
<PAGE>   1
===============================================================================



                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                   FORM 10-Q


 [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the Quarterly Period Ended October 25, 1997

 [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities 
      Exchange Act of 1934



                         Commission file number 0-22318


                            APS HOLDING CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)


          DELAWARE                                               76-0306940

(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)


                     15710 JOHN F. KENNEDY BLVD., SUITE 700
                           HOUSTON, TEXAS 77032-2347
                    (Address of Principal Executive Offices)


                                 (713) 507-1100
              (Registrant's telephone number, including area code)


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
                                               -----     -----

There were 13,790,110 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on November 24, 1997. There were no
shares outstanding of the Registrant's Class B Common Stock.


================================================================================

<PAGE>   2

                            APS HOLDING CORPORATION


<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                      NUMBER
                                                                                      ------
PART I.  FINANCIAL INFORMATION
------------------------------

<S>                                                                                      <C>
   Item 1. Consolidated Financial Statements and Notes                                   3

   Item 2. Management's Discussion and Analysis of Financial Condition and Results
           of Operations                                                                10


PART II.  OTHER INFORMATION
---------------------------

   Item 6. Exhibits and Reports on Form 8-K                                             18
</TABLE>


                                       2
<PAGE>   3


                         PART I - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

                            APS HOLDING CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                 OCTOBER 25,    JANUARY 25, 
                                                                   1997            1997
                                                                 ---------       ---------
                                                                (UNAUDITED)
                                     ASSETS
<S>                                                              <C>             <C>      
Current Assets:
   Cash and cash equivalents ..............................      $  27,972       $  13,370
   Accounts and notes receivable, less allowance of $14,475
     and $11,164 ............................................      105,819         103,168
   Inventories ............................................        277,329         294,816
   Deferred tax asset .....................................         28,862          19,789
   Prepaid expenses and other current assets ..............         22,269          35,543
                                                                 ---------       ---------

                   Total current assets ...................        462,251         466,686

   Property and equipment, less accumulated depreciation of
     $30,084 and $23,949 ..................................         44,611          44,483
   Notes receivable, less current portion .................         21,483          21,615
   Intangible assets, net .................................         45,546          47,073
   Investment in available-for-sale-securities ............            795           3,977
   Deferred costs and other assets ........................         14,305          14,371
                                                                 ---------       ---------

                                                                 $ 588,991       $ 598,205
                                                                 =========       =========
                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Book overdrafts ........................................      $   4,829       $   6,306
   Current maturities of long-term debt (Note 4) ..........        241,541          15,471
   Accounts payable .......................................         97,102         106,927
   Accrued liabilities ....................................         42,940          44,359
                                                                 ---------       ---------

                   Total current liabilities ..............        386,412         173,063

Long-term debt, less current maturities (Note 4) ..........        101,258         305,941
Deferred tax liability ....................................            638           1,339
Deferred income and other liabilities .....................          3,696           3,293
                                                                 ---------       ---------

                   Total liabilities ......................        492,004         483,636


Commitments and contingencies (Note 5) ....................             --              --
Redeemable preferred stock ................................             --              --

Stockholders' equity
   Class A common stock ...................................            138             137
   Class B common stock ...................................             --              --
   Additional paid-in capital .............................        155,601         155,363
   Accumulated deficit ....................................        (57,564)        (41,712)
   Treasury stock .........................................           (120)           (120)
   Unrealized (loss) gain .................................         (1,068)            901
                                                                 ---------       ---------

                   Total stockholders' equity .............         96,987         114,569
                                                                 ---------       ---------

                                                                 $ 588,991       $ 598,205
                                                                 =========       =========
</TABLE>

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


                                       3


<PAGE>   4



                            APS HOLDING CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                  THREE MONTHS    THREE MONTHS   NINE MONTHS      NINE MONTHS
                                                      ENDED          ENDED          ENDED            ENDED
                                                   OCTOBER 25,     OCTOBER 25,    OCTOBER 25,      OCTOBER 25,
                                                      1997            1996           1997             1996
                                                    ---------       ---------      ---------       ---------
<S>                                                 <C>             <C>            <C>             <C>      
Net sales ....................................      $ 201,594       $ 217,592      $ 633,728       $ 669,463
Cost of goods sold ...........................        136,773         141,642        427,528         441,081
                                                    ---------       ---------      ---------       ---------

     Gross profit ............................         64,821          75,950        206,200         228,382


Selling, general and administrative expenses .         66,649          61,941        202,542         192,195
Asset impairment and restructuring charge ....             --              --          8,726              --
                                                    ---------       ---------      ---------       ---------

     Operating income (loss) .................         (1,828)         14,009         (5,068)         36,187

Interest income ..............................          1,242           1,441          3,765           4,253
Other income .................................             50           1,085            150           1,408
                                                    ---------       ---------      ---------       ---------

     Income (loss) before interest expense and
      income taxes ...........................           (536)         16,535         (1,153)         41,848

Interest expense .............................          8,090           6,846         23,154          20,529
                                                    ---------       ---------      ---------       ---------

     Income (loss) before income taxes .......         (8,626)          9,689        (24,307)         21,319

Income tax provision (benefit) ...............         (3,360)          3,589         (8,455)          7,901
                                                    ---------       ---------      ---------       ---------

     Net income (loss) .......................      ($  5,266)      $   6,100      ($ 15,852)      $  13,418
                                                    =========       =========      =========       =========

Net income (loss) per share ..................      ($   0.38)      $     .44      ($   1.15)      $     .97
                                                    =========       =========      =========       =========

Weighted average common shares outstanding ...         13,790          13,941         13,780          13,904
                                                    =========       =========      =========       =========
</TABLE>


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


                                       4


<PAGE>   5
                            APS HOLDING CORPORATION

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                   FOR THE NINE MONTHS ENDED OCTOBER 25, 1997

                                (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                     CLASS A        ADDITIONAL              TREASURY  UNREALIZED     TOTAL
                                   COMMON STOCK      PAID-IN   ACCUMULATED    STOCK,     GAIN     STOCKHOLDERS'
                                 SHARES     AMOUNT   CAPITAL     DEFICIT     AT COST    (LOSS)       EQUITY
                                 ------    -------  ---------  ---------    --------  ---------    ---------
<S>                              <C>       <C>       <C>         <C>         <C>       <C>          <C>
Balance at beginning of period ..  13,764   $  137  $155,363   ($ 41,712)      ($120)   $   901    $ 114,569

