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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 14, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number - 333-56031
________________
ADVANCE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
________________
Virginia 54-1622754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5673 Airport Road
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 [_]
As of August 15, 2001, the registrant had outstanding 28,321,150 shares of
Class A Common Stock, par value $0.01 per share (the only class of common stock
of the registrant outstanding). The registrant's Class A Common Stock is not
traded in a public market.
- --------------------------------------------------------------------------------
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
Twelve and Twenty-Eight Week Periods Ended July 14, 2001
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of Advance Holding Corporation
and Subsidiaries:
Condensed Consolidated Balance Sheets as of July 14, 2001 and
December 30, 2000.............................................................. 1
Condensed Consolidated Statements of Operations for the Twelve and
Twenty-Eight Week Periods Ended July 14, 2001 and July 15, 2000................ 2
Condensed Consolidated Statements of Cash Flows for the
Twenty-Eight Week Periods Ended July 14, 2001 and July 15, 2000................ 3
Notes to the Condensed Consolidated Financial Statements....................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risks.................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 19
Item 2. Changes in Securities and Use of Proceeds...................................... 19
SIGNATURE............................................................................................ S-1
i
Advance Holding Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
July 14, 2001 and December 30, 2000
(dollars in thousands, except per share data)
July 14, December 30,
Assets 2001 2000
------ -------------- ---------------
(unaudited)
Current assets:
Cash and cash equivalents $ 19,620 $ 18,009
Receivables, net 90,401 80,578
Inventories 788,773 788,914
Other current assets 18,878 10,274
-------------- ---------------
Total current assets 917,672 897,775
Property and equipment, net of accumulated depreciation of
$210,776 and $191,897 400,973 410,960
Assets held for sale 23,640 25,077
Other assets, net 22,029 22,548
-------------- ---------------
$ 1,364,314 $ 1,356,360
============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Bank overdrafts $ - $ 13,599
Current portion of long-term debt - 9,985
Accounts payable 401,039 387,852
Accrued expenses 138,839 124,962
Other current liabilities 50,770 42,794
-------------- ---------------
Total current liabilities 590,648 579,192
-------------- ---------------
Long-term debt 554,819 576,964
-------------- ---------------
Other long-term liabilities 39,488 43,933
-------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 8% noncumulative, nonvoting, $10 par value,
redeemable by the Company at par; liquidation value at par;
100,000 shares authorized; no shares issued or outstanding - -
Common stock, Class A, voting, $.01 par value, 62,500,000
shares authorized; 28,321,150 and 28,288,550 issued
and outstanding 283 283
Common stock, Class B, nonvoting, $.01 par value,
21,875,000 shares authorized; no shares issued
or outstanding - -
Additional paid-in capital 372,970 372,169
Other 1,396 396
Accumulated deficit (195,290) (216,577)
-------------- ---------------
Total stockholders' equity 179,359 156,271
-------------- ---------------
$ 1,364,314 $ 1,356,360
============== ===============
The accompanying notes to the condensed consolidated financial statements are
an integral part of these balance sheets.
1
Advance Holding Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
(unaudited)
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
-------------------------------- ----------------------------------
July 14, July 15, July 14, July 15,
2001 2000 2001 2000
------------- -------------- --------------- --------------
Net sales $ 607,478 $ 557,650 $ 1,336,837 $ 1,235,232
Cost of sales, including purchasing and warehousing costs 363,137 341,117 796,557 759,724
------------- -------------- --------------- --------------
Gross profit 244,341 216,533 540,280 475,508
Selling, general and administrative expenses 204,101 184,284 472,361 424,075
------------- -------------- --------------- --------------
Operating income 40,240 32,249 67,919 51,433
------------- -------------- --------------- --------------
Other (expense) income:
Interest expense (13,443) (15,835) (33,074) (36,601)
Other 395 302 569 532
------------- -------------- --------------- --------------
Total other expense, net (13,048) (15,533) (32,505) (36,069)
------------- -------------- --------------- --------------
Income before provision for income taxes 27,192 16,716 35,414 15,364
Provision for income taxes (10,739) (6,335) (14,010) (5,939)
------------- -------------- --------------- --------------
Net income $ 16,453 $ 10,381 $ 21,404 $ 9,425
============= ============== =============== ==============
The accompanying notes to the condensed consolidated financial statements are
an integral part of these statements.
2
Advance Holding Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
(unaudited)
Twenty-Eight Week Periods Ended
-----------------------------------------
July 14, July 15,
2001 2000
-------------------- -------------------
Cash flows from operating activities:
Net income $ 21,404 $ 9,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 37,069 34,402
Amortization of stock option compensation 1,342 600
Amortization of deferred debt issuance costs 1,717 1,750
Amortization of bond discount 5,855 5,173
Amortization of interest on capital lease obligation - 42
Losses on sales of property and equipment, net 806 215
Impairment of assets held for sale 1,600 -
Provision for deferred income taxes 8,422 5,452
Net (increase) decrease in:
Receivables, net (8,915) 1,706
Inventories 17,351 (17,551)
Other assets (8,952) (6,298)
Net increase (decrease) in:
Accounts payable 13,187 33,285
Accrued expenses 17,172 (17,308)
Other liabilities (5,442) 2,411
-------------------- -------------------
Net cash provided by operating activities 102,616 53,304
-------------------- -------------------
Cash flows from investing activities:
Purchases of property and equipment (31,048) (28,031)
Acquisition, net of cash acquired (21,472) -
Proceeds from sales of property and equipment 1,381 2,531
-------------------- -------------------
Net cash used in investing activities (51,139) (25,500)
-------------------- -------------------
Cash flows from financing activities:
Decrease in bank overdrafts (13,599) (2,885)
(Payment) borrowing of note payable (784) 2,313
Borrowings under credit facilities 171,400 191,200
Payments on credit facilities (208,601) (233,200)
(Repurchases of) proceeds from Class A common stock under
the stockholder subscription plan (790) 2,650
Other 2,508 6,139
-------------------- -------------------
Net cash used in financing activities (49,866) (33,783)
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents 1,611 (5,979)
Cash and cash equivalents, beginning of period 18,009 22,577
-------------------- -------------------
Cash and cash equivalents, end of period $ 19,620 $ 16,598
==================== ===================
Supplemental cash flow information:
Interest paid $ 23,271 $ 28,040
Income taxes paid, net of refunds received 1,241 321
Non-cash transactions:
Accrued purchases of property and equipment 4,717 2,460
Equity transactions under the stockholder subscription and
employee stock option plans 864 703
Conversion of capital lease obligation - 3,509
==================== ===================
The accompanying notes to the condensed consolidated financial statements
are an integral part of these statements.
