<PAGE>
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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 17, 1999
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 - 333-56013
________________
ADVANCE STORES COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
________________
Virginia 54-0118110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5673 Airport Road 24012
Roanoke, Virginia (Zip Code)
(Address of Principal Executive Offices)
(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 31, 1999, the registrant had outstanding 536 shares of Class A
Common Stock, par value $100 per share (the only class of common stock of the
registrant outstanding). The registrant's Class A Common Stock is not traded in
a public market.
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<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
Twelve Weeks Ended July 17, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of
Advance Stores Company, Incorporated and Subsidiaries (Unaudited)
Condensed Consolidated Balance Sheets as of July 17, 1999 and
January 2, 1999........................................................ 1
Condensed Consolidated Statements of Operations for the Twelve and
Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998........ 2
Condensed Consolidated Statements of Cash Flows for the
Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998........ 3
Notes to Unaudited Condensed Consolidated Financial Statements......... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 19
Item 6. Exhibits and Reports on Form 8-K....................................... 20
SIGNATURE.................................................................................. S-1
</TABLE>
i
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
July 17, 1999 and January 2, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
July 17, January 2,
Assets 1999 1999
------ ----------- ----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,202 $ 34,220
Receivables, net 123,980 91,659
Inventories 772,137 726,172
Other current assets 30,968 10,617
----------- -----------
Total current assets 953,287 862,668
Property and equipment, net 408,463 377,761
Other assets, net 18,928 21,087
----------- -----------
$ 1,380,678 $ 1,261,516
=========== ===========
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Bank overdrafts $ 15,448 $ 20,250
Current portion of long-term debt 2,148 1,026
Accounts payable 379,706 364,758
Accrued expenses 144,350 152,752
Other current liabilities 32,264 13,049
----------- -----------
Total current liabilities 573,916 551,835
----------- -----------
Long-term debt 538,197 434,500
----------- -----------
Deferred revenue 16,455 1,389
----------- -----------
Other long-term liabilities 49,915 52,781
----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock, Class A, voting,
$100 par value; 5,000 shares
authorized; 536 issued and outstanding 54 54
Additional paid-in capital 273,598 273,598
Other 1,704 695
Accumulated deficit (73,161) (53,336)
----------- -----------
Total stockholder's equity 202,195 221,011
----------- -----------
$ 1,380,678 $1,261,516
=========== ==========
</TABLE>
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these balance sheets.
1
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
For the Twelve and Twenty-Eight Week Periods Ended
July 17, 1999 and July 18, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
------------------------- -------------------------------
July 17, July 18, July 17, July 18,
1999 1998 1999 1998
---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales $ 541,760 $ 255,037 $ 1,211,488 $ 544,000
Cost of sales 341,431 156,448 779,415 332,825
---------- --------- ------------ ----------
Gross profit 200,329 98,589 432,073 211,175
Selling, general, and administrative expenses 186,261 79,623 434,802 178,700
Costs associated with the Recapitalization of the Parent - - - 14,005
---------- --------- ------------ ----------
Operating income (loss) 14,068 18,966 (2,729) 18,470
---------- --------- ------------ ----------
Other (expense) income:
Interest expense (12,608) (8,306) (28,517) (11,821)
Other, net 110 235 92 119
---------- --------- ------------ ----------
Total other expense, net (12,498) (8,071) (28,425) (11,702)
---------- --------- ------------ ----------
Income (loss) before (benefit) provision for income taxes 1,570 10,895 (31,154) 6,768
(Benefit) provision for income taxes (1,999) 4,804 (11,329) 3,116
---------- --------- ------------ ----------
Net income (loss) $ 3,569 $ 6,091 $ (19,825) $ 3,652
========== ========= =========== ==========
</TABLE>
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
2
<PAGE>
Advance Stores Company, Incorporated And Subsidiaries
Condensed Consolidated Statement of Cash Flows
Twenty-Eight Week Periods Ended
July 17, 1999 and July 18, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twenty-Eight Week Periods Ended
-----------------------------------------------
July 17, 1999 July 18, 1998
------------------ ----------------------
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net (loss) income $ (19,825) $ 3,652
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation 29,391 13,508
Amortization of stock option compensation 1,009 -
Amortization of deferred debt issuance costs 1,820 700
(Benefit) provision for deferred income taxes (4,214) 894
Net (gain) loss on sales of property and equipment (4) 85
Other cash flows from operating activities (64,698) 6,830
------------------ ------------------
Net cash (used in) provided by operating activities (56,521) 25,669
------------------ ------------------
Cash used in investing activities:
Purchases of property and equipment (53,538) (26,028)
Proceeds from sales of property and equipment 1,262 4,155
Western Merger, net of cash acquired (341) -
Other 1,091 553
------------------ ------------------
Net cash used in investing activities (51,526) (21,320)
------------------ ------------------
Cash flows from financing activities:
Decrease in bank overdrafts (4,802) (7,235)
Proceeds from issuance of long-term debt - 575
Payments on long-term debt - (97,117)
Borrowings under credit facilities 252,500 325,000
Payments on credit facilities (150,500) -
Payment of debt issuance costs (877) (17,335)
Contributed capital from Advance Holding Corporation - 10,259
Dividend paid to Advance Holding Corporation - (183,150)
Other 3,708 1,966
------------------ ------------------
Net cash provided by financing activities 100,029 32,963
------------------ ------------------
Net (decrease) increase in cash and cash equivalents (8,018) 37,312
Cash and cash equivalents at beginning of period 34,220 7,447
------------------ ------------------
Cash and cash equivalents at end of period $ 26,202 $ 44,759
================== ==================
Supplemental cash flow information:
Interest paid $ 22,922 $ 5,050
Income taxes paid, net of refunds received 3,763 3,949
Noncash transactions:
Obligations under capital lease 3,345 -
Debt issuance and acquisition costs accrued 195 230
</TABLE>
The accompanying notes to the unaudited condensed consolidated financial
statements are an integral part of these statements.
3
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
1. Basis of Presentation:
Advance Stores Company, Incorporated is a wholly owned subsidiary of
Advance Holding Corporation (the Parent). The accompanying unaudited condensed
consolidated financial statements include the accounts of Advance Stores
Company, Incorporated 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 17, 1999, the condensed
consolidated statements of operations for the 12-week and 28-week periods ended
July 17, 1999 and July 18, 1998 and the statements of cash flows for the 28-
week periods ended July 17, 1999 and July 18, 1998, 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 disclosure 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 January 2,
1999.
The results of operations for the 12-week and 28-week periods are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
Recent Accounting Pronouncements
Effective January 3, 1999, the Company adopted the American Institute of
Certified Public Accountant's Statement of Position (SOP) 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use". The SOP
requires companies to capitalize certain expenditures related to development of
or obtaining computer software for internal use. The SOP was issued in March of
1998, and is effective for fiscal years beginning after December 15, 1998. The
adoption of the SOP did not have a material effect on the Company's financial
position or results of operations.
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 1998 amounts have been reclassified to conform with their 1999
presentation.
4
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
2. Receivables:
Receivables consist of the following:
<TABLE>
<CAPTION>
July 17, January 2,
1999 1999
---- ----
<S> <C> <C>
Trade:
Wholesale $ 29,372 $ 26,463
Retail 9,340 6,470
Vendor 67,474 38,079
Installment 12,405 11,311
Related parties 5,629 6,236
Employees 520 555
Other 2,461 6,325
--------- --------
Total receivables 127,201 95,439
Less - Allowance for doubtful accounts (3,221) (3,780)
--------- --------
Receivables, net $ 123,980 $ 91,659
========= ========
</TABLE>
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 year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations must be based on
management's estimates of expected 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 17, 1999 and
January 2, 1999 were $43,113 and $41,168, respectively. Inventories consist of
the following:
<TABLE>
<CAPTION>
July 17, January 2,
1999 1999
---- ----
<S> <C> <C>
Inventories at FIFO $ 761,770 $ 718,909
Reserve to state inventories at LIFO 13,726 10,622
--------- ---------
Inventories at LIFO 775,496 729,531
Other reserves (3,359) (3,359)
--------- ---------
$ 772,137 $ 726,172
========= =========
</TABLE>
5
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
4. Western Merger:
On November 2, 1998, the Company consummated a Plan of Merger (the Western
Merger) with Sears, Roebuck and Co. (Sears) to acquire Western Auto Supply
Company (Western) for $175,000 in cash and 11,474,606 shares of the Parent's
common stock. Additionally, the Company agreed to share losses incurred by Sears
as a result of the sale, or as a result of continuing the private label credit
card programs up to a maximum of $10,000. Based on the sale of the private label
credit card program to date, the Company has recorded the $10,000 as additional
purchase price.
The Western Merger has been accounted for under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and the
liabilities assumed upon preliminary estimates of fair values. In continuation
of management's plan related to the Western Merger (Note 5), the Company
recognized additional net liabilities of $4,467 during the second quarter of
fiscal 1999. The charges represent estimated costs of closing additional
facilities and terminating certain contractual obligations associated with
management's plan. During the second quarter of fiscal 1999, the Company also
recognized $362 of acquisition costs associated with the Western Merger. The
above items resulted in a reduction of negative goodwill of approximately
$4,800, which resulted in an increase to property and equipment on the condensed
consolidated balance sheet as of July 17, 1999.