Exercise of stock options .......      25        1       238          --          --         --          239

Unrealized (loss)  ..............      --       --        --          --          --     (1,969)      (1,969)

Net loss for the period .........      --       --        --     (15,852)         --         --      (15,852)
                                   ------   ------  --------   ---------    --------  ---------    ---------
Balance at  October 25, 1997  ...  13,789   $ 138   $155,601   ($ 57,564)      ($120)   ($1,068)   $  96,987
                                   ======   ======  ========   =========    ========  =========    =========
</TABLE> 
         



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



                                       5


<PAGE>   6



                            APS HOLDING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                                  NINE MONTHS     NINE MONTHS
                                                                     ENDED           ENDED
                                                                   OCTOBER 25,    OCTOBER 25, 
                                                                      1997           1996
                                                                    --------       --------
<S>                                                                 <C>            <C>     
Cash flows from operating activities:
     Net (loss) income .......................................      $(15,852)      $ 13,418
     Adjustments to reconcile net income (loss) to net
       cash provided by (used in) operating activities:
     Provision for asset impairment and restructuring charge .         8,726             --
     Depreciation and amortization ...........................         9,712          8,623
     Amortization of debt issue costs ........................           887            590
     Gain on sale of stores ..................................            --         (1,035)
     Provision for bad debt ..................................         6,715          4,000
     Inventory write-off in connection with closures .........         1,268             --
     Income from supply agreement ............................          (150)          (373)
     Deferred income taxes ...................................        (8,561)         1,149
     Change in operating assets and liabilities:
          Accounts receivable ................................        (8,007)           965
          Inventories ........................................        21,487         (4,078)
          Prepaid expenses and other current assets ..........        13,288          7,731
          Accounts payable ...................................        (9,825)         5,146
          Accrued liabilities ................................       (10,508)        (1,142)
          Other assets and liabilities .......................        (4,113)        (8,806)
                                                                    --------       --------

          Net cash provided by operating activities ..........         5,067         26,188
                                                                    --------       --------

Cash flows from investing activities:
     Investment in notes receivable ..........................        (9,696)        (5,365)
     Proceeds from repayment of notes receivable .............         8,479          6,819
     Investment in available for sale securities .............            --         (2,500)
     Business acquisitions, net of cash acquired .............        (2,200)        (7,035)
     Capital expenditures ....................................        (7,198)        (7,668)
     Proceeds from disposition of assets .....................            --          4,535
                                                                    --------       --------

          Net cash used in investing activities ..............       (10,615)       (11,214)
                                                                    --------       --------

Cash flows from financing activities:
     Retirement of long-term debt ............................       (11,661)       (10,138)
     Net borrowings under revolving credit agreement .........        33,050            800
     Change in book overdrafts ...............................        (1,477)        (1,085)
     Exercise of stock options ...............................           238            119
                                                                    --------       --------

          Net cash provided by (used in) financing activities         20,150        (10,304)
                                                                    --------       --------

Net increase in cash and cash equivalents ....................        14,602          4,670
                                                                    --------       --------
Cash and cash equivalents at beginning of period .............        13,370          7,886
                                                                    --------       --------
Cash and cash equivalents at end of period ...................      $ 27,972       $ 12,556
                                                                    ========       ========

Supplemental disclosures:
     Cash paid for interest ..................................      $ 19,674       $ 15,477
                                                                    ========       ========
     Cash paid (received) for income taxes ...................      $ (4,248)      $  2,547
                                                                    ========       ========
</TABLE>



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


                                       6


<PAGE>   7



                            APS HOLDING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  BASIS OF PRESENTATION:

         The consolidated balance sheet of APS Holding Corporation and
subsidiaries (collectively, unless the context otherwise requires, the
"Company") at January 25, 1997 has been condensed from the Company's audited
consolidated financial statements at that date. The consolidated balance sheet
at October 25, 1997, the consolidated statements of operations for the three
months and nine months ended October 25, 1997 and 1996, the consolidated
statement of changes in stockholders' equity for the nine months ended October
25, 1997 and the consolidated statements of cash flows for the nine months
ended October 25, 1997 and 1996 have been prepared by the Company, without
audit. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows have been made. The results of
operations for the three months and nine months ended October 25, 1997 are not
necessarily indicative of the operating results for a full year or of future
operations.

         Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been omitted. The accompanying consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended January 25, 1997.

         Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. Such reclassifications
did not affect net income or loss, stockholders' equity or cash flows for any
period.


2.  NEW ACCOUNTING STANDARDS:

         The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, entitled "Earnings per Share" in
February 1997. SFAS No. 128 requires standards to replace the presentation of
primary earnings per share ("EPS") with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Company is
required to adopt the computation, presentation and disclosure requirements of
SFAS No. 128 for the fiscal year ending January 31, 1998. The Company's basic
loss per share and diluted loss per share under SFAS No. 128 would have each
been $0.38 for the three months and $1.15 for the nine months ended October 25,
1997, respectively.

         The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards
for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.

3.  ASSET IMPAIRMENT AND RESTRUCTURING CHARGES:

         During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance, the Company has been consolidating
redundant administrative functions and has closed certain under-performing
facilities. Upon completion, which is expected by the end of the fiscal year
ending January 31, 1998, the program is expected to result in the closure of an
estimated


                                       7
<PAGE>   8

                            APS HOLDING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


50 Installers' Service Warehouse units ("ISW") and 15 Company-owned stores, of
which 50 and 9, respectively, have been closed as of October 25, 1997. Aggregate
revenue from such facilities was approximately $2.2 million and approximately
$15.0 million during the three and nine months ended October 25, 1997,
respectively, compared to approximately $5.6 million and approximately $18.3
million, for the corresponding periods of the prior fiscal year. Aggregate
losses before income taxes and after overhead allocations from such facilities
were approximately $0.7 million and approximately $2.2 million for the three and
nine months ended October 25, 1997, respectively, compared to approximately $0.5
million and approximately $1.1 million for the corresponding periods of the
prior fiscal year. As a result of such program, during the three months ended
July 25, 1997, the Company recorded a restructuring charge of approximately $8.7
million. Such charge consisted of approximately $2.2 million for estimated costs
to close facilities, approximately $1.4 million of employee severance benefits
related to personnel reductions of approximately 570 employees, approximately
$3.2 million for future lease and related obligations and approximately $1.9
million of asset impairments.  In addition, in connection with such
restructuring program, approximately $1.3 million was charged to cost of goods
sold during the quarter ended July 25, 1997 for inventory write-offs expected in
connection with facility closures, and approximately $1.8 million was charged to
selling, general and administrative expenses for incremental bad debt expected
in connection with such closures. During the three months ended October 25,
1997, approximately $2.5 million of costs were charged to the liabilities and
reserves established at July 25, 1997 for such restructuring and related
charges (including approximately $0.3 million of employee severance to
approximately 100 employees) and approximately $4.2 million of such charges were
recorded as liabilities at October 25, 1997.