3
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
1. Basis of Presentation:
The accompanying condensed consolidated financial statements include
the accounts of Advance Holding Corporation and its wholly owned subsidiaries
(the "Company"). All significant intercompany balances and transactions have
been eliminated in consolidation.
The condensed consolidated balance sheet as of July 14, 2001, the
condensed consolidated statements of operations for the twelve and twenty-eight
week periods ended July 14, 2001 and July 15, 2000 and the condensed
consolidated statements of cash flows for the twenty-eight week periods ended
July 14, 2001 and July 15, 2000, have been prepared by the Company and have not
been audited. In the opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the financial
position of the Company, the results of its operations and cash flows have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's consolidated financial statements for the fiscal year ended
December 30, 2000.
The results of operations for the twenty-eight week period are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires companies to recognize all
derivatives as either assets or liabilities in their statement of financial
position and measure those instruments at fair value. In September 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
delayed the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Certain Hedging - an Amendment of SFAS No. 133," which amended
the accounting and reporting standards for certain risks related to normal
purchases and sales, interest and foreign currency transactions addressed by
SFAS No. 133. The Company adopted SFAS No. 133 on December 31, 2000 with no
material impact on its financial position or the results of its operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing Financial Assets and Extinguishment of Liabilities".
This statement replaces SFAS No. 125, but carries over most of the provisions of
SFAS No. 125 without reconsideration. The Company implemented SFAS No. 140
during the first quarter of fiscal 2001. The implementation had no impact on the
Company's financial position or the results of its operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses
accounting and reporting for all business combinations and requires the use of
the purchase method for business combinations. SFAS No. 141 also requires
recognition of intangible assets apart from goodwill if they meet certain
criteria. SFAS No. 142 establishes accounting and reporting standards for
acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and
intangibles with indefinite useful lives are no longer amortized but are instead
subject to at least an annual assessment for impairment by applying a fair-
value based test. SFAS No. 141 applies to all business combinations initiated
after June 30, 2001. SFAS No. 142 is effective for existing goodwill and
intangible assets beginning on
4
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
December 31, 2001. SFAS No. 142 is effective immediately for goodwill and
intangibles acquired after June 30, 2001. Although the Company is currently
evaluating the impact of SFAS Nos. 141 and 142, management does not expect that
the adoption of these statements will have a material impact on existing
goodwill or intangibles. For the twelve and twenty-eight week periods ended July
14, 2001, the Company had amortization expense of approximately $150 related to
existing goodwill. Such amortization will be eliminated upon adoption of SFAS
No. 142.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 establishes accounting standards for recognition and
measurement of an asset retirement obligation and an associated asset retirement
cost and is effective for fiscal years beginning after June 15, 2002. The
Company does not expect SFAS No. 143 to have a material impact on its financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain 2000 amounts have been reclassified to conform with their 2001
presentation.
2. Accounts Receivable:
Receivables consist of the following:
July 14, December 30,
2001 2000
----------- ------------
(unaudited)
Trade:
Wholesale $ 12,253 $ 12,202
Retail 18,174 15,666
Vendor 46,141 36,260
Installment 14,897 14,197
Related parties 785 3,540
Employees 901 607
Other 2,841 3,127
-------- --------
Total receivables 95,992 85,599
Less-Allowance for doubtful accounts (5,591) (5,021)
-------- --------
Receivables, net $ 90,401 $ 80,578
======== ========
3. Inventories:
Inventories are stated at the lower of cost or market using the
last-in, first-out (LIFO) method. An actual valuation of inventory under the
LIFO method can be made only at the end of each fiscal year based on the
5
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
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
July 14, 2001 and December 30, 2000 were $56,561 and $56,305, respectively.
Inventories consist of the following:
July 14, December 30,
2001 2000
----------- ------------
(unaudited)
Inventories at FIFO $ 776,704 $ 779,376
Adjustments to state inventories at LIFO 12,069 9,538
----------- ------------
Inventories at LIFO $ 788,773 $ 788,914
=========== ============
4. Restructuring Liabilities:
The Company's restructuring activities relate to the ongoing analysis
of the profitability of store locations and the settlement of restructuring
activities undertaken as a result of the fiscal 1998 merger with Western Auto
Supply Company ("Western") ("Western Merger"). Additionally, the Company assumed
a portion of the pre-acquisition reserves related to the restructuring
activities of the recently acquired Carport Auto Parts, Inc. (the "Carport
Acquisition") (See Note 5). Expenses associated with restructuring are included
in selling, general and administrative expenses in the accompanying condensed
consolidated statements of operations. During the first and second quarters of
fiscal 2001, the Company closed two stores included in the fiscal 2000
restructuring activities and made the decision to close or relocate 24
additional stores not meeting profitability objectives, of which 18 had been
closed or relocated as of July 14, 2001. As of July 14, 2001, this liability
represents the current value required for certain facility exit costs, which
will be settled over the remaining terms of the underlying lease agreements.