5. Restructuring Liabilities:
Expenses associated with restructuring include estimated exit costs and
write-offs of related leasehold improvements associated with the decision to
close Advance Auto Parts stores that were in overlapping markets with certain
Parts America Stores obtained in the Western Merger. As of July 17, 1999, the
Company has closed 27 of these stores.
In connection with the Western Merger, the Company assumed the
restructuring accrual related to Western's restructuring activities prior to the
Western Merger. As of July 17, 1999, this restructuring accrual relates
primarily to ongoing lease obligations on closed facilities and estimated
severance payments.
A reconciliation of activity with respect to these restructuring accruals
is as follows:
<TABLE>
<CAPTION>
Other Exit
Severance Costs
--------- -----
<S> <C> <C>
Balance, January 2, 1999 $ 682 $ 14,773
Reserves utilized (556) (2,662)
------ ---------
Balance, July 17, 1999 $ 126 $ 12,111
====== =========
</TABLE>
As of the date of the Western Merger, management began to assess and
formulate a plan to close certain Parts America stores in overlapping markets or
stores not meeting the Company's profitability objectives, to exit certain other
facilities, to relocate certain Western administrative functions to the
Company's headquarters and to terminate certain management, administrative and
support employees of Western. During the second quarter of fiscal 1999, the
Company continued its plan by closing a Western distribution center, terminating
certain staff at the location and terminating additional Western support staff.
As of July 17, 1999, 181 employees have been terminated and substantially all
Parts America stores to be closed have been identified. The Company expects to
finalize its plan for termination of employees and closure of any additional
Parts America stores within one year from the Western Merger date. Additional
liabilities for severance, relocation, store and other facility exit costs may
result in an adjustment to purchase accounting.
A reconciliation of activity with respect to these liabilities, which are
included in accrued expenses and other long-term liabilities on the condensed
consolidated balance sheets is as follows:
6
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Other Exit
Severance Relocation Costs
--------- ---------- -----
<S> <C> <C> <C>
Balance, January 2, 1999 $ 7,738 $ 838 $ 13,732
Purchase accounting adjustments 3,893 - (694)
Reserves utilized (3,104) (318) (2,697)
-------- ------- ---------
Balance, July 17, 1999 $ 8,527 $ 520 $ 10,341
======== ======= =========
</TABLE>
6. Contingencies:
In November 1997, a plaintiff, on behalf of himself and others similarly
situated, filed a class action complaint and motion of class certification
against the Company in the circuit court for Jefferson County, Tennessee,
alleging misconduct in the sale of automobile batteries. The complaint seeks
compensatory and punitive damages. The case is in the discovery stage and
management plans a vigorous defense. In addition, three lawsuits were filed
against the Company in July 1998, for a wrongful death relating to an automobile
accident involving an employee of the Company. Management believes the financial
exposure, related to the automobile accident, is covered by insurance.
On August 16, 1999, the United States District Court of Appeals for the
Sixth District affirmed the decisions of the United States District Court for
the Western District of Kentucky. Those decisions held that the Company was
entitled to exclusive use of the name "Advance Auto Parts" throughout the United
States, except in Jefferson County, Kentucky, and that the Company was entitled
to summary judgment in connection with various infringement and unfair
competition claims brought by the appellant.
In January 1999, the Company was notified by the United States
Environmental Protection Agency (EPA) that Western Auto may have potential
liability under the Comprehensive Environmental Response Compensation and
Liability Act relating to two battery salvage and recycling sites that were in
operation in the 1970's and 1980's. The EPA has indicated that the total cleanup
costs for the site will be approximately $1.6 million. Management has begun
investigating the EPA notification. An estimate of the range of the Company's
liability is not reasonably possible until technical studies are sufficiently
completed and the amount of potential indemnification from Sears, if any, is
further investigated. The ultimate exposure will also depend upon the
participation of other parties named in the notification who are believed to
share in responsibility.
The Company is also involved in various other claims and lawsuits arising
in the normal course of business. 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 results of
operations.
7
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
7. Related Parties:
The following table presents the related party transactions with Sears as
of July 17, 1999 and for the period from January 2, 1999 to July 17, 1999:
Net sales to Sears $ 2,311
Shared services revenue 1,711
Shared services expense (842)
Credit card fee expense (1,459)
Receivables from Sears 4,671
Payables to Sears (4,753)
The Company also enters into intercompany transactions with the Parent in
the normal course of its business. These transactions are primarily related to
intercompany loans and current and deferred income tax assets and liabilities.
Balances and transactions are as follows:
<TABLE>
<CAPTION>
July 17, January 2,
1999 1999
--------------------- --------------------
<S> <C> <C>
Income tax receivables from Parent $ 16,541 $ 7,332
Income tax payables to Parent 2,530 1,195
<CAPTION>
July 17, July 18,
1999 1998
--------------------- --------------------
<S> <C> <C>
Interest expense $ -- $ 1,915
</TABLE>
8. Segment and Related Information:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires entities to report financial and descriptive information
related to segments within the organization.
The Company has the following reportable segments: Advance Stores and
Western. Advance Stores consist of the retail operations of the company
including the converted and non-converted Parts America stores. Western consists
of wholesale operations, including distribution services to independent dealers
and three franchisees, and 41 retail stores all operating under the "Western
Auto" name.
As of July 17, 1999, the Company continues to formulate an appropriate
management reporting approach for the Western operations. For the period from
January 2, 1999 to July 17, 1999, management continued to receive and use
financial information aggregated at the Western level in evaluating the
performance of the acquired operations.
The Company is in the process of converting all Parts America stores to
Advance Auto Parts stores and expects to complete the conversion during fiscal
1999.
8
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
July 17, 1999 July 18, 1998
------------------------------------------------ ------------------------------------------------
Income (Loss) Income Before
Before Income Income
Net Tax Provision Segment Net Tax Segment
Twelve Weeks Ended Sales (Benefit) ( c ) Assets ( c ) Sales Provision ( c ) Assets ( c )
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advance Stores (a) $ 448,969 $ 1,426 $1,174,350 $255,037 $10,895 $593,221
Western (b) 92,791 144 206,328 - - -
---------- -------- ---------- -------- ------- --------
Consolidated $ 541,760 $ 1,570 $1,380,678 $255,037 $10,895 $593,221
========== ======== ========== ======== ======= ========
Twenty-Eight Weeks Ended
- -------------------------------------------------------------------------------------------------------------------------------
Advance Stores (a) $ 978,435 $(26,668) $1,174,350 $544,000 $ 6,768 $593,221
Western (b) 233,053 (4,486) 206,328 - - -
---------- -------- ---------- -------- ------- --------
Consolidated $1,211,488 $(31,154) $1,380,678 $544,000 $ 6,768 $593,221
========== ======== ========== ======== ======= ========
</TABLE>
(a) At July 17, 1999 and July 18, 1998, total revenues include approximately
$52,888 and $34,143 for the twelve week periods ended and $102,357 and
$68,149 for the twenty-eight week periods ended, respectively, related to
revenues derived from commercial sales including existing Advance Auto
Parts stores and Parts America stores after store level management
information system conversion.
(b) During fiscal 1999, certain accounts and the corresponding activity
related to the Parts America store operations were transferred to Advance
Stores through a dividend to and the assumption of liabilities by Advance
Stores.
(c) Excludes investment in and equity in net earnings or losses of
subsidiaries.
9
<PAGE>
Advance Stores Company, Incorporated and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Twelve and Twenty-Eight Week Periods Ended July 17, 1999 and July 18, 1998
(dollars in thousands, except per share data)
(unaudited)
9. Consolidated Subsidiaries:
The Company has wholly owned subsidiaries, LARALEV, INC., Advance Trucking
Corporation and Western (Guarantor Subsidiaries) that are guarantors of the
Company's subordinated notes, new term loan facility and revolving credit
facility. The guarantees are joint and several in addition to full and
unconditional. LARALEV, INC. holds certain trademarks, trade names and other
intangible assets for which it receives royalty income from the Company. Advance
Trucking Corporation is a wholly owned subsidiary that holds substantially all
of the Company's inventory delivery vehicles. Advance Trucking Corporation
became a guarantor subsidiary in the second quarter of fiscal 1999. The
Guarantor Subsidiaries comprise all direct and indirect subsidiaries. The
Company has not presented separate financial statements for the subsidiaries
because management has determined that such information is not material to
investors.