         The Company's financial statements at October 25, 1997 also included
liabilities and reserves in the aggregate amount of $3.5 million for costs
related to the closure and consolidation of certain facilities and
administrative functions pursuant to programs of rationalization implemented by
the Company during the fiscal year ended January 27, 1996 in connection with its
acquisition of Parts, Inc. The Company attained a majority of the program's
objectives during the year ended January 25, 1997 and expects final completion
of such programs during the fiscal year ending January 30, 1999. During the
three and nine months ended October 25, 1997, the Company charged approximately
$0.7 million and approximately $2.1 million, respectively, against such
liability and reserves, including approximately $0.2 million of employee
termination and relocation costs during the nine months ended October 25, 1997.

4.  CREDIT AGREEMENT COVENANTS:

         Effective as of October 24, 1997, the Company obtained a waiver of its
Consolidated Leverage Ratio, Fixed Charge Coverage Ratio and Minimum Net Worth
covenant requirements (the "Financial Covenants") under its amended and restated
senior bank credit agreement (the "Credit Agreement") with a syndicate of
lenders led by The Chase Manhattan Bank (the "Senior Lenders"). Pursuant to such
waiver, aggregate borrowings under the revolving credit facility of the Credit
Agreement were limited to $204.7 million until December 31, 1997. Such waiver
will be effective until December 31, 1997. The Company has been discussing with
the Senior Lenders and other lenders a possible new financing (the "Proposed
Financing"). Effective as of December 8, 1997, the Senior Lenders have agreed,
during the period from December 31, 1997 to the earliest of (i) February 10,
1998, (ii) the date on which a default or event of default under the Credit
Agreement (other than as a result of the Company's failure to comply with the
Financial Covenants at October 25, 1997 or January 31, 1998) occurs and (iii)
the effective date of the Proposed Financing, to allow the Company to continue
to borrow under the Credit Agreement (notwithstanding the expiration after
December 31, 1997 of the waiver of the Financial Covenants) and to forebear from
exercising any of their rights or remedies against the Company under the Credit
Agreement and related documents as a result of the Company's failure to comply
with the Financial Covenants at October 25, 1997 or January 31, 1998. The Senior
Lenders have expressly reserved their right to exercise any rights or remedies
they may have against any other person or entity under any other document or
instrument. If the Company does not obtain the Proposed Financing or otherwise
obtain an amendment to the Credit Agreement to cure its failure to comply with
the Financial Covenants prior to February 10, 1998, at any time thereafter the
Senior Lenders could accelerate the maturity of the outstanding loans under the
Credit Agreement. Accordingly, the entire amount outstanding under the Credit
Agreement has been classified as a current liability at October 25, 1997.



                                       8
<PAGE>   9

                            APS HOLDING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.  LITIGATION:

         The Company is involved in various claims and disputes arising in the
normal course of business, including the matter of Barry S. Lamm and Lamm Auto
Stores, Inc. v. Parts, Inc., et al, which was filed in The Circuit Court of
Mobile County, Alabama on June 21, 1996. The plaintiff in such case seeks both
compensatory and punitive damages in making a number of claims, including both
willful and reckless misrepresentation, suppression of material fact,
promissory fraud (all in violation of the Code of Alabama), and conspiracy,
breach of contract and intentional interference with contractual or business
relationships, all in connection with the operation of an automotive parts
business by the plaintiff while a customer of Parts, Inc. The trial with
respect to such action began on December 8, 1997.  The Company believes that 
the costs of defending such action as well as any loss that could be sustained
by the Company as a result of an adverse decision in such action, are the 
subject of a contractual indemnification by GKN. The Company has made a claim 
for indemnity to GKN, which GKN has denied.


6.   NON-CASH INVESTING ACTIVITIES:

         During the quarter ended October 25, 1997, the Company exercised its
rights as a secured creditor with respect to the assets of one its customers,
resulting in the non-cash acquisition of assets having a value of approximately
$3.5 million.


                                       9
<PAGE>   10
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

         Presented below is a summary of unaudited financial operating
information for the three months and nine months ended October 25, 1997 and
1996 (dollars in thousands):



<TABLE>
<CAPTION>
                                   THREE MONTHS ENDED OCTOBER 25,             NINE MONTHS ENDED OCTOBER 25,
                              ----------------------------------------    ---------------------------------------
                                1997        %        1996         %        1997         %       1996        %
                              -------    -------    -------    -------    -------    -------   -------    -------
<S>                           <C>         <C>       <C>        <C>        <C>         <C>       <C>         <C>
Net Sales                     $201,594     100.0    $217,592     100.0    $633,728     100.0   $669,463     100.0
Cost of goods sold             136,773      67.8     141,642      65.1     427,528      67.5    441,081      65.9
Gross Profit                    64,821      32.2      75,950      34.9     206,200      32.5    228,382      34.1
Selling, general and
 administrative expenses        66,649      33.1      61,941      28.5     202,542      32.0    192,195      28.7
Asset impairment &
 restructuring charge               --        --          --        --       8,726       1.4         --        --

Operating income (loss)         (1,828)     (0.9)     14,009       6.4      (5,068)     (0.8)    36,187       5.4
Net income (loss)               (5,266)     (2.6)      6,100       2.8     (15,852)     (2.5)    13,418       2.0

</TABLE>

Fiscal Year 1998 Compared to Fiscal Year 1997

         Net sales for the three months and nine months ended October 25, 1997
decreased $16.0 million (7.4%) and $35.7 million (5.3%), respectively, from the
corresponding periods of the prior fiscal year. Such decreases were primarily
due to facility closures, continuing general softness in demand for the
Company's products and increasing competitive pressures. Additionally, the
decrease in sales for the nine months ended October 25, 1997 was attributable in
part to the loss of sales to stores owned by independent automotive parts store
operators ("jobbers") that were formerly associated with Parts, Inc. ("PI") in
connection with the integration into the Company's operation of PI, which was
acquired by the Company on January 25, 1996 (the "PI Acquisition").