A reconciliation of activity with respect to these restructuring
accruals is as follows:
Other Exit
Costs
----------
Balance, December 30, 2000 $ 6,788
New provisions 3,275
Change in estimates 179
Reserves utilized (2,469)
---------
Balance, July 14, 2001 (unaudited) $ 7,773
=========
As a result of the Western Merger, the Company established
restructuring reserves in connection with the decision to close certain Parts
America stores, to relocate certain Western administrative functions, to exit
certain facility leases and to terminate certain employees of Western.
Additionally, the Carport Acquisition resulted in restructuring reserves for
closing 21 acquired stores not expected to meet long-term profitability
objectives and the termination of certain administrative employees of the
acquired company. As of July 14, 2001, the other exit costs represent the
current value required for certain facility exit costs, which will be settled
over the remaining terms of the underlying lease agreements.
A reconciliation of activity with respect to these restructuring
accruals is as follows:
6
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
Other Exit
Severance Costs
------------- --------------
Balance, December 30, 2000 $ - $ 3,797
Purchase accounting adjustments 837 1,715
Reserves utilized (705) (1,015)
------------- --------------
Balance, July 14, 2001 (unaudited) $ 132 $ 4,497
============= ==============
5. Carport Acquisition:
On April 23, 2001, the Company completed its acquisition of Carport
Auto Parts, Inc. ("Carport"). The acquisition included a net 30 retail stores
located in Alabama and Mississippi, and substantially all of the assets used in
Carport's operations. The acquisition has been accounted for under the purchase
method of accounting and, accordingly, Carport's results of operations have been
included in the Company's statement of operations since the acquisition date.
The purchase price, of $21,533, has been allocated to the assets
acquired and the liabilities assumed based on their fair values at the date of
acquisition. This allocation resulted in the recognition of $3,239 in goodwill.
6. Assets Held for Sale:
During the first quarter of fiscal 2001, the Company recorded an
impairment charge of $1,600 reducing the carrying value of a facility included
in assets held for sale to $6,000. The facility, which is held in the Wholesale
segment, consists of excess space not required for the Company's current needs.
7. Related Parties:
The following table presents the related party transactions with Sears,
Roebuck & Co. ("Sears") included in the condensed consolidated statements of
operations for the twelve and twenty-eight week periods ended July 14, 2001 and
July 15, 2000 and the condensed consolidated balance sheets as of July 14, 2001
and December 30, 2000:
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
--------------------------------------- --------------------------------------
July 14, July 15, July 14, July 15,
2001 2000 2001 2000
------------------- ------------------- ------------------ ------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales to Sears $ 1,856 $ 1,890 $ 3,879 $ 3,976
Credit card fees expense 93 100 194 228
July 14, December 30,
2001 2000
------------------ ------------------
(unaudited)
Receivables from Sears $ 702 $ 3,160
Payables to Sears 1,220 1,321
8. Segment and Related Information:
7
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
The Company has the following operating segments: Holding, Retail and
Wholesale. Holding has no operations but holds certain assets and liabilities.
Retail consists of the retail operations of the Company, operating under the
trade names "Advance Auto Parts" and "Western Auto" in the United States and
"Western Auto" in Puerto Rico and the Virgin Islands. Wholesale consists of the
wholesale operations, including distribution services to independent dealers and
franchisees all operating under the "Western Auto" trade name.
During the first quarter of fiscal 2001, the Company realigned its
retail operations to include the Company-owned store operating under the
"Western Auto" trade name in California, which was previously included in the
Wholesale segment. Therefore, the following segment disclosures for the twelve
and twenty-eight weeks ended July 15, 2000 have been restated to reflect this
new structure.
8
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
The accounting policies of the consolidated company have been consistently
applied to the reportable segments listed below.
Twelve Week Periods Ended
------------------------------------------------------------------------------
Advance
July 14, 2001 (unaudited) Holding Retail Wholesale Eliminations Totals
------------------------------------------------------------------------------------------------------------------
Net sales $ - $ 586,796 $ 20,682 $ - $ 607,478
(Loss) income before benefit
(provision) for income taxes (2,578) 29,631 139 - 27,192
Segment assets (a) 12,670 1,325,165 43,696 (17,217) 1,364,314
Advance
July 15, 2000 (unaudited) Holding Retail Wholesale Eliminations Totals
------------------------------------------------------------------------------------------------------------------
Net sales $ - $ 529,920 $ 27,730 $ - $ 557,650
(Loss) income before benefit
(provision) for income taxes (2,264) 20,190 (1,210) - 16,716
Segment assets (a) 15,648 1,294,571 64,112 (24,018) 1,350,313
Twenty-Eight Week Periods Ended
------------------------------------------------------------------------------
Advance
July 14, 2001 (unaudited) Holding Retail Wholesale Eliminations Totals
------------------------------------------------------------------------------------------------------------------
Net sales $ - $ 1,275,582 $ 61,255 $ - $ 1,336,837
(Loss) income before benefit
(provision) for income taxes (5,908) 43,230 (1,908) - 35,414
Segment assets (a) 12,670 1,325,165 43,696 (17,217) 1,364,314
Advance
July 15, 2000 (unaudited) Holding Retail Wholesale Eliminations Totals
------------------------------------------------------------------------------------------------------------------
Net sales $ - $ 1,160,310 $ 74,922 $ - $ 1,235,232
(Loss) income before benefit
(provision) for income taxes (5,149) 23,591 (3,078) - 15,364
Segment assets (a) 15,648 1,294,571 64,112 (24,018) 1,350,313
(a) Excludes investment in and equity in net earnings or losses of
subsidiaries.
