors, officers, employees, investors, shareholders, affiliates or related entities) (collectively referred to in this Section as the “Company”), and further agrees that he will not disparage, denigrate, or cast the Company in an unfavorable light in any manner. Employee also agrees that he will not encourage or facilitate any other person to make any derogatory or disparaging comments on his behalf, or attributable to him, or based in any way upon information he supplied, about the Company or consent to or approve any such action by another person. Specifically, Employee recognizes that by virtue of his position with Advance or his knowledge of the Company or other information he possesses (including, but not limited to Confidential Information as defined in the Employment Agreement), he may be subjected to inquiries or otherwise approached by the media (general or trade), potential or actual investors, business persons (including, but not limited to, industry competitors) or other persons, and asked for his opinions or comments regarding matters relating to the Company, which may include, but is not limited to, information regarding the business plans, strategies, personnel, officers, directors, and/or present or former employees of the Company, and potential or actual investors. While this Agreement is not intended to unduly restrict Employee’s ability to respond to any such inquiries, both the Company and Employee desire to avoid any issues or situations in which Employee’s opinions, comments or statements could be misunderstood or mischaracterized to the detriment of the Company, or would violate in any way this Section of the Agreement. If Employee has any questions in the future regarding the scope or intent of this Section 6 and its applicability to a particular circumstance, Employee agrees to contact the President; the Senior Vice President, Human Resources; or the General Counsel of ASCI and discuss the matter with the Advance officer so contacted before responding to any inquiry or approach. Nothing herein shall prevent Employee from correcting any false, misleading or deceptive statements made about Employee.

Cooperation. Employee acknowledges that by virtue of his position with Advance, he has knowledge of a substantial number of business matters involving Advance. During the period of time that Employee is being paid, as described in Section 2 herein, Employee agrees to assist in the transition as well as provide consulting services as needed by the Company. Employee agrees to cooperate fully with Advance and/or its representatives and agents as to any matters upon which Employee has

knowledge or on which he had any involvement prior to the termination of his employment. Without limiting the scope of the above sentence, Employee agrees to make himself reasonably available to assist Advance and its representatives and agents with any business and/or litigation (or potential litigation) matters affecting or involving Advance. Employee will be reimbursed for all reasonable costs of travel.

Reasonableness of Terms and Covenants. Employee acknowledges that Advance would not have agreed to enter into this Agreement with Employee unless he agreed to comply with the terms contained herein including, but not limited to, numbered Sections 5 through 7 above. Accordingly, Employee further agrees that the terms and covenants set forth in numbered Sections 5 through 7 above are reasonable and necessary to protect the legitimate business and other interests of Advance. Moreover, Employee agrees that the terms set forth in Section 7 of the Employment Agreement also apply to any breach or threatened breach of any of the matters set forth in numbered Sections 5 through 7 above.

Reliance. In accepting the terms of this Agreement, Employee understands and agrees that is he relying wholly on his own judgment, belief, and knowledge and/or that of his own attorneys and advisors regarding this Agreement and the matters and occurrences in question. Employee has not been influenced to any extent whatsoever in entering this Agreement by representations or statements made by any person, firm or entity hereby released, or by persons representing or acting for them or on their behalf employed. Employee’s decision to sign this Agreement and general release is entirely voluntary and with full understanding of its consequences and without being coerced or threatened with retaliation of any sort. He and his advisors have been given ample opportunity to ask questions, consider, read, review and analyze this Agreement and general release and Employee acknowledges that he fully understands its terms and conditions.

10.

Company Obligations. Advance agrees that it will not by any means or in any media, make or provide any comment, information, communication, expression, statement or depiction detrimental, injurious or derogatory to the interests of Employee and further agrees that it will not disparage, denigrate or cast Employee in an unfavorable light in any manner. Advance represents that it has no intention to bring any action against Employee and will not bring any such action against Employee for anything currently known by Advance and relating to Employee’s employment with Advance.

11.

Confidential. The parties will treat this Agreement as strictly confidential, and will accordingly not disclose the terms and conditions hereof to any third party except in the course of any judicial proceedings relating to the enforcement of this Agreement, pursuant to a court order, or as otherwise required by law.

12.