         Cost of goods sold consists primarily of the purchase cost of products
sold. Cost of goods sold for the three months and nine months ended October 25,
1997, decreased $4.9 million (3.4%) and $13.6 million (3.1%), respectively,
from the corresponding periods of the prior fiscal year. The dollar decreases
in cost of goods sold principally resulted from the decrease in sales discussed
above. Cost of goods sold as a percentage of net sales for the three months and
nine months ended October 25, 1997 increased compared to that of the
corresponding periods of the prior year, principally as a result of lower gross
profit margins at the Company's traditional businesses (primarily resulting
from additional sales programs offering reduced selling prices and fewer
services). For the nine months ended October 25, 1997, such lower gross profit
margins at the Company's traditional businesses were offset in part by the
impact of the sales mix containing more ISW sales, which have higher gross
profit margins than the Company's traditional businesses. In addition, cost of
goods sold for the nine months ended October 25, 1997 includes a charge in the
amount of approximately $1.3 million which, was recorded during the three months
ended July 25, 1997, for inventory write-offs expected in connection with
facility closures. See "Business Initiatives", below. The Company expects
gross profit margins for the ISW business to continue to be somewhat higher (as
a percentage of sales) than for its traditional businesses, although no
assurance can be given in this regard. The Company also intends to continue
adding jobbers to sales programs offering reduced selling prices and fewer

                                      10
<PAGE>   11
services and, consequently, gross profit margins at its traditional businesses
could continue to decrease in future periods. In the fourth quarter of the
fiscal year ending January 25, 1997 ("Fiscal Year 1997), the Company recorded a
charge of approximately $11.8 million for an inventory loss adjustment for the
ISW business, a portion of which may be attributable to earlier quarters of
Fiscal Year 1997. As a result, cost of goods sold for the three months and nine
months ended October 25, 1997 may not be comparable to cost of goods sold for
the corresponding periods of the prior year.

         Selling, general and administrative expenses, which include
depreciation and amortization, for the three months and nine months ended
October 25, 1997 increased by $4.7 million (7.6%) and $10.3 million (5.4%),
respectively, compared to the corresponding periods of the prior year. The
dollar increases in selling, general and administrative expenses primarily
resulted from the absence in the current fiscal periods of one-time supplier
changeover incentives recognized in the three month and nine month periods ended
October 25, 1996 in the amount of approximately $5.7 million and $7.9 million,
respectively. Such one-time incentives were received in connection with the PI
Acquisition to offset the impact of one-time expenses related to the integration
of PI into the Company. In addition, selling, general and administrative
expenses for the nine months ended October 25, 1997 include a provision for
incremental bad debt in the amount of approximately $1.8 million, which was
recorded during the three months ended July 25, 1997 in connection with certain
future facility closures. See "Liquidity and Capital Resources - Business
Initiatives", below. Selling, general and administrative expenses for the three
and nine months ended October 25, 1997 as a percentage of sales also increased
over the corresponding periods of the prior year due to continuing performance
and execution issues in the ISW business (see "Business Initiatives - ISW and 
Company-owned Stores" below) in addition to the absence of the one-time 
supplier change-over incentives discussed above.

         During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance, the Company has been consolidating
redundant administrative functions and has closed certain under-performing
facilities. Upon completion, which by the end of the Fiscal Year ending January
31, 1998 ("Fiscal Year 1998") the program is expected to result in the closure
of an estimated 50 ISW units and 15 Company-owned stores. See "Business
Initiatives", below. As a result of such program, during the three months ended
July 25, 1997, the Company recorded a restructuring charge of approximately $8.7
million. Such charge consisted of approximately $2.2 million for estimated costs
to close facilities, approximately $1.4 million of employee severance benefits
related to personnel reductions of approximately 570 employees, approximately
$3.2 million for future lease and related obligations and approximately $1.9
million of asset impairments.

         Operating income for the three months and nine months ended October
25, 1997 decreased $15.8 million (113.1%) and $41.3 million (114.0%),
respectively, compared to the corresponding periods of the prior year,
primarily due to the factors discussed above.

         Other income for the three months and nine months ended October 25,
1997 was $50,000 and $150,000, respectively, compared to $1.1 million and $1.4
million, respectively, for the corresponding periods of the prior year. Other
income for the three months and nine months ended October 25, 1996 included a
gain of approximately $1.0 million from the sale of certain Company-owned
stores in Mississippi and Florida. In addition, all four periods include the
portion allocable to such periods of a $6.0 million payment received from a
supplier for entering into a ten year supply agreement in April 1993 (the
"Supply Agreement"). Such payment was deferred and is being recognized as
income on an accelerated basis over the term of the Supply Agreement; thus,
when compared to previous periods, the amount of revenue recognized from such
payment has declined.

         Interest expense for the three months and nine months ended October
25, 1997 was $8.0 million (4.0% of net sales) and $23.1 million (3.7% of net
sales), respectively, compared to $6.8 million (3.1% of net sales) and $20.5
million (3.1% of net sales), respectively, for the corresponding periods of the
prior year. The increase in interest expense was principally due to the
Company's higher average borrowings under the revolving credit facility during
the three and nine months ended October 25, 1997 and increased interest rates.
The increase in interest rates resulted in part from an increase in the margins
applicable to various types of loans under the Company's senior bank credit
agreement due to the decline of certain of the Company's financial ratios and
to a lesser extent, from an increase in the prime rate charged by the Company's
bank lenders. The extent of future increases in interest expense will depend on
a number of factors, including the magnitude of increases in borrowing levels,
changes in interest rates and the terms of any new financing agreements the
Company may enter into. See "Liquidity and Capital Resources--Credit Agreement",
below.




                                      11
<PAGE>   12

         Income taxes for the three months and nine months ended October 25,
1997 were a benefit of $3.4 million and $8.5 million, respectively, compared to
income tax expense of $3.6 million and $7.9 million, respectively, for the
corresponding periods of the prior year. The Company's combined applicable
federal and state tax rate is expected to approximate 34.8% during the fiscal
year ending January 31, 1998 ("Fiscal Year 1998"). Such combined rate differs
from the federal statutory tax rate of 35% due primarily to the Company's tax
paying status in certain states.