9
Advance Holding Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Twelve and Twenty-Eight Week Periods Ended
July 14, 2001 and July 15, 2000
(dollars in thousands)
9. Contingencies:
During the first quarter of fiscal 2001, the Company recorded a net
gain of $8,300 as a result of a settlement reached with a vendor, in which the
vendor repudiated a long-term supply agreement. This gain was recognized as a
reduction to cost of sales in the accompanying statement of operations.
The Company received notification from Sears during the first quarter
of fiscal 2001 that certain environmental matters of Western existing as of the
merger date and fully indemnified by Sears, have been settled. Accordingly, the
Company reversed a $2,500 receivable due from Sears and reduced the
corresponding environmental liability.
10. Subsequent Events:
On August 7, 2001, the Company signed a definitive agreement to acquire
Discount Auto Parts, Inc. ("Discount") in a merger transaction. Discount
shareholders will receive $7.50 per share in cash plus 0.2577 shares of common
stock in the combined company for each share of Discount stock. Accordingly,
upon consummation of the merger, Discount shareholders will own approximately
13% of the total shares outstanding of the combined company. The Company will
file a registration statement covering the shares issued to Discount
shareholders, and, through this offering, become a public company renamed
Advance Auto Parts, Inc. Discount operates approximately 667 retail auto parts
stores in Florida, Georgia, South Carolina, Alabama, Louisiana and Mississippi.
The merger, subject to certain regulatory filings and approvals, will be
accounted for under the purchase method of accounting.
On July 27, 2001, the Company made the decision to close a duplicative
distribution facility located in Jeffersonville, Ohio. This 382,000 square foot
owned facility opened in 1996 and served stores operating in the retail segment
throughout the Mid-west portion of the United States. The Company has operated
two distribution facilities in overlapping markets since the Western Merger, in
which the Company assumed the operation of a Western distribution facility in
Ohio. The decision to close this facility allows the Company to utilize the
operating resource requirements more productively in other areas of the
business. The Company does not anticipate closure of this facility and the
severing of certain of its employees to materially impact results of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Advance Holding Corporation ("Holding") conducts all of its operations
through its wholly owned subsidiary, Advance Stores Company, Incorporated and
its subsidiaries (the "Company"). The Company was formed in 1929. In the 1980's,
the Company sharpened its marketing focus to target sales of automotive parts
and accessories to "do-it-yourself" ("DIY") customers and accelerated its growth
strategy. From the 1980's through the present, the Company has grown
significantly through new store openings, strategic acquisitions and a merger
with Western Auto Supply Company (the "Western Merger"). Additionally, in 1996,
the Company began to aggressively expand its sales to "do-it-for-me" ("DIFM")
customers by implementing a commercial delivery program that supplies parts and
accessories to third party automotive service and repair providers.
As of July 14, 2001, the Company had 1,765 stores in 38 states, Puerto
Rico and the Virgin Islands operating under the "Advance Auto Parts" and
"Western Auto" trade names (the "Retail" segment). Advance Auto Parts is the
second largest retailer of automotive parts and accessories in the United States
and, based on store count, the Company believes it is the largest retailer in a
majority of its markets. The Western Auto stores (the "Service Stores") included
in the Retail segment offer home and garden merchandise in addition to
automotive parts, accessories and service. The Company also operates a wholesale
distribution network which includes distribution services of automotive parts
and accessories and home and garden merchandise to approximately 470
independently owned dealer stores in 48 states operating under the "Western
Auto" trade name (the "Wholesale" segment).
The Company continually monitors store performance, which results in
closing certain store locations not meeting profitability objectives. During the
twenty-eight weeks ended July 14, 2001 the Company closed two stores included in
the fiscal 2000 restructuring activities and made the decision to close or
relocate 24 additional stores not meeting profitability objectives, 18 of which
were closed or relocated as of July 14, 2001.
On April 23, 2001, the Company completed its acquisition of Carport
Auto Parts, Inc. ("Carport"). The acquisition included a net 30 retail stores
located in Alabama and Mississippi, and substantially all of the assets used in
Carport's operation. This acquisition makes the Company the largest retailer of
automotive parts in the Alabama and Mississippi markets. Upon the close of the
acquisition, the Company made the decision to close 21 Carport stores not
expected to meet long-term profitability objectives. The remaining Carport
locations have been converted to the Advance Auto Parts store format, which
included a physical conversion, merchandise conversion and information systems
conversion. The acquisition has been accounted for under the purchase method of
accounting.
On August 7, 2001, Holding signed a definitive agreement to acquire
Discount Auto Parts, Inc. ("Discount") in a merger transaction. Discount
shareholders will receive $7.50 per share in cash plus 0.2577 shares of common
stock in the combined company for each share of Discount stock. Accordingly,
upon consummation of the merger, Discount shareholders will own approximately
13% of the total shares outstanding of the combined company. Holding will file a
registration statement covering the shares issued to Discount's shareholders,
and, through this offering, become a public company renamed Advance Auto Parts,
Inc.