Unaudited summarized combined financial information for Guarantor
Subsidiaries is as follows:
<TABLE>
<CAPTION>
Twelve Week Periods Ended Twenty-Eight Week Periods Ended
July 17, July 18, July 17, July 18,
1999 (a) (b) 1998 (b) 1999 (a) (b) 1998 (b)
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 95,783 $ - $ 239,415 $ -
Gross profit 29,789 - 63,547 -
Royalty income from the Company 11,241 5,101 21,817 10,880
Operating income (loss) 12,318 (6,079) 18,723 491
Net income (loss) 3,195 (3,922) (4,318) 317
</TABLE>
<TABLE>
<CAPTION>
July 17,
1999 (a) (b)
----------------
<S> <C>
Current assets $ 250,486
Noncurrent assets 87,505
Current liabilities 160,449
Noncurrent liabilities 567,405
</TABLE>
(a) On January 2, 1999, the Board of Directors approved transferring the
Parts America operations to the Company. This will be accomplished
through a series of dividends of assets and assumptions of liabilities
as such amounts are identified and segregated. Through July 17, 1999,
net assets of approximately $308 million have been transferred from
Western to the Company in the form of dividends, net of liabilities
assumed.
(b) Reflects push down of guaranteed debt, deferred debt issuance costs
and related interest and amortization.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Advance Stores Company, Incorporated (the "Company"), a wholly-owned
subsidiary of Advance Holding Corporation ("Holding"), is the second largest
retailer of automotive parts and accessories in the United States. As of July
17, 1999, the Company had 1,590 stores in 39 states, Puerto Rico and the U.S.
Virgin Islands operating under the "Advance Auto Parts," "Parts America" and
"Western Auto" names. In addition, the Company supplies approximately 715 stores
in 48 states through the wholesale dealer network.
The Company was formed in 1929. In the 1980s, 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 1980s
through the present, the Company has grown significantly through new store
openings and strategic acquisitions. In 1996, the Company began to aggressively
expand its sales to "do-it-for-me" ("DIFM") customers by implementing a
commercial delivery program which supplies parts and accessories to third party
automotive service and repair providers.
The following discussion of the consolidated historical results of
operations and financial condition of the Company should be read in conjunction
with the unaudited condensed consolidated financial statements of the Company
and the notes thereto included elsewhere in this Form 10-Q. The following
discussion and analysis covers periods before completion of the
Recapitalization, as described below. The Company's first quarter consists of 16
weeks and its other three quarters consist of 12 weeks.
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 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; the Company's substantial
leverage and debt service obligations; restrictions on the Company's ability to
pursue its business strategies imposed by restrictive loan covenants; changes in
business strategy or development plans; competition; weather conditions;
integration of the Western Merger (as defined below); extent of the market
demand for auto parts; availability of inventory supply; 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. The
Company 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.
General
During the second quarter of 1998, Holding consummated its recapitalization
through the sale of common stock, the issuance of debt, the redemption of common
and preferred stock and the repayments of notes payable and long-term debt (the
"Recapitalization"). Additionally, on November 2, 1998, Western Auto Supply
Company merged into a subsidiary of the Company (the "Western Merger"). As a
result of the Western Merger, the Company issued to WA Holding Co., a wholly
owned subsidiary of Sears, Roebuck and Co. ("Sears"), 11,474,606 shares of
Common Stock of Holding (the "Holding Common Stock") representing approximately
40.6% of the outstanding Holding Common, in addition to cash and assumption of
certain liabilities.
11
<PAGE>
As a result of the Western Merger, the Company added 612 auto parts stores
in the United States. The Parts America stores are similar to the Advance Auto
Parts stores in terms of size, format and product offerings. In addition,
Western Auto Supply Company operated 38 auto parts and service stores in Puerto
Rico and the U.S. Virgin Islands and one store in each of California and Hawaii
under the "Western Auto" name (the "Service Stores"). The Service Stores offer
automotive parts and accessories as well as service, repairs, tires and certain
non-automotive goods. Western Auto Supply Company also supplied a wholesale
dealer network in 48 states.
As of the date of the Western Merger, management began to assess and
formulate a plan to close certain Parts America and Advance Auto Parts stores in
overlapping markets or stores not meeting the Company's profitability
objectives, to exit certain other facility leases, to relocate certain
administrative functions supporting the Parts America stores to the Company's
headquarters and to terminate certain management, administrative and support
employees of the Service Stores and wholesale dealer network. As of July 17,
1999, 181 employees have been terminated, 58 Parts America stores and 27 Advance
Auto Parts stores have been closed and the integration of the administrative
functions associated with the Parts America stores is substantially complete.
During the second quarter of fiscal 1999, the Company continued its plan by
closing a distribution center, terminating certain staff at the location and
terminating additional administrative staff supporting the Service Stores and
wholesale dealer network. As a result of closing additional facilities and
recording contractual obligations associated with management's plan, the Company
recognized additional net liabilities of approximately $4.5 million in the
second quarter of fiscal 1999. The Company plans to integrate the Service Stores
and wholesale dealer network functions into its corporate headquarters and
existing logistics functions by the end of fiscal 1999. The Company expects to
finalize its plan related to the Western Merger within one year from the date of
the Western Merger. Additional liabilities for severance, relocation, store
closing and other facility exit costs may result in further adjustments to
purchase accounting.
Since the fourth quarter of 1998, the Company has been in the process of
converting the remaining Parts America stores to Advance Auto Parts stores (the
"Parts America Conversion"). The Parts America Conversion changes certain
merchandise lines (the "Merchandise Conversion"), store level management
information systems (the "MIS Conversion"), and the format and name of the Parts
America stores to conform with the Advance Auto Parts stores ("Physical
Conversion"). As of July 17, 1999, the Company had completed all Merchandise
Conversions and MIS Conversions as well as 280 Physical Conversions. The Company
expects to complete the Physical Conversions by the end of fiscal 1999. The
Company does not plan to convert the Service Stores as part of the Parts America
Conversion.
The Company expects to achieve benefits from the Western Merger through
improved product pricing and terms from vendors, consolidated advertising,
distribution and corporate support efficiencies, and the closure of certain
overlapping locations. However, due to the Western Merger, the Company has
incurred and expects to incur additional store closing, store conversion,
distribution center conversion and system conversion expenses, other exit costs
as part of the Parts America Conversion and other integration costs. In
addition, the Company, as part of its plan, will continue to liquidate at
reduced prices certain SKUs carried in the Parts America and Service Store
inventory.
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Results of Operations
The following tables set forth the statement of operations data for the
Company expressed in dollars and as a percentage of net sales for the periods
indicated.
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Eight Weeks Ended
(unaudited) (unaudited)
------------------------------- -----------------------------
July 18, July 17, July 18, July 17,
1998 1999 1998 1999
------------- ------------ ------------ -----------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Net Sales $ 255,037 $ 541,760 $ 544,000 $ 1,211,488
Cost of sales 156,448 341,431 332,825 779,415
------------- ------------ ------------ -----------
Gross profit 98,589 200,329 211,175 432,073
Selling, general and administrative expenses 79,623 177,574 177,855 408,640
Expenses associated with Recapitalization - - 14,005 -
Expenses associated with merger integration - 8,235 - 25,153
Expenses associated with private company - - 845 -
Expenses associated with non-cash compensation - 452 - 1,009
------------- ------------ ------------ -----------
Operating income (loss) 18,966 14,068 18,470 (2,729)
------------- ------------ ------------ -----------
Interest expense 8,306 12,608 11,821 28,517
Other, net (235) (110) (119) (92)
Provision (benefit) for income taxes 4,804 (1,999) 3,116 (11,329)
------------- ------------ ------------ -----------
Net income (loss) $ 6,091 $ 3,569 $ 3,652 $ (19,825)
============= ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Eight Weeks Ended
(unaudited) (unaudited)
-------------------------------- -----------------------------
July 18, July 17, July 18, July 17,
1998 1999 1998 1999
------------- ------------ ------------ -----------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.3 63.0 61.2 64.3
------------- ------------ ------------ -----------
Gross profit 38.7 37.0 38.8 35.7
Selling, general and administrative expenses 31.2 32.8 32.6 33.7
Expenses associated with Recapitalization - - 2.6 -
Expenses associated with merger integration - 1.5 - 2.1
Expenses associated with private company - - 0.2 -
Expenses associated with non-cash compensation - 0.1 - 0.1
------------- ------------ ------------ -----------
Operating income (loss) 7.5 2.6 3.4 (0.2)
------------- ------------ ------------ -----------
Interest expense 3.3 2.3 2.2 2.3
Other, net (0.1) - (0.1) -
Provision (benefit) for income taxes 1.9 (0.4) 0.6 (0.9)
------------- ------------ ------------ -----------
Net income (loss) 2.4% 0.7% 0.7% (1.6%)
============= ============ ============ ===========
</TABLE>
Net sales consist primarily of comparable store net sales, new store net
sales and, for the twelve and twenty-eight weeks ended July 17, 1999, sales
resulting from the Western Merger. 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 date of opening.
Additionally, each converted Parts America store will be included in the
comparable store net sales
13
<PAGE>
calculation after thirteen complete accounting periods following its physical
conversion to an Advance Auto Parts store. The Company has not included and
currently does not plan to include Service Stores in its comparable store net
sales calculation.