         Net loss for the three months and nine months ended October 25, 1997
was $5.3 million (2.6% of net sales) and $15.9 million (2.5% of net sales),
respectively, compared to net income of $6.1 million (2.8% of net sales) and
$13.4 million (2.0% of net sales), respectively, for the corresponding periods
of the prior year. The decrease in net income was primarily a result of the
factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

         Cash Flows. For the nine months ended October 25, 1997, operating
activities provided net cash of approximately $5.1 million, due primarily to
decreases in inventory resulting largely from such facility closures and working
capital initiatives. Such decreases in inventory were offset, in part, by
decreases in accounts payable resulting primarily from facility closures and the
Company's working capital initiatives as well as from payments to the Company's
suppliers pursuant to the expiration of deferred payment terms obtained in
connection with the PI Acquisition. Such deferred payment terms will require the
Company to make payments of approximately $0.8 million during the remainder of
Fiscal Year 1998 and $6.4 million and $16.8 million in the fiscal years ending
January 1999 and 2000, respectively. The decrease in accounts payable during the
nine months ended October 25, 1997 was offset in part by the additional deferral
of approximately $10.3 million of accounts payable pursuant to deferred payment
terms obtained from certain of the Company's vendors during the three months
ended October 25, 1997. Such deferred payment terms will require the Company to
make payments (in addition to those required pursuant to the deferred payment
terms obtained in connection with the PI Acquisition) of approximately $0.4
million during the remainder of Fiscal Year 1998 and approximately $9.9 million
during the fiscal year ending January 1999. Investing activities utilized
approximately $10.6 million of cash, principally consisting of capital
expenditures and investments in customer notes receivable. Financing activities
provided $20.1 million of cash, primarily from increased borrowings under the
Company's senior bank credit agreement.

         For the nine months ended October 25, 1996, operating activities
provided net cash of approximately $26.2 million, resulting primarily from the
Company's net earnings adjusted for the impact of non-cash expenses. Investing
activities utilized $11.2 million of cash, primarily resulting from the
Company's investment in business acquisitions, capital expenditures and
available for sale securities. Such investments were offset by the proceeds
from the sale of assets, including the Company's interest in the "Parts Plus"
group of marks which had been acquired by the Company in the PI acquisition.
Financing activities utilized $10.3 million of cash, principally resulting from
the repayment of debt.

         Working Capital. The Company's working capital decreased to $75.8
million at October 25, 1997, including $28.0 million in cash and cash
equivalents, from $293.6 million at January 25, 1997, including $13.4 million
of cash and cash equivalents. Such decrease in working capital is principally
due to the reclassification of the Company's outstanding debt under its senior
bank credit agreement from long-term to current liabilities as of October 25, 
1997. See "Credit Agreement" below.

         Looking forward, the Company's management is pursuing a number of
working capital management initiatives focused on seeking substantial inventory
reductions and improved liquidity. Such initiatives include (a) the return of
substantial amounts of excess and slow moving inventory to the Company's
suppliers, (b) the redistribution of excess and slow moving inventory from the
ISW division to the Company's distribution centers and Company-owned stores,
and (c) the sourcing of substantial amounts of ISW inventory from the Company's
distribution centers rather than from third party suppliers. The closure of
certain facilities will further reduce working capital requirements. See
"Business Initiatives", below. Such initiatives have resulted in inventory
reductions of approximately $18.0 million during the nine months ended October
25, 1997, primarily at the ISW division, and management currently expects
additional inventory reductions of approximately $10.0 million during the
remainder of Fiscal Year 1998. As a result of pursuing these initiatives,
management expects the Company's 



                                      12
<PAGE>   13

working capital to decrease during the remainder of Fiscal Year 1998 and future
periods, although no assurance can be given in this regard. Funds generated by
such reductions are expected to be used to reduce the Company's outstanding
indebtedness under its senior bank credit agreement.

         Credit Agreement. Concurrently with the PI Acquisition, the Company
entered into an amended and restated senior bank credit agreement (the "Credit
Agreement") with a syndicate of bank lenders led by The Chase Manhattan Bank,
formerly known as Chemical Bank (the "Senior Lenders"). As of October 25, 1997,
the Company had aggregate borrowings under the Credit Agreement of $241.1
million, consisting of $200.3 million and $40.8 million in borrowings
outstanding under the revolving credit facility and term loan facility,
respectively, and approximately $4.1 million in outstanding letters of credit
under the Credit Agreement. Amounts outstanding under the revolving credit
facility mature on December 31, 2000, and installments of principal under the
term loan facility are required to be repaid on March 31, June 30, September 30
and December 31 of each year, with a final maturity on December 31, 1999.
Undrawn amounts under the revolving credit facility, net of the aggregate face
amount of letters of credit outstanding under the Credit Agreement, may be used
for working capital and other business needs, subject to compliance with a
borrowing base requirement and other customary borrowing conditions. Borrowing
availability under the Credit Agreement at October 25, 1997, after taking into
account borrowing base restrictions, outstanding letters of credit and the
waiver described in the following paragraph, was approximately $200,000,
however, the Company had cash on hand of approximately $23.1 million as of
October 25, 1997. Borrowings under the Credit Agreement bear interest at
variable rates based in part upon the Company attaining certain financial
ratios. Such rates are currently at the maximum levels provided for under the
interest rate pricing structure, as a result of the Company's current financial
ratios. The weighted average interest rate borne by the loans under the Credit
Agreement was 8.35% as of October 25, 1997. The obligations of A.P.S., Inc., APS
Holding Corporation's wholly owned subsidiary, under the Credit Agreement are
guaranteed by APS Holding Corporation and each of A.P.S., Inc.'s wholly owned
subsidiaries, and are secured by pledges of the capital stock of A.P.S., Inc.
and such subsidiaries, by security interests in substantially all of the
Company's personal property and by mortgages on certain of its owned real
property.