Discount operates approximately 667 retail auto parts stores in
Florida, Georgia, South Carolina, Alabama, Louisiana and Mississippi. Together,
the combined company will operate over 2,400 stores and anticipates generating
over $3.0 billion in revenues and $273.0 million in EBITDA. The combined company
expects approximately $30.0 million in purchasing, distribution and other
expense savings allowing it to reach its estimated EBITDA goals. The merger,
subject to certain regulatory filings and approvals, will be accounted for under
the purchase method of accounting.
The following discussion of the consolidated historical results of
operations and financial condition of Holding should be read in conjunction with
the unaudited condensed consolidated financial statements of Holding and the
notes thereto included elsewhere in this Form 10-Q. Holding's first quarter
consists of 16 weeks and its other three quarters consist of 12 weeks.
11
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this quarterly report contain
certain "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. These statements include without limitation the
words "believes," "anticipates," "estimates," "intends," "expects," and words of
similar import. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Holding and the Company or the retail industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
These potential risks and uncertainties include, among others, the
following: general economic and business conditions; Holding's and the Company's
substantial leverage and debt service obligations; restrictive loan covenants on
Holding's and the Company's ability to pursue its business strategies; changes
in business strategy or development plans; competition; weather conditions;
extent of the market demand for auto parts; availability of inventory supply;
unexpected fluctuation in merchandise costs; adequacy and perception of customer
service, product quality and defect experience; availability of and ability to
take advantage of vendor pricing programs and incentives; rate of new store
openings; cannibalization of store sites; mix and types of merchandise sold;
governmental regulation of products; new store development; performance of
information systems; effectiveness of deliveries from distribution centers;
ability to hire, train and retain qualified employees and environmental risks.
Forward-looking statements regarding revenues, expenses, cash flows and
liquidity are particularly subject to a variety of assumptions, some or all of
which may not be realized. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements.
Holding disclaims any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
12
Results of Operations
The following tables set forth the statement of operations data for
Holding expressed in dollars and as a percentage of net sales for the periods
indicated.
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
(dollars in thousands) (dollars in thousands)
(unaudited) (unaudited)
---------------------------------- ----------------------------------------
July 14, July 15, July 14, July 15,
2001 2000 2001 2000
-------------- -------------- ------------------- ----------------
Net sales $ 607,478 $ 557,650 $ 1,336,837 $ 1,235,232
Cost of sales 363,137 341,117 796,557 759,724
-------------- -------------- ------------------- ----------------
Gross profit 244,341 216,533 540,280 475,508
Selling, general and administrative expenses 203,502 183,682 470,166 422,650
Non-cash and other employee compensation 599 602 2,195 1,425
-------------- -------------- ------------------- ----------------
Operating income 40,240 32,249 67,919 51,433
Interest expense (13,443) (15,835) (33,074) (36,601)
Other income, net 395 302 569 532
Provision for income taxes (10,739) (6,335) (14,010) (5,939)
-------------- -------------- ------------------- ----------------
Net income $ 16,453 $ 10,381 $ 21,404 $ 9,425
============== ============== =================== ================
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
(unaudited) (unaudited)
---------------------------------- ----------------------------------------
July 14, July 15, July 14, July 15,
2001 2000 2001 2000
-------------- -------------- ------------------- ----------------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 59.8 61.2 59.6 61.5
-------------- -------------- ------------------- ----------------
Gross profit 40.2 38.8 40.4 38.5
Selling, general and administrative expenses 33.5 32.9 35.2 34.2
Non-cash and other employee compensation 0.1 0.1 0.2 0.1
-------------- -------------- ----------------- ----------------
Operating income 6.6 5.8 5.0 4.2
Interest expense (2.2) (2.8) (2.5) (3.0)
Other income, net 0.1 0.0 0.1 0.1
Provision for income taxes (1.8) (1.1) (1.0) (0.5)
-------------- -------------- ------------------- ----------------
Net income 2.7 % 1.9 % 1.6 % 0.8 %
============== ============== =================== ================
Net sales consist primarily of comparable store net sales, new store
net sales, Service Store net sales, net sales for Wholesale and finance charges
on installment sales. Comparable store net sales is calculated based on the
change in net sales starting once a store has been opened for thirteen complete
accounting periods (each period represents four weeks). Relocations are included
in comparable store net sales from the original date of opening. Holding
currently does not included the Service Stores in the comparable store net sales
calculation.
Holding's cost of sales includes merchandise costs and warehouse and
distribution expenses as well as service labor costs for the Service Stores.
Gross profit as a percentage of net sales may be affected by variations in
Holding's product mix, price changes in response to competitive factors and
fluctuations in merchandise costs and vendor programs. The Company seeks to
avoid fluctuation in merchandise costs by entering into long-term purchasing
agreements with vendors in exchange for pricing certainty, but there can be no
assurance such measures will in fact mitigate the effect of fluctuations in
merchandise costs on gross profits.
13
Selling, general and administrative expenses are comprised of store
payroll, store occupancy, net advertising expenses, depreciation and
amortization, other store expenses and general and administrative expenses,
including salaries and related benefits of corporate employees, administrative
office expenses, data processing, professional expenses and other related
expenses.