Entire Agreement. This Agreement (and the attached Exhibits) constitutes the entire agreement between the parties and the terms herein are considered by said parties to be contractual in nature and not a mere recital. No change or modification of this Agreement will be valid unless it is in writing and signed by the parties hereto. If any term of this Agreement conflicts with any of the terms of the Employment Agreement, or any other contract or agreement between Employee and Advance, the terms of this Agreement will control. This Agreement and the other documents it references and modifies, constitute and contains the full, complete and entire agreement and understanding concerning Employee’s employment, all compensation of any nature due Employee and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters contained or referenced herein.

13.

Specific Performance. Employee acknowledges that it would be impossible to determine the amount of damages that would result from any breach of any of the provisions of this Agreement by Employee and that the remedy at law for any breach, or threatened breach, of any of the provisions of this Agreement would likely be inadequate and, accordingly, agrees that Advance shall, in addition to any other rights or remedies which they may have, be entitled to seek such equitable and injunctive relief as may be available from any court of competent jurisdiction to restrain Employee from violating any of the provisions of this Agreement. In connection with any action or proceeding for injunctive relief, Employee hereby waives the claim or defense that a remedy at law alone is adequate and agrees, to the maximum extent permitted by law, to have each provision of this Agreement specifically enforced against him, without the necessity of posting bond or other security against him, and consents to the entry of injunctive relief enjoining or restraining any breach or threatened breach of this Agreement.

14.

Return of Corporate Property. Employee hereby agrees that he will immediately turn over to Advance all files, documents, notes or other records (of any form or nature, including but not limited to tape, disk or other electronic storage method) in his possession or control (or the

possession or control of his attorneys) pertaining to the operation, business, personnel and/or affairs of Advance and that he, and his attorneys and agents, will not retain copies of any such files, notes, documents or records and further that he will not disclose the contents of any such files, notes, documents or records to any other person, entity, agency, association, business, organization, firm or corporation. Employee further covenants and agrees that he will not at any time disclose to any other person, entity, agency, association, business, organization, firm or corporation any information regarding the operations, business and affairs of Advance other than information which is customarily made available to the general public, without the prior written consent of Advance or except as may be required by law or legal process after prior notice to Advance and a reasonable opportunity under the circumstances for Advance to evaluate the necessity of such proposed disclosure and to seek to oppose or limit it.

15.

Notices. Any and all notices, designations, consents, offers, acceptances, or any other communications provided for herein shall be given in writing and shall be deemed given on the date received if sent by registered or certified mail, return receipt requested; or on the date actually received if sent by express mail or other similar overnight delivery or if hand delivered or if sent via facsimile, which shall be addressed:

If to Advance:

5673 Airport Road
Roanoke, Virginia 24012
Attention: President
Telephone: (540) 561-1253
Fax: (540) 561-1699

cc: General Counsel
Telephone: (540) 561-3225
Fax: (540) 561-1448

If to Employee:

David R. Reid
8317 Cardington Drive
Roanoke, VA 24019
540-362-9054

16.

Governing Law. This Agreement shall be subject to and governed by the laws of the Commonwealth of Virginia.

17.

Severability. The invalidity or unenforceability of any covenant or any other provision of this Agreement shall not affect the other provisions hereof. The parties to this Agreement agree that if a court should find that a covenant or provision of this Agreement is invalid or unenforceable that the court is empowered to modify or redraft the invalid or unenforceable provision to one which is valid and enforceable and comes closest to fulfilling the intent of the parties as expressed in the original provision. In the event that the court can not redraft or modify the provision, then this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

18.

Successors and Assigns Binding Effect. This Agreement shall be binding upon and inure to the benefit of Advance and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns, provided that Employee may not assign his rights or delegate his obligations hereunder.

19.

No Waiver. The failure by Advance to enforce any of its rights hereunder shall not be deemed to be a waiver of such rights, unless such waiver is in writing and signed by the waiving party. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision hereof.

20.

No Construction Against Any Party. Legal counsel for each of the respective parties (Employee and Advance) reviewed this Agreement. This Agreement is the product of informed negotiations among Employee and Advance and if any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. Moreover, Employee and Advance each acknowledge that no party was in a superior bargaining position regarding the substantive terms of this Agreement.