         Effective as of October 24, 1997, the Company obtained a waiver of its
Consolidated Leverage Ratio, Fixed Charge Coverage Ratio and Minimum Net Worth
covenant requirements (the "Financial Covenants") under the Credit Agreement.
Such waiver will be effective until December 31, 1997. Pursuant to such waiver,
aggregate borrowings under the revolving credit facility of the Credit Agreement
were limited to $204.7 million until December 31, 1997. The Company has been
discussing with the Senior Lenders and other lenders a possible new financing
(the "Proposed Financing"). Effective as of December 8, 1997, the Senior Lenders
have agreed, during the period from December 31, 1997 to the earliest of (i)
February 10, 1998, (ii) the date on which a default or event of default under
the Credit Agreement (other than as a result of the Company's failure to comply
with the Financial Covenants at October 25, 1997 or January 31, 1998) occurs and
(iii) the effective date of the Proposed Financing, to allow the Company to
continue to borrow under the Credit Agreement (notwithstanding the expiration
after December 31, 1997 of the waiver of the Financial Covenants) and to
forebear from exercising any of their rights or remedies against the Company
under the Credit Agreement and related documents as a result of the Company's
failure to comply with the Financial Covenants at October 25, 1997 or January
31, 1998. The $204.7 million borrowing limit under the revolving credit
facility will continue to be in effect during this period. The Senior Lenders
have expressly reserved their right to exercise any rights or remedies they may
have against any other person or entity under any other document or instrument.
If the Company does not obtain the Proposed Financing or otherwise obtain an
amendment to the Credit Agreement to cure its failure to comply with the
Financial Covenants prior to February 10, 1998, at any time thereafter the
Senior Lenders could accelerate the maturity of the outstanding loans under the
Credit Agreement. Accordingly, the entire amount outstanding under the Credit
Agreement has been classified as a current liability at October 25, 1997.

         Interest Rate Swap Agreements. The Company entered into an interest
rate swap agreement to hedge interest costs and risks associated with variable
interest rates. Such agreement, which covers a portion of the borrowings under
the Credit Agreement, effectively converts variable-rate debt to fixed-rate
debt with an effective per annum interest rate of approximately 5.8%. The
notional principal amount of this agreement is $25 million, which matures in
January 1998. The counterparty to such agreement is a major financial
institution and, therefore, credit losses from counterparty nonperformance are
not anticipated.

         Capital Expenditures and Acquisitions. Capital expenditures, excluding
new business acquisitions, for the nine months ended October 25, 1997 and 1996
were approximately $7.2 and $7.7 million, respectively. The Company estimates
capital expenditures for the remainder of the Fiscal Year 1998 will be
approximately $2.8 million, primarily as a result of management information
system enhancements. In addition, the Company is 



                                      13
<PAGE>   14
preparing a plan of action to modify its internally developed software over the
next two years to accommodate the "Year 2000" dating changes necessary to permit
correct recording of year dates for 2000 and later years. The Company currently
expects to incur approximately $7.0 million of costs to develop and implement
such plan, which costs will be expensed as incurred. The actual amount of such
costs could vary materially from such estimate. The Company expects that such
costs will be financed through cash flows from operations and additional
borrowings. See "Sources of Liquidity" below. If the Company or any of its
significant suppliers or customers does not successfully and timely complete
such changes, the Company's business could be materially affected.

         For the nine months ended October 25, 1997, the Company's cash
expenditures for business acquisitions totaled approximately $2.2 million. The
Company expects to continue to make occasional strategic acquisitions from time
to time (although it does not currently intend to make any significant
acquisitions) for cash and other consideration to the extent that its debt
service requirements, financing agreement covenants, financial performance and
funding availability permit. To meet the cash funding requirements for any such
business acquisition efforts, the Company expects to draw on internally
generated funds, borrowings under the Credit Agreement and other sources of
liquidity, to the extent available, as discussed below. See "Business
Initiatives", below.

         Sources of Liquidity. Over the last four fiscal years, the Company
pursued aggressive acquisition and ISW expansion programs, resulting in
increased funding requirements. The principal sources of liquidity for the
Company's operating requirements and business expansion have been internally
generated funds from the operation of its traditional businesses, borrowings
under the Credit Agreement and the proceeds from the 1996 issuance of the
Company's 11.875% senior subordinated notes due 2006. The Company expects that
the principal sources of liquidity for its future operating requirements will be
cash flows from operations, ongoing working capital management initiatives (see
"Working Capital", above), revolving credit borrowings under the Credit
Agreement and the Proposed Financing. The Company will be required to obtain the
Proposed Financing in order to continue to fully meet its ongoing liquidity
needs. There can be no assurance, however, that the Company will obtain the
Proposed Financing. In addition, the Company currently does not expect to
generate cash flow sufficient to fund the repayment of borrowings due under the
revolving credit facility of the Credit Agreement upon its maturity on December
31, 2000 and, accordingly, expects that it will seek to refinance such amounts
prior to such maturity. No assurance can be given that such refinancing can be
successfully accomplished.

BUSINESS INITIATIVES

         As indicated above, the Company has pursued aggressive acquisition and
ISW expansion programs over the last four years, since its initial public
offering in 1993. Such programs and, particularly with regard to Fiscal Year
1997, integrating PI into the Company's business have consumed significant
financial and operating resources and demanded extensive managerial focus and
attention. The Company has re-focused its efforts and resources from such
aggressive growth programs to improving both the execution of its business
strategy and its management information systems. In conjunction with such
efforts, the Company has commenced implementation of a comprehensive
restructuring program focused on the goals of reducing costs, improving cash
flow and achieving profitability. Such program includes the consolidation of its
ISW and Company-owned store operations, other operational changes in the ISW
business, the closure of approximately 100 Company-owned stores and ISW units,
implementation of Company-wide cost control and cost reduction programs
(including field and corporate level staff reductions) and implementation of new
management information systems pursuant to a multi-year plan developed with
outside consultants. During the quarter ended July 25, 1997, the Company
recognized a charge of approximately $8.7 million for restructuring costs
associated with such program. Additionally, charges for inventory write-offs and
incremental bad debt expense of $1.3 million and $1.8 million, respectively,
were recorded during such quarter to cost of goods sold and selling, general
and administrative expenses, respectively, in connection with facility closures
designated in such program.

ISW and Company-owned Stores

         To date, operating margins for the ISW division have been below those
of the Company's traditional businesses and, thus far, the ISW division has
generally experienced operating losses. The Company's management currently
believes that the earnings and cash flow pressures historically experienced due
to the ISW business should decrease in future periods due primarily to the
restructuring program discussed above and other initiatives undertaken in prior
periods. During Fiscal Year 1998, the Company has shifted its focus from
aggressive growth of the ISW business to refining and improving both the
execution of this division's business strategy and its systems. To that end,
the Company has significantly reconfigured its ISW business as part of the
comprehensive restructuring program discussed above. During the quarter ended
October 25, 1997, the Company consolidated the operations, 



                                      14
<PAGE>   15

management and sales forces of the ISW and Company-owned store divisions. The
Company has also begun to broaden the product offerings at the ISW units and to
supply such units from the Company's distribution centers as it has
traditionally done for its Company-owned stores. Such consolidation of the
Company-owned store and ISW operations and other operational changes in the ISW
business are expected to reduce both inventory and selling, general and
administrative expenses. Further, management has implemented certain inventory
reduction initiatives that are expected to reduce the Company's inventory
approximately $10.0 million during the remainder of Fiscal Year 1998, primarily
at the ISW business. See "Liquidity and Capital Resources - Working Capital",
above.