Twelve Weeks Ended July 14, 2001 Compared to Twelve Weeks Ended July 15, 2000
Net sales for the twelve weeks ended July 14, 2001 were $607.5 million,
an increase of $49.8 million or 8.9% over net sales for the twelve weeks ended
July 15, 2000. Net sales for the Retail segment increased $56.9 million or
10.7%. The net sales increase for the Retail segment was due to an increase in
the comparable store sales and contributions from new stores opened within the
last year. The comparable store sales increase of 6.8% was primarily a result of
growth in both the DIY and DIFM market segments. Comparable store sales
increased 3.0% for the twelve weeks ended July 15, 2000 as compared to the
comparable period of fiscal 1999. Net sales for the Wholesale segment decreased
$7.0 million or 25.4% reflecting the continued decline of this segment due to
increased competition coupled with a decline in the number of independently
owned dealer stores.
During the twelve weeks ended July 14, 2001, the Company opened 38 new
stores, relocated five stores and closed six stores, bringing the total retail
stores to 1,765. During the second quarter of fiscal 2001, the Company increased
the total number of stores participating in its commercial delivery program to
1,200 through the addition of a net seven programs, resulting from the Carport
acquisition.
Gross profit for the twelve weeks ended July 14, 2001 was $244.3
million or 40.2% of net sales, as compared to $216.5 million or 38.8% of net
sales in the twelve weeks ended July 15, 2000. The increase in gross profit is a
result of a positive shift in product mix, lower inventory shrinkage, leveraging
of logistic costs and a decline in the net sales of the lower margin Wholesale
segment. The gross profit for the Retail segment was $241.0 million or 41.1% of
net sales for the twelve week period ended July 14, 2001, as compared to $213.6
million or 40.3% of net sales for the twelve week period ended July 15, 2000.
Selling, general and administrative expenses, before non-cash and other
employee compensation, increased to $203.5 million or 33.5% of net sales for the
twelve week period ended July 14, 2001, from $183.7 million or 32.9% of net
sales for the twelve week period ended July 15, 2000. The increase in selling,
general and administrative expenses is attributable to the investment in store
personnel and the continued sales decline in the Wholesale segment, which
carries lower selling, general and administrative expenses as a percentage of
sales compared to the Retail segment.
EBITDA (operating income plus depreciation and amortization), as
adjusted for non-cash and other employee compensation, was $57.1 million in the
twelve week period ended July 14, 2001 or 9.4% of net sales, as compared to
$48.0 million or 8.6% of net sales in the twelve week period ended July 15,
2000. EBITDA is not intended to represent cash flow from operations as defined
by GAAP and should not be considered as a substitute for net income as an
indicator of operating performance or as an alternative to cash flow (as
measured by GAAP) as a measure of liquidity. Holding's method for calculating
EBITDA may differ from similarly titled measures reported by other companies.
Management believes certain one-time expenses, expenses associated with merger
integration and non-cash and other employee compensation should be eliminated
from the EBITDA calculation to evaluate the operating performance of the
Company.
Interest expense for the twelve week period ended July 14, 2001 was
$13.4 million or 2.2% of net sales, as compared to $15.8 million or 2.8% of net
sales for the twelve week period ended July 15, 2000. Interest expense decreased
as a result of an overall reduction in average borrowings and a significant
decrease in interest rates for the twelve week period ended July 14, 2001 as
compared to the twelve week period ended July 15, 2000.
Income tax expense for the twelve weeks ended July 14, 2001 was $10.7
million compared to $6.3 million in the twelve weeks ended July 15, 2000. This
increase was primarily due to the increase in income before taxes for the twelve
weeks ended July 14, 2001 as compared to the twelve weeks ended July 15, 2000.
Holding recorded net income of $16.5 million for the twelve week period
ended July 14, 2001, as compared to $10.4 million for the twelve week period
ended July 15, 2000. As a percentage of sales, net income for the twelve week
period ended July 14, 2001 was 2.7% as compared to 1.9% for the twelve week
period ended July
14
15, 2000.
Twenty-Eight Weeks Ended July 14, 2001 Compared to Twenty-Eight Weeks Ended July
15, 2000
Net sales for the twenty-eight weeks ended July 14, 2001 were $1,336.8
million, an increase of $101.6 million or 8.2% over net sales for the
twenty-eight weeks ended July 15, 2000. Net sales for the Retail segment
increased $115.3 million or 9.9%. The net sales increase for the Retail segment
was due to an increase in the comparable store sales of 6.2% and contributions
from new stores opened within the last year. The comparable sales increase of
6.2% was primarily a result of growth in both the DIY and DIFM customer base, as
well as the continued maturation of new stores. Comparable store sales increased
3.7% for the twenty-eight weeks ended July 15, 2000 as compared to the
comparable period of fiscal 1999. Net sales for the Wholesale segment decreased
$13.7 million or 18.2%, reflecting the continued decline of this segment due to
increased competition coupled with a decline in the number of independently
owned dealer stores.
During the twenty-eight weeks ended July 14, 2001, the Company opened
53 new stores, relocated nine stores and closed 17 stores, bringing the total
retail stores to 1,765. The Company has 1,200 stores participating in its
commercial delivery program, as a result of consolidating nine stores during the
twenty-eight weeks ended July 14, 2001.
Gross profit for the twenty-eight weeks ended July 14, 2001 was $540.3
million or 40.4% of net sales, as compared to $475.5 million or 38.5% of net
sales in the twenty-eight weeks ended July 15, 2000. The increase in the gross
profit percentage is reflective of an $8.3 million net gain recorded as a
reduction to cost of sales during the first quarter of fiscal 2001 as a result
of a vendor settlement. The increase in the gross profit percentage is also
reflective of a positive shift in product mix, lower inventory shrinkage,
leveraging of logistic costs and a decline in the net sales of the lower margin
Wholesale segment. The gross profit for the Retail segment was $532.7 million or
41.8% of net sales for the twenty-eight week period ended July 14, 2001, as
compared to $467.9 million or 40.3% of net sales for the twenty-eight week
period ended July 15, 2000.