The Company's cost of goods sold includes merchandise costs and warehouse
and distribution expenses. Gross profit as a percentage of net sales may be
affected by variations in the Company's product mix, price changes in response
to competitive factors and fluctuations in merchandise costs and vendor
programs.
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 17, 1999 Compared to Twelve Weeks Ended July 18, 1998
Net sales for the twelve weeks ended July 17, 1999 were $541.8 million, an
increase of $286.7 million over net sales for the twelve weeks ended July 18,
1998. The net sales increase was a result of the Western Merger, comparable
store sales increase of 11.4% and new stores opened within the last year. The
comparable sales increase was due to the maturation of stores opened in 1997 and
1998, increased product availability, continued growth in the commercial sales
program and the closure of certain Parts America stores in overlapping markets.
Comparable store sales increased 10.3% for the twelve weeks ended July 18, 1998.
During the twelve weeks ended July 17, 1999, the Company opened 24 new
stores, relocated three stores, and closed nine stores in addition to the stores
closed due to relocations (one of which was in connection with the Western
Merger store closure program). Also, the Company added 193 stores to its
commercial delivery program, bringing the total to 985 stores. As of July 17,
1999, the Company operated 1,590 stores in 39 states, Puerto Rico and the U.S.
Virgin Islands and supplied approximately 715 independent dealers through the
wholesale dealer network.
Gross profit for the twelve weeks ended July 17, 1999 was $200.3 million,
or 37.0% of net sales, compared with $98.6 million, or 38.7% of net sales, in
the twelve weeks ended July 18, 1998. The decrease in the gross profit
percentage resulted largely from the wholesale nature of the dealer network, the
liquidation of certain product lines related to the Merchandise Conversion and
shrinkage associated with the Parts America Conversion. Excluding the impact of
the Service Stores and wholesale dealer network, the Company's gross profit
percentage on Advance Auto Parts and Parts America stores increased to 39.2%
from 38.7% despite the negative impact from the product liquidation and
shrinkage. This increase is attributable to the Company realizing additional
vendor support and price reductions from purchasing synergies as a result of the
Western Merger.
Selling, general, and administrative expenses, before expenses associated
with the merger integration and non-cash compensation, increased to $177.6
million, or 32.8% of net sales, in the twelve weeks ended July 17, 1999 from
$79.6 million, or 31.2% of net sales, in the twelve weeks ended July 18, 1998.
The increase as a percentage of sales was due primarily to higher store labor
and advertising costs. This increase was partially offset by a decrease in
occupancy expense due to a higher percentage of owned locations. The Company
recorded $8.2 million in merger integration and transition expenses and $0.5
million of non-cash compensation for the twelve weeks ended July 17, 1999.
Merger integration and transition expenses consist primarily of store and
merchandise conversions, professional services, travel, training and project
incentives.
Operating income, as adjusted for expenses associated with the merger
integration and non-cash compensation, in the twelve weeks ended July 17, 1999
was $22.8 million, or 4.2% of net sales, as compared to $19.0 million, or 7.5%
of net sales, in the twelve weeks ended July 18, 1998.
EBITDA (operating income plus depreciation and amortization), as adjusted
for expenses associated with the merger integration and non-cash compensation,
was $34.9 million in the twelve weeks ended July 17, 1999, or 6.4% of net sales,
as compared to $25.0 million, or 9.8% of net sales, in the twelve weeks ended
July 18, 1998.
14
<PAGE>
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. The Company's method for calculating EBITDA may differ
from similarly titled measures reported by other companies. Management believes
certain one time expenses, expenses associated with the merger integration and
non-cash compensation should be eliminated from the EBITDA calculation to
evaluate the operating performance of the Company.
Interest expense in the twelve weeks ended July 17, 1999 was $12.6 million,
or 2.3% of net sales, compared to $8.3 million, or 3.3% of net sales, in the
twelve weeks ended July 18, 1998. The increase in interest expense in the twelve
weeks ended July 17, 1999 was primarily due to the additional debt incurred in
the Western Merger, increased borrowings under the Company's revolver and
delayed draw facilities and higher interest rates.
Income tax benefit for the twelve weeks ended July 17, 1999 was $2.0
million compared to an expense of $4.8 million in the twelve weeks ended July
18, 1998. The benefit in the second quarter of fiscal 1999 results largely from
adjustments to management's estimate of the Company's annual effective income
tax rate. The Company believes it will realize these tax benefits because of
loss carrybacks to prior periods, reversal of temporary differences, tax
planning strategies and anticipated future earnings.
As a result of the above factors, the Company recorded net income of $3.6
million in the twelve weeks ended July 17, 1999 as compared to $6.1 million in
the twelve weeks ended July 18, 1998. As a percentage of net sales, net income
for the twelve weeks ended July 17, 1999 was 0.7% as compared to 2.4% for the
twelve weeks ended July 18, 1998.
Twenty-Eight Weeks Ended July 17, 1999 Compared to Twenty-Eight Weeks Ended July
18, 1998
Net sales for the twenty-eight weeks ended July 17, 1999 were $1,211.5
million, an increase of $667.5 million over net sales for the twenty-eight weeks
ended July 18, 1998. The net sales increase was a result of the Western Merger,
comparable store sales increase of 12.7% and new stores opened within the last
year. The comparable sales increase was due to the maturation of stores opened
in 1997 and 1998, increased product availability, continued growth in the
commercial sales program and the closure of certain Parts America stores in
overlapping markets. Comparable store sales increased 6.9% for the twenty-eight
weeks ended July 18, 1998.
During the twenty-eight weeks ended July 17, 1999, the Company opened 55
new stores, reopened one closed location, relocated five stores, and closed 29
stores in addition to the stores closed due to relocations (19 of which were in
connection with the Western Merger store closure program). Also, the Company
added 453 stores to its commercial delivery program, bringing the total to 985
stores. As of July 17, 1999, the Company operated 1,590 stores in 39 states,
Puerto Rico and the U.S. Virgin Islands and supplied approximately 715
independent dealers through the wholesale dealer network.
Gross profit for the twenty-eight weeks ended July 17, 1999 was $432.1
million, or 35.7% of net sales, compared with $211.2 million, or 38.8% of net
sales, in the twenty-eight weeks ended July 18, 1998. The decrease in the gross
profit percentage resulted largely from the wholesale nature of the dealer
network, the liquidation of certain product lines related to the Merchandise
Conversion and shrinkage associated with the Parts America Conversion.
Excluding the impact of the above, the Company's gross profit percentage on
Advance Auto Parts and Parts America stores would have increased as a result of
generally better pricing and more favorable terms from its vendors as well as
increased vendor support in the twenty-eight weeks ended July 17, 1999 compared
to the twenty-eight weeks ended July 18, 1998. This increase in vendor support
from long-term vendor agreements renegotiated as a result of the Western Merger,
which will provide for price reductions on future purchases, has also resulted
in deferred revenue for amounts from vendors that have not yet been earned.
Selling, general, and administrative expenses, before expenses associated
with the Recapitalization, merger integration, private company and non-cash
compensation, increased to $408.6 million, or 33.7% of net sales, in the twenty-
eight weeks ended July 17, 1999 from $177.9 million, or 32.6% of net sales, in
the twenty-eight weeks ended July 18, 1998. The increase as a percentage of
sales was due primarily to higher store labor costs, the increase in advertising
costs and costs associated with the Company's national managers' conference.
This increase was partially offset by a decrease in occupancy expense due to a
higher percentage of owned locations. The Company
15
<PAGE>
recorded $25.2 million in merger integration and transition expenses and $1.0
million of non-cash compensation for the twenty-eight weeks ended July 17, 1999
and $14.0 million of Recapitalization expenses and $0.8 million in private
company expenses for the twenty-eight weeks ended July 18, 1998. Merger
integration and transition expenses consist primarily of store and merchandise
conversions, professional services, travel, training and project incentives.
Operating income, as adjusted for expenses associated with the
Recapitalization, merger integration, private company and non-cash compensation
in the twenty-eight weeks ended July 17, 1999 was $23.5 million, or 1.9% of net
sales, as compared to $33.3 million, or 6.1% of net sales, in the twenty-eight
weeks ended July 18, 1998.
EBITDA (operating income plus depreciation and amortization), as adjusted
for expenses associated with the Recapitalization, merger integration, private
company and non-cash compensation was $52.8 million in the twenty-eight weeks
ended July 17, 1999, or 4.4% of net sales, as compared to $46.8 million, or 8.6%
of net sales, in the twenty-eight weeks ended July 18, 1998. 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. The Company's method for calculating EBITDA may differ from
similarly titled measures reported by other companies. Management believes
certain one time expenses, expenses associated with the Recapitalization, merger
integration, private company and non-cash compensation should be eliminated from
the EBITDA calculation to evaluate the operating performance of the Company.
Interest expense in the twenty-eight weeks ended July 17, 1999 was $28.5
million, or 2.3% of net sales, compared to $11.8 million, or 2.2% of net sales,
in the twenty-eight weeks ended July 18, 1998. The increase in interest expense
in the twenty-eight weeks ended July 17, 1999 was primarily due to the increase
in debt related to the Recapitalization, the additional debt incurred in the
Western Merger, increased borrowings under the Company's revolver and delayed
draw facilities and higher interest rates.