         In addition, the Company conducted a comprehensive review of its ISW
units, resulting in the planned closure of 50 under-performing units in Fiscal
Year 1998, all of which were closed as of October 25, 1997. In addition, 4 ISW
locations were sold during the quarter ended October 25, 1997. Such closures are
in addition to the 15 under-performing units closed in the quarter ended April
25, 1997 in connection with a performance review performed in Fiscal Year 1997.
As a result of such closures and sales, offset by the opening of 11 new ISWs,
the total number of ISW locations decreased from 272 to 214 during the nine
months ended October 25, 1997. The Company has also closed 29 Company-owned
stores during the nine months ended October 25, 1997 and currently intends to
close approximately six additional such stores during the remainder of Fiscal
Year 1998 in connection with performance reviews conducted in Fiscal Year 1997
and Fiscal Year 1998. Such closures of under-performing Company-owned stores and
ISW units are expected to allow management to focus its efforts and resources on
the Company's more productive units.

         The Company's initiatives to improve its business systems and controls
include the development of a Centralized Management System (CMS) for the ISW
business, as well as for the Company's traditional businesses, with a particular
focus on inventory and expense controls and working capital management. The
Company began implementation of such system during the third quarter of Fiscal
Year 1998 and expects complete implementation in phases through the fourth
quarter of Fiscal Year 1999. In addition, the Company implemented a new Oracle
based accounts receivable system early in the fourth quarter of Fiscal Year 1998
for the ISW business. Such system will facilitate collection of accounts
receivable and improve working capital management in the ISW business. The
Company expects that such system will be installed for the Company's traditional
businesses during Fiscal Years 1999 and 2000. 

Other Business Initiatives

         As part of the restructuring program discussed above, the Company has
implemented company-wide cost controls and has taken steps to significantly
reduce selling, general and administrative expenses through field and corporate
level staff reductions. In April 1997, the Company commenced the consolidation
of its Columbus, Ohio distribution center into its Gallipolis, Ohio
distribution center. Such consolidation is expected to eliminate certain
redundant operations and improve operating efficiency. In addition, the
Company's efforts to improve its operating systems, including the completion of
the implementation of the new Oracle based accounts receivable and the CMS
systems, as discussed above, are expected to improve inventory and expense
control and working capital management at the Company's traditional businesses
as well as the ISW business.


SEASONALITY; INFLATION

         Historically, the Company's net sales have been higher during April
through September of each year than during the other months of the year. In
addition, the demand for automotive products is somewhat affected by weather
conditions and, consequently, the Company's results of operations from period
to period may be affected by such conditions. Temperature extremes tend to
enhance sales by causing a higher incidence of parts failure and increasing
sales of seasonal products, while milder weather tends to depress sales. The
Company's management does not believe that its operations have been materially
affected by inflation. In general, the Company has been able to pass on to its
customers any increases in the cost of its inventory.


                                      15
<PAGE>   16

NEW ACCOUNTING STANDARDS

         The FASB issued Statement of Financial Accounting Standards No. 128,
entitled "Earnings per Share" ("SFAS No. 128"), in February 1997. SFAS No. 128
requires standards to replace the presentation of primary earnings per share
("EPS") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures. The Company is required to adopt the computation,
presentation and disclosure requirements of SFAS No. 128 for the fiscal year
ending January 31, 1998. The Company's basic loss per share and diluted loss
per share under SFAS No. 128 would have each been $ .38 for the three months
and $1.15 for the nine months ended October 25, 1997.

         The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards
for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.



FORWARD LOOKING STATEMENTS

         The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") that are not historical facts are forward-looking
statements that involve a number of risks and uncertainties. These
forward-looking statements include, without limitation, the statements as to
management's or the Company's expectations or beliefs found under the captions
"Results of Operations," "Liquidity and Capital Resources" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The actual results of the future events
described in such forward-looking statements in this Quarterly Report could
differ materially from those contemplated by such forward-looking statements.
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this Quarterly Report (including, without limitation, those discussed under the
captions "Liquidity and Capital Resources--Sources of Liquidity" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations") or in other Securities and Exchange
Commission filings of the Company, could affect (and in some cases have
affected) the Company's actual results and could cause such results to differ
materially from estimates or expectations reflected in such forward-looking
statements made by, or on behalf of, the Company.


-    The Company is highly leveraged, with substantial existing indebtedness,
     and consequently is subject to significant principal and interest payment
     obligations. If the Company obtains the Proposed Financing, the Company
     will become further leveraged. The Company's ability to make scheduled
     payments of principal or interest on, or to refinance, its indebtedness
     will depend on its future operating performance and cash flow, which are
     subject to prevailing economic conditions, prevailing interest rate levels,
     and financial, competitive, business and other factors beyond its control.
     The degree to which the Company is leveraged could have important
     consequences, including (i) the Company's future ability to obtain
     additional financing for working capital or other purposes may be limited;
     (ii) a substantial portion of the Company's cash flow from operations will
     be dedicated to the payment of principal and interest on its indebtedness,
     thereby reducing funds available for operation; (iii) certain of the
     Company's borrowings are at variable rates of interest, which could cause
     the Company to be vulnerable to increases in interest rates; and (iv) the
     Company may be more vulnerable to economic downturns and may be limited in
     its ability to respond to competitive pressures.

-    If the Company cannot generate sufficient cash flow from operations to
     meet its regularly scheduled debt service obligations, the Company might
     be required to refinance its debt or to dispose of assets to obtain funds
     for such purpose. There is no assurance that such refinancings or asset
     dispositions could be effected on satisfactory terms or would be permitted
     by the terms of the agreements or instruments covering the Company's
     indebtedness.