21.

Effective Date. For purposes of this Agreement, the Effective Date is the first business day after the expiration of the required seven (7) day revocation period as provided in Section 23.

22.

No Other Compensation. The parties agree that Employee will not receive, nor be entitled to receive, any other compensation, pay, bonuses or any other benefits from Advance or to participate in any employee pension benefit plans, employee welfare benefit plans, insurance programs, or any

other compensatory or benefit program provided by Advance, except as expressly provided for herein and except for Employee’s vested rights in Advance’s existing 401(K) Plan and the Stock Option Program.

23.

Certain Rights. Employee understands that he has twenty-one (21) days to consider this Agreement. Employee has also been informed that he should consider this Agreement carefully, and should consult with his attorney prior to executing this Agreement, and that this Agreement contains a general release.

He has twenty-one (21) days from the date he received this Agreement to consider this Agreement and general release. If Employee does not sign this Agreement and general release and return it to Advance within twenty-one (21) days of receipt, it will be null and void. Employee also understands that he may sign and return this Agreement prior to the expiration of the twenty-one (21) day period.

After Employee has read and understands the contents of this Agreement, Employee agrees to acknowledge his acceptance by signing in the space indicated below in the presence of a notary public, and to return the Agreement by hand delivery or by registered or overnight mail to General Counsel, Advance Stores Company, Inc., 5673 Airport Road, Roanoke, Virginia 24012.

Employee further understands that he has seven (7) days after he signs this Agreement in which he may revoke it with a notice to Advance in writing. This Agreement will not become effective until after this revocation period has passed.

[The rest of this page is intentionally left blank]

By his notarized signature below, Employee acknowledges that he has read this Agreement, understands the terms of the Agreement and its legal and binding effect, and is voluntarily executing this Agreement.

_________________

COMMONWEALTH OF VIRGINIA	)
	) to wit:
CITY/COUNTY OF _________	)

The foregoing instrument was acknowledged before me by ______________________, this _____ day of ____________, 2003.

	_________________
	Notary Public

My commission expires:

___________________

	ADVANCE STORES COMPANY, INCORPORATED

	By: __________________________
	Name: _______________________
	Title: ________________________

	ADVANCE AUTO PARTS, INC.

	By: __________________________
	Name: _______________________
	Title: ________________________

EX-31 4 exhibit_31-1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Exhibit 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Lawrence P. Castellani, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designated under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2003



/s/ Lawrence P. Castellani
Lawrence P. Castellani
Chairman of the Board of Directors and
Chief Executive Officer

EX-31 5 exhibit_31-2.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER

Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey T. Gray, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Advance Auto Parts, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2003



/s/ Jeffrey T. Gray
Jeffrey T. Gray
Senior Vice President and Chief Financial Officer

EX-32 6 exhibit_32-1.htm CERTIFICATION PURSUANT TO SECTION 906

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Lawrence P. Castellani, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 4, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-Q. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 6, 2003	By: /s/ Lawrence P. Castellani
	Name: Lawrence P. Castellani
	Title: Chairman of the Board of Directors and
	Chief Executive Officer

I, Jeffrey T. Gray, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Advance Auto Parts, Inc. for the quarterly period ended October 4, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Advance Auto Parts, Inc. The foregoing certification is being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-Q. A signed original of this statement has been provided to Advance Auto Parts, Inc. and will be retained by Advance Auto Parts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Date: November 6, 2003	By: /s/ Jeffrey T. Gray
	Name: Jeffrey T. Gray
	Title: Senior Vice President and Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-Q

ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES

Twelve and Forty Week Periods Ended October 4, 2003

TABLE OF CONTENTS

Critical Accounting Policies

Components of Statement of Operations

Net Sales

Cost of Sales

Selling, General and Administrative Expenses

Results of Operations

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

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

Liquidity and Capital Resources

Long Term Debt

Seasonality

New Accounting Pronouncements

SIGNATURE

Severance Agreement and Amendment to Employment and Noncompetition Agreement

[The rest of this page is intentionally left blank]

Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

Severance Agreement and Amendment to Employment and
Noncompetition Agreement

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002