Income tax benefit for the twenty-eight weeks ended July 17, 1999 was $11.3
million compared to an expense of $3.1 million in the twenty-eight weeks ended
July 18, 1998. This decrease was primarily due to the decrease in income before
income taxes. The Company believes it will realize these tax benefits because
of loss carrybacks to prior periods, reversal of temporary differences, tax
planning strategies and anticipated future earnings.
As a result of the above factors, the Company recorded a net loss of $19.8
million in the twenty-eight weeks ended July 17, 1999 as compared to net income
of $3.7 million in the twenty-eight weeks ended July 18, 1998. As a percentage
of net sales, net loss for the twenty-eight weeks ended July 17, 1999 was 1.6%
as compared to net income of 0.7% for the twenty-eight weeks ended July 18,
1998.
Liquidity and Capital Resources
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 and the
Western Merger. The Company has financed its growth through a combination of
internally generated funds, borrowings and issuances of equity.
The Company's new stores require capital expenditures of approximately
$120,000 per store and an inventory investment of approximately $400,000 per
store. A substantial portion of these inventories are 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 between 80 and 100 new
stores during fiscal year 1999. Additionally, the Parts America Conversion will
require capital expenditures of approximately $65,000 and conversion expense of
approximately $30,000 per store. Generally, Parts America stores carried
approximately $100,000 more inventory (including support inventory in the
distribution centers) than Advance Auto Parts stores. The Company expects to
reduce the inventory levels in the Parts America stores to the Company's average
over the next 6-12 months.
16
<PAGE>
For the twenty-eight weeks ended July 17, 1999, net cash used in operating
activities was $56.5 million. Of this amount, $19.8 million was due to a net
loss. Depreciation provided an additional $29.4 million of funds, amortization
of deferred debt issuance costs provided an additional $1.8 million and $67.9
million was used in working capital and other purposes, consisting primarily of
increases in inventory and receivables. Net cash used for investing activities
was $51.5 million and was comprised primarily of net capital expenditures of
approximately $51.2 million. Net cash provided by financing activities was
$100.0 million and was comprised primarily of net borrowings and issuance of
equity.
The Company believes it will have sufficient liquidity to fund its debt
service obligations and implement its growth strategy over the next twelve
months. As of July 17, 1999, the Company had outstanding indebtedness
consisting of $200.0 million of Senior Subordinated Notes (the "Senior
Subordinated Notes"), borrowings of $327.0 million under its bank credit
facility (the "Bank Credit Facility"), $10.0 million of indebtedness under the
McDuffie County Development Authority Taxable Industrial Bonds ("IRB") and $3.3
million of obligation under a capital lease.
The Senior Subordinated Notes bear interest at a rate of 10.25%, payable
semiannually, and require no principal payments until maturity. The Indenture
governing the Senior Subordinated Notes contains certain covenants that limit,
among other things, the ability of the Company and its restricted subsidiaries
to incur additional indebtedness and issue preferred stock, pay dividends or
certain other distributions, issue stock of subsidiaries, make certain
investments, repurchase stock and certain indebtedness, create or incur liens,
engage in transactions with affiliates, enter into new businesses, sell stock of
restricted subsidiaries and restrict the Company from engaging in certain
mergers or consolidations and sell assets. The $10.0 million principal amount
IRB bears interest at a variable rate and will require no principal payments
until maturity in November 2002.
The Company has access to a total of $465.0 million through the Bank Credit
Facility in addition to its operating cash flow. The Bank Credit Facility
provides for (i) a $125.0 million Tranche B term loan, which was made at the
closing of the Recapitalization; (ii) a revolver with maximum borrowings
including letters of credit of approximately $125.0 million, of which $50.8
million was available as of July 17, 1999, (iii) a $125.0 million delayed draw
term loan of which $50.0 million was drawn during the second quarter of fiscal
1999 and $75.0 million is available to the Company through April 15, 2001, and
(iv) a $90.0 million deferred term loan facility, which was drawn at the closing
of the Western Merger. Subsequent to July 17, 1999, the Company drew an
additional $20.0 million of the delayed draw term loan to reduce the outstanding
revolver balance. The term loan facilities, other than the Tranche B term loan,
will mature on the sixth anniversary of initial borrowing, and the Tranche B
term loan will mature on the eighth anniversary of initial borrowing. Annual
principal payments on the term loan facilities prior to the sixth anniversary of
initial borrowing will be nominal; thereafter, required principal payments will
be approximately $236.5 million in 2004, $60.0 million in 2005 and $30.0 million
in 2006, assuming the term loan facilities have been fully borrowed. The
revolving loan facility will mature on the sixth anniversary of initial
borrowing. Until the delivery to the lenders of the Company's consolidated
financial statements for the first four fiscal quarters after the closing of the
Recapitalization, the interest rates under the delayed draw facilities and the
revolver are based, at the option of the Company, on either a Eurodollar rate
plus 2.25% per annum or a base rate plus 1.25% per annum. From and after the
delivery of such consolidated financial statements, the interest rates under the
delayed draw facilities and the revolver will be determined by reference to a
pricing grid that will provide for reductions in the applicable interest rate
margins based on the Company's trailing total debt to EBITDA ratio (as defined
in the Bank Credit Facility). The initial margins will be 2.25% and 1.25% for
Eurodollar and base rate borrowings, respectively, and can step down to 1.75%
and 0.75%, respectively, if the Company's total debt to EBITDA ratio is less
than or equal to 4.00 to 1.00. The interest rate under the Tranche B term loan
and the deferred term loan facility is based, at the option of the Company, on a
Eurodollar rate plus 2.50% or a base rate plus 1.50%.
The Bank Credit Facility contains covenants restricting the ability of the
Company and its subsidiaries to, among others things, (i) pay dividends on any
class of capital stock or make any payment to purchase, redeem, retire, acquire,
cancel or terminate capital stock, (ii) prepay, redeem, retire, acquire, cancel
or terminate debt, (iii) incur liens or engage in sale-leaseback transactions,
(iv) make loans, investments, advances or guarantees, (v) incur additional debt
(including hedging arrangements), (vi) make capital expenditures, (vii) engage
in mergers, acquisitions and asset sales, (viii) engage in transactions with
affiliates, (ix) enter into any agreement which restricts the ability to create
liens on property or assets or the ability of subsidiaries to pay dividends or
make payments on advances or loans to the Company or other subsidiaries; (x)
change the nature of the business conducted by the Company and its subsidiaries,
(xi) change the passive holding company status of Holding, and (xii) amend
existing
17
<PAGE>
debt agreements or the Company's or Holding's certificate of incorporation, by-
laws or other organizational documents. The Company is also required to comply
with financial covenants in the Bank Credit Facility with respect to (a) limits
on annual aggregate capital expenditures,(b) a maximum leverage ratio, (c) a
minimum interest coverage ratio, and (d) a minimum retained cash earnings test.
The Company is generally prohibited from paying dividends (including to Holding)
except that as long as no defined event of default under the Bank Credit
Facility then exists, the Company will be permitted to pay dividends to Holding
in an amount sufficient to cover the cash interest due on the Debentures
commencing October 15, 2003. The Company believes it is in compliance with the
above covenants under the Bank Credit Facility as of July 17, 1999.
The loans under the Bank Credit Facility are secured by a first priority
security interest in all tangible and intangible assets of the Company. In the
second quarter of fiscal 1999, the Company amended the Bank Credit Facility to
add Advance Trucking Corporation as a subsidiary guarantor. Amounts available to
the Company under the revolver and delayed draw term loans are subject to a
borrowing base formula, which is based on certain percentages of the Company's
inventories. As of July 17, 1999, $237.8 million was available under these
facilities, net of $12.2 million outstanding for letters of credit. The Company
intends to use borrowings under the revolver and delayed draw term loans for
store expansion, the Parts America Conversion and funding of working capital.
Borrowings under the Bank Credit Facility are required to be prepaid, subject to
certain exceptions, with (a) 50% of defined excess cash flow, (b) 100% of the
net cash proceeds of all asset sales or other dispositions of property by the
Company and its subsidiaries (including certain insurance and condemnation
proceeds), subject to certain exceptions (including exceptions for (i)
reinvestment of certain asset sale proceeds within 360 days of such sale and
(ii) certain sale-leaseback transactions), (c) 100% of the net proceeds of
issuances of debt obligations of the Company and its subsidiaries, and (d) 100%
of the net proceeds of issuance of equity of the Company and its subsidiaries.
Because increases in net working capital, capital expenditures and debt
repayments are deducted in calculating excess cash flow, the Company does not
anticipate that the prepayment obligation under the Bank Credit Facility in
respect thereof will have a material effect on its operating strategy. With
respect to growth through acquisitions, the operation of this covenant may
result in the application of cash resources for prepayments which would require
the Company to secure additional equity or debt financing to fund an
acquisition, but while no assurance can be given, the Company does not
anticipate that this would have a material effect on its ability to finance
acquisitions in the future.