                                      16
<PAGE>   17
-    The Credit Agreement and the indenture governing the Company's 11.875%
     senior subordinated notes due 2006 (the "Indenture") contain numerous
     operating covenants that limit the discretion of the Company's management
     with respect to certain business matters. These covenants place significant
     restrictions on, among other things, the ability of the Company to incur
     additional indebtedness, to create liens or other encumbrances, to make
     certain dividends and other payments, to make certain investments, loans
     and guarantees, or to sell or otherwise dispose of assets or merge or
     consolidate with another entity. The Credit Agreement also contains the 
     Financial Covenants which require the Company to meet certain financial
     ratios and tests, including maintenance of net worth, a consolidated fixed
     charge to interest expense ratio and a consolidated leverage ratio. The
     Company has obtained certain waivers and amendments of and agreement to
     forebear, until February 10, 1998 or the occurence of certain events,
     with respect to the Financial Covenants in part as a result of its recent
     financial performance. There can be no assurance that, the Senior Lenders
     will agree to permanent amendment of the Financial Covenants.

-    Failure to comply with the Company's payment, covenant or other
     obligations under the Credit Agreement or the Indenture could result in a
     default thereunder that, if not cured or waived, could result in
     acceleration of the relevant indebtedness or of other indebtedness
     governed by agreements or instruments containing cross-acceleration or
     cross-default provisions.

-    The Company operates in a highly competitive environment. It competes
     directly and indirectly with numerous distributors, retailers and
     manufacturers of automotive aftermarket products, some of which distribute
     in channels that may be expanding in terms of market share relative to the
     channels in which the Company distributes its products. In addition, some
     of the Company's current and potential competitors are larger, may have
     greater financial resources and may be less leveraged than the Company.
     Furthermore, particularly in light of the trend in the automotive parts
     industry toward increasing consolidation at the warehouse and jobber
     levels, the Company's financial performance may be significantly affected
     by the Company's ability to compete successfully for associated jobber
     customers, and otherwise take advantage of consolidation opportunities and
     other industry trends.

-    The demand for automotive products is affected by a number of factors
     beyond the Company's control, including economic conditions, vehicle
     quality and maintenance, vehicle scrappage rates and weather conditions.
     Weather conditions cause seasonal variations in the Company's results of
     operations, and the occurrence of extreme weather or mild weather may
     result in significant fluctuations in such results. Temperature extremes
     tend to enhance sales by causing a higher incidence of parts failure and
     increasing sales of seasonal products, while milder weather tends to
     depress sales. In addition, in recent years there have been, and in the
     future there are likely to continue to be, significant improvements in the
     quality of new vehicles and vehicle parts and extensions of manufacturers'
     warranties that may reduce demand for the Company's products.

While the Company periodically reassesses the material trends and uncertainties
affecting its operations and financial condition in connection with its
preparation of management's discussion and analysis of results of operations
and financial condition contained in its quarterly and annual reports, the
Company does not intend to review or revise any particular forward-looking
statement referenced in this report in light of future events.


                                      17


<PAGE>   18





                          PART II - OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>

A.  EXHIBITS
                                                                                          LOCATION OF EXHIBIT
EXHIBIT                                                                                     IN SEQUENTIAL
NUMBER                              DESCRIPTION OF DOCUMENT                                NUMBERING SYSTEM
-----                               -----------------------                                ----------------

<C>                   <C>                                                                  <C>
10.1.25               Fifth Amendment and waiver, dated as of October 24, 1997, 
                      to the Amended and Restated Credit Agreement dated as of 
                      January 25, 1996 (the "Credit Agreement"), among A.P.S., 
                      Inc., the several banks and other financial institutions 
                      from time to time parties thereto and The Chase Manhattan 
                      Bank, as agent.

10.1.26               Sixth Amendment, Waiver and Agreement, dated as of December
                      8, 1997, to the Credit Agreement.

10.1.27               Security Agreement, dated as of December 8, 1997, made by
                      APS Holding Corporation in favor of The Chase Manhattan
                      Bank, as agent.

10.1.28               Pledge Agreement, dated as of December 8, 1997, made by
                      American Parts Systems, Inc. in favor of The Chase
                      Manhattan Bank, as agent.

10.1.29               Supplement, dated as of December 8, 1997, to the Trademark
                      Security Agreement, dated as of May 15, 1996, made by
                      A.P.S. Management Services, inc. in favor of The Chase
                      Manhattan Bank, as agent.

11.1                  Statement re Computation of Income (Loss) Per Share

12.0                  Statement re Computation of Earnings (Loss) to Fixed Charges

27                    Financial Data Schedule

</TABLE>



B.  REPORTS ON FORM 8-K

              None




                                      18



<PAGE>   19

                                   SIGNATURES

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.


                                                APS HOLDING CORPORATION



Date:     December 9, 1997         By:    /S/ Hubbard C. Howe
                                        ---------------------------------------
                                         Hubbard C. Howe, Chairman of the Board
                                         and Chief Executive Officer


Date:     December 9, 1997         By:    /S/ John L. Hendrix
                                        ---------------------------------------
                                         John L. Hendrix, Senior Vice President
                                         and Chief Financial Officer










                                      19

<PAGE>   20




                               INDEX TO EXHIBITS



<TABLE>
<CAPTION>                                                                                   
EXHIBIT                                                                        
NUMBER                              DESCRIPTION OF DOCUMENT                
-------                             ----------------------- 
<S>                   <C>                                                                
10.1.25               Fifth Amendment and waiver, dated as of October 24, 1997, 
                      to the Amended and Restated Credit Agreement dated as of 
                      January 25, 1996 (the "Credit Agreement"), among A.P.S., 
                      Inc., the several banks and other financial institutions 
                      from time to time parties thereto and The Chase Manhattan 
                      Bank, as agent.

10.1.26               Sixth Amendment, Waiver and Agreement, dated as of December
                      8, 1997, to the Credit Agreement.

10.1.27               Security Agreement, dated as of December 8, 1997, made by
                      APS Holding Corporation in favor of The Chase Manhattan
                      Bank, as agent.

10.1.28               Pledge Agreement, dated as of December 8, 1997, made by
                      American Parts Systems, Inc. in favor of The Chase
                      Manhattan Bank, as agent.

10.1.29               Supplement, dated as of December 8, 1997, to the Trademark
                      Security Agreement, dated as of May 15, 1996, made by
                      A.P.S. Management Services, inc. in favor of The Chase
                      Manhattan Bank, as agent.

11.1                  Statement re Computation of Income (Loss) Per Share

12.0                  Statement re Computation of Earnings (Loss) to Fixed Charges

27                    Financial Data Schedule

</TABLE>