Selling, general and administrative expenses, before non-cash and other
employee compensation, increased to $470.2 million or 35.2% of net sales for the
twenty-eight week period ended July 14, 2001, from $422.7 million or 34.2% of
net sales for the twenty-eight week period ended July 15, 2000. Selling, general
and administrative expenses have increased due to closed store expenses
associated with the decision to close certain store locations not meeting
profitability objectives and the write down of an administrative facility
obtained in the Western Merger totaling $5.1 million. Additionally, as a
percentage of sales, the increase in selling, general and administrative
expenses is attributable to the investment in store personnel and the continued
decline in the Wholesale segment, which carries lower selling, general and
administrative expenses as a percentage of sales as compared to the Retail
segment.
EBITDA (operating income plus depreciation and amortization), as
adjusted for non-cash and other employee compensation, was $107.2 million in the
twenty-eight week period ended July 14, 2001 or 8.0% of net sales, as compared
to $87.3 million or 7.1% of net sales in the twenty-eight week period ended July
15, 2000. EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as a substitute for net income as
an indicator of operating performance or as an alternative to cash flow (as
measured by GAAP) as a measure of liquidity. Holding's method for calculating
EBITDA may differ from similarly titled measures reported by other companies.
Management believes certain one-time expenses, expenses associated with merger
integration and non-cash and other employee compensation should be eliminated
from the EBITDA calculation to evaluate the operating performance of the
Company.
Interest expense for the twenty-eight week period ended July 14, 2001
was $33.1 million or 2.5% of net sales, as compared to $36.6 million or 3.0% of
net sales for the twenty-eight week period ended July 15, 2000. The decrease in
interest expense is a result of the reduction in net outstanding borrowings as
well as a significant decrease in interest rates over the similar period of
fiscal year 2000.
Income tax expense for the twenty-eight weeks ended July 14, 2001 was
$14.0 million compared to $5.9 million in the twenty-eight weeks ended July 15,
2000. This increase was primarily due to an increase in income before taxes for
the twenty-eight week period ended July 14, 2001 as compared to the twenty-eight
week period ended July 15, 2000.
As a result of the above factors, Holding recorded net income of $21.4
million for the twenty-eight week
15
period ended July 14, 2001, as compared to $9.4 million for the twenty-eight
week period ended July 15, 2000. As a percentage of sales, net income for the
twenty-eight week period ended July 14, 2001 was 1.6% as compared to 0.8% for
the twenty-eight week period ended July 15, 2000.
Liquidity and Capital Resources
As a holding company, Holding relies on dividends from the Company as
its primary source of liquidity. Holding does not have and in the future may not
have any assets other than the capital stock of the Company. The ability of the
Company to pay cash dividends to Holding when required is restricted by law and
the terms of the Company's debt instruments, including the Credit Facility and
the Senior Subordinated Notes (see below). No assurance can be made that the
Company will be able to pay cash dividends to Holding when required to redeem
the Debentures (see below).
Holding and the Company believe they will have sufficient liquidity to
fund their debt service obligations and implement its growth strategy over the
next twelve months. As of July 14, 2001, Holding and the Company had outstanding
indebtedness consisting of $90.0 million of Senior Discount Debentures (the
"Debentures"), $169.5 million of Senior Subordinated Notes (the "Senior
Subordinated Notes"), borrowings of $285.3 million under the bank credit
facility (the "Credit Facility") and $10.0 million of indebtedness under the
McDuffie County Development Authority Taxable Industrial Bonds ("IRB").
The loans under the Credit Facility are secured by a first priority
security interest in substantially all tangible and intangible assets of the
Company. Amounts available to the Company under portions of the Credit Facility
are subject to a borrowing base formula, which is based on certain percentages
of the Company's inventories, and certain debt covenants. The Company was in
compliance with the above covenants under the Credit Facility as of July 14,
2001. As of July 14, 2001, $107.7 million was available under these facilities.
The Company intends to use borrowings under the revolver, as well as internally
generated funds, for store expansion and funding of working capital, including
funding of the restructuring program.
The Company's primary capital requirements have been the funding of its
continued store expansion program, store relocations and remodels, inventory
requirements, the construction and upgrading of distribution centers, the
development and implementation of proprietary information systems, the Western
Merger and the Carport acquisition. The Company has financed its growth through
a combination of internally generated funds, borrowings under the Credit
Facility and issuances of equity. Additionally, the Company expects to meet the
capital requirements of the Discount merger though refinancing the Credit
Facility.
The Company's new Advance Auto Parts stores require capital
expenditures of approximately $120,000 per store and an inventory investment of
approximately $300,000 per store, a portion of which is held at a distribution
facility. A substantial portion of these inventories is financed through vendor
payables. Pre-opening expenses, consisting primarily of store set-up costs and
training of new store employees, average approximately $25,000 per store and are
expensed when incurred. The Company expects to open approximately 115 to 130 new
stores through internal growth or strategic acquisitions during fiscal 2001, of
which 53 have been opened or acquired as of July 14, 2001.
Historically, the Company has negotiated extended payment terms from
suppliers to help finance inventory growth, and the Company believes that it
will be able to continue financing much of its inventory growth through such
extended payment terms. The Company anticipates that inventory levels will
continue to increase primarily as a result of new store openings and increased
SKU levels.