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.
Year 2000 Conversion
The following discussion about the implementation of the Company's Year
2000 program, the costs expected to be associated with the program and the
results the Company expects to achieve constitute forward-looking information.
As noted below, there are many uncertainties involved in the Year 2000 issue,
including the extent to which the Company will be able to adequately provide for
contingencies that may arise, as well as the broader scope of the Year 2000
issue as it may affect third parties and the Company's business partners.
Accordingly, the costs and results of the Company's Year 2000 program and the
extent of any impact on the Company's results of operations could vary
materially from that stated herein.
A significant percentage of the software that runs most computers relies on
two-digit date codes to perform computations and decision-making functions.
Commencing on January 1, 2000, these computer programs may fail from an
inability to interpret date codes properly, misinterpreting "00" as the year
1900 rather than 2000. The Company believes it has completed the identification
of all necessary internal software changes required due to the Year 2000 issue.
The Company has appointed an internal Year 2000 project manager and remediation
team and has adopted a four phase approach of assessment, remediation, testing,
and contingency planning. The scope of the project includes all internal
software, hardware, operating systems, and assessment of risk to the business
from vendors and other partners' Year 2000 issues. The assessment of all
internal systems, the remediation and testing phases are complete. Contingency
planning for certain information technology systems and business processes has
begun.
18
<PAGE>
The Company is utilizing internal and external resources to correct,
replace, and test its software and equipment for Year 2000 compliance. As of
August 31, 1999, the Company has completed substantially all reprogramming
required to permit the proper functioning of all internal computer systems and
equipment, including the testing of such systems and equipment, that will be
operational on December 31, 1999. The total cost of the Year 2000 project is
estimated at $5.2 million. Of that cost, approximately $2.5 million represents
the purchase of new software and hardware, which will be capitalized. The
remaining costs were or will be expensed as incurred during fiscal 1998 and
1999. As July 17, 1999, the Company has spent approximately $4.3 million on the
Year 2000 project.
The Company's Year 2000 program is designed to minimize the possibility of
serious Year 2000 interruptions. Possible Year 2000 worst case scenarios
include the interruption of significant parts of the Company's business as a
result of critical information systems failure or the failure of vendors,
distributors or service providers. Since these possibilities cannot be
eliminated, ongoing communications have been established with almost all vendors
and other partners to monitor their progress in resolving Year 2000 issues, most
of which the Company believes are making substantial progress. However, the
Company cannot guarantee that Year 2000 related systems issues of its business
partners will be corrected in a timely manner or that the failure of its
business partners to correct these issues would not have a material adverse
effect.
The Company developed contingency plans in the event a business
interruption caused by Year 2000 problems should occur. For certain information
technology systems and business functions, contingency plans are in place.
Elements of the Company's contingency plans include: switching of vendors, back-
up systems that do not rely on computers, and the stockpiling of certain
products in the months before the Year 2000.
The cost and time estimated for the Year 2000 project are based on the
Company's best estimates. There can be no guarantee that these estimates will
be achieved or that planned results will be achieved. Risks factors include,
but are not limited to, the retention of internal and external resources
dedicated to the project, the timely delivery of software corrections from
external vendors, and the successful completion of key business partners' Year
2000 projects.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 16, 1999, the United States District Court of Appeals for the
Sixth District affirmed the November 1996, October 1997 and January 1998
decisions of the United States District Court for the Western District of
Kentucky. Those decisions held that the Company was entitled to exclusive use
of the name "Advance Auto Parts" throughout the United States, except in
Jefferson County, Kentucky, and that the Company was entitled to summary
judgment in connection with various infringement and unfair competition claims
brought by the appellant.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 First Amendment dated as of June 30, 1999, to the Credit
Agreement dated as of April 15, 1998 as amended and
restated as of October 19, 1998, among Holding, the
Company, the lenders party thereto and The Chase Manhattan
Bank ("Chase"), as administrative agent.
10.2 Supplement No. 1 dated as of June 30, 1999, to the
Guarantee Agreement dated as of April 15, 1998 as amended
and restated as of November 2, 1998, among Holding, the
Subsidiary Guarantors listed therein and Chase, as
collateral agent.
10.3 Supplement No. 1 dated as of June 30, 1999, to the Pledge
Agreement dated as of April 15, 1998 as amended and
restated as of November 2, 1998, among the Company,
Holding, the Subsidiary Pledgors listed therein and Chase,
as collateral agent.
10.4 Supplement No. 1 dated as of June 30, 1999, to the
Security Agreement dated as of April 15, 1998 as amended
and restated as of November 2, 1998, among the Company,
Holding, the Subsidiary Guarantors listed therein and
Chase, as collateral agent.
10.5 Supplement No. 1 dated as of June 30, 1999, to the
Indemnity, Subrogation and Contribution Agreement dated as
of April 15, 1998 as amended and restated as of November
2, 1998 among the Company, Holding, the Guarantors listed
therein and Chase, as collateral agent.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
20
<PAGE>
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 STORES COMPANY, INCORPORATED
a Virginia corporation
August 31, 1999 By: /s/ J. O'Neil Leftwich
----------------------
J. O'Neil Leftwich
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
S-1
<PAGE>
EXECUTION COPY
10-Q Exhibit 10.1
FIRST AMENDMENT dated as of June 30, 1999, to the Credit
Agreement dated as of April 15, 1998 as amended and restated as
of October 19, 1998 (as further amended or otherwise modified,
the "Credit Agreement"), among ADVANCE HOLDING CORPORATION,
ADVANCE STORES COMPANY, INCORPORATED, the Lenders party thereto
and THE CHASE MANHATTAN BANK, as Administrative Agent.
WHEREAS, the Borrower (such term and each other capitalized term used
but not defined herein having the meanings assigned to such terms in the Credit
Agreement) has requested that the Lenders approve an amendment to the Credit
Agreement; and
WHEREAS, the undersigned Lenders are willing, on the terms and subject
to the conditions set forth herein, to approve such amendments;
NOW, THEREFORE, in consideration of these premises, the Borrower and
the undersigned Lenders hereby agree as follows:
SECTION 1. Amendments.
-----------
(a) Section 1.01 of the Credit Agreement is hereby amended by deleting
"(a) the Vehicle Subsidiary or (b)" in the definition of "Subsidiary Loan
Party".
(b) Section 6.16(b) of the Credit Agreement is hereby amended by
inserting, immediately following the phrase "including tax liabilities," in
the second parenthetical of the second sentence thereof, the phrase "the
Guarantee of the Subordinated Debt by the Vehicle Subsidiary to the extent
permitted by clause (v) of Section 6.01(a), Indebtedness created under the
Loan Documents,".
SECTION 2. Representations and Warranties. The Borrower represents
-------------------------------
and warrants to each of the Lenders that, after giving effect to the amendments
contemplated hereby, (a) the representations and warranties of each Loan Party
set forth in the Loan Documents are true and correct in all material respects on
and as of the date of this Amendment, except to the extent such representations
and warranties expressly relate to an earlier date (in which case such
representations and warranties were true and
<PAGE>
2
correct in all material respects as of the earlier date) and (b) no Default has
occurred and is continuing.
SECTION 3. Effectiveness. This Amendment shall be deemed to be
--------------
effective as of June 30, 1999 on the date (the "Amendment Effective Date") when
the following conditions have been met:
(a) the Administrative Agent (or its counsel) shall have received
copies hereof that, when taken together, bear the signatures of the
Borrower, Holdings and the Required Lenders; and
(b) the requirements of Section 5.12 shall have been met with respect
to the Vehicle Subsidiary (as though it were a new Subsidiary).
SECTION 4. Applicable Law. This Amendment shall be construed in
---------------
accordance with and governed by the law of the State of New York.
SECTION 5. No Other Amendments. Except as expressly set forth
--------------------
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of any party
under the Credit Agreement, nor alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. This Amendment shall apply and be
effective only with respect to the provisions of the Credit Agreement
specifically referred to herein.
SECTION 6. Counterparts. This Amendment may be executed in two or
-------------
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one contract. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
SECTION 7. Headings. Section headings used herein are for
---------
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
SECTION 8. Expenses. The Borrower shall reimburse the Administrative
---------
Agent for its reasonable out-of-pocket expenses incurred in connection with this
<PAGE>
3
Amendment, including the reasonable fees and expenses of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, Holdings, the Borrower and the undersigned Lenders
have caused this Amendment to be duly executed by their duly authorized
officers, all as of the date first above written.