As a result of the Western Merger and the Carport acquisition, the
Company closed certain Advance Auto Parts stores in overlapping markets or
stores not meeting profitability objectives. As part of normal operations, the
Company will continue to review store performance and close additional stores
not meeting profitability objectives. The Western Merger and Carport acquisition
also resulted in restructuring reserves recorded in purchase accounting for the
closure of certain stores, severance and relocation costs and other facility
exit costs. As of July 14, 2001, these reserves had a remaining balance of $12.4
million. In addition, the Company assumed certain restructuring and deferred
compensation liabilities previously recorded by Western Auto Supply Company. At
July 14, 2001, the total liability for the restructuring and deferred
compensation plans was $2.2 million and $4.5 million, respectively, of which
$1.2 million and $1.3 million, respectively, is recorded as a current liability.
The
16
classification for deferred compensation is determined by payment terms elected
by plan participants, primarily former Western employees, which can be changed
upon 12 months' notice.
For the twenty-eight weeks ended July 14, 2001, net cash provided by
operating activities was $102.6 million. Of this amount, $21.4 million was
provided by net income. Depreciation and amortization provided an additional
$37.1 million, amortization of deferred debt issuance costs and bond discount
provided $7.6 million and $36.5 million was provided as a result of a net
increase in working capital and other. Net cash used for investing activities
was $51.1 million and was comprised of net capital expenditures and the purchase
of net assets related to the Carport acquisition. Net cash used in financing
activities was $49.9 million and was comprised primarily of payments on the
Credit Facilities.
Seasonality
The Company's business is somewhat seasonal in nature, with the highest
sales occurring in the spring and summer months. In addition, the Company's
business is affected by weather conditions. While unusually heavy precipitation
tends to soften sales as elective maintenance is deferred during such periods,
extremely hot and cold weather tends to enhance sales by causing parts to fail.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Holding currently utilizes no material derivative financial instruments
that expose it to significant market risk. Holding is exposed to cash flow and
fair value risk due to changes in interest rates with respect to its long-term
debt. While Holding cannot predict the impact that interest rate movements will
have on its debt, exposure to rate changes is managed through the use of fixed
and variable rate debt. Holding's exposure to interest rate risk decreased
during the first and second quarters of fiscal 2001 due to decreased interest
rates and reduced variable rate debt.
Holding's fixed rate debt consists primarily of outstanding balances on
the Debentures and Senior Subordinated Notes. Holding's variable rate debt
relates to borrowings under the Credit Facility and the IRB. Holding's variable
rate debt is primarily vulnerable to movements in the LIBOR, Prime, Federal
Funds and Base CD rates.
The table below presents principal cash flows and related weighted
average interest rates on Holding's long-term debt at July 14, 2001 by expected
maturity dates. Expected maturity dates approximate contract terms. Fair values
included herein have been determined based on quoted market prices. Weighted
average variable rates are based on implied forward rates in the yield curve at
July 14, 2001. Implied forward rates should not be considered a predictor of
actual future interest rates.
Fair
Fiscal Fiscal Fiscal Fiscal Fiscal Market
2001 2002 2003 2004 2005 Thereafter Total Value
-------- -------- -------- -------- -------- ----------- ----------- ---------
Long-term debt: (dollars in thousands)
Fixed rate..................... $ - $ - $ - $ - $ - $ 281,450 $ 281,450 $ 245,581
Weighted average
interest rate.............. - - - - - 11.3% 11.3%
Variable rate.................. $ - $ 12,000 $ 4,000 $207,140 $ 60,000 $ 12,159 $ 295,299 $ 295,299
Weighted average
interest rate.............. 5.9% 6.3% 7.6% 8.4% 8.7% 8.6% 6.8%
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 2000, the Company was notified that it was named in a lawsuit
filed on behalf of independent retailers and jobbers against the Company and
others for various claims under the Robinson-Patman Act. The litigation is in
preliminary stages. The Company believes these claims are without merit and
intends to defend them vigorously; however, the ultimate outcome of this matter
cannot be ascertained at this time.
The Company is also involved in various other claims, lawsuits and
environmental issues arising in the normal course of business. The damages
claimed against the Company in some of these proceedings are substantial.
Although the final outcome of these legal matters cannot be determined, based on
the facts presently known, it is management's opinion that the final outcome of
such claims and lawsuits will not have a material, adverse effect on the
Company's financial position or future results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During second quarter, Holding issued and sold 47,600 shares of its
Class A common stock, $0.01 par value per share (the "Shares"), a price per
share of $21.00 or an aggregate purchase price of $999,600 to certain employees
of the Company (the "Purchasers"). Holding offered and sold the Shares pursuant
to the Advance Holding Corporation 1998 Employee Stock Subscription Plan, as
amended (the "Plan"), which Holding filed as an exhibit to its Registration
Statement on Form S-4, effective October 30, 1998 (Registration No. 333-56013).
As consideration for the Shares, Holding received $500,000 in cash, and $499,600
in the form of secured promissory notes, the payment of which are secured by
individual stock pledge agreements with the Purchasers.
The issuance of the Shares were exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Rule 701
which exempts certain offers and sales of securities pursuant to certain
compensatory benefit plans. The Plan is a compensatory benefit plan within the
meaning of Rule 701 and the aggregate amount of securities sold by Holding in
reliance on Rule 701 during the applicable period has not exceeded 15% of the
outstanding amount of Class A common stock.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCE HOLDING CORPORATION,
a Virginia corporation
August 15, 2001 By: /s/ Jimmie L. Wade
______________________________________
Jimmie L. Wade
President and Chief Financial Officer
(as principal executive and accounting
officer)
S-1