ADVANCE HOLDING CORPORATION,
by
/s/ J. O'Neil Leftwich
-------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
ADVANCE STORES COMPANY,
by
/s/ J. O'Neil Leftwich
-------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK,
by
/s/ Neil R. Boylan
-------------------------------------
Name: Neil R. Boylan
Title: Managing Director
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution BankBoston, N.A.
by
/s/ Shawn R. Foster
-------------------------
Name: Shawn R. Foster
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Branch Banking & Trust Company
by
/s/ Cory Boyte
------------------------
Name: Cory Boyte
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution The CIT Group/Business Credit, Inc.
by
/s/ Robert C. Smith
---------------------------
Name: Robert C. Smith
Title: SVP
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Credit Lyonnais NY Branch
by
/s/
-------------------------
Name:
Title: SVP
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Crestar Bank
by
/s/ Martha D. Shifflet
---------------------------
Name: Martha D. Shifflet
Title: Senior Vice
President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution DLJ Capital Funding, Inc.
by
/s/ Dana Klein
--------------------------
Name: Dana Klein
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Eaton Vance Senior Income Trust
By: Eaton Vance Management
as Investment Advisor
by
/s/ Payson F. Swaffield
--------------------------
Name: Payson F. Swaffield
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Erste Bank
by
/s/ Rima Terradista
--------------------------
Name: Rima Terradista
Title: Vice President
by
/s/ John S. Runnion
--------------------------
Name: John S. Runnion
Title: First Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Firstar Bank, N.A.
by
/s/ Mark A. Whitson
--------------------------
Name: Mark A. Whitson
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution First Union National Bank
by
/s/ Mark B. Felker
--------------------------
Name: Mark B. Felker
Title: Senior Vice
President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Imperial Bank
by
/s/ Mark Campbell
--------------------------
Name: Mark Campbell
Title: Managing Director
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: Indosuez Capital as Portfolio
Advisor
by
/s/ Melissa Marano
--------------------------
Name: Melissa Marano
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio
Advisor
by
/s/ Melissa Marano
--------------------------
Name: Melissa Marano
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution ING High Income Principal
Preservation Fund Holdings, LDC
By: ING Capital Advisors LLC
as Investment Advisor
by
/s/ Michael D. Hatley
--------------------------
Name: Michael D. Hatley
Title: Managing Director
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution KZH CYPRESSTREE-1 LLC
by
/s/ Peter Chin
--------------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution KZH ING-2 LLC
by
/s/ Peter Chin
--------------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution National Bank of Canada
by
/s/ William B. O'Connor
--------------------------
Name: William B. O'Connor
Title: VP & Manager
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Norse CBO, Ltd.
by
/s/ Timothy S. Peterson
--------------------------
Name: Timothy S. Peterson
Title: President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
by
/s/ Payson F. Swaffield
--------------------------
Name: Payson F. Swaffield
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Summit Bank
by
/s/ Seiji Nakamura
--------------------------
Name: Seiji Nakamura
Title: Vice President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Transamerica Business Credit
Corporation
by
/s/ Steven R. Fischer
--------------------------
Name: Steven R. Fischer
Title: Executive Vice
President
<PAGE>
4
SIGNATURE PAGE TO THE FIRST AMENDMENT DATED
AS OF JUNE 30, 1999, AMONG ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY,
INCORPORATED, THE LENDERS, and THE CHASE
MANHATTAN BANK, as administrative agent
Name of Institution Union Bank of California, N.A.
by
/s/ J. William Bloore
--------------------------
Name: J. William Bloore
Title: Vice President
<PAGE>
10-Q Exhibit 10.2
SUPPLEMENT NO. 1 dated as of June 30, 1999, to the Guarantee
Agreement dated as of April 15, 1998 as amended and restated as
of November 2, 1998, among ADVANCE HOLDING CORPORATION, a
Virginia corporation ("Holdings") each of the subsidiaries of the
--------
Borrower listed on Schedule I thereto (each such subsidiary
individually, a "Subsidiary Guarantor" and collectively, the
--------------------
"Subsidiary Guarantors" and, together with Holdings, the
---------------------
"Guarantors"), and THE CHASE MANHATTAN BANK, a New York banking
----------
corporation ("Chase"), as collateral agent (in such capacity, the
-----
"Collateral Agent") for the Secured Parties (as defined in the
----------------
Security Agreement, Exhibit G to the Credit Agreement referred to
below).
A. Reference is made to the Credit Agreement dated as of April 15, 1998 as
amended and restated as of October 19, 1998 (as further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among Holdings,
----------------
ADVANCE STORES COMPANY, INCORPORATED, a Virginia corporation (the "Borrower"),
--------
the lenders from time to time party thereto (the "Lenders"), DLJ Capital
-------
Funding, Inc., as syndication agent, First Union National Bank, as documentation
agent, and Chase, as administrative agent (in such capacity the "Administrative
--------------
Agent") for the Lenders, Collateral Agent and as issuing bank (in such capacity,
- -----
the "Issuing Bank"). Capitalized terms used herein and not defined herein shall
------------
have the meanings assigned to such terms in the Credit Agreement.
B. The Guarantors have entered into the Guarantee Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit. Pursuant to Section 5.12 of the Credit Agreement, each Subsidiary of
Holdings which is also a Subsidiary Loan Party that was not in existence or not
a Subsidiary on the date of the Credit Agreement is required to enter into the
Guarantee Agreement as a Subsidiary Guarantor upon becoming a Subsidiary.
Section 20 of the Guarantee Agreement provides that additional Subsidiaries of
Holdings may become Subsidiary Guarantors under the Guarantee Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of Holdings (the "New Subsidiary Guarantor") is executing
------------------------
this Supplement in accordance with the requirements of the Credit Agreement to
become a Subsidiary Guarantor under the Guarantee Agreement in order to induce
the Lenders to make additional Loans and the Issuing Bank to issue additional
Letters of Credit and as consideration for Loans previously made and Letters of
Credit previously issued.
Accordingly, the Collateral Agent and the New Subsidiary Guarantor agree as
follows:
SECTION 1. In accordance with Section 20 of the Guarantee Agreement, the
New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor
under the Guarantee Agreement with the same force and effect as if originally
named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby
(a) agrees to all the terms and provisions of the Guarantee Agreement applicable
to it as a Subsidiary Guarantor thereunder and (b) represents and warrants that
the representations and warranties made by it as a Subsidiary Guarantor
thereunder are true and correct on and as of the date hereof. Each reference to
a "Subsidiary Guarantor" in the Guarantee Agreement shall be deemed to include
--------------------
the New Subsidiary Guarantor. The Guarantee Agreement is hereby incorporated
herein by reference.
SECTION 2. The New Subsidiary Guarantor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received
<PAGE>
2
counterparts of this Supplement that, when taken together, bear the signatures
of the New Subsidiary Guarantor and the Collateral Agent. Delivery of an
executed signature page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually executed counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Guarantee
Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 14 of the Guarantee Agreement. All
communications and notices hereunder to the New Subsidiary Guarantor shall be
given to it at the address set forth under its signature below, with a copy to
the Borrower.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Collateral
Agent for its out-of-pocket expenses in connection with this Supplement,
including the fees, disbursements and other charges of counsel for the
Collateral Agent.
[Rest of page intentionally left blank]
<PAGE>
1
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Collateral Agent
have duly executed this Supplement to the Guarantee Agreement as of the day and
year first above written.
ADVANCE TRUCKING CORPORATION, a
Virginia corporation,
by
/s/ J. O'Neil Leftwich
-------------------------------
Name: J. O'Neil Leftwich
Title: Secretary
Address: 5673 Airport Road
Roanoke, VA 24012
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
/s/ Neil R. Boylan
-------------------------------
Name: Neil R. Boylan
Title: Managing Director
<PAGE>
10-Q Exhibit 10.3
SUPPLEMENT NO. 1 dated as of June 30, 1999, to the PLEDGE
AGREEMENT dated as of April 15, 1998 as amended and restated as
of November 2, 1998, among ADVANCE STORES COMPANY, INCORPORATED,
a Virginia corporation (the "Borrower"), ADVANCE HOLDING
--------
CORPORATION, a Virginia corporation ("Holdings"), and each
--------
subsidiary of the Borrower listed on Schedule I thereto (each
such subsidiary individually a "Subsidiary Pledgor" and,
---------- -------
collectively, the "Subsidiary Pledgors"; the Borrower, Holdings
and Subsidiary Pledgors are referred to collectively herein as
the "Pledgors") and THE CHASE MANHATTAN BANK, a New York banking
--------
corporation ("Chase"), as collateral agent, (in such capacity,
-----
the "Collateral Agent"), for the Secured Parties (as defined in
----------------
the Credit Agreement referred to below)
A. Reference is made to (a) the Credit Agreement dated as of April 15,
1998 as amended and restated as of October 19, 1998 (as further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
----------------
among the Borrower, Holdings, the lenders from time to time party thereto (the
"Lenders"), Chase, as administrative agent (in such capacity, the
-------
"Administrative Agent") for the Lenders, Collateral Agent and as issuing bank
--------------------
(in such capacity, the "Issuing Bank"), DLJ Capital Fundings, Inc., as
------------
syndication agent, and First Union National Bank, as documentation agent, and
(b) the Guarantee Agreement dated as of April 15, 1998 as amended and restated
as of November 2, 1998 (as further amended, supplemented or otherwise modified
from time to time, the "Guarantee Agreement"), among the Subsidiary Pledgors,
-------------------
Holdings and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Pursuant to Section 5.12 of the Credit Agreement, each Subsidiary of Holdings
that was not in existence or not a Subsidiary on the date of the Credit
Agreement is required to enter into the Pledge Agreement as a Subsidiary Pledgor
upon becoming a Subsidiary if such Subsidiary owns or possesses property of a
type that would be considered Collateral under the Pledge Agreement. Section 24
of the Pledge Agreement provides that such Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of an instrument
in the form of this Supplement. The undersigned Subsidiary (the "New Pledgor")
-----------
is executing this Supplement in accordance with the requirements of the Credit
Agreement to become a Subsidiary Pledgor under the Pledge Agreement in order to
induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Pledgor agree as follows:
SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New
Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and the
New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance of
the foregoing, the New Pledgor, as security for the payment and performance in
full of the Obligations (as defined in the Pledge Agreement), does hereby create
and grant to the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security interest in and
lien on all of the New Pledgor's right, title and interest in and to the
Collateral (as defined in the Pledge Agreement) of the New Pledgor. Each
reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement shall
be deemed to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
<PAGE>
2
SECTION 2. The New Pledgor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that set forth
on Schedule I attached hereto is a true and correct schedule of all its Pledged
Securities.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 15 of the Pledge Agreement. All communications
and notices hereunder to the New Pledgor shall be given to it at the address set
forth under its signature hereto.
SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
[Rest of page intentionally left blank]
<PAGE>
3
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
ADVANCE TRUCKING CORPORATION, a Virginia
corporation,
by
/s/ J. O'Neil Leftwich
------------------------------
Name: J. O'Neil Leftwich
Title: Secretary
Address: 5673 Airport Road
Roanoke, VA 24012
THE CHASE MANHATTAN BANK, as Collateral
Agent,
by
/s/ Neil R. Boylan
------------------------------
Name: Neil R. Boylan
Title: Managing Director
<PAGE>
Schedule I to
Supplement No. 1
to the Pledge Agreement
Pledged Securities of the New Pledgor
-------------------------------------
CAPITAL STOCK
<TABLE>
<CAPTION>
Number of Registered Number and Percentage of
Issuer Certificate Owner Class of Shares Shares
- ------ ----------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
None
</TABLE>
DEBT SECURITIES
<TABLE>
<CAPTION>
Issuer Principal Amount Date of Note Maturity Date
- ------ ---------------- ------------ -------------
<S> <C> <C> <C>
None
</TABLE>
<PAGE>
10-Q Exhibit 10.4
SUPPLEMENT NO. 1 dated as of June 30, 1999, to the Security
Agreement dated as of April 15, 1998 as amended and restated as
of November 2, 1998, among ADVANCE STORES COMPANY, INCORPORATED,
a Virginia corporation (the "Borrower"), ADVANCE HOLDING
CORPORATION, a Virginia corporation ("Holdings"), each subsidiary
of the Borrower listed on Schedule I thereto (each such
subsidiary individually a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"; the Subsidiary
Guarantors, Holdings and the Borrower are referred to
collectively herein as the "Grantors") and THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as collateral
agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined therein).
A. Reference is made to (a) the Credit Agreement dated as of April 15,
1998 as amended and restated as of October 19, 1998 (as further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among the Borrower, Holdings, the lenders from time to time party thereto (the
"Lenders"), Chase, as administrative agent for the Lenders (in such capacity,
the "Administrative Agent"), Collateral Agent and as issuing bank (in such
capacity, the "Issuing Bank"), DLJ Capital Funding, Inc., as syndication agent,
and First Union National Bank, as documentation agent, and (b) the Guarantee
Agreement dated as of April 15, 1998 as amended and restated as of November 2,
1998 (as further amended, supplemented or otherwise modified from time to time,
the "Guarantee Agreement"), among the Subsidiary Guarantors, Holdings and the
Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Section 7.15 of Security Agreement provides that additional Subsidiaries of
Holdings may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Grantor") is executing this Supplement in accordance with
the requirements of the Credit Agreement to become a Grantor under the Security
Agreement in order to induce the Lenders to make additional Loans and the
Issuing Bank to issue additional Letters of Credit and as consideration for
Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby incorporated
herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
<PAGE>
2
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor other than Collateral (i)
consisting of goods in transit between facilities, whether in vehicles owned by
the applicable Grantor or on common carriers and (ii) located in temporary
warehousing which will remain in such warehousing for no longer than one month
and (b) set forth under its signature hereto, is the true and correct location
of the chief executive office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 7.01 of the Security Agreement. All communications
and notices hereunder to the New Grantor shall be given to it at the address set
forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the
Collateral Agent.
[Rest of page intentionally left blank]
<PAGE>
3
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
ADVANCE TRUCKING CORPORATION, a
Virginia corporation,
by
/s/ J. O'Neil Leftwich
----------------------
Name: J. O'Neil Leftwich
Title: Secretary
Address: 5673 Airport Road
Roanoke, VA 24012
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
/s/ Neil R. Boylan
------------------
Name: Neil R. Boylan
Title: Managing Director
<PAGE>
10-Q Exhibit 10.5
SUPPLEMENT NO. 1 dated as of June 30, 1999, to the
Indemnity, Subrogation and Contribution Agreement dated as of
April 15, 1998 as amended and restated as of November 2, 1998,
(as the same may be further amended, supplemented or otherwise
modified from time to time, the "Indemnity, Subrogation and
Contribution Agreement"), among ADVANCE STORES COMPANY,
INCORPORATED, a Virginia corporation (the "Borrower") and wholly-
owned subsidiary of ADVANCE HOLDING CORPORATION, a Virginia
corporation ("Holdings"), each Subsidiary of the Borrower listed
on Schedule I thereto (the "Guarantors"), and THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as collateral
agent (the "Collateral Agent"), for the Secured Parties (as
defined in the Credit Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of April 15,
1998 as amended and restated as of October 19, 1998, (as further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among the Borrower, Holdings, the lenders from time to time party thereto (the
"Lenders"), DLJ Capital Funding, Inc., as syndication agent, First Union
National Bank, as documentation agent, and Chase, as administrative agent for
the Lenders (in such capacity, the "Administrative Agent"), Collateral Agent and
issuing bank (in such capacity, the "Issuing Bank"), and (b) the Guarantee
Agreement dated as of April 15, 1998 as amended and restated as of November 2,
1998, among the Guarantors, Holdings and the Collateral Agent (the "Guarantee
Agreement").
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.
C. The Borrower and the Guarantors have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12
of the Credit Agreement, each Subsidiary of Holdings which is also a Subsidiary
Loan Party that was not in existence or not such a Subsidiary on the date of the
Credit Agreement is required to enter into the Guarantee Agreement as a
Guarantor upon becoming a Subsidiary. Section 11 of the Indemnity, Subrogation
and Contribution Agreement provides that additional Subsidiaries of Holdings may
become Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of Holdings (the "New Guarantor") is executing this
Supplement in accordance with the requirements of the Credit Agreement to become
a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order
to induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Guarantor agree as follows:
SECTION 1. In accordance with Section 11 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the New
Guarantor hereby agrees to all the terms and provisions of the Indemnity,
Subrogation and Contribution Agreement applicable to it as a Guarantor
thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and
Contribution Agreement shall be deemed to include the New Guarantor. The
Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it
<PAGE>
2
and constitutes its legal, valid and binding obligation, enforceable against it
in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Guarantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-
faith negotiations to replace the invalid, illegal or unenforceable provisions
with valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing
and given as provided in Section 7 of the Indemnity, Subrogation and
Contribution Agreement. All communications and notices hereunder to the New
Guarantor shall be given to it at the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
[Rest of page intentionally left blank]
<PAGE>
3
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
ADVANCE TRUCKING CORPORATION, a
Virginia corporation,
by
/s/ J. O'Neil Leftwich
----------------------
Name: J. O'Neil Leftwich
Title: Secretary
Address: 5673 Airport Road
Roanoke, VA 24012
THE CHASE MANHATTAN BANK, as Collateral
Agent,
by
/s/ Neil R. Boylan
------------------
Name: Neil R. Boylan
Title: Managing Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> APR-25-1999
<PERIOD-END> JUL-17-1999
<CASH> 26,202
<SECURITIES> 0
<RECEIVABLES> 127,201
<ALLOWANCES> 3,221
<INVENTORY> 772,137
<CURRENT-ASSETS> 953,287
<PP&E> 536,203
<DEPRECIATION> 127,740
<TOTAL-ASSETS> 1,380,678
<CURRENT-LIABILITIES> 573,916
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 202,141
<TOTAL-LIABILITY-AND-EQUITY> 1,380,678
<SALES> 541,760
<TOTAL-REVENUES> 541,760
<CGS> 341,431
<TOTAL-COSTS> 341,431
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 12,608
<INCOME-PRETAX> 1,570
<INCOME-TAX> (1,999)
<INCOME-CONTINUING> 3,569